<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 75-2683929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 NORTH PEARL STREET MICHAEL N. MABERRY
SUITE 2400 C/O AMRESCO COMMERCIAL MORTGAGE FUNDING I
L.B. NO. 342 CORPORATION
DALLAS, TEXAS 75201 700 NORTH PEARL STREET
(214) 953-7700 SUITE 2400, L.B. NO. 342
(Address, including zip code, and telephone DALLAS, TEXAS 75201
number, (214) 953-7700
including area code, of registrant's (Name, address, including zip code, and
principal executive offices) telephone number,
including area code, of agent for service
with respect to the Registrant)
</TABLE>
---------------------
Copies to:
DAVID BARBOUR
ANDREWS & KURTH L.L.P.
4400 THANKSGIVING TOWER
DALLAS, TEXAS 75201
(214) 979-4400
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined by
market conditions and pursuant to Rule 415.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the Prospectus Supplement is expected to be made pursuant to
Rule 434, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
PROPOSED TITLE OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
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Mortgage Pass-Through
Certificates.................... $1,000,000 100% $1,000,000 $303.03
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED JANUARY 10, 1997
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 199 )
$
(APPROXIMATELY)
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199 -
The Series 199 - Mortgage Pass-Through Certificates (the "CERTIFICATES")
will include the following classes of Certificates, designated as the Class A1,
Class A1X, Class A2, Class A2X, Class B, Class C, Class BCX, Class D and Class E
Certificates (the "OFFERED CERTIFICATES"). In addition to the Offered
Certificates, the Certificates will also include the Class F, Class G, Class NR,
Class R-I, Class R-II and Class R-III Certificates. Only the Offered
Certificates are offered hereby.
---------------------
(cover continued on next page)
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL
SERVICER, THE PRIMARY SERVICERS, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, THE
MASTER SERVICER, THE SPECIAL SERVICER,
THE PRIMARY SERVICERS, AMRESCO, INC.,
THE TRUSTEE, THE UNDERWRITER OR ANY
OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE S-12 HEREIN AND PAGE 13 IN THE
PROSPECTUS BEFORE PURCHASING ANY OFFERED CERTIFICATES.
---------------------
<TABLE>
<CAPTION>
INITIAL CLASS BALANCE(1) PASS-THROUGH RATE(2)
------------------------ -----------------------------------------
<S> <C> <C>
Class A1...................................... $ %
Class A1X..................................... $ Weighted Average Pass-Through Rate(3)
Class A2...................................... $ %
Class A2X..................................... $ Weighted Average Pass-Through Rate(3)
Class B....................................... $ Weighted Average Pass-Through Rate
Class C....................................... $ Weighted Average Pass-Through Rate
Class BCX..................................... $ (3)(4)
Class D....................................... $ Weighted Average Pass-Through Rate
Class E....................................... $ Weighted Average Pass-Through Rate
</TABLE>
- ---------------
(1) Subject to a permitted variance of plus or minus 0.1%.
(2) In addition to distributions of interest and/or principal, holders of the
Certificates will be entitled to receive a portion of any Prepayment
Premiums as described herein.
(3) Based on the related Notional Amount as described herein.
(4) Calculated based on the Pass-Through Rates of two components. The
Pass-Through Rate on the Class BCX component B (as defined herein) is %
and on the Class BCX component C (as defined herein) is %.
---------------------
The Offered Certificates will be purchased from the Depositor by Goldman,
Sachs & Co. (the "UNDERWRITER") and will be offered by the Underwriter from time
to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Offered Certificates, before deducting expenses payable by the Depositor
estimated to be approximately $ , will be % of the initial
aggregate principal balance of the Offered Certificates as of ,
199 (the "CUT-OFF DATE"), plus accrued interest from the Cut-off Date. The
Offered Certificates are offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to certain
other conditions. It is expected that the Offered Certificates will be delivered
in book-entry form through the Same-Day Funds Settlement System of DTC on or
about , 199 (the "DELIVERY DATE"), against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
The date of this Prospectus Supplement is , 199
<PAGE> 3
(continued from previous page)
The Certificates will represent in the aggregate the entire beneficial
interest in a trust fund (the "TRUST FUND") to be established by AMRESCO
Commercial Mortgage Funding I Corporation (the "DEPOSITOR"). The Trust Fund
will consist primarily of a pool (the "MORTGAGE POOL") of fixed rate mortgage
loans with original terms to maturity of not more than 300 months (such
mortgage loans are referred to collectively herein as the "MORTGAGE LOANS"),
secured by first liens on fee simple or leasehold interests in multifamily,
retail, hotel, office, industrial, and other commercial properties. The
Mortgage Loans were originated by several institutions identified herein
(collectively, the "ORIGINATORS"), acquired by an affiliate of the Depositor
and will be sold to the Depositor on or prior to the date of initial issuance
of the Certificates.
Distributions on the Certificates will be made, to the extent of
available funds, on the 25th day of each month or, if any such day is not a
business day, on the next succeeding business day, beginning in ___________
199___ (each, a "DISTRIBUTION DATE"). As more fully described herein,
distributions allocable to interest, if any, on the Offered Certificates on
each Distribution Date will be based on the then applicable pass-through rate
(the "PASS-THROUGH RATE") and the aggregate principal balance (the "CLASS
BALANCE") (or the related notional balance (the "NOTIONAL AMOUNT") in the case
of the Class A1X and Class A2X Certificates and each component of the Class BCX
Certificates (each such class, the "INTEREST ONLY CERTIFICATES")) of such class
or component outstanding immediately prior to such Distribution Date. The
Pass-Through Rates applicable to the Class A1 and Class A2 Certificates and for
each component of the Class BCX Certificates will be as set forth above. The
Pass-Through Rates for the Class A1X, Class A2X, Class B, Class C, Class D and
Class E Certificates will be variable and will be calculated as set forth
herein. Distributions in respect of principal, if any, of the Certificates will
be made as described herein under "Description of the Certificates --
Distributions" and "--Priority of Distributions".
The Class A1, Class A2, Class A1X and Class A2X Certificates will
evidence approximately an initial ___% undivided interest in the Trust Fund.
The Class B and Class BCX component B (as defined herein) will evidence
approximately an initial ___% undivided interest in the Trust Fund. The Class C
and Class BCX component C (as defined herein) will evidence approximately an
initial ___% undivided interest in the Trust Fund. The Class D Certificates
will evidence approximately an initial ___% undivided interest in the Trust
Fund. The Class E Certificates will evidence approximately an initial ___%
undivided interest in the Trust Fund.
It is a condition of the issuance of the Class A1 and Class A2
Certificates that they be rated "____" by Fitch Investors Service, L.P.
("FITCH") and Standard & Poor's Ratings Services ("STANDARD & POOR'S"). It is a
condition of the issuance of the Class A1X and Class A2X Certificates that they
be rated "___" by Fitch and "____" by Standard & Poor's. It is a condition of
the issuance of the Class B Certificates that they be rated not lower than
"___" by Fitch and Standard & Poor's. It is a condition of the issuance of the
Class C Certificates that they be rated not lower than "___" by Standard &
Poor's and "__" by Fitch. It is a condition of the issuance of the Class BCX
Certificates that they be rated not lower than "___" by Fitch. It is a
condition of the issuance of the Class D Certificates that they be rated not
lower than "___" by Fitch and Standard & Poor's. It is a condition of the
issuance of the Class E Certificates that they be rated not lower than "____"
by Fitch and Standard & Poor's. The ratings by Fitch on the Interest Only
Certificates do not address any prepayment or loss scenarios with respect to
the Mortgage Loans or the likelihood of receipt of Prepayment Premiums. See
"Rating" herein.
AMRESCO Management, Inc. will act as master servicer (in such
capacity, the "MASTER SERVICER") and as special servicer (in such capacity, the
"SPECIAL SERVICER") of the Mortgage Loans. The obligations of the Master
Servicer and the Special Servicer with respect to the Certificates will be
limited to their contractual servicing obligations and the obligation under
certain circumstances to make P&I Advances (as defined herein) to the
Certificateholders. See "Servicing." It is possible that the Special Servicer
or one or more of its affiliates may purchase a portion of the Class NR
Certificates.
(continued on following page)
<PAGE> 4
(continued from previous page)
As described herein, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made in connection with the Trust Fund for
federal income tax purposes. The Certificates, other than the Class R-I, Class
R- II and Class R-III Certificates, will constitute "regular interests" in the
related REMIC and the Class R-I, Class R-II and Class R-III Certificates will
constitute the sole class of "residual interest" in the related REMIC. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus.
The Offered Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), as further described herein. The interests of beneficial
owners of the Offered Certificates will be represented by book entries on the
records of participating members of DTC. Definitive certificates will be
available for the Offered Certificates only under the limited circumstances
described herein. See "Description of the Certificates -- Book-Entry
Registration of the Offered Certificates" herein.
THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON THE
RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS. THE YIELD TO MATURITY ON EACH CLASS OF
OFFERED CERTIFICATES WILL BE SENSITIVE TO LOSSES DUE TO DEFAULTS ON THE
MORTGAGE LOANS (AND THE TIMING THEREOF), TO THE EXTENT THAT SUCH LOSSES ARE NOT
COVERED BY ANY CLASS OF CERTIFICATES HAVING A LOWER PAYMENT PRIORITY, AS
DESCRIBED HEREIN. THE YIELD TO INVESTORS ON THE INTEREST ONLY CERTIFICATES WILL
BE SENSITIVE TO THE RATE AND TIMING OF PREPAYMENTS, DEFAULTS AND LIQUIDATIONS
ON THE MORTGAGE LOANS. THE RATES OF PREPAYMENT, DEFAULTS AND LIQUIDATIONS ON
THE MORTGAGE LOANS MAY FLUCTUATE SIGNIFICANTLY OVER TIME. AN EXTREMELY RAPID
RATE OF PREPAYMENT, DEFAULTS AND LIQUIDATIONS ON THE MORTGAGE LOANS COULD
RESULT IN THE FAILURE OF INVESTORS IN THE INTEREST ONLY CERTIFICATES TO RECOVER
THEIR INITIAL INVESTMENTS. SEE "SUMMARY -- SPECIAL PRINCIPAL PAYMENT
CONSIDERATIONS" AND "--SPECIAL YIELD CONSIDERATIONS", AND "CERTAIN PREPAYMENT,
MATURITY AND YIELD CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE
PROSPECTUS.
See "Index of Principal Definitions" in the Prospectus for the
location of meanings of capitalized terms used but not defined herein. See
"Index of Principal Definitions" herein for location of meanings of other
capitalized terms used herein.
There is currently no secondary market for the Offered Certificates.
The Underwriter currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so. There can be no assurance that
such a market will develop or, if it does develop, that it will continue. See
"Method of Distribution" herein.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, DATED _____________, 1997 AND ATTACHED HERETO. PURCHASERS
ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL.
SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL _________________________, 199___, ALL DEALERS EFFECTING
TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-iii-
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
DESCRIPTION OF THE MORTGAGE POOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Certain Characteristics of the Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Related Borrowers and Other Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Escrows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Underwriting Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Book-Entry Registration of the Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
Priority of Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
Other Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Weighted Average Life of the Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Interest Only Certificates Yield Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Class C, Class BCX, Class D and Class E Yield Considerations . . . . . . . . . . . . . . . . . . . . . . . S-48
SERVICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48
Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48
Responsibilities of Master Servicer and Primary Servicer . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Responsibilities of Special Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Extension Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Servicing and Other Compensation and Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Assignment of the Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Collection Accounts and Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Reports to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
</TABLE>
-iv-
<PAGE> 6
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
METHOD OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
</TABLE>
-v-
<PAGE> 7
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary are
defined elsewhere in this Prospectus Supplement or in the Prospectus. See
"Index of Principal Definitions" herein and in the Prospectus.
Title of Certificates . . . Mortgage Pass-Through Certificates, Series
199___-____ (the "CERTIFICATES").
Depositor . . . . . . . . . AMRESCO Commercial Mortgage Funding I
Corporation, a Delaware corporation (the
"DEPOSITOR"), an indirect wholly-owned
limited purpose finance subsidiary of
AMRESCO, Inc. See "The Depositor" in the
Prospectus.
Originators . . . . . . . . _____%, _____%, _____%, _____% and _____% of
the Mortgage Loans by outstanding principal
balance as of the Cut-off Date (as defined
herein) were originated, respectively, by:
AMRESCO Capital Corporation, a Texas
corporation ("ACC"); ____________________, a
_______________; _________________, a
____________________;
_______________________, a _____________, and
_____________________, a
____________________.
Master Servicer . . . . . . AMRESCO Management, Inc., a Texas corporation
("AMI"). See "Servicing -- Servicers" and
"Servicing -- Responsibilities of Master
Servicer and Primary Servicer" herein.
Primary Servicers . . . . . The Primary Servicers are AMI, with respect
to each Mortgage Loan originated by its
affiliate, AMRESCO Capital Corporation,
____________________ with respect to all of
the Mortgage Loans originated by
_______________________, and
______________________ with respect to all
other Mortgage Loans. See "Servicing --
Servicers" and "Servicing -- Responsibilities
of Master Servicer and Primary Servicer"
herein.
Special Servicer . . . . . AMI, the Master Servicer and one of the
Primary Servicers, will be the Special
Servicer with respect to all the Mortgage
Loans.
Trustee . . . . . . . . . . ______________________________, a
___________________ banking corporation.
Custodian . . . . . . . . . _______________________________, a
_____________ banking corporation, in its
capacity as custodian for the Trustee (the
"CUSTODIAN").
Cut-off Date . . . . . . . _________________ 1, 199___.
Delivery Date . . . . . . . On or about _________________, 199____.
Distribution Dates . . . . Distributions on the Certificates will be
made by the Trustee, to the extent of
available funds, on the [25th] day of each
month or, if any such [25th] day is not a
business day, on the next succeeding business
day, beginning in ________ 199__ (each, a
"DISTRIBUTION DATE"), to the holders of
record as of the close of business on the
[last business day of the month preceding the
month] of each such distribution (each, a
"RECORD DATE"). Notwithstanding the above,
the final distribution on any Certificate
will be made after due notice by the Trustee
of the pendency of such distribution and only
upon presentation and surrender of such
Certificates at the location to be specified
in such notice.
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<PAGE> 8
Rated Final Distribution
Date . . . . . . . . . . . ________________, 20___, which is the second
anniversary of the date at which all the
Mortgage Loans have zero balances, assuming
no prepayments and that the Mortgage Loans
which are Balloon Mortgage Loans fully
amortize according to their amortization
schedule and no Balloon Payment is made.
Registration of the Offered
Certificates . . . . . . . The Offered Certificates (the "DTC REGISTERED
CERTIFICATES") will be represented by one or
more global certificates registered in the
name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"). No person
acquiring an interest in the DTC Registered
Certificates (any such person, a "BENEFICIAL
OWNER") will be entitled to receive a
Certificate of such class in fully
registered, certificated form (a "DEFINITIVE
CERTIFICATE"), except under the limited
circumstances described in the Prospectus
under "Description of the Certificates --
Book-Entry Registration and Definitive
Certificates". Instead, DTC will effect
payments and transfers in respect of the DTC
Registered Certificates by means of its
electronic record keeping services, acting
through certain participating organizations
("PARTICIPANTS"). This may result in certain
delays in receipt of payments by an investor
and may restrict an investor's ability to
pledge its securities. Unless and until
Definitive Certificates are issued, the
rights of Beneficial Owners may only be
exercised through DTC and its Participants
and will be subject to procedures established
thereby, except as otherwise specified
herein. See "Description of the Certificates
-- General" herein and "Description of the
Certificates -- Book-Entry Registration and
Definitive Certificates" in the Prospectus.
Denominations . . . . . . The DTC Registered Certificates will be
issuable on the book-entry records of DTC and
its Participants in denominations of (except
in the case of the Interest Only
Certificates) $___________________ and
integral multiples of $______ in excess
thereof. The Interest Only Certificates will
be issuable in denominations of $_________
Notional Amount and integral multiples of
$_____ Notional Amount.
The Mortgage Pool . . . . The Trust Fund will consist of a pool (the
"MORTGAGE POOL") of ______ [fixed rate]
[floating rate] [partially fixed rate and
partially floating rate] mortgage loans (the
"MORTGAGE LOANS") secured by first liens on
fee simple or leasehold interests in
multifamily, retail, hotel, nursing home,
office, industrial, and other commercial
properties (the "MORTGAGED PROPERTIES")
located in ____ states. See "Risk Factors --
Ground Leases and Other Leasehold Interests"
herein. The Mortgage Loans were originated
for sale to AMRESCO Commercial Mortgage
Funding, L.P. ("ALP") and were underwritten
generally in conformity with certain
guidelines established by ACC and approved by
ALP. See "Description of the Mortgage Pool --
General" herein. The Mortgage Loans will be
acquired by ACC from ALP and then by the
Depositor from ACC on or before the Delivery
Date. See "Description of the Mortgage Pool
-- Underwriting Guidelines" herein. The
Mortgage Loans will have an aggregate
principal balance as of the Cut-off Date of
approximately $_______________ and individual
principal balances as of the Cut-off Date of
at least $______________ but not more than
$______________ with an average principal
balance of approximately $______________. The
Mortgage Loans will have terms to maturity
from the Cut-off Date of not more than _____
months, and a weighted average remaining term
to maturity of approximately _____ months as
of the Cut-off Date. The Mortgage Loans will
bear interest at Mortgage Interest Rates of
at least ________% per annum but not more
than ___________% per annum, with a weighted
average Mortgage Interest Rate of
approximately ___________% per annum as of
the Cut- off Date. The Mortgage Loans provide
for
S-2
<PAGE> 9
scheduled payments of principal and/or
interest ("MONTHLY PAYMENTS") to be due on
the first day of each month (the "DUE DATE").
Approximately ______% of the aggregate
principal balance of the Mortgage Loans as of
the Cut-off Date provide for monthly payments
of principal based on an amortization
schedule longer, and in some cases
significantly longer, than the remaining term
of such Mortgage Loan (each, a "BALLOON
MORTGAGE LOAN"), thereby leaving a
substantial outstanding principal amount due
and payable (the "BALLOON PAYMENT") on its
maturity date, unless prepaid prior thereto.
Each Mortgage Loan either prohibits voluntary
prepayments during a certain number of years
following the origination thereof and/or
allows the borrower thereunder (the
"MORTGAGOR") to prepay the principal balance
thereof in whole or in part during a certain
number of years following the origination if
accompanied by payment of a premium (the
"PREPAYMENT PREMIUM"). See Annex A hereto and
the table entitled "Prepayment
Lock-out/Prepayment Premium Analysis" under
"Description of the Mortgage Pool -- Certain
Characteristics of the Mortgage Loans"
herein. Any Prepayment Premium collected on a
Mortgage Loan will be distributed to the
holders of the Certificates as described
herein. See "Special Principal Payment
Considerations" below, "Risk Factors --
Special Prepayment Considerations",
"Description of the Certificates --
Distributions -- Interest Distributions on
the Certificates" and "Certain Prepayment,
Maturity and Yield Considerations" herein and
"Yield Considerations" in the Prospectus.
In connection with its acquisition of the
Mortgage Loans, the Depositor will obtain
certain representations from ACC. ACC will
covenant with the Depositor to cure any
breach of such representations and warranties
or to repurchase any Mortgage Loan in
connection with which there has been a breach
of a representation or warranty which
materially and adversely affects the interest
of the Certificateholders in such Mortgage
Loan. The Depositor will assign such
representations and warranties and covenants
to the Trustee under the Pooling and
Servicing Agreement (as defined below). The
sole remedy available to the Trustee or the
Certificateholders is the obligation of ACC
to cure any such breach or repurchase any
such Mortgage Loan.
For a further description of the Mortgage
Loans, see "Description of the Mortgage Pool"
herein.
The Offered Certificates . The Certificates will be issued pursuant to a
pooling and servicing agreement, to be dated
as of the Cut-off Date, among the Depositor,
the Master Servicer, the Special Servicer and
the Trustee (the "POOLING AND SERVICING
AGREEMENT"). The Offered Certificates will
have the initial Class Balances set forth on
the cover hereof. The Interest Only
Certificates will not have Class Balances.
The Class BCX Certificates consist of the
following components: the Class BCX component
B and the Class BCX component C (each a
"COMPONENT"). The Class BCX component B and
the Class BCX component C are not separately
transferrable.
Pass-Through Rate on the
Certificates . . . . . . . The Pass-Through Rates on the Class A1 and
Class A2 Certificates are fixed and are set
forth on the cover hereof. The Pass-Through
Rates on the Class A1X and Class A2X
Certificates will be equal to the weighted
average of the Remittance Rates in effect
from time to time on the Mortgage Loans minus
the Pass-Through Rates on the Class A1 and
Class A2 Certificates, respectively. The
Pass-Through Rates on the Class B and Class C
Certificates will equal the weighted average
of the Remittance Rates in effect from time
to time on the Mortgage Loans minus the
S-3
<PAGE> 10
Pass-Through Rates on the Class BCX component
B and the Class BCX component C,
respectively. The Class BCX Certificates will
be entitled to interest at the Pass- Through
Rate on the components. The Pass- Through
Rate on the Class BCX component B is ______%
per annum and on the Class BCX component C is
_______% per annum. The Pass- Through Rates
on the Class D and Class E Certificates will
equal the weighted average of the Remittance
Rates in effect from time to time on the
Mortgage Loans. The Remittance Rate in effect
for any Mortgage Loan as of any date of
determination is equal to the excess of the
Mortgage Interest Rate thereon (without
giving effect to any modification or
reduction thereof following the Cut-off Date)
over the sum of the related Servicing Fee
Rate (as defined herein) and the fee payable
to the Trustee. The Mortgage Interest Rate
for each of the Mortgage Loans which provide
for the computation of interest other than on
the basis of a 360-day year consisting of
twelve 30-day months (a "30/360 BASIS") (that
is the basis on which interest on the
Certificates accrues) will be adjusted to
reflect that difference.
Interest Distributions on
the Certificates . . . . Subject to the distribution of the Principal
Distribution Amount to the Holders of classes
of Certificates of a higher priority as
described under "Priority of Distributions"
below, Holders of each class of Offered
Certificates will be entitled to receive on
each Distribution Date in the order described
herein, to the extent of the Available
Distribution Amount (as defined herein) for
such Distribution Date (net of any interest
accrued on any Collateral Value Adjustment
subsequently recovered and any Net Prepayment
Premium (both, as defined herein)) (the
"ADJUSTED AVAILABLE DISTRIBUTION AMOUNT"),
distributions allocable to interest in an
amount (the "INTEREST DISTRIBUTION AMOUNT")
equal to the interest accrued during the
period from and including the first day of
the month preceding the month of the
Distribution Date (or from the Cut-off Date,
in the case of the initial Distribution Date)
to and including the last day of the month
preceding the month of the Distribution Date
(based on a 360-day year consisting of twelve
30-day months) on the related Class Balance
(or the related Notional Amount, in the case
of the Interest Only Certificates, or any
component thereof) immediately prior to such
Distribution Date at the then-applicable
Pass-Through Rate (the "INTEREST ACCRUAL
AMOUNT") less such class' (or component's)
pro rata share, by Interest Accrual Amount,
of any interest shortfall not related to a
Mortgagor delinquency or default, such as
Prepayment Interest Shortfalls to the extent
not offset as described herein, and
shortfalls associated with exemptions
provided by the Relief Act (as defined in the
Prospectus). The Notional Amount of the Class
A1X Certificates will equal the Class Balance
of the Class A1 Certificates. The Notional
Amount of the Class A2X Certificates will
equal the Class Balance of the Class A2
Certificates. The Notional Amount of the
Class BCX component B will equal the Class
Balance of the Class B Certificates. The
Notional Amount of the Class BCX component C
will equal the Class Balance of the Class C
Certificates. A Notional Amount does not
entitle the Interest Only Certificates to any
distributions of principal. If the Adjusted
Available Distribution Amount for any
Distribution Date is less than the Interest
Distribution Amount for such Distribution
Date, the shortfall will be part of the
Interest Distribution Amount distributable to
holders of Offered Certificates on
subsequent Distribution Dates, to the extent
of available funds.
In addition to the related Interest
Distribution Amount, the Interest Only
Certificates will receive ____% of any Net
Prepayment Premium and the remaining Offered
Certificates will receive ____% of any Net
Prepayment Premium, as more fully described
herein, to the extent not necessary to
reimburse the Master Servicer for reductions
in its compensation due to Prepayment
Interest
S-4
<PAGE> 11
Shortfalls. See "-- Special Yield
Considerations" below and "Description of the
Certificates -- Distributions -- Interest
Distributions on the Certificates" herein.
The Available Distribution Amount for any
Distribution Date generally includes: (i)
scheduled payments on the Mortgage Loans due
on or prior to the related Due Date
immediately preceding, and collected as of,
the related Determination Date (to the extent
not distributed on previous Distribution
Dates) and unscheduled payments and other
collections on the Mortgage Loans collected
during the related Remittance Period, net of
amounts payable or reimbursable to the
related Primary Servicer, the Master Servicer
or the Special Servicer therefrom and (ii)
any P&I Advances made by the Master Servicer,
the Special Servicer, or the related Primary
Servicer for the related Distribution Date.
The "DETERMINATION DATE" for any Distribution
Date is the 10th business day preceding such
Distribution Date. The "REMITTANCE PERIOD"
for any Distribution Date is the period
beginning after a Determination Date in the
immediately preceding month (or the Cut-off
Date, in the case of the first Distribution
Date) through the related Determination Date.
See "Description of the Certificates --
Distributions -- Interest Distributions on
the Certificates" herein.
Principal Distributions on
the Certificates . . . . . Holders of the Certificates will be entitled
to receive on each Distribution Date in
reduction of the related Class Balance in the
order described herein until the related
Class Balance is reduced to zero, to the
extent of the balance of the Adjusted
Available Distribution Amount remaining after
the payment of the Interest Distribution
Amount for such Distribution Date for the
classes of Certificates with the highest
priority of payment for interest payments (as
described under "Priority of Distributions"
below) distributions in respect of principal
in an amount (the "PRINCIPAL DISTRIBUTION
AMOUNT") equal to the aggregate of (i) all
scheduled payments of principal (other than
Balloon Payments) due on the Mortgage Loans
on the related Due Date whether or not
received and all scheduled Balloon Payments
received, (ii) if the scheduled Balloon
Payment is not received, with respect to any
Balloon Mortgage Loans on and after the
Maturity Date thereof, the principal payment
that would need to be received in the related
month in order to fully amortize such Balloon
Mortgage Loan with level monthly payments by
the end of the term used to derive scheduled
payments of principal due prior to the
related Maturity Date, (iii) to the extent
not previously advanced, any unscheduled
principal recoveries received during the
related Remittance Period in respect of the
Mortgage Loans, whether in the form of
liquidation proceeds, insurance proceeds,
condemnation proceeds or amounts received as
a result of the purchase of any Mortgage Loan
out of the Trust Fund to the extent not
required to be otherwise applied pursuant to
the terms of the related Mortgage Loan and
(iv) any other portion of the Adjusted
Available Distribution Amount remaining
undistributed after payment of any interest
payable on the Certificates, including any
Prepayment Interest Excess (as defined
herein) not offset by any Prepayment Interest
Shortfall occurring during the related
Remittance Period or otherwise required to
reimburse the Master Servicer, as described
herein, and interest distributions on the
Mortgage Loans, in excess of interest
distributions on the Certificates, resulting
from the application of the amounts described
in this clause (iv) to principal
distributions on the Certificates. See
"Description of the Certificates --
Distributions -- Principal Distributions on
the Offered Certificates" herein. The
Interest Only Certificates do not have a
Class Balance and are therefore not entitled
to any principal distributions.
S-5
<PAGE> 12
Priority of Distributions . The Adjusted Available Distribution Amount
for any Distribution Date will be applied (a)
first, to distributions of interest on the
classes of Certificates outstanding with
highest priority for interest payment (as
described below), (b) second, to
distributions of the Principal Distribution
Amount to the classes of Certificates then
entitled to distributions of principal as
described below, and (c) third, to
distributions of interest on each class of
Certificates other than the classes described
in clause (a) above, in the order of priority
described below; provided that on any
Distribution Date on which the Class Balance
of a class of Certificates is reduced to zero
pursuant to clause (b) above, interest
distributions pursuant to clause (a) above
will be made to the class of Certificates
outstanding with the next highest priority
for interest payments prior to making
distributions of the Principal Distribution
Amount thereto pursuant to clause (b) above.
The priority for interest payments for
purposes of clauses (a) and (c), above, is:
first to distributions of interest on the
Class A1, Class A1X, Class A2 and Class A2X
Certificates, pro rata, based on their
respective Interest Accrual Amounts; second,
to the Class B and Class BCX component B
Certificates, pro rata, based on their
respective Interest Accrual Amounts; third,
to the Class C and the Class BCX component C
Certificates, pro rata, based on their
respective Interest Accrual Amounts; fourth,
to the Class D Certificates; fifth, to the
Class E Certificates; and then to the
remaining classes of Certificates up to their
respective Interest Accrual Amounts, all as
described under "Interest Distributions on
the Certificates" above. The Principal
Distribution Amount for such Distribution
Date will be applied to the payment of
principal of the Class A1, Class A2, Class B,
Class C, Class D and Class E Certificates, in
that order, and then to the remaining classes
of Certificates, until their respective Class
Balances have been reduced to zero. Any Net
Prepayment Premium for any Distribution Date
will be applied to reimburse the Master
Servicer for reductions in its compensation
due to Prepayment Interest Shortfalls, as
described herein, and then to distributions
on the Certificates, as described herein. In
addition, to the extent any amounts
corresponding to a Collateral Value
Adjustment are recovered on a Mortgage Loan,
any interest accrued on any class of
Certificates and not paid as a result of such
Collateral Value Adjustment shall be
allocated to such classes as described
herein. See "Description of the Certificates
-- Subordination" herein.
P&I Advances . . . . . . . The Master Servicer, the Special Servicer and
the Primary Servicers (each, a "SERVICER")
are required to make advances ("P&I
ADVANCES") for delinquent Monthly Payments on
the Mortgage Loans, subject to the
limitations described herein. None of the
Servicers will be required to advance the
full amount of any Balloon Payment not made
by the related Mortgagor. To the extent a
Servicer is required to make a P&I Advance on
and after the Due Date for a Balloon Payment,
such P&I Advance shall not exceed an amount
equal to the monthly payment calculated by
the Special Servicer necessary to fully
amortize the related Mortgage Loan over the
period used for purposes of calculating the
scheduled monthly payments thereon prior to
the related Maturity Date. As more fully
described herein, each Servicer making a P&I
Advance (or any other advance) will be
entitled to reimbursement thereof and
interest thereon at the prime rate determined
in accordance with the Pooling and Servicing
Agreement to the extent provided therein. See
"Description of the Certificates -- Advances"
herein and "Description of the Certificates
-- Advances in Respect of Delinquencies" in
the Prospectus.
Other Certificates . . . . The Class F, Class G, Class NR, Class R-I,
Class R-II and Class R-III Certificates are
not offered hereby (the "OTHER
CERTIFICATES"). The Pass-Through Rates on the
Class F, Class G and Class NR Certificates
will equal the weighted average of the
Remittance Rates in effect from time to time
on the Mortgage Loans. The Class Balances on
the Class F, Class G and Class NR
Certificates will equal
S-6
<PAGE> 13
$______________, $_________________ and
$________________, respectively, and
approximately $_____________, in the
aggregate. The Class R-I, Class R-II and
Class R- III Certificates will not have a
Pass-Through Rate or a Class Balance.
Subordination . . . . . . Neither the Offered Certificates nor the
Mortgage Loans are insured or guaranteed
against losses suffered on the Mortgage Loans
by any government agency or instrumentality
or by the Depositor, the Trustee, the
Underwriter, the Master Servicer, the Special
Servicer, the Primary Servicers, or any
affiliate thereof.
Realized Losses and Collateral Valuation
Adjustments (as defined herein) on the
Mortgage Loans will be allocated, first, to
the Other Certificates, second, to the Class
E Certificates, third, to the Class D
Certificates, fourth, to the Class C
Certificates, fifth to the Class B
Certificates, and thereafter, to the Class A1
and Class A2 Certificates, on a pro rata
basis, based on Class Balance, in each case
until the related Class Balance is reduced to
zero. Any allocation of a Realized Loss or a
Collateral Valuation Adjustment to a class of
Certificates will result in a reduction of
the related Class Balance and the Notional
Amount of any of the Interest Only
Certificates (or component thereof)
calculated by reference to such Class
Balance. In addition, the Adjusted Available
Distribution Amount will be applied in the
order set forth under "Priority of
Distributions" above.
In addition to Realized Losses and Collateral
Valuation Adjustments, shortfalls may also
occur as a result of each Servicer's right to
receive payments of interest with respect to
unreimbursed advances, the Special Servicer's
right to compensation with respect to
Mortgage Loans which are or have been
Specially Serviced Mortgage Loans and as a
result of other Trust Fund expenses. Such
shortfalls will be allocated to the classes
of Certificates with the lowest payment
priority for purposes of the application of
the Adjusted Available Distribution Amount in
the order described herein.
Optional Termination . . . At its option, the Master Servicer, the
Special Servicer, any holder of a Class R-I
Certificate, the holders of an aggregate
Percentage Interest in excess of 50% of the
Most Subordinate Class of Certificates (as
defined herein) and (to the extent all of the
remaining Mortgage Loans are being serviced
thereby as Primary Servicer) any Primary
Servicer may purchase all of the Mortgage
Loans, at the price set forth under
"Description of the Pooling and Servicing
Agreement -- Termination" herein, and thereby
effect termination of the Trust Fund and
early retirement of the then outstanding
Certificates, on any Distribution Date on
which the aggregate Stated Principal Balance
(as defined herein) of the Mortgage Loans
remaining in the Trust Fund is less than
____% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date.
See "Description of the Pooling and Servicing
Agreement -- Termination" herein and
"Description of the Certificates --
Termination" in the Prospectus.
Special Principal Payment
Considerations . . . . . . The rate and timing of principal payments, if
any, on the Offered Certificates will depend,
among other things, on the rate and timing of
principal payments (including prepayments,
defaults, liquidations and purchases of
Mortgage Loans due to a breach of a
representation and warranty) on the Mortgage
Loans. As described herein, each of the
Mortgage Loans prohibits, and/or requires the
payment of a Prepayment Premium in connection
with, any voluntary prepayment during certain
specified times. See "The Mortgage Pool"
above and "Description of the Mortgage Pool"
herein.
S-7
<PAGE> 14
All classes of Offered Certificates entitled
to payments of principal are subject to
priorities for payment of principal as
described herein. Distributions of principal
on classes having an earlier priority of
payment will be directly affected by the
rates of prepayments of the Mortgage Loans.
The timing of commencement of principal
distributions and the weighted average lives
of classes of Certificates with a later
priority of payment will be affected by the
rates of prepayments experienced both before
and after the commencement of principal
distributions on such classes.
In addition, a portion of collections on the
Mortgage Loan in excess of scheduled and
unscheduled principal distributions will be
allocated to the classes of Certificates then
entitled to distributions of principal. Any
such allocation may result in a faster
amortization of such class of Certificates.
Special Yield
Considerations . . . . . . The yield to maturity on each class of the
Offered Certificates will depend on, among
other things, the rate and timing of
principal payments (including prepayments,
defaults, liquidations and purchases of
Mortgage Loans due to breaches of
representations and warranties) on the
Mortgage Loans and the allocation thereof to
reduce the Class Balance or Notional Amount
of such class (or component thereof). The
yield to maturity on each class of the
Offered Certificates will also depend on the
Pass-Through Rate and the purchase price for
such Certificates. The yield to investors on
any class of Offered Certificates will be
adversely affected by any allocation thereto
of Prepayment Interest Shortfalls on the
Mortgage Loans, which may result from the
distribution of interest only to the date of
a prepayment occurring during any month
following the related Determination Date
(rather than a full month's interest). See
"Description of the Certificates --
Distributions -- Interest Distributions on
the Certificates" herein.
In general, if a class of Offered
Certificates is purchased at a premium and
principal distributions thereon occur at a
rate faster than anticipated at the time of
purchase, the investor's actual yield to
maturity will be lower than that assumed at
the time of purchase. Conversely, if a class
of Offered Certificates is purchased at a
discount and principal distributions thereon
occur at a rate slower than that assumed at
the time of purchase, the investor's actual
yield to maturity will be lower than that
assumed at the time of purchase.
The multiple class structure of the Offered
Certificates causes the yield of certain
classes to be particularly sensitive to
changes in the rates of principal payments
(including prepayments, defaults,
liquidations and purchases of Mortgage Loans
due to a breach of a representation and
warranty) of the Mortgage Loans and other
factors.
The yield to investors on the Interest Only
Certificates will be sensitive to the rate
and timing of prepayments, defaults and
liquidations on the Mortgage Loans. The rate
of such prepayments, defaults and
liquidations on the Mortgage Loans may
fluctuate significantly over time. A
significantly faster than expected rate of
such prepayments, defaults and liquidations
on the Mortgage Pool will have a negative
effect on the yield to such investors and
could result in the failure of investors in
the Interest Only Certificates to recover
their initial investments. In addition,
because holders of the Class A1X and A2X
Certificates have rights to relatively larger
portions of interest payments on Mortgage
Loans with higher Mortgage Interest Rates
than on Mortgage Loans with lower Mortgage
Interest Rates, and because Mortgage Loans
with higher Mortgage Interest Rates are
generally likely to prepay at a faster rate
than Mortgage Loans with lower Mortgage
Interest Rates, the yield on the Class A1X
and A2X Certificates will be materially
adversely
S-8
<PAGE> 15
affected to a greater extent than the yields
on the other Offered Certificates if the
Mortgage Loans with higher Mortgage Interest
Rates prepay faster than the Mortgage Loans
with lower Mortgage Interest Rates. See
"Certain Prepayment, Maturity and Yield
Considerations," especially "--Interest Only
Certificate Yield Considerations" herein.
The yield to investors on any of the
Certificates will be sensitive to losses due
to defaults on the Mortgage Loans (and the
timing thereof), because the amount of such
losses will be allocable to such class to the
extent such losses are not covered by a
subordinate class of Certificates, as
described herein. Furthermore, as described
herein, the timing of receipt of principal
and interest by any such class of
Certificates may be adversely affected by
losses even if such class does not ultimately
bear such loss.
Each Servicer making an advance will be
entitled to interest thereon at the prime
rate determined in accordance with the
Pooling and Servicing Agreement to the extent
provided therein. Therefore losses may be
allocated to a class of Offered Certificates
with respect to any delinquent Monthly
Payment and certain other expenses advanced
by such Servicer.
The Special Servicer will be entitled to
receive compensation in the form of a
percentage of collections of any Mortgage
Loan which is being serviced or has been
serviced by the Special Servicer (a
"SPECIALLY SERVICED MORTGAGE LOAN") prior to
the right of Certificateholders to receive
distributions on the Certificates. Such
compensation will result in shortfalls which
will be allocated to the classes of
Certificates with the lowest payment priority
for purposes of application of the Adjusted
Available Distribution Amount in the order
described herein. Consequently, it is
possible that losses will be allocated to the
Offered Certificates with respect to any
Specially Serviced Mortgage Loan
notwithstanding the fact that such Mortgage
Loan is returned to a performing status. See
"Servicing -- Servicing and Other
Compensation and Payment of Expenses" herein.
See "Certain Prepayment, Maturity and Yield
Considerations," especially "--Class C, Class
BCX, Class D and Class E Yield
Considerations" herein, and "Yield
Considerations" in the Prospectus.
Certain Federal Income Tax
Consequences . . . . . . . Three separate real estate mortgage
investment conduit ("REMIC") elections will
be made with respect to the Trust Fund for
federal income tax purposes. Upon the
issuance of the Offered Certificates, Andrews
& Kurth L.L.P., counsel to the Depositor,
will deliver its opinion generally to the
effect that, assuming compliance with all
provisions of the Pooling and Servicing
Agreement, for federal income tax purposes,
the REMIC I, REMIC II and REMIC III (each as
defined in the Pooling and Servicing
Agreement) will each qualify as a REMIC under
Sections 860A through 860G of the Internal
Revenue Code of 1986 (the "CODE").
For federal income tax purposes, the Class
R-I Certificates will be the sole class of
"residual interests" in REMIC I, the Class
R-II Certificates will be the sole class of
"residual interests" in REMIC II, the Offered
Certificates (or, in the case of the Class
BCX Certificates, each component thereof) and
the Other Certificates will be "regular
interests" of REMIC III and will generally be
treated as debt instruments of REMIC III, and
the Class R-III Certificates will be the sole
class of "residual interests" in REMIC III.
S-9
<PAGE> 16
The Interest Only Certificates will and the
other Offered Certificates may be treated as
having been issued with original issue
discount for federal income tax purposes.
For purposes of computing the accrual of
original issue discount, market discount and
premium, if any, for federal income tax
purposes it will be assumed that there are no
prepayments on the Mortgage Loans. However,
no representation is made that the Mortgage
Loans will not prepay at another rate.
For further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "Certain Federal
Income Tax Consequences" herein and in the
Prospectus.
ERISA Considerations . . . A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code should review carefully with its
legal advisors whether the purchase or
holding of any class of Offered Certificates
could give rise to a transaction that is
prohibited or is not otherwise permitted
either under ERISA or Section 4975 of the
Code or whether there exists any statutory or
administrative exemption applicable to an
investment therein. The U.S. Department of
Labor has issued individual exemption,
Prohibited Transaction Exemption 89-88, to
Goldman, Sachs & Co. that generally exempts
from the application of certain of the
prohibited transaction provisions of Section
406 of ERISA, and the excise taxes imposed on
such prohibited transactions by Section
4975(a) and (b) of the Code and Section
502(i) of ERISA, transactions relating to the
purchase, sale and holding of pass-through
certificates underwritten by Goldman, Sachs &
Co., such as the Class A1, Class A1X, Class
A2 and Class A2X Certificates and the
servicing and operation of asset pools,
provided that certain conditions are
satisfied. Purchasers using insurance company
general account funds to effect such purchase
should consider the availability of
Prohibited Transaction Class Exemption 95-60
(60 Fed. Reg. 35925, July 12, 1995) issued by
the U.S. Department of Labor. See "ERISA
Considerations" herein and in the Prospectus.
Rating . . . . . . . . . . It is a condition to the issuance of the
Class A1 and Class A2 Certificates that they
be rated "_______" by Fitch Investors Service
Inc. ("FITCH") and Standard & Poor's Ratings
Services ("STANDARD & POOR'S"). It is a
condition of the issuance of the Class A1X
and Class A2X Certificates that they be rated
"______" by Fitch and "_______" by Standard &
Poor's. It is a condition of the issuance of
the Class B Certificates that they be rated
not lower than "____" by Fitch and Standard &
Poor's. It is a condition of the issuance of
the Class C Certificate that they be rated
not lower than "___" by Fitch and "____" by
Standard & Poor's. It is a condition of the
issuance of the Class BCX Certificates that
they be rated not lower than "____" by Fitch.
It is a condition of the issuance of the
Class D Certificates that they be rated not
lower than "_____" by Fitch and Standard &
Poor's. It is a condition of the issuance of
the Class E Certificates that they be rated
not lower than "________" by Fitch and
Standard & Poor's. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning
rating organization. A security rating does
not address the frequency or likelihood of
prepayments (whether voluntary or
involuntary) of Mortgage Loans, or the degree
to which such prepayments might differ from
those originally anticipated, or the
likelihood of collection of Prepayment
Premiums, or the corresponding effect on
yield to investors. A rating of any of the
Interest Only Certificates does not address
the possibility that the holders of such
Certificates may fail to fully recover their
initial investments due to a rapid rate of
prepayments, defaults or liquidations. See
"Certain Prepayment, Maturity and Yield
Considerations" herein, "Risk Factors," and
"Rating" herein and in the Prospectus and
"Yield Considerations" in the Prospectus.
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<PAGE> 17
Legal Investment . . . . . The appropriate characterization of the
Offered Certificates under various legal
investment restrictions, and thus the ability
of investors subject to these restrictions to
purchase any Class of Offered Certificates,
may be subject to significant interpretative
uncertainties. The Offered Certificates will
not be "mortgage related securities" within
the meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
In addition, institutions whose investment
activities are subject to review by certain
regulatory authorities may be or may become
subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of
mortgage-backed securities. Accordingly,
investors should consult their own legal
advisors to determine whether and to what
extent the Offered Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the Prospectus.
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<PAGE> 18
RISK FACTORS
[Description will depend on the particulars of the Mortgage Assets]
Prospective purchasers of the Offered Certificates should consider,
among other things, the following risk factors (as well as the risk factors set
forth under "Risk Factors" in the Prospectus) in connection with an investment
in the Offered Certificates.
Special Prepayment Considerations. The rate and timing of principal
payments on the Offered Certificates will depend, among other things, on the
rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of representation
and warranty) on the Mortgage Loans. The rate at which principal payments occur
on the Mortgage Pool will be affected by a variety of factors, including,
without limitation, the terms of the Mortgage Loans, the level of prevailing
interest rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Interest Rates on the
Mortgage Loans, such Mortgage Loans are likely to be the subject of higher
principal prepayments than if prevailing rates remain at or above the rates
borne by such Mortgage Loans. The rate of principal payments on the Offered
Certificates will correspond to the rate of principal payments on the Mortgage
Loans and is likely to be affected by the Lock-out Periods (as defined herein)
and Prepayment Premium provisions applicable to the Mortgage Loans and by the
extent to which a Servicer is able to enforce such provisions. Mortgage Loans
with a Lock-out Period or a Prepayment Premium provision, to the extent
enforceable, generally would be expected to experience a lower rate of
principal prepayments than otherwise identical mortgage loans without such
provisions with shorter Lock-out Periods or with lower Prepayment Premiums. See
"Description of the Mortgage Pool," "Description of the Certificates --
Distributions -- Priority of Distributions" and "Certain Prepayment, Maturity
and Yield Considerations" herein and "Yield Considerations" in the Prospectus.
Special Yield Considerations. The yield to maturity on each class of
the Offered Certificates will depend, among other things, on the rate and
timing of principal payments (including prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of representation and warranty) on
the Mortgage Pool and the allocation thereof to reduce the Class Balance of
such class. Mortgage Loans with higher Mortgage Interest Rates will have higher
Remittance Rates, and therefore, the yield on the Class A1X, Class A2X, Class
B, Class C, Class D and Class E Certificates could be adversely affected if
Mortgage Loans with higher Mortgage Interest Rates pay faster than the Mortgage
Loans with lower Mortgage Interest Rates. The yield to investors on the Offered
Certificates will be adversely affected by any allocation thereto of interest
shortfalls on the Mortgage Loans, such as Prepayment Interest Shortfalls.
Neither the Certificates nor the Mortgage Loans are guaranteed by any
governmental entity or instrumentality or any other entity.
In general, if a Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a Certificate is purchased at a
discount and principal distributions thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will
be lower than assumed at the time of purchase. See "Prepayment, Maturity and
Yield Considerations" herein and "Yield Considerations" in the Prospectus.
Risks Associated with Certain of the Mortgage Loans and Mortgaged
Properties. The Mortgage Loans are secured by a fee simple or leasehold
interest in multifamily, retail, hotel, nursing home, office, industrial and
other commercial properties. Commercial and multifamily lending is generally
viewed as exposing the lender to a greater risk of loss than one- to
four-family residential lending. Commercial and multifamily lending typically
involves larger loans to single borrowers or groups of related borrowers than
residential one-to four-family mortgage loans. Further, the repayment of loans
secured by income producing properties is typically dependent upon the
successful operation of the related property. If the cash flow from the
property is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired. Commercial and
multifamily real estate can be affected significantly by the supply and demand
in the market for the type of property securing the loan and, therefore, may be
subject to adverse economic conditions. Market values may vary as a result of
economic events or governmental regulations outside the control of the borrower
or lender, such as rent control laws in the case of multifamily mortgage loans,
which impact the future cash flow of the property. See "Nonrecourse Mortgage
Loans" below.
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<PAGE> 19
The successful operation of a real estate project is also dependent on
the performance and viability of the property manager of such project. The
property manager is responsible for responding to changes in the local market,
planning and implementing the rental structure, including establishing
appropriate rental rates, and advising the borrowers so that maintenance and
capital improvements can be carried out in a timely fashion. There is no
assurance regarding the performance of any operators and/or managers or persons
who may become operators and/or managers upon the expiration or termination of
leases or management agreements or following any default or foreclosure under a
Mortgage Loan.
An appraisal of each of the Mortgaged Properties was made between
___________ 199__ and ___________ 199_. It is possible that the market value of
a Mortgaged Property securing a Mortgage Loan has declined since the most
recent appraisal for such Mortgaged Property. Commercial and multifamily
property values and net operating income are subject to volatility. The net
operating income and value of the Mortgaged Properties may be adversely
affected by a number of factors, including but not limited to the national,
regional and local economic conditions (which may be adversely impacted by
plant closings, industry slowdowns and other factors); local real estate
conditions (such as an oversupply of housing, retail, office or self-storage
space, hotel rooms or nursing homes); changes or continued weakness in specific
industry segments; perceptions by prospective tenants and, in the case of
retail properties, retailers and shoppers, of the safety, convenience, services
and attractiveness of the property; the willingness and ability of the
property's owner to provide capable management and adequate maintenance;
construction quality, age and design; demographic factors; retroactive changes
to building or similar codes; and increases in operating expenses (such as
energy costs). Historical operating results of the Mortgaged Properties may not
be comparable to future operating results. In addition, other factors may
adversely affect the Mortgaged Properties' value without affecting their
current net operating income, including changes in governmental regulations,
zoning or tax laws; potential environmental or other legal liabilities; the
availability of refinancing; and changes in interest rate levels.
Mortgage Loans secured by liens on residential health care facilities
pose risks not associated with loans secured by liens on other types of
income-producing real estate. Providers of long-term nursing care, assisted
living and other medical services are subject to federal and state laws that
relate to the adequacy of medical care, distribution of pharmaceuticals, rate
setting, equipment, personnel, operating policies and additions to facilities
and services and to the reimbursement policies of government programs and
private insurers. The failure of any of such borrower to maintain or renew any
required license or regulatory approval could prevent it from continuing
operations (in which case no revenues would be received from the related
Mortgaged Property or the portion thereof requiring licensing) or, if
applicable, bar it from participation in certain reimbursement programs.
Furthermore, in the event of foreclosure, there can be no assurance that the
Trustee or any other purchaser at a foreclosure sale would be entitled to the
rights under such licenses and such party may have to apply in its own right
for such a license. There can be no assurance that a new license could be
obtained. In addition, to the extent any nursing home receives a significant
portion of its revenues from government reimbursement programs, primarily
Medicaid and Medicare, such revenue may be subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions. Moreover, governmental payors have employed cost-containment
measures that limit payments to health care providers, and there are currently
under consideration various proposals in the United States Congress that could
materially change or curtail those payments. Accordingly, there can be no
assurances that payments under government programs will, in the future, be
sufficient to fully reimburse the cost of caring for program beneficiaries. If
not, net operating income of the Mortgaged Properties that receive substantial
revenues from those sources, and consequently the ability of the related
borrowers to meet their Mortgage Loan obligations, could be adversely affected.
Under applicable federal and state laws and regulations, including those that
govern Medicare and Medicaid programs, only the provider who actually furnished
the related medical goods and services may sue for or enforce its rights to
reimbursement. Accordingly, in the event of foreclosure, none of the Trustee,
the Master Servicer, the Special Servicer or a subsequent lessee or operator of
the property would generally be entitled to obtain from federal or state
governments any outstanding reimbursement payments relating to services
furnished at the respective properties prior to such foreclosure.
The aggregate principal balance as of the Cut-off Date related to
Mortgage Loans secured by multifamily, retail, hotel, nursing home, office,
industrial and other properties represent approximately ____%, ____%,
____%,____%, ____%, ____% and ____% of the Cut-off Date aggregate principal
balance of the Mortgage Pool, respectively.
S-13
<PAGE> 20
Risks Associated with Hotel Properties. _______ of the Mortgage Loans
representing____% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date are secured by hotel properties. Like any income producing
property, the income generated by a hotel property is subject to several
factors such as local, regional and national economic conditions and
competition. However, because such income is primarily generated by room
occupancy and such occupancy is usually for short periods of time, the level of
such income may respond more quickly to conditions such as those described
above. Such sensitivity to competition may require more frequent improvements
and renovations than other properties. To the extent a hotel is affiliated to,
or associated with, a regional, national or international chain, changes in the
public perception of such chain may have an impact on the income generated by
the related property. Finally, the hotel industry is generally seasonal. This
will result in fluctuation in the income generated by hotel properties.
Nonrecourse Mortgage Loans. Each Mortgage Loan is a nonrecourse loan
as to which, in the event of a default under such Mortgage Loan, recourse
generally may be had only against the related Mortgaged Property. Consequently,
payment of each such Mortgage Loan prior to maturity is dependent primarily on
the sufficiency of the net operating income of the related Mortgaged Property,
and at maturity (whether at scheduled maturity or in the event of a default
upon the acceleration of such maturity after default), upon the then market
value of the related Mortgaged Property, or the ability to refinance such
Mortgage Loan.
Concentration of Mortgage Loans. The average principal balance of the
Mortgage Loans as of the Cut-off Date is approximately $____________, which is
equal to ____% of the aggregate principal balance as of the Cut-off Date of the
Mortgage Loans.
A mortgage pool consisting of fewer loans each having a relatively
higher outstanding principal balance may result in losses that are more severe,
relative to the size of the pool, than would be the case if the pool consisted
of a greater number of mortgage loans each having a relatively smaller
outstanding principal balance. In addition, the concentration of any mortgage
pool in one or more loans that have outstanding principal balances that are
substantially larger than the other mortgage loans in such pool can result in
losses that are substantially more severe, relative to the size of the pool,
than would be the case if the aggregate balance of the pool were more evenly
distributed among the loans in such pool. The Mortgage Loan secured by the
__________________________ represents______% of the aggregate principal balance
of the Mortgage Loans. No other Mortgage Loan represents more than ____% of
the aggregate principal balance as of the Cut-off Date of the Mortgage Loans.
Mortgage Loans with related Mortgagors represent in the aggregate _____% of the
aggregate principal balance as of the Cut-off Date of the Mortgage Loans but no
single group of related Mortgagors represents in excess of __% of the aggregate
principal balance of the Mortgage Loans. See "Description of the Mortgage Pool
- -- Certain Characteristics of the Mortgage Loans -- Related Borrowers and Other
Issues" herein.
Risks of Different Timing of Mortgage Loan Amortization. If and as
principal payments, property releases, or prepayments are made on a Mortgage
Loan, the remaining Mortgage Pool may be subject to more concentrated risk with
respect to the diversity of properties, types of properties and property
characteristics and with respect to the number of borrowers. See the table
entitled "Year of Scheduled Maturity" under "Description of the Mortgage Pool
- -- Certain Characteristics of the Mortgage Loans" for a description of the
respective maturity dates of the Mortgage Loans. Because principal on the
Offered Certificates is payable in sequential order, and no class receives
principal until the Class Balance of the preceding class or classes has been
reduced to zero, classes that have a lower sequential priority are more likely
to be exposed to the risk of concentration discussed under "--Concentration of
Mortgage Loans" above than classes with a higher sequential priority.
Geographic Concentration. __, __, __, __ and __ of the Mortgaged
Properties, representing approximately ____%, ____%, ____%, ____% and ____%,
respectively, of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date, are located in ______________, _________, __________,
_________ and _________, respectively. Except as indicated in the immediately
preceding sentence, no more than ___% of the Mortgage Loans, by aggregate
principal balance of the Mortgage Loans as of the Cut-off Date are secured by
Mortgaged Properties in any one state. Repayments by borrowers and the market
value of the Mortgaged Properties could be affected by economic conditions
generally or in regions where the borrowers and the Mortgaged Properties are
located, conditions in the real estate market where the Mortgaged Properties
are located, changes in governmental rules and fiscal policies, acts of nature,
S-14
<PAGE> 21
including earthquakes (which may result in uninsured losses), and other factors
which are beyond the control of the borrowers.
Environmental Risks. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal and
remediation of hazardous or toxic substances on, under, adjacent to or in such
property. Such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The cost of any required remediation and the owner's liability
therefor as to any property is generally not limited under such enactments and
could exceed the value of the property and/ or the aggregate assets of the
owner. In addition, the presence of hazardous or toxic substances, or the
failure to properly remediate such property, may adversely affect the owner's
or operator's ability to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility. Certain laws impose liability for release of
asbestos into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with exposure to
asbestos.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the Trust
Fund) may be liable as an "owner" or "operator", for the costs of responding to
a release or threat of a release of hazardous substances on or from a
borrower's property, if agents or employees of a lender are deemed to have
participated in the management of the borrower's property, regardless of
whether a previous owner caused the environmental damage. The Trust Fund's
potential exposure to liability for cleanup costs pursuant to CERCLA may
increase if the Trust Fund actually takes possession of a borrower's property,
or control of its day-to-day operations, as for example through the appointment
of a receiver.
An environmental site assessment ("ESA") of each of the Mortgaged
Properties was performed (or prior assessments were updated) in connection with
the initial underwriting and origination of the Mortgage Loans. In certain
cases, environmental testing in addition to the ESA was performed.
The following information is based on the ESAs and has not been
independently verified by the Depositor, the Servicers, the Trustee, the
Underwriter, or by any of their respective affiliates. With respect to a number
of the Mortgaged Properties, the ESAs revealed the existence of
asbestos-containing materials, possible radon gas and other environmental
matters at the related Mortgaged Properties, none of which constituted a
material violation of any environmental law in the judgment of the assessor. In
these cases, the Mortgagors agreed to establish and maintain operations and
maintenance programs or had other remediation agreements or escrows in place.
With respect to several Mortgaged Properties, the ESAs identified the presence
of above-ground or underground storage tanks and the related Mortgagors have
agreed to make periodic visual inspections or other testing for any petroleum
releases.
It is possible that the ESAs did not reveal all environmental
liabilities, that there are material environmental liabilities of which neither
ACC nor the Depositor are aware and that the environmental condition of the
Mortgaged Properties in the future could be affected by tenants and occupants
or by third parties unrelated to the Mortgagors.
Each Mortgagor has represented that, except as described in the
environmental reports referred to above, each Mortgaged Property either was, or
to the best of its knowledge was, in compliance with applicable environmental
laws and regulations on the date of the origination of the related Mortgage
Loan; that, except as described in the environmental reports referred to above,
no actions, suits or proceedings have been commenced or are pending or, to the
best knowledge of the Mortgagor, are threatened with respect to any applicable
environmental laws and that such Mortgagor has not received notice of any
violation of a legal requirement relating to the use and occupancy of any
Mortgaged Property. The principal security for the obligations under each
Mortgage Loan consists of the Mortgaged Property and, accordingly, if any such
representations are breached, there can be no assurance that any other assets
of the Mortgagor would be available in connection with any exercise of remedies
in respect of such breach. Moreover, most Mortgagors are structured as single
asset entities and therefore have no assets other than the related Mortgaged
Property.
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<PAGE> 22
The Pooling and Servicing Agreement provides that the Special
Servicer, acting on behalf of the Trust Fund, may not acquire, through
foreclosure or deed in lieu thereof, title to a Mortgaged Property or take over
its operation unless the Special Servicer has previously determined, based on a
report prepared by a qualified person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with applicable
environmental laws or that taking the actions necessary to comply with such
laws is reasonably likely to produce a greater recovery on a present value
basis than not taking such actions and (ii) there are no circumstances known to
the Special Servicer relating to the use of hazardous substances or
petroleum-based materials which require investigation or remediation, or that
if such circumstances exist, taking such remedial actions is reasonably likely
to produce a greater recovery on a present value basis than not taking such
actions.
Litigation. There may be legal proceedings pending and, from time to
time, threatened against the Mortgagors and the managers of the Mortgaged
Properties and their respective affiliates arising out of the ordinary business
of the Mortgagor, the managers and such affiliates. There can be no assurance
that such litigation may not have a material adverse effect on distributions to
Certificateholders.
Other Financings. Each Mortgagor is restricted from incurring any
indebtedness secured by the related Mortgaged Property other than the related
Mortgage Loan without the consent of the lender. With respect to ___ Mortgage
Loans representing ______% of the Mortgage Pool and which were made to single
purpose entities, the Mortgagor is restricted from incurring any indebtedness
other than the Mortgage Loan, normal trade accounts payable and certain
purchase financing debt, except that three of these Mortgagors representing
____% of the Mortgage Pool have unsecured subordinate debt that is subject to a
subordination and standstill agreement limiting the rights of the holder of
such additional indebtedness including limitations on its right to commence any
enforcement or foreclosure proceeding.
In cases where one or more junior liens are imposed on a Mortgaged
Property or the Mortgagor incurs other indebtedness, the Trust Fund is
subjected to additional risks, including, without limitation, the risks that
the Mortgagor may have greater incentives to repay the junior or unsecured
indebtedness first and that it may be more difficult for the Mortgagor to
refinance the Mortgage Loan or to sell the Mortgaged Property for purposes of
making the Balloon Payment upon the maturity of the Mortgage Loan.
Effect of Mortgagor Delinquencies and Defaults. The aggregate amount
of distributions on the Offered Certificates, the yield to maturity of the
Offered Certificates, the rate of principal payments on the Offered
Certificates and the weighted average lives of the Offered Certificates will be
affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. If a purchaser of a class of Offered Certificates calculates
its anticipated yield based on an assumed rate of default and amount of losses
on the Mortgage Loans that is lower than the default rate and amount of losses
actually experienced and such additional losses are allocable to such class of
Certificates, such purchaser's actual yield to maturity will be lower than that
so calculated and could, under certain extreme scenarios, be negative. The
timing of any loss on a liquidated Mortgage Loan will also affect the actual
yield to maturity of the class of Offered Certificates to which a portion of
such loss is allocable, even if the rate of defaults and severity of losses are
consistent with an investor's expectations. In general, the earlier a loss
borne by an investor occurs, the greater is the effect on such investor's yield
to maturity.
As and to the extent described herein, each Servicer will be entitled
to receive interest on unreimbursed P&I Advances and unreimbursed advances of
servicing expenses until such advances (i) are recovered out of amounts
received on the Mortgage Loan as to which such advances were made pursuant to
the Pooling and Servicing Agreement, which amounts are in the form of late
payments, liquidation proceeds, insurance proceeds, condemnation proceeds or
amounts paid in connection with the purchase of such Mortgage Loan out of the
Trust Fund or (ii) are otherwise recovered following a determination that such
advance is a nonrecoverable advance. Each Servicer's right to receive such
payments of interest is prior to the rights of Certificateholders to receive
distributions on the Certificates and, consequently, is likely to result in
losses being allocated to the Offered Certificates that would not otherwise
have resulted absent the accrual of such interest.
The Special Servicer will be entitled to receive, with respect to each
Mortgage Loan which is or was at some time a Specially Serviced Mortgage Loan,
compensation in the form of a percentage of collections of any such Specially
Serviced Mortgage Loan prior to the right of Certificateholders to receive
distributions on the Certificates. Consequently,
S-16
<PAGE> 23
it is possible that shortfalls will be allocated to the Offered Certificates
with respect to any Mortgage Loan which is or was at some time a Specially
Serviced Mortgage Loan notwithstanding the fact that such Mortgage Loan is
returned to a performing status. See "Servicing -- Servicing and Other
Compensation and Payment of Expenses" herein.
Regardless of whether losses ultimately result, delinquencies and
defaults on the Mortgage Loans may significantly delay the receipt of payments
by the holder of a class of Offered Certificates, to the extent that P&I
Advances or the subordination of another class of Certificates does not fully
offset the effects of any such delinquency or default. The Special Servicer has
the ability to extend and modify Mortgage Loans that are in default or as to
which a payment default is imminent, including the ability to extend the date
on which a Balloon Payment is due, subject to certain conditions described in
the Pooling and Servicing Agreement. A Servicer's obligation to make P&I
Advances in respect of a Mortgage Loan that is delinquent as to its Balloon
Payment is limited, however, to the extent described under "Description of the
Certificates -- Advances." Until such time as any Mortgage Loan delinquent in
respect of its Balloon Payment is liquidated, the entitlement of the holders of
any class of Offered Certificates on each Distribution Date in respect of
principal of such Mortgage Loan will be limited to any payment made by the
related Mortgagor and any related P&I Advance made by a Servicer. Consequently,
any delay in the receipt of a Balloon Payment that is payable, in whole or in
part, to holders of the Offered Certificates will extend the weighted average
life of the Offered Certificates.
As described under "Description of the Certificates -- Distributions"
herein, if the portion of the Adjusted Available Distribution Amount
distributable in respect of interest on any class of Offered Certificates on
any Distribution Date is not sufficient to distribute the Interest Distribution
Amount then payable for such class, the shortfall will be distributable to
holders of such class of Certificates on subsequent Distribution Dates, to the
extent of available funds.
Balloon Payments. __________Mortgage Loans, representing_____% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, are
Balloon Mortgage Loans. Balloon Mortgage Loans involve a greater degree of risk
because the ability of a Mortgagor to make a Balloon Payment typically depends
on his ability either to refinance the loan or to sell the related Mortgaged
Property. See "Risk Factors -- Balloon Payments" in the Prospectus.
Ground Leases and Other Leasehold Interests. Two Mortgage Loans,
representing ____ of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date, are secured in part by leasehold interests in two
Mortgaged Properties. Pursuant to Section 365(h) of the Bankruptcy Code,
ground lessees are currently afforded rights not to treat a ground lease as
terminated and to remain in possession of their leased premises upon the
bankruptcy of their ground lessor and the rejection of the ground lease by the
representative of such ground lessor's bankruptcy estate. The leasehold
mortgages provide that the Mortgagor may not elect to treat the ground lease as
terminated on account of any such bankruptcy of, and rejection by, the ground
lessor without the consent of the Servicer. In the event of a bankruptcy of a
ground lessee/borrower, the ground lessee/borrower under the protection of the
Bankruptcy Code has the right to assume (continue) or reject (terminate) any or
all of its ground leases. In the event of concurrent bankruptcy proceedings
involving the ground lessor and the ground lessee/Mortgagor, the Trustee may be
unable to enforce the bankrupt ground lessee/Mortgagor's obligation to refuse
to treat a ground lease rejected by a bankrupt ground lessor as terminated. In
such circumstances, a ground lease could be terminated notwithstanding lender
protection provisions contained therein or in the mortgage.
Attornment Considerations. Some of the tenant leases, including the
anchor tenant leases, contain certain provisions that require the tenant to
attorn to (that is, recognize as landlord under the lease) a successor owner of
the property following foreclosure. Some of the leases, including the anchor
tenant leases, may be either subordinate to the liens created by the Mortgage
Loans or else contain a provision that requires the tenant to subordinate the
lease if the mortgagee agrees to enter into a non-disturbance agreement. In
some states, if tenant leases are subordinate to the liens created by the
Mortgage Loans and such leases do not contain attornment provisions, such
leases may terminate upon the transfer of the property to a foreclosing lender
or purchaser at foreclosure. Accordingly, in the case of the foreclosure of a
Mortgaged Property located in such a state and leased to one or more desirable
tenants under leases that do not contain attornment provisions, such Mortgaged
Property could experience a further decline in value if such tenants' leases
were terminated (e.g., if such tenants were paying above-market rents). If a
Mortgage is subordinate to a lease, the lender will not (unless it has
otherwise agreed with the tenant) possess the right to dispossess the tenant
upon foreclosure of the property, and if the lease contains provisions
inconsistent with the Mortgage (e.g., provisions relating
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to application of insurance proceeds or condemnation awards), the provisions of
the lease will take precedence over the provisions of the Mortgage.
Liquor License Considerations. _______ Mortgage Loans, representing
_____% of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date are secured by hotel properties. The liquor licenses for some of
such properties may be held by the property manager rather than by the related
Mortgagor. The applicable laws and regulations relating to such licenses
generally prohibit the transfer of such licenses to any person. In the event of
a foreclosure of a hotel property it is unlikely that the Trustee (or Special
Servicer) or purchaser in any such sale would be entitled to the rights under
the liquor license for such hotel property and such party would be required to
apply in its own right for such license.
Special Servicer Actions. In connection with the servicing of
Specially Serviced Mortgage Loans, the Special Servicer may take actions with
respect to such Mortgage Loans that could adversely affect the holders of some
or all of the classes of Offered Certificates. As described herein under
"Servicing -- Responsibilities of Special Servicer," the actions of the Special
Servicer will be subject to review and may be rejected by a representative of
the holders of the Monitoring Certificates (as defined herein), who may have
interests in conflict with those of the holders of the other classes of
Certificates. As a result, it is possible that such representative may cause
the Special Servicer to take actions which conflict with the interests of
certain classes of Certificates.
Servicer May Purchase Certificates. The Special Servicer may
purchase, either directly or through an affiliate, a portion of the Class NR
Certificates. Such a purchase by the Special Servicer could cause a conflict
between the Special Servicer's duties pursuant to the Pooling and Servicing
Agreement and the Special Servicer's interest as a holder of a Certificate. The
Pooling and Servicing Agreement provides that each Servicer shall administer
the Mortgage Loans in accordance with the servicing standard set forth therein
without regard to ownership of any Certificate by such Servicer or any
affiliate of such Servicer.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of a pool of fixed rate Mortgage
Loans with an aggregate principal balance as of the Cut-off Date, after
deducting payments of principal due on such date, of approximately
$_____________. Each Mortgage Loan is evidenced by a promissory note (a
"MORTGAGE NOTE") and secured by a mortgage, deed of trust or other similar
security instrument (a "MORTGAGE") creating a first lien on a fee simple or
leasehold interest in a multifamily, retail, hotel, office, industrial, or
other commercial property (a "MORTGAGED PROPERTY"). All of the Mortgage Loans
are nonrecourse loans. Therefore, in the event of a Mortgagor default, recourse
may be had only against the specific property and such limited other assets as
have been pledged to secure a Mortgage Loan, and not against the Mortgagor's
other assets. Except as otherwise indicated all percentages of the Mortgage
Loans described herein are approximate percentages by aggregate principal
balance as of the Cut-off Date.
Of the Mortgage Loans to be included in the Trust Fund _____% were
originated by ACC, ______% by __________________, a ________________, ______%
by __________________, a ________________, and ___________% by ____________, a
______________. The originators of the Mortgage Loans are referred to herein
as the "ORIGINATORS". The Mortgage Loans were originated for sale to ALP. All
the Mortgage Loans were underwritten generally in conformity with certain
guidelines provided by ACC and approved by ALP. See "--Underwriting
Guidelines" below. ALP purchased the Mortgage Loans to be included in the
Mortgage Pool prior to the Delivery Date from each Originator pursuant to a
mortgage loan purchase agreement (the "MORTGAGE LOAN PURCHASE AGREEMENT"). ACC
will acquire the Mortgage Loans to be included in the Mortgage Pool from ALP
and subsequently the Depositor will acquire such Mortgage Loans from ACC on or
before the Delivery Date. The Depositor will cause the Mortgage Loans in the
Mortgage Pool to be assigned to the Trustee pursuant to the Pooling and
Servicing Agreement. AMI will be the Master Servicer and Special Servicer with
respect to all the Mortgage Loans and the Primary Servicer with respect to all
the Mortgage Loans originated by its affiliate, ACC. _________________ will be
the Primary Servicer with respect to the Mortgage Loans originated by
_________________, and _______________________ will be the Primary Servicer
with respect to all of the Mortgage Loans originated by
__________________________. Each Servicer will
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service the Mortgage Loans pursuant to a servicing agreement (each a "SERVICING
AGREEMENT"), among ALP, as the initial purchaser of the Mortgage Loans, the
Master Servicer, the Special Servicer and the related Primary Servicer, and the
Master Servicer and the Special Servicer will also service the Mortgage Loans
pursuant to the Pooling and Servicing Agreement. Upon transfer of the Mortgage
Loans to the Trust Fund, all of the rights and obligations of ALP with respect
to such Mortgage Loans under the related Servicing Agreement will be assigned
to the Trustee.
REPRESENTATIONS AND WARRANTIES
Under a loan sale agreement (the "LOAN SALE AGREEMENT"), ACC will make
certain representations and warranties to the Depositor. Pursuant to the terms
of the Loan Sale Agreement, ACC will be obligated to cure any breach of such
representations and warranties or to repurchase any Mortgage Loan from the
Depositor as to which there exists a breach of any such representation or
warranty that materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan. ACC shall covenant with the
Depositor to repurchase any Mortgage Loan from the Depositor or cure any such
breach within 90 days of receiving notice thereof. Under the Pooling and
Servicing Agreement, the Depositor will assign its rights under the Loan Sale
Agreement to the Trustee for the benefit of the Certificateholders. The sole
remedy available to the Trustee or the Certificateholders is the obligation of
ACC to cure or repurchase any Mortgage Loan in connection with which there has
been a breach of any such representation or warranty which materially and
adversely affects the interest of the Certificateholders in such Mortgage Loan.
ACC has generally represented and warranted as of the Delivery Date
with respect to each Mortgage Loan, among other things, that:
(i) ACC has good and indefeasible title to the related
Mortgage Note and Mortgage and is the sole owner and holder of such
Mortgage Loan, has full right and authority to sell and assign such
Mortgage Loan hereunder, and is transferring such Mortgage Loan to ALP
free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security
interests of any nature.
(ii) Each of the related Mortgage Note, Mortgage and other
agreements executed in connection therewith is genuine and is the
legal, valid and binding obligation of the maker thereof, enforceable
in accordance with its terms except as such enforcement may be limited
by (1) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, redemption or other similar laws affecting the enforcement
of creditors' rights generally and (2) general equity principles
(regardless of whether such enforcement is considered in a proceeding
in equity or at law); and there is no valid offset, defense or
counterclaim or right of rescission to any Mortgage Note or Mortgage,
including the obligation of the mortgagor to pay the unpaid principal
of and interest on the Mortgage Note.
(iii) The terms of the related Mortgage Note and Mortgage
have not been impaired, waived, altered or modified in any material
respect, except by written instruments which have been recorded, if
necessary, to protect the interest of ALP and which have been
delivered to ALP. The substance of any such alteration or
modification is reflected on the Mortgage Loan Schedule, if
applicable; the related mortgagor or guarantor has not been released,
in whole or in part, from its obligations under the related Mortgage
Note, Mortgage or any guaranty related to such Mortgage Note, as the
case may be, other than pursuant to releases previously approved in
writing by ACC or any affiliate thereof, copies of which have been
delivered to ALP.
(iv) There is no default, breach, violation or event of
acceleration existing under the related Mortgage or Mortgage Note, ACC
has not waived any such default, breach, violation or event of
acceleration, and, to the best of ACC's knowledge, no event has
occurred which, with the passing of time or the giving of notice,
would constitute such a default, breach, violation or event of
acceleration.
(v) All federal, state and local laws, rules and
regulations applicable to such Mortgage Loan, including without
limitation, those relating to usury, equal credit opportunity, real
estate settlement procedures or disclosure, have been satisfied or
complied with in all material respects as of the origination date.
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(vi) To the extent required under applicable law, each
originator and subsequent mortgagee was authorized to transact and do
business in the jurisdiction in which the related Mortgaged Property
is located at all times when it held the Mortgage Loan.
(vii) To the best of ACC's knowledge, there is no
proceeding pending or threatened for the total or partial condemnation
of the related Mortgaged Property.
(viii) The Mortgaged Property is in good repair and free and
clear of any damage that would affect materially and adversely the
value of the Mortgaged Property as security for the Mortgage Loan or
the use for which the premises were intended or escrows have been
established for the purpose of effecting necessary repairs and
maintenance.
(ix) No Mortgage Loan is a participation interest, but
instead is a whole loan, all of the interest in which is conveyed
hereunder.
(x) Neither ACC nor any of its agents or affiliates has,
directly or indirectly, advanced funds, or received any advance of
funds by a party other than the related borrower, for the payment of
any amount required by the related Mortgage Note or Mortgage, except
for interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage Loan proceeds, whichever is later, to the
date which preceded by 30 days the first due date under the related
Mortgage Note.
(xi) No scheduled payment under any Mortgage Loan is more
than 30 days past due as of the Date of Conveyance, nor has any
Mortgage Loan been delinquent more than 30 days during the 12 months
prior to the Date of Conveyance.
(xii) Any related Assignment of Leases and Rents creates a
valid first priority assignment of or security interest in the right
to receive all payments due under the related lease, if any, whether
as rental payments or in respect of any purchase option, subject only
to a license from the mortgagee to the mortgagor allowing such
mortgagor to collect all such payments, which license will be
automatically revoked, or at the option of the mortgagee, may be
revoked, upon a default by the mortgagor under the terms of the
Mortgage; and no Person other than the mortgagor owns any interest in
any payments due under such lease that is superior to or of equal
priority with the mortgagee's interest therein.
(xiii) The Mortgage Note relating to each Mortgage Loan
provides for level monthly payments (exclusive of the initial payment
and any balloon payment on a balloon Mortgage Loan) and does not
provide for any grace period that exceeds 10 days during which
remittance by the mortgagor of any monthly payment may be deferred
without the payment of any default interest or late charge therefor;
there is no difference for any period between the amount of interest
accrued on such Mortgage Loan and the amount of interest payable
thereon; and no Mortgage Loan provides for contingent interest.
(xiv) As of origination of each Mortgage Loan the related
borrower was in possession of all material certificates of occupancy
or other similar licenses, permits and other authorizations necessary
and required by applicable law for the use of the related Mortgaged
Property; and all such certificates of occupancy or other similar
licenses, permits and authorizations are valid and in full force and
effect.
(xv) The information set forth on the Mortgage Loan
Schedule is complete, true and correct in all material respects as of
the date or dates respecting which the information is furnished.
(xvi) To the best of ACC's knowledge in reliance upon the
title policy referred to below and the survey for the Mortgaged
Property, the related Mortgage constitutes a valid and enforceable
first lien upon the related Mortgaged Property, including all
buildings thereon and all fixtures attached thereto, subject only to
(A) the lien of current real property taxes and assessments not yet
due and payable, (B) covenants, conditions and restrictions, rights of
way, easements and other matters of public record, none of which
materially interferes with the security intended to be provided by
such Mortgage, (C) exceptions and exclusions specifically referred to
in the lender's title insurance policy described below, none of which
materially
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interferes with the security intended to be provided by such Mortgage,
and (D) other matters to which like properties are commonly subject,
none of which materially interferes with the security intended to be
provided by such Mortgage ("PERMITTED EXCEPTIONS").
(xvii) The proceeds of each Mortgage Loan have been fully
disbursed, or, in cases of partial disbursement there is no
requirement for future advances thereunder, and any and all
requirements imposed by the mortgagee as to completion of any on-site
or off-site improvements and as to disbursements of any escrow funds
therefor have been complied with as of the Date of Conveyance.
(xviii) On the date of origination of each Mortgage Loan, an
ALTA lender's title insurance policy or a comparable form of lender's
title insurance policy or a binding commitment therefor was issued in
an amount not less than the original principal balance of the Mortgage
Loan, or a favorable opinion of counsel was rendered, insuring or
confirming that the related Mortgage constitutes a valid first lien on
the related Mortgaged Property, subject only to the Permitted
Exceptions described above; such title insurance policy is freely
assignable to ALP; on the date of transfer and assignment of such
Mortgage Loan to ALP, such title insurance policy is valid and in full
force and effect, and, immediately following the transfer and
assignment of such Mortgage Loan to ALP, such title insurance policy
will inure to the benefit of ALP, as mortgagee of record; and no
claims have been made under any title insurance policy and ACC has not
taken any action that would cause such title insurance policy not to
be valid and in full force and effect.
(xix) All taxes, governmental assessments, insurance
premiums, and water, sewer and municipal charges, and ground rents, if
any, which previously became due and owing in respect of the related
Mortgaged Property have been paid, or an escrow of funds in an amount
sufficient to cover such payments has been established.
(xx) Each Mortgage Loan is covered by hazard insurance
(and, if applicable, federal flood insurance) in an amount at least
equal to the greater of (A) the amount of the Mortgage Loan on the
related Mortgaged Property, and (B) an amount sufficient to avoid the
application of any coinsurance clause contained in the related
insurance policy, together with a replacement cost rider or other
provision that does not allow for any reduction due to depreciation;
such insurance requires prior notice to ACC of termination or
cancellation, and no such notice has been received; the Mortgage
obligates the related mortgagee to maintain such insurance and, upon
such mortgagor's failure to do so, authorizes the mortgagee to
maintain such insurance at the mortgagor's cost and expense and to
seek reimbursement therefor from such mortgagor; all premium payments
due and owing have been paid.
(xxi) ACC has received a phase I environmental site
assessment (the "ESA") certified as having been prepared in accordance
with the Standard Practice for Environmental Site Assessments, Phase I
Environmental Site Assessment Process (E1527-94) established by the
American Society for Testing and Materials. To the best of ACC's
knowledge, and in reliance on the ESA, there exist no circumstances or
conditions respecting the Mortgaged Property that might (1) constitute
or result in a material violation of any Environmental Law, (2)
require any expenditure material in relation to the principal balance
of the Mortgage Loans as of the Date of Conveyance to achieve or
maintain compliance therewith, (3) impose any material constraint on
operation of the Mortgaged Property or change in the use thereof or
(4) require cleanup, remedial action or other response under any
Environmental Law by the applicable Borrower or any subsequent owner
of the Mortgaged Property, in each case other than those matters
disclosed in the ESAs and for which operation and management programs
or escrows for anticipated costs have been established, as recommended
in the related ESA. Other than as described in the preceding
sentence, ACC has received no notice of (A) any actual or alleged
failure of the Mortgaged Property to comply with any applicable
Environmental Laws in any material respect, (B) any known or alleged
presence of any material amount of Hazardous Substances on, under or
immediately bordering such Mortgaged Property, or (C) any pending or
threatened claim with respect to material environmental matters
relating to such Mortgaged Property.
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(xxii) (1) Each Mortgage Loan is directly secured by a
mortgage on a commercial or multifamily property, and (2) either (A)
substantially all of the proceeds of such Mortgage Loan were used to
acquire or improve or protect an interest in real property that, at
the origination date, was the only security for the Mortgage Loan or
(B) fair market value of such real property was at least equal to 80%
of the principal amount of the Mortgage Loan at origination.
(xxiii) To the best of ACC's knowledge in reliance on the
related title insurance policy, there are no mechanics' or similar
liens or claims which have been filed for work, labor or material (and
no rights are outstanding that under law could give rise to any such
lien) affecting the Mortgaged Property which are or may be prior or
equal to, or coordinate with, the lien of the Mortgage except those
which are insured against by the mortgagee title insurance policy
referred to above.
(xxiv) The related Assignment of Mortgage constitutes a
legal, valid and binding assignment of such Mortgage to ALP, and the
related Reassignment of Assignment of Leases and Rents, if any,
constitutes a legal, valid and binding assignment thereof to ALP.
(xxv) The mortgage instruments relating to such Mortgage
Loan contain provisions protective of the mortgagee's interests
customary in ACC's commercial mortgage loans at the time such Mortgage
Loan was originated; and the related Mortgage Note or the related
Mortgage contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the
security, including realization by judicial or, if applicable,
nonjudicial foreclosure, and there is no exemption available to the
borrower which would interfere with such right to foreclose, except as
may be limited by (A) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium, redemption or other similar laws
affecting the enforcement of creditors' rights generally and (B)
general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(xxvi) The related Mortgage Note is not, and has not been
since the date of origination of the Mortgage Loan, secured by any
collateral except the lien of the related Mortgage, any related
Assignment of Leases and Rents and any related security agreement and
escrow agreement; the security for the Mortgage Loan consists only of
the related Mortgaged Property, any leases (including without
limitation any credit leases) thereof any appurtenances, fixtures and
other property located thereon; and such Mortgaged Property does not
secure any mortgage loan other than the Mortgage Loan being
transferred and assigned to ALP hereunder except for Mortgage Loans
which are cross-collateralized with other Mortgage Loans being
conveyed to ALP or subsequent transferee hereunder and identified on
the Mortgage Loan Schedule.
(xxvii) If the related Mortgage is a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has
been properly designated and currently so serves and is named in the
deed of trust or has been substituted in accordance with applicable
law, and no fees or expenses are or will become payable to the trustee
under the deed of trust, except in connection with a trustee's sale
after default by the mortgagor or in connection with the release of
the Mortgaged Property or related security for the Mortgage Loan
following the payment of the Mortgage Loan in full.
(xxviii) All escrow deposits and payments relating to
such Mortgage Loan are in the possession, or under the control, of
ACC, and all amounts required to be deposited by the related borrower
have been deposited and there are no deficiencies with regard thereto.
(xxix) To the best of ACC's knowledge in reliance upon a
review of the title policy and survey for the Mortgaged Properties,
none of the improvements which were included for the purpose of
determining the appraised value of the related Mortgaged Property at
the time of the origination of such Mortgage Loan lies outside of the
boundaries and building restriction lines of such property in effect
at the time such improvements were constructed, and no improvements on
adjoining properties materially encroach upon such Mortgaged Property.
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(xxx) With respect to any Mortgage which is secured in
whole or in part by the interest of a borrower as a lessee under a
ground lease and based upon the terms of the ground lease or an
estoppel letter from the ground lessor, either (1) the ground lessor's
fee interest is subordinated to the lien of the mortgage or (2) the
following apply to such ground lease:
(A) The ground lease or a memorandum thereof has
been duly recorded, the ground lease permits the interest of
the lessee thereunder to be encumbered by the related
mortgage, and there has not been a material change in the
terms of the ground lease since its recordation, with the
exception of written instruments which are part of the related
Mortgage File.
(B) The ground lease is not subject to any liens
or encumbrances superior to, or of equal priority with, the
related Mortgage, other than the related ground lessor's
related fee interest.
(C) The borrower's interest in the ground lease
is assignable to the holder of the Mortgage upon notice to,
but without the consent of, the lessor thereunder and, in the
event that it is so assigned, it is further assignable by the
trustee and its successors and assigns upon notice to, but
without a need to obtain the consent of, such lessor.
(D) As of the Date of Conveyance, the ground
lease is in full force and effect and no default has occurred
under the ground lease and there is no existing condition
which, but for the passage of time or the giving of notice,
would result in a default under the terms of the ground lease.
(E) The ground lease requires the lessor
thereunder to give notice of any default by the lessee to the
mortgagee; and the ground lease, or an estoppel letter
received by the mortgagee from the lessor, further provides
that notice of termination given under the ground lease is not
effective against the mortgagee unless a copy of the notice
has been delivered to the mortgagee in the manner described in
such ground lease or estoppel letter.
(F) The mortgagee is permitted a reasonable
opportunity (including, where necessary, sufficient time to
gain possession of the interest of the lessee under the ground
lease) to cure any default under the ground lease, which is
curable after the receipt of notice of any default before the
lessor thereunder may terminate the ground lease.
(G) The ground lease has a term which extends not
less than 10 years beyond the maturity date of the related
Mortgage Loan.
(H) The ground lease requires the lessor to enter
into a new lease upon termination of the ground lease for any
reason, including rejection of the ground lease in a
bankruptcy proceeding.
(I) Under the terms of the ground lease and the
related Mortgage, taken together, any related insurance
proceeds will be applied either to the repair or restoration
of all or part of the related Mortgaged Property, with the
mortgagee or a trustee appointed by it having the right to
hold and disburse the proceeds as the repair or restoration
progresses, or to the payment of the outstanding principal
balance of the Mortgage Loan together with any accrued
interest thereon.
(J) Such ground lease does not impose
restrictions on subletting.
(K) Either the ground lease or the related
Mortgage contains the borrower's covenant that such ground
lease shall not be amended, canceled or terminated with the
prior written consent of the mortgagee.
(L) In the case of any default under the ground
lease which is not curable by the mortgagee, or in the event
of the bankruptcy or insolvency of the ground lessee, the
mortgagee has the right, following termination of the existing
ground lease or rejection thereof by a bankruptcy
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trustee or similar party, to enter into a new ground lease
with the lessor on substantially the same terms as the
existing ground lease.
(M) The ground lease or an estoppel letter
contains a covenant that the lessor thereunder is not
permitted, in the absence of an uncured default, to disturb
the possession, interest or quiet enjoyment of any lessee in
the relevant portion of the Mortgaged Property subject to such
ground lease for any reason, or in any manner, which would
materially adversely affect the security provided by the
related Mortgage.
(xxxi) Such Mortgage Loan has been originated in compliance
in all material respects with the underwriting guidelines.
(xxxii) All items required to be included in the Mortgage
File for each Mortgage Loan are so included and each Mortgage File has
been delivered to the Custodian,
(xxxiii) With respect to any Mortgage which is secured
by a senior housing or nursing home facility ("FACILITY"):
(A) Based upon representations by the borrower
and each facility operator or manager (each an "OPERATOR"),
each borrower and each Facility complies with all federal,
state and local laws, regulations, quality and safety
standards, accreditation standards and requirements of the
applicable state Department of Health (each a "DOH") and all
other federal, state or local governmental authorities
including, without limitation, those relating to the quality
and adequacy of medical care, distribution of pharmaceuticals,
rate setting, equipment, personnel, operating policies,
additions to facilities and services and fee splitting.
(B) All governmental licenses, permits,
regulatory agreements or other approvals or agreements
necessary or desirable for the use and operation of each
Facility as intended are held by the applicable borrower or
Operator and are in full force and effect, including, without
limitation, a valid certificate of need ("CON") or similar
certificate, license, or approval issued by the DOH for the
requisite number of beds, and approved provider status in any
approved provider payment program (collectively, the
"LICENSES").
(C) Based upon representations and covenants in
the Mortgage and, where applicable, certificates of government
officials, the Licenses, including, without limitation, the
CON:
(1) May not be, and have not been,
transferred to any location other than the Facility;
(2) Have not been pledged as collateral
security for any other loan or indebtedness; and
(3) Are held free from restrictions or
known conflicts which would materially impair the use
or operation of the Facility as intended, and are not
provisional, probationary or restricted in any way.
(D) So long as the Mortgage remains outstanding,
no borrower or Operator is permitted pursuant to the terms of
the Mortgage without the consent of the holder of the Mortgage
to:
(1) rescind, withdraw, revoke, amend,
modify, supplement, or otherwise alter the nature,
tenor or scope of the Licenses for any Facility
(other than the addition of services or other matters
expanding or improving the scope of such license);
(2) amend or otherwise change any
Facility's authorized bed capacity and/or the number
of beds approved by the DOH; or
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(3) replace or transfer all or any part
of any Facility's beds to another site or location.
(E) Based upon representations and covenants in
the Mortgage, each Facility is in compliance with all
requirements for participation in Medicare and Medicaid,
including, without limitation, the Medicare and Medicaid
Patient Protection Act of 1987; each Facility is in
conformance in all material respects with all insurance,
reimbursement and cost reporting requirements, and has a
current provider agreement which is in full force and effect
under Medicare and Medicaid.
(F) To the best of ACC's knowledge, there is no
threatened or pending revocation, suspension, termination,
probation, restriction, limitation, or nonrenewal affecting
any borrower, Operator, or Facility or any participation or
provider agreement with any third-party payor, including
Medicare, Medicaid, Blue Cross and/or Blue Shield, and any
other private commercial insurance managed care and employee
assistance program (such programs, the "THIRD-PARTY PAYORS'
PROGRAMS") to which any borrower or Operator presently is
subject. The Mortgage contains representations and covenants
by the borrower that all Medicaid, Medicare, and private
insurance cost reports and financial reports submitted by the
borrower or Operator are and will be materially accurate and
complete and have not been and will not be misleading in any
material respects, and except as otherwise disclosed, no cost
reports for any Facility remain "open" or unsettled.
(G) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage, no
borrower, Operator or Facility is currently the subject of any
proceeding by any governmental agency, and no notice of any
violation has been received from a governmental agency that
would, directly or indirectly, or with the passage of time:
(1) Have a material adverse impact on
any borrower's ability to accept and/or retain
patients or result in the imposition of a fine, a
sanction, a lower rate certification or a lower
reimbursement rate for services rendered to eligible
patients;
(2) Modify, limit or annul or result in
the transfer, suspension, revocation or imposition of
probationary use of any borrower's Licenses; or
(3) Affect any borrower's continued
participation in the Medicaid or Medicare programs or
any other of the Third-Party Payors' Programs, or any
successor programs thereto, at current rate
certifications.
(H) Based upon representations and covenants in
the Mortgage and, where available, certificates of government
officials, each Facility and the use thereof complies in all
material respects with all applicable local, state and federal
building codes, fire codes, health care, nursing facility and
other similar regulatory requirements (the "PHYSICAL PLANT
STANDARDS") and no waivers of Physical Plant Standards exist
at any of the Facilities.
(I) Based upon representations and covenants in
the Mortgage and, where available, certificates of government
officials, no Facility has received a "Level A" (or
equivalent) violation, and no statement of charges or
deficiencies has been made or penalty enforcement action has
been undertaken against any Facility, Operator or borrower, or
against any officer, director or stockholder of any Operator
or borrower by any governmental agency during the last three
calendar years, and there have been no violations over the
past three years which have threatened any Facility's, any
Operator's or any borrower's certification for participation
in Medicare or Medicaid or the other Third-Party Payors'
Programs.
(J) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage,
there are no current, pending or outstanding Medicaid,
Medicare or Third-Party Payors' Programs reimbursement audits
or appeals pending at any of the Facilities concerning
allegations of fraud or that might have a material adverse
effect on the operations of the Facility.
S-25
<PAGE> 32
(K) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage,
there are no current or pending Medicaid, Medicare or
Third-Party Payors' Programs recoupment efforts at any of the
Facilities that might have a material adverse effect on the
operations of the Facility.
(L) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage, no
borrower has pledged its receivables as collateral security
for any other loan or indebtedness.
(M) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage,
there are no patient or resident care agreements with patients
or residents or with any other persons which deviate in any
material adverse respect from the standard form customarily
used at the Facilities.
(N) The borrower has represented in the related
Mortgage that all patient or resident records at each
Facility, including patient or resident trust fund accounts,
are true and correct in all material respects.
(O) The borrower has represented in the related
Mortgage that any existing agreement relating to the
management or operation of any Facility with respect to any
Facility is in full force and effect and is not in default by
any party thereto.
(P) The terms of each Mortgage require that no
Facility, Operator or borrower shall, other than in the normal
course of business, change the terms of any of the Third-Party
Payors' Programs or its normal billing payment or
reimbursement policies and procedures with respect thereto
(including, without limitation, the amount and timing of
finance charges, fees and write-offs) without the prior
written consent of the holder of the Mortgage.
The following terms have the following definitions for purposes of the
above representations and warranties:
"ASSIGNMENT OF LEASES AND RENTS" means, with respect to any Mortgage
Loan, an assignment to the Mortgagee of all of the Borrower's rights to receive
rental payments from the related Tenant pursuant to the related Lease, which
assignment may be contained in the related Mortgage or in one or more separate
documents duly executed by the Borrower in connection with the Mortgage Loan.
In the case of any Mortgage Loan secured by more than one Mortgaged Property,
the term "Assignment of Leases and Rents" shall refer to each Assignment of
Leases and Rents relating to each such Mortgaged Property and such Mortgage
Loan.
"ASSIGNMENT OF MORTGAGE" means, with respect to any Mortgage Loan, an
assignment of the Mortgage or equivalent instrument, in recordable form, by
which ACC assigns such Mortgage in connection with the transfer of the related
Mortgage Loan. In the case of any Mortgage Loan secured by more than one
Mortgage, the term "Assignment of Mortgage" shall refer to each Assignment of
Mortgage relating to such Mortgage and such Mortgage Loan.
"BORROWER" means a borrower or prospective borrower under a Mortgage
Loan.
"MORTGAGE FILE" means, with respect to each Mortgage Loan, the
mortgage loan documents and any other documents relating to such Mortgage Loan,
in each case to the extent they are delivered to the Custodian.
"MORTGAGE LOAN SCHEDULE" means a schedule of Mortgage Loans delivered to the
Custodian.
"PERSON" means any individual, partnership, corporation, limited
liability company, joint venture, trust or other entity.
"REASSIGNMENT OF ASSIGNMENT OF LEASES AND RENTS" means, with respect
to any Mortgage Loan, an assignment to the Custodian of the related Assignment
of Leases and Rents, duly executed and in suitable form for recording in the
jurisdiction in which the related Mortgaged Property is located. In the case
of any Mortgage Loan
S-26
<PAGE> 33
secured by more than one Mortgaged Property, the term "Reassignment of
Assignment of Leases and Rents" shall refer to each Reassignment of Assignment
of Leases and Rents relating to each such Mortgaged Property and such Mortgage
Loan.
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day
of each month. All of the Mortgage Loans are secured by first liens on fee
simple or leasehold interests in the related Mortgaged Properties. As of the
Cut-off Date, the Mortgage Loans had characteristics set forth below. The
totals in the following tables may not add due to rounding.
S-27
<PAGE> 34
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent by
Percent by Aggregate Aggregate
Number Number Principal Principal
of of Balance as of Balance as of
Mortgage Mortgage the Cut-off the Cut-off
Mortgage Rate Loans Loans Date Date
- ------------- ----- ----- ---- ----
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Mortgage Interest Rate: _______%
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Principal Balances Mortgage Mortgage Balance as of Balance as of
as of the Cut-off Date Loans Loans the Cut-off Date the Cut-off Date
- ---------------------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Average Principal Balance as of the Cut-off Date: $_____________
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Original Term Mortgage Mortgage Balance as of Balance as of
in Months Loans Loans the Cut-off Date the Cut-off Date
--------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Original Term to Maturity in Months: ______
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Term Mortgage Mortgage Balance as of Balance as of
in Months Loans Loans the Cut-off Date the Cut-off Date
--------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Remaining Term to Maturity in Months: _______
S-28
<PAGE> 35
MONTH AND YEAR OF ORIGINATION
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
Month/Year Loans Loans the Cut-off Date the Cut-off Date
- ---------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
YEAR OF SCHEDULED MATURITY
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
Year Loans Loans the Cut-off Date the Cut-off Date
- ---- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
__________ of the Mortgage Loans, representing ______% of the Mortgage
Loans, as a percentage of the aggregate Principal Balance as of the Cut-off
Date, are Balloon Mortgage Loans.
BALLOON MORTGAGE LOANS
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Original Term Mortgage Mortgage Balance as of Balance as of
in Months Loans Loans the Cut-off Date the Cut-off Date
--------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Original Term to Maturity in Months: _____
S-29
<PAGE> 36
BALLOON MORTGAGE LOANS
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Term Mortgage Mortgage Balance as of Balance as of
in Months Loans Loans the Cut-off Date the Cut-off Date
--------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Remaining Term to Maturity in Months: _____
The following table sets forth the range of remaining amortization
terms of each Balloon Mortgage Loan. The remaining amortization term of a
Balloon Mortgage Loan represents the number of months required to fully
amortize the Cut-off Balance of each Balloon Mortgage Loan.
BALLOON MORTGAGE LOANS
REMAINING AMORTIZATION TERM
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Amortization Mortgage Mortgage Balance as of Balance as of
Term in Months Loans Loans the Cut-off Date the Cut-off Date
-------------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Remaining Amortization Term in Months: _____
The following two tables set forth the range of Cut-off Date LTV
Ratios and Maturity Date LTV Ratios of the Mortgage Loans. A "CUT-OFF DATE LTV
RATIO" is a fraction, expressed as a percentage, the numerator of which is the
Cut- off Date Balance of a Mortgage Loan, and the denominator of which is the
appraised value of the related Mortgaged Property as determined by an appraisal
thereof obtained in connection with the origination of such Mortgage Loan. A
"MATURITY DATE LTV RATIO" is a fraction, expressed as a percentage, the
numerator of which is the principal balance of a Mortgage Loan on the related
Maturity Date assuming all scheduled payments due prior thereto are made and
there are no principal prepayments, and the denominator of which is the
appraised value of the related Mortgaged Property as determined by an appraisal
thereof obtained in connection with the origination of such Mortgage Loan.
Because the value of Mortgaged Properties at the Maturity Date may be different
than such appraisal value, there can be no assurance that the loan-to-value
ratio for any Mortgage Loan determined at any time following origination
thereof will be lower than the Cut-off Date LTV Ratio or Maturity Date LTV
Ratio, notwithstanding any positive amortization of such Mortgage Loan. It is
also possible that the market value of a Mortgaged Property securing a Mortgage
Loan may decline between the origination thereof and the related Maturity Date.
An appraisal of each of the Mortgaged Properties was made between
__________ and ______________. It is possible that the market value of a
Mortgaged Property securing a Mortgage Loan has declined since the most recent
appraisal for such Mortgaged Property. All appraisals were obtained by the
related Originator in accordance with the requirements of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA").
S-30
<PAGE> 37
CUT-OFF DATE LTV RATIOS
<TABLE>
<CAPTION>
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Maturity Date Mortgage Mortgage Balance as of Balance as of
LTV Ratio Loans Loans the Cut-off Date the Cut-off Date
- --------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Cut-off Date LTV Ratio: _________.
BALLOON MORTGAGE LOAN
MATURITY DATE LTV RATIOS
<TABLE>
<CAPTION>
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Maturity Date Mortgage Mortgage Balance as of Balance as of
LTV Ratio Loans Loans the Cut-off Date the Cut-off Date
- --------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Maturity Date LTV Ratio: _________.
The following table sets forth the range of 199__ Debt Service
Coverage Ratios for the Mortgage Loans. The "DEBT SERVICE COVERAGE RATIO" or
"DSCR" for any Mortgage Loan for any period is the ratio of Net Operating
Income produced by the related Mortgaged Property for such period covered by
the operating statement for such period to the amounts of principal and
interest due under such Mortgage Loan for the same period. The DSCRs for 199__
are for periods of 12 months or annualized based upon periods that range from 3
to 11 months. The DSCRs for 199__ and 199__ for each Mortgage Loan as set forth
in Annex A hereto are for the entire fiscal year. Generally, "NET OPERATING
INCOME" for a Mortgaged Property equals the operating revenues for such
Mortgaged Property minus its operating expenses and replacement reserves, but
without giving effect to debt service, depreciation, non-recurring capital
expenditures, tenant improvements, leasing commissions and similar items. The
operating statements for the Mortgaged Properties used in preparing the
following table were obtained from the respective Mortgagors. The information
contained therein was unaudited, and the Depositor has made no attempt to
verify its accuracy. The information derived from these sources was not uniform
among the Mortgage Loans. In some instances, adjustments were made to such
operating statements principally for real estate tax and insurance expenses
resulting in increases or decreases in net operating income stated therein
based upon the Depositor's evaluation that more appropriate information was
available. In addition, obvious capital expenditures were eliminated and
replacement reserve estimates were incorporated for each
S-31
<PAGE> 38
property based on ACC's standard underwriting ranges considering property age
and improvements. The following ranges were utilized (by property type) in
estimating the replacement reserve: office, $____ to $____ per net rentable
square foot; multifamily (except student housing), $____ to $____ per unit;
student housing, $____ to $____ per unit; retail, $____ to $____ per net
rentable square foot; industrial, $____ to $____ per net rentable square foot;
hotel, _% to _% of gross income; self-storage, $____ to $____ per net rentable
square foot; nursing home, $____ to $____ per bed; and mobile home park, $___
to $___ per pad.
199___ DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Debt Service Mortgage Mortgage Balance as of Balance as of
Coverage Ratio Loans Loans the Cut-off Date the Cut-off Date
- -------------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Debt Service Coverage Ratio: _________.
[Information on certain characteristics of certain specific Mortgage
Loans to be provided here.]
The Mortgage Loans are secured by Mortgaged Properties located in
______ different states. The table below sets forth the states in which the
Mortgaged Properties are located:
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
State Loans Loans the Cut-off Date the Cut-off Date
- ----- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
S-32
<PAGE> 39
PROPERTY TYPES
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
Type Loans Loans the Cut-off Date the Cut-off Date
- ---- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Multi-Family . . . . . . . . . . . . . . . . . .
Retail -- with anchor tenant(1) . . . . . . . . .
Hotel . . . . . . . . . . . . . . . . . . . . . .
Retail -- without anchor tenant(1) . . . . . . .
Nursing Home . . . . . . . . . . . . . . . . . .
Office . . . . . . . . . . . . . . . . . . . . .
Industrial . . . . . . . . . . . . . . . . . . .
Mobile Home Park . . . . . . . . . . . . . . . .
Self Storage . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . 100.00% $ 100.00%
------- -------
</TABLE>
(1) For purposes of this table, the properties with an anchor tenant are as
designated in Annex A. The anchor tenant, if any, is set forth in Annex A.
YEARS SINCE THE MORTGAGED PROPERTIES WERE BUILT (1)
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Property Age Mortgage Mortgage Balance as of Balance as of
In Years Loans Loans the Cut-off Date the Cut-off Date
- -------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Property Age in Years: _____
(1) See Annex A for the date on which the Mortgaged Property most recently
underwent some degree of capital improvements.
S-33
<PAGE> 40
PHYSICAL OCCUPANCY PERCENTAGES (1)
MULTIFAMILY AND MOBILE HOME PARKS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Occupancy Percentage: ________%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
RETAIL
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Occupancy Percentage: __________%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL DAILY OCCUPANCY PERCENTAGES (1)
HOTEL
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Occupancy Percentage: ______%
(1) See Annex A for the period over which occupancy percentages were calculated
for each Mortgaged Property.
S-34
<PAGE> 41
PHYSICAL OCCUPANCY PERCENTAGES (1)
OFFICE
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Occupancy Percentage: ___________%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
OTHER
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
Weighted Average Occupancy Percentage: ___________%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
With certain limited exceptions relating to casualty and condemnation
proceeds, or other prepayments beyond the borrower's control, all of the
Mortgage Loans prohibit the prepayment thereof until a date specified in the
related Mortgage Note (such period, the "LOCK-OUT PERIOD" and the date of
expiration thereof, the "LOCK-OUT DATE") and/or provide that upon any voluntary
principal prepayment of a Mortgage Loan, the related Mortgagor will be required
to pay a prepayment premium or yield maintenance penalty (a "PREPAYMENT
PREMIUM"). The following table sets forth the percentage of the declining
aggregate balance of all the Mortgage Loans that on June 1 of each of the years
indicated will be within their related Lock-out Period and/or in which a
principal prepayment must be accompanied by a Prepayment Premium.
S-35
<PAGE> 42
PREPAYMENT LOCK-OUT/PREPAYMENT PREMIUM ANALYSIS
PERCENTAGE OF MORTGAGE LOANS BY OUTSTANDING PRINCIPAL BALANCE
AS OF THE DATE INDICATED ASSUMING NO PREPAYMENTS
<TABLE>
<CAPTION>
CURRENT JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE
------- ------- -------- ------- ---------------- ---------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lock-out . . . . . . . . .
Prepayment Premium
Yield Maintenance (1) . . .
7.00 - 7.99% (2) . . . .
6.00 - 6.99% (2) . . . .
5.00 - 5.99% (2) . . . .
4.00 - 4.99% (2) . . . .
3.00 - 3.99% (2) . . . .
2.00 - 2.99% (2) . . . .
1.00 - 1.99% (2) . . . .
0.01 - 0.99% (2) . . . .
No Prepayment Premium . . .
Total . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Aggregate Principal
Balance of the
Mortgage Loans (3) . . .
Percentage of Cut-off
Date Principal
Balance of the Mortgage
Loans
Outstanding . . . . . . . 100.0%
</TABLE>
(1) The Mortgage Loans generally require the payment of a Prepayment
Premium in connection with any principal prepayment, in whole or in
part. Any Prepayment Premium will equal the present value, as of the
date of prepayment, of the remaining Monthly Payments from such date
of prepayment through the related stated maturity (including the
Balloon Payment), determined by discounting such payments at a U.S.
Treasury rate specified therein, minus the then outstanding balance,
subject to a minimum Prepayment Premium equal to 1% of the principal
balance of such Mortgage Loan being prepaid.
(2) Mortgage Loan requires a Prepayment premium equal to indicated
percentage of amount prepaid.
(3) Millions of dollars.
S-36
<PAGE> 43
RELATED BORROWERS AND OTHER ISSUES
[Description of certain borrowers and issues.]
See Annex A for additional information on the Mortgage Loans.
ESCROWS
All of the Mortgage Loans except for _______ Mortgage Loans,
representing ______% of the Mortgage Loans, provide for monthly escrows to
cover property taxes on the Mortgaged Properties. Monthly escrows to cover
insurance premiums on the Mortgaged Properties are also generally required,
except with respect to Mortgage Loans originated by ________________________
where the Servicer provides force-placed coverage and monitors the related
Mortgagor's compliance.
_______ of the Mortgage Loans, which represent _______% of the
Mortgage Loans also require monthly escrows to cover ongoing replacements and
capital repairs.
_________ of the Mortgage Loans, which represent ______% of the
Mortgage Loans, also required upfront or monthly escrows for the full term or a
portion of the term of the related Mortgage Loan to cover anticipated
re-leasing costs, including tenant improvements and leasing commissions.
See Annex A for additional information on the monthly escrows on the Mortgage
Loans.
UNDERWRITING GUIDELINES
[DESCRIPTION OF UNDERWRITING GUIDELINES]
ADDITIONAL INFORMATION
A Current Report on Form 8-K (the "FORM 8-K") will be available to
purchasers of the Offered Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Offered Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will include the following nine classes of Offered Certificates
designated as the Class A1, Class A1X, Class A2, Class A2X, Class B, Class C,
Class BCX, Class D and Class E Certificates. In addition to the Offered
Certificates, the Certificates will also include the Class F, Class G, Class
NR, Class R-I, Class R-II and Class R-III Certificates. Only the Offered
Certificates are offered hereby. The Certificates represent in the aggregate
the entire beneficial ownership interest in a Trust Fund consisting of: (i) a
pool of fixed rate Mortgage Loans and all payments under and proceeds of the
Mortgage Loans received after the Cut-off Date (exclusive of payments of
principal and interest due on or before the Cut-off Date); (ii) any Mortgaged
Property acquired on behalf of the Trust Fund through foreclosure or deed in
lieu of foreclosure (upon acquisition, an "REO PROPERTY"); (iii) such funds or
assets as from time to time are deposited in the Collection or Distribution
Accounts or any account established in connection with REO Properties (the "REO
ACCOUNT"); and (iv) the rights of the mortgagee under all insurance policies
with respect to the Mortgage Loans.
The Class A1, Class A1X, Class A2 and Class A2X Certificates will
evidence approximately an initial ___% undivided interest in the Trust Fund.
The Class B Certificates will evidence approximately an initial __% undivided
interest in the Trust Fund. The Class C Certificates will evidence
approximately an initial ___% undivided interest in the Trust Fund. The Class D
Certificates will evidence approximately an initial ____% undivided interest in
the Trust Fund. The Class E Certificates will evidence approximately an initial
___% undivided interest in the Trust Fund.
S-37
<PAGE> 44
The Class BCX Certificates consist of the following components: Class
BCX component B and Class BCX component C. The Class BCX component B and Class
BCX component C are not separately transferrable.
The Offered Certificates (the "DTC REGISTERED CERTIFICATES") will be
issued, maintained and transferred on the book-entry records of The Depository
Trust Company ("DTC") and its Participants (as defined in the Prospectus). The
DTC Registered Certificates, other than the Interest Only Certificates, will be
issued in minimum denominations of $__________ and integral multiples of $____
in excess thereof. The Interest Only Certificates will be issued in
denominations of $100,000 Notional Amount and integral multiples of $_____
Notional Amount.
The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Company has been
informed by DTC that DTC's nominee will be Cede & Co. ("CEDE"). No person
acquiring an interest in the DTC Registered Certificates (a "BENEFICIAL OWNER")
will be entitled to receive a certificate representing such person's interest
(a "DEFINITIVE CERTIFICATE"), except as set forth below under "--Book-Entry
Registration of Certain of the Senior Certificates -- Definitive Certificates."
Unless and until Definitive Certificates are issued for the DTC Registered
Certificates under the limited circumstances described herein, all references
to actions by Certificateholders with respect to the DTC Registered
Certificates shall refer to actions taken by DTC upon instructions from its
Participants, and all references herein to distributions, notices, reports and
statements to Certificateholders with respect to the DTC Registered
Certificates shall refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the DTC Registered Certificates, for
distribution to Beneficial Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
General. Beneficial Owners that are not Participants or Intermediaries
(as defined in the Prospectus) but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, the related DTC Registered
Certificates may do so only through Participants and Intermediaries. In
addition, Beneficial Owners will receive all distributions of principal of and
interest on the related DTC Registered Certificates from the Trustee through
DTC and Participants. Accordingly, Beneficial Owners may experience delays in
their receipt of payments. Unless and until Definitive Certificates are issued
for the related DTC Registered Certificates, it is anticipated that the only
registered Certificateholder of such DTC Registered Certificates will be Cede,
as nominee of DTC. Beneficial Owners will not be recognized by the Trustee or
the Master Servicer as Certificateholders, as such term is used in the Pooling
and Servicing Agreement; provided, however, that Beneficial Owners will be
permitted to request and receive information furnished to Certificateholders by
the Trustee subject to receipt by the Trustee of a certification in form and
substance acceptable to the Trustee stating that the person requesting such
information is a Beneficial Owner. Otherwise, the Beneficial Owners will be
permitted to receive information furnished to Certificateholders and to
exercise the rights of Certificateholders only indirectly through DTC, its
Participants and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "RULES"), DTC is required to make book-entry transfers
of DTC Registered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such DTC Registered
Certificates. Participants and Intermediaries with which Beneficial Owners have
accounts with respect to such DTC Registered Certificates similarly are
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Owners. Accordingly,
although Beneficial Owners will not possess physical certificates evidencing
their interests in the DTC Registered Certificates, the Rules provide a
mechanism by which Beneficial Owners, through their Participants and
Intermediaries, will receive distributions and will be able to transfer their
interests in the DTC Registered Certificates.
None of the Depositor or the Trustee will have any liability for any
actions taken by DTC or its nominee, including, without limitation, actions for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the DTC Registered Certificates held by Cede, as nominee
for DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates -- Book-Entry Registration and Definitive
Certificates."
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Upon the occurrence of an event described in the Prospectus in the
seventh paragraph under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates," the Trustee is required to notify,
through DTC, Participants who have ownership of DTC Registered Certificates as
indicated on the records of DTC of the availability of Definitive Certificates
for their DTC Registered Certificates. Upon surrender by DTC of the definitive
certificates representing the DTC Registered Certificates and upon receipt of
instructions from DTC for re-registration, the Trustee will reissue the DTC
Registered Certificates as Definitive Certificates issued in the respective
principal amounts owned by individual Beneficial Owners, and thereafter the
Trustee and the Master Servicer will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC and the DTC Registered
Certificates, see "Description of the Certificates -- Book-Entry Registration
and Definitive Certificates" in the Prospectus.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be
made on the [25th] day of each month or, if such [25th] day is not a business
day, then on the next succeeding business day, commencing in ________ 199__
(each, a "DISTRIBUTION DATE"). All distributions (other than the final
distribution on any Certificate) will be made by the Trustee to the persons in
whose names the Certificates are registered at the close of business on each
Record Date, which will be the last business day of the month preceding the
month in which the related Distribution Date occurs. Such distributions will be
made by wire transfer in immediately available funds to the account specified
by the Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder will have provided the Trustee
with wiring instructions as provided in the Pooling and Servicing Agreement and
is the registered holder of Certificates with an initial aggregate denomination
of at least $__________ or, otherwise, by check. The final distribution on any
Certificate will be made in like manner, but only upon presentment or surrender
of such Certificate at the location specified in the notice to the holder
thereof of such final distribution. All distributions made with respect to a
class of Certificates on each Distribution Date will be allocated pro rata
among the outstanding Certificates of such class based on their respective
Percentage Interests. The "PERCENTAGE INTEREST" evidenced by any Certificate is
equal to the initial denomination thereof as of the Delivery Date, divided by
the initial Class Balance or Notional Amount, as applicable, for such class.
The aggregate distribution to be made on the Certificates on any Distribution
Date shall equal the Available Distribution Amount.
The "AVAILABLE DISTRIBUTION AMOUNT" for any Distribution Date is an
amount equal to (a) the sum of (i) the amount on deposit in the Primary
Collection Account (as defined herein) as of the close of business on the
related Determination Date, which amount will include scheduled payments on the
Mortgage Loans due on or prior to the related Due Date immediately preceding,
and collected as of, such Determination Date (to the extent not distributed on
previous Distribution Dates) and unscheduled payments and other collections on
the Mortgage Loans collected during the related Remittance Period and (ii) the
aggregate amount of any P&I Advances made by each Servicer in respect of such
Distribution Date (not otherwise included in clause (i) above) net of (b) the
portion of the amount described in clause (a)(i) hereof that represents (i)
Monthly Payments due on a Due Date subsequent to the end of the related
Remittance Period, (ii) any amounts payable or reimbursable therefrom to any
Servicer or the Trustee or (iii) any servicing and trustee compensation.
Pass-Through Rate on the Certificates. The "PASS-THROUGH RATES" on the
Class A1 and Class A2 Certificates are fixed and are set forth on the cover
hereof. The Pass-Through Rates on the Class A1X, Class A2X, Class B and Class C
Certificates will be equal to the weighted average of the Remittance Rates in
effect from time to time on the Mortgage Loans minus the Pass-Through Rates on
the Class A1 and Class A2 Certificates, respectively. The Class BCX
Certificates will be entitled to interest at the Pass-Through Rate on the
components. The Pass-Through Rate on the Class BCX component B is _______% per
annum and on the Class BCX component C is _______% per annum. The Pass-Through
Rates on the Class D and Class E Certificates will be equal to the weighted
average of the Remittance Rates in effect from time to time on the Mortgage
Loans. The "REMITTANCE RATE" for any Mortgage Loan is equal to the excess of
the Mortgage Interest Rate thereon (without giving effect to any modification
or other reduction thereof following the Cut-off Date) over the sum of the
applicable Servicing Fee Rate and the fee payable to the Trustee. The fee
payable to the Trustee will be _______% per annum. The Mortgage Interest Rate
for each of the Mortgage Loans which provide for the computation of interest
other than on the basis of a 360-day year consisting of twelve 30-day
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months (a "30/360 BASIS") (that is the basis on which interest on the
Certificates accrues) will be adjusted to reflect that difference.
Interest Distributions on the Certificates. Subject to the
distribution of the Principal Distribution Amount to the Holders of classes of
Certificates of a higher priority, as described under "Priority of
Distributions" below, Holders of each class of Certificates will be entitled to
receive on each Distribution Date, to the extent of the Available Distribution
Amount for such Distribution Date (net of any interest accrued on any
Collateral Value Adjustment subsequently recovered and any Net Prepayment
Premium) (the "ADJUSTED AVAILABLE DISTRIBUTION AMOUNT"), distributions
allocable to interest in an amount (the "INTEREST DISTRIBUTION AMOUNT") equal
to the sum of interest accrued during the period from and including the first
day of the month preceding the month of the Distribution Date) (or from the
Cut-off Date in the case of the initial Distribution Date) to and including the
last day of the month preceding the month of the Distribution Date (calculated
on the basis of a 360-day year consisting of twelve 30-day months) on the Class
Balance (or the Notional Amount, in the case of the Interest Only Certificates,
or the related components) of such class of Certificates or such components, as
the case may be, outstanding immediately prior to such Distribution Date, at
the then-applicable Pass-Through Rate (the "INTEREST ACCRUAL AMOUNT") less such
class' (or component's) pro rata share, by Interest Accrual Amount, of any
interest shortfall not related to a Mortgagor delinquency or default, such as
Prepayment Interest Shortfalls (as defined herein) and shortfalls associated
with exemptions provided by the Relief Act (as defined in the Prospectus). The
Notional Amount of the Class A1X Certificates will equal the Class Balance of
the Class A1 Certificates. The Notional Amount of the Class A2X Certificates
will equal the Class Balance of the Class A2 Certificates. The Notional Amount
of the Class BCX component B Certificates will equal the Class Balance of the
Class B Certificates. The Notional Amount of the Class BCX component C
Certificates will equal the Class Balance of the Class C Certificates. A
Notional Amount does not entitle the Interest Only Certificates (or any
component thereof) to any distributions of principal. If the Adjusted Available
Distribution Amount for any Distribution Date is less than the Interest
Distribution Amount for such Distribution Date, the shortfall will be part of
the Interest Distribution Amount distributable to holders of Certificates
affected by such shortfall on subsequent Distribution Dates, to the extent of
available funds. Any such shortfall will bear interest at the related
Pass-Through Rate.
To the extent not necessary to reimburse the Master Servicer for
reductions in its compensation to cover Prepayment Interest Shortfalls, in
addition to the related Interest Distribution Amount, the Interest Only
Certificates will receive _____%, and the remaining Offered Certificates will
receive ____%, of any Net Prepayment Premium paid with respect to the Mortgage
Loans. The Net Prepayment Premium payable to the Interest Only Certificates
will be paid to the holders of the Class A1X Certificates while the Class A1
Certificates are outstanding. On each Distribution Date after the Distribution
Date on which the Class Balances of the Class A1 Certificates has been reduced
to zero, any Net Prepayment Premium payable to the Interest Only Certificates
will be paid to the holders of the Class A2X Certificates while the Class A2
Certificates are outstanding. On each Distribution Date after the Distribution
Date on which the Class Balances of the Class A1 and Class A2 Certificates have
been reduced to zero, any Net Prepayment Premium payable to the Interest Only
Certificates will be paid to the holders of the Class BCX Certificates while
the Class B or Class C Certificates are outstanding. No portion of the Net
Prepayment Premium will be payable to the Interest Only Certificates after the
Distribution Date on which the Class Balances of the Class A1, Class A2, Class
B and Class C Certificates have been reduced to zero. On each Distribution
Date, the Net Prepayment Premium not payable to the Master Servicer or the
holders of the Interest Only Certificates will be paid the holders of the class
of Offered Certificates then outstanding with the highest principal payment
priority.
To the extent any Mortgage Loan is prepaid in full or in part between
a Determination Date and the related Due Date immediately following such
Determination Date, an interest shortfall may result on the second Distribution
Date following such Determination Date because interest on prepayments in full
or in part will only accrue to the date of payment (such shortfall, a
"PREPAYMENT INTEREST SHORTFALL"). To the extent any Mortgage Loan is prepaid in
full or in part between the related Due Date and the Determination Date
immediately following such Due Date, the interest on such prepayment will be
included in the Available Distribution Amount for the immediately succeeding
Distribution Date (the "PREPAYMENT INTEREST EXCESS"). If a Mortgage Loan is
prepaid in full or in part during any Remittance Period, any related Prepayment
Interest Shortfall shall be offset to the extent of any Prepayment Interest
Excess and any Prepayment Premium collected during such Remittance Period. If
the Prepayment Interest Shortfall for any Remittance Period exceeds any
Prepayment Interest Excess and any Prepayment Premiums collected during such
period, such shortfall shall only be offset by an amount up to the portion of
the Servicing Fee payable to the Master Servicer on the related Distribution
Date. To the extent that any such shortfall shall have been offset by a portion
of the Servicing Fee,
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the Master Servicer shall be entitled to any excess of the Prepayment Interest
Excess and Prepayment Premiums over the Prepayment Interest Shortfall for any
subsequent period.
The "NET PREPAYMENT PREMIUM" with respect to any Distribution Date
will equal the excess of (a) the total amount of Prepayment Premiums received
during the related Remittance Period over (b) the Prepayment Interest Shortfall
for any Remittance Period over the Prepayment Interest Excess for any
Remittance Period.
The Pass-Through Rates on the Certificates with variable Pass-Through
Rates will not be affected by the deferral of interest or reduction of the
Mortgage Interest Rate on any Mortgage Loan by the Special Servicer or by the
occurrence of either such event in connection with any bankruptcy proceeding
involving the related borrower. The amount of any resulting interest shortfall
will be allocated to the Certificates, in the order described under
"Subordination" below.
Principal Distributions on the Offered Certificates. Holders of the
Certificates will be entitled to receive on each Distribution Date in reduction
of the related Class Balance in the order described herein until the related
Class Balance is reduced to zero, to the extent of the balance of the Adjusted
Available Distribution Amount remaining after the payment of the Interest
Distribution Amount for such Distribution Date for the classes of Certificates
with the highest priority for interest payments (as described under "Priority
of Distributions' below), distributions in respect of principal in an amount
(the "PRINCIPAL DISTRIBUTION AMOUNT") equal to the aggregate of (i) all
scheduled payments of principal (other than Balloon Payments) due on the
Mortgage Loans on the related Due Date whether or not received and all
scheduled Balloon Payments received, (ii) if the scheduled Balloon Payment is
not received, with respect to any Balloon Mortgage Loans on and after the
Maturity Date thereof, the principal payment that would need to be received in
the related month in order to fully amortize such Balloon Mortgage Loan with
level monthly payments by the end of the term used to derive scheduled payments
of principal due prior to the related Maturity Date, (iii) to the extent not
previously advanced any unscheduled principal recoveries received during the
related Remittance Period in respect of the Mortgage Loans, whether in the form
of liquidation proceeds, insurance proceeds, condemnation proceeds or amounts
received as a result of the purchase of any Mortgage Loan out of the Trust Fund
and (iv) any other portion of the Adjusted Available Distribution Amount
remaining undistributed after payment of any interest payable on the
Certificates for the related or any prior Distribution Date, including any
Prepayment Interest Excess not offset by any Prepayment Interest Shortfall
occurring during the related Remittance Period or otherwise required to
reimburse the Master Servicer, as described herein, and interest distributions
on the Mortgage Loans, in excess of interest distributions on the Certificates,
resulting from the allocation of amounts described in this clause (iv) to
principal distributions on the Certificates. The Interest Only Certificates do
not have a Class Balance and are therefore not entitled to any principal
distributions.
PRIORITY OF DISTRIBUTIONS
The Adjusted Available Distribution Amount for each Distribution Date
will be applied (a) first to distributions of interest on the classes of
Certificates outstanding with the highest priority for interest payment (as
described below), (b) second to distributions of the Principal Distribution
Amount to the classes of Certificates then entitled to distribution of
principal as described below, and (c) third, to distributions of interest on
each class of Certificates other than the classes described in clause (a),
above, in the order of priority described below; provided that on any
Distribution Date on which the Class Balance of a class of Certificates is
reduced to zero pursuant to clause (b) above, interest distributions pursuant
to clause (a) above will be made to the class of Certificates outstanding with
the next highest priority for interest payments prior to making distributions
of the Principal Distribution Amount thereto pursuant to clause (b) above. The
priority for interest payments for purposes of clauses (a) and (c), above, is:
first to distributions of interest on the Class A1, Class A1X, Class A2 and
Class A2X Certificates, pro rata, based on their respective Interest Accrual
Amounts; second to distributions of interest on the Class B and Class BCX
component B Certificates, pro rata, based on their respective Interest Accrual
Amounts; third to distributions of interest on the Class C and Class BCX
component C Certificates, pro rata, based on their respective Interest Accrual
Amounts; fourth to distributions of interest on the Class D Certificates; fifth
to distributions of interest on the Class E Certificates; and then to the
remaining classes of Certificates up to their respective Interest Accrual
Amounts, all as described under "--Distributions -- Interest Distributions on
the Certificates" above. The Principal Distribution Amount for such
Distribution Date will be applied to distributions of principal of the Class
A1, Class A2, Class B, Class C, Class D and Class E Certificates, in that
order,
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and then to distributions of principal of the Other Classes of Certificates
until their respective Class Balances have been reduced to zero.
OTHER CERTIFICATES
The Class F, Class G, Class NR, Class R-I, Class R-II and Class R-III
Certificates are not offered hereby. The Pass-Through Rates on the Class F,
Class G and Class NR Certificates will equal the weighted average of the
Remittance Rates in effect from time to time on the Mortgage Loans. The Class
Balances on the Class F, Class G and Class NR Certificates will equal
$___________, $___________, and $___________, respectively, and approximately
$_____________, in the aggregate. The Class R-I, Class R-II and Class R-III
Certificates will not have a Pass-Through Rate or a Class Balance.
SUBORDINATION
Neither the Offered Certificates nor the Mortgage Loans are insured or
guaranteed against losses suffered on the Mortgage Loans by any government
agency or instrumentality or by the Depositor, the Trustee, the Master
Servicer, the Special Servicer, the Primary Servicers, or any affiliate
thereof.
In addition to the payment priorities described under "--Priority of
Distributions" above, certain Certificates will be subordinated to other
Certificates with respect to the allocation of Realized Losses. Realized Losses
on the Mortgage Loans will be allocated, first, to the Other Certificates,
second, to the Class E Certificates, third, to the Class D Certificates,
fourth, to the Class C Certificates, fifth, to the Class B Certificates, in
each case until the related Class Balance is reduced to zero; and thereafter,
to the Class A1 and Class A2 Certificates. The Class Balance of a class of
Certificates will be reduced by the principal portion of any Realized Losses
allocated to such class.
In addition to Realized Losses, shortfalls will also occur as a result
of each Servicer's right to receive payments of interest with respect to
unreimbursed advances, the Special Servicer's right to compensation with
respect to Mortgage Loans which are or have been Specially Serviced Mortgage
Loans and as a result of other Trust Fund expenses. Such shortfalls will be
allocated as described above to the classes of Certificates with the lowest
payment priority for purposes of the application of Available Distribution
Amount in the order described herein.
Within 30 days after the earliest to occur of (i) 90 days after the
date on which an uncured delinquency occurs in respect of a Mortgage Loan, (ii)
60 days after the date on which a receiver is appointed (if such appointment
remains in effect during such 60-day period) in respect of a Mortgaged
Property, (iii) as soon as reasonably practical after the date on which a
Mortgaged Property becomes an REO Property or (iv) the date on which a change
in the payment rate, Mortgage Interest Rate, principal balance, amortization
terms or Maturity Date of any Specially Serviced Mortgage Loan becomes
effective, an appraisal will be obtained by the Special Servicer from an
independent MAI appraiser at the expense of the Trust Fund (except if an
appraisal has been conducted within the 12 month period preceding such event).
As a result of such appraisal, a Collateral Value Adjustment may result, which
Collateral Value Adjustment will be allocated, for purposes of determining
distributions of interest to the Certificates, in the manner and priority
described above with respect to Realized Losses. Notwithstanding the foregoing,
a Collateral Value Adjustment will be zero with respect to such a Mortgage Loan
if (i) the event giving rise to such Collateral Value Adjustment is the
extension of the maturity of such Mortgage Loan, (ii) the payments on such
Mortgage Loan were not delinquent during the twelve month period immediately
preceding such extension and (iii) the payments on such Mortgage Loan are then
current, provided, that if at any later date there occurs a delinquency in
payment with respect to such Mortgage Loan, the Collateral Value Adjustment
will be recalculated and applied to the same extent as it would have been
previously applied. In addition, in any case, upon the occurrence of any event
giving rise to a subsequent Collateral Value Adjustment (including the
delinquency referred to in the immediately preceding sentence) more than twelve
months after an appraisal was obtained with respect to a Collateral Value
Adjustment, the Special Servicer will order a new appraisal as described above,
within 30 days of the occurrence of any such event giving rise to a subsequent
Collateral Value Adjustment and will adjust the amount of the Collateral Value
Adjustment in accordance therewith.
The "COLLATERAL VALUE ADJUSTMENT" for any Distribution Date with
respect to any Mortgage Loan will be an amount equal to the excess of (a) the
principal balance of such Mortgage Loan over (b) the excess of (i) 90% of the
current appraised value of the related Mortgaged Property as determined by an
independent MAI appraisal of such
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Mortgaged Property over (ii) the sum of (A) to the extent not previously
advanced by a Servicer, all unpaid interest on such Mortgage Loan at a per
annum rate equal to the Mortgage Interest Rate, (B) all unreimbursed Advances
and interest thereon, and (C) any unpaid Servicing and Trustee fees and (D) all
currently due and delinquent real estate taxes and assessments, insurance
premiums and, if applicable, ground rents in respect of such Mortgaged Property
(net of any amount escrowed or otherwise available for payment of the amount
due on such Mortgage Loan). The excess of the principal balance of any Mortgage
Loan over the related Collateral Value Adjustment is referred to herein as the
"ADJUSTED COLLATERAL VALUE". A Collateral Value Adjustment shall result in a
reduction of the Class Balance (or Notional Amount) of any class of
Certificates solely for the purposes specified herein and shall not be a
permanent reduction of the Class Balance (or Notional Amount) of any class of
Certificates prior to the occurrence of a Realized Loss.
A "REALIZED LOSS", in the case of any Mortgage Loan described in
clause (a) or clause (b) of the succeeding sentence, is equal to the sum of (a)
the Stated Principal Balance of any Loss Mortgage Loan, (b) interest thereon
not previously distributed to Certificateholders through the last day of the
month in which such Mortgage Loan became a Loss Mortgage Loan, (c) any advances
made by any Servicer which remain unreimbursed and (d) any interest accrued on
such advances (see "--Advances" below) as of such time, reduced by any amounts
recovered thereon as of such time and, in the case of any Mortgage Loan
described in clause (c) of the succeeding sentence, is the amount determined to
have been permanently forgiven as described in such clause (c). A "LOSS
MORTGAGE LOAN" is any Mortgage Loan (a) which is finally liquidated, (b) with
respect to which the Master Servicer or the Special Servicer has determined
that an advance which has been made or would otherwise be required to be made,
is not, or, if made, would not be, recoverable out of proceeds on such Mortgage
Loan or (c) with respect to which a portion of the principal balance thereof
has been permanently forgiven whether pursuant to a modification or a valuation
resulting from a proceeding initiated under the Bankruptcy Code. The "STATED
PRINCIPAL BALANCE" of any Mortgage Loan as of any date of determination is the
principal balance as of the Cut-off Date minus the sum of (i) the principal
portion of each Monthly Payment due on such Mortgage Loan after the Cut-off
Date, to the extent received from the Mortgagor or advanced and distributed to
Certificateholders, and (ii) any unscheduled amounts of principal received with
respect to such Mortgage Loans, to the extent distributed to
Certificateholders.
To the extent any amount on a Mortgage Loan with respect to which a
Collateral Value Adjustment was required is recovered in excess of the Adjusted
Collateral Value (after giving effect to all other amounts previously collected
with respect thereto), such amount will be distributed to each holder of a
class of Certificates to which a Collateral Value Adjustment has been
allocated, in the order of payment described hereinabove up to an amount equal
to interest accrued on the sum of any Collateral Value Adjustment allocated to
such class of Certificates (or component) in reduction of the Class Balance (or
Notional Amount) thereof at the Pass-Through Rate in effect during such
applicable Collection Period from the date of such allocation to the end of the
Collection Period in which such an amount is recovered. The Class Balance (or
Notional Amount) of each such class (or component) shall be increased by the
amount of such excess over such interest payment in the order of payment
described hereinabove. Any reduction of the Class Balance (or Notional Amount)
of a class (or component) of Certificates following a Collateral Value
Adjustment and any increase thereof following an excess recovery will affect
the Percentage Interest and the calculation of any interest or voting right of
such class of Certificates.
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances out of its own funds or
funds held in the Master Collection Account (as defined herein) that are not
required to be part of the Available Distribution Amount for such Distribution
Date or to remit any advances made by the related Primary Servicer or the
Special Servicer ("P&I ADVANCES"), in an amount equal to the excess of all
Monthly Payments (net of the Servicing Fee) due over the amount actually
received, subject to the limitations described herein. In addition, each
Servicer will be required to advance certain property related expenses. The
Servicers generally may not advance any amounts, other than P&I Advances,
unless such advance is contemplated in the related Asset Strategy Report (as
defined herein) for the related Mortgage Loan or such advance is for one of
several purposes specified in the Pooling and Servicing Agreement as "PROPERTY
PROTECTION EXPENSES". All such advances will be reimbursable to the related
Servicer from late payments, insurance proceeds, liquidation proceeds,
condemnation proceeds or amounts paid in connection with the purchase of such
Mortgage Loan or, as to any such advance that is deemed not otherwise
recoverable, from any amounts on deposit in the Primary Collection Account or
the Master Collection Account to the
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extent such amounts are not required to be otherwise applied pursuant to the
terms of the related Mortgage Loan. Notwithstanding the foregoing, the Master
Servicer will be obligated to make any such advance only to the extent that it
determines in its reasonable good faith judgment that such advance, if made,
would be recoverable out of net proceeds (including any amounts escrowed with
respect to the related Mortgage Loan net of any reasonably anticipated expenses
payable therefrom) on the related Mortgage Loan. None of the Servicers will be
required to advance the full amount of any Balloon Payment not made by the
related Mortgagor. To the extent a Servicer is required to make a P&I Advance
on and after the Due Date for such Balloon Payment, such P&I Advance shall not
exceed an amount equal to a monthly payment calculated by the Special Servicer
necessary to fully amortize the related Mortgage Loan over the period used for
purposes of calculating the scheduled monthly payments thereon prior to the
related Maturity Date. Any failure by the Master Servicer to make an advance as
required under the Pooling and Servicing Agreement will constitute an event of
default thereunder, in which case the Trustee will be obligated to make any
required advance, in accordance with the terms of the Pooling and Servicing
Agreement.
Each Servicer shall be entitled to interest on the aggregate amount of
all advances made by such Servicer at a per annum rate equal to the prime rate
reported in The Wall Street Journal. See "Risk Factors -- Effect of Mortgagor
Delinquencies and Defaults" herein.
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity on the Offered Certificates will be affected by
the rate of principal payments on the Mortgage Loans including, for this
purpose, prepayments, which may include amounts received by virtue of
repurchase, condemnation, casualty or foreclosure. The rate of principal
payments on the Offered Certificates will correspond to the rate of principal
payments (including prepayments) on the related Mortgage Loans.
Each Mortgage Loan either prohibits voluntary prepayments during a
certain number of years following the origination thereof and/or allows the
related Mortgagor to prepay the principal balance thereof in whole during a
certain number of years following the origination if accompanied by payment of
a Prepayment Premium. See Annex A hereto and the table entitled "Prepayment
Lock-out/Prepayment Premium Analysis" under "Description of the Mortgage Pool
- -- Certain Characteristics of the Mortgage Loans" herein. Any Net Prepayment
Premium collected on a Mortgage Loan will be distributed to the holders of the
Interest Only Certificates as described herein. See "Description of the
Certificates -- Distributions -- Interest Distributions on the Certificates"
and "Certain Prepayment, Maturity and Yield Considerations" herein, and "Yield
Considerations" in the Prospectus.
The yield to maturity on each class of the Offered Certificates will
depend on, among other things, the rate and timing of principal payments
(including prepayments, defaults, liquidations and purchases of Mortgage Loans
due to a breach of a representation and warranty) on the Mortgage Loans and the
allocation thereof to reduce the Class Balance or Notional Amount of such class
or its components. The yield to maturity on each class of the Offered
Certificates will also depend on the Pass-Through Rate and the purchase price
for such Certificates. The yield to investors on any Class of Offered
Certificates will be adversely affected by any allocation thereto of Prepayment
Interest Shortfalls on the Mortgage Loans, which may result from the
distribution of interest only to the date of a prepayment occurring during any
month following the related Determination Date (rather than a full month's
interest) to the extent any such interest shortfall is not offset by Prepayment
Premiums, any Prepayment Interest Excess or the portion of the Servicing Fee
for such Distribution Date allocable to the Master Servicer.
In general, if a class of Offered Certificates is purchased at a
premium and principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if a class
of Offered Certificates is purchased at a discount and principal distributions
thereon occur at a rate slower than that assumed at the time of purchase, the
investor's actual yield to maturity will be lower than that assumed at the time
of purchase.
If a Mortgage Loan becomes a Specially Serviced Mortgage Loan, the
Special Servicer may adopt a servicing strategy which affects the yield to
maturity of one or more classes of Offered Certificates.
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The Rated Final Distribution Date for the Certificates will be
_____________, 20___ which is the second anniversary of the date at which all
the Mortgage Loans have zero balances, assuming no prepayments and that the
Mortgage Loans which are Balloon Loans fully amortize according to their
amortization schedule and no Balloon Mortgage Payment is made.
WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Offered
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments and payments made pursuant
to any applicable policies of insurance) on the Mortgage Loans are made.
Principal payments on the Mortgage Loans may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments, partial prepayments and liquidations due to a default or other
dispositions of the Mortgage Loans).
The table of Percent of Initial Certificate Balance Outstanding for
the Class A1, Class A2, Class B, Class C, Class D and Class E Certificates at
the respective percentages of CPR set forth below indicates the weighted
average lives of such Certificates and sets forth the percentage of the initial
principal amount of such Certificates that would be outstanding after each of
the dates shown at the indicated percentages of CPR. The table has been
prepared on the basis of the characteristics of the Mortgage Loans set forth in
Annex A and on the basis of the following assumptions: (i) the Mortgage Loans
prepay at the indicated percentage of CPR when the Mortgage Loans are no longer
in their respective Lock-out Periods; (ii) the maturity date of each of the
Balloon Mortgage Loans is not extended; (iii) distributions on the Offered
Certificates are received in cash, on the 25th day of each month, commencing in
______________; (iv) no defaults or delinquencies in, or modifications, waivers
or amendments respecting, the payment by the Mortgagors of principal and
interest on the Mortgage Loans occur; (v) prepayments represent payment in full
of individual Mortgage Loans and are received on the respective Due Dates and
include a month's interest thereon; (vi) there are no repurchases of Mortgage
Loans due to breaches of any representation and warranty, or pursuant to an
optional termination as described under "Description of the Pooling and
Servicing Agreement -- Termination" herein or otherwise; and (vii) the Offered
Certificates are purchased on ______________.
Based on the foregoing assumptions, the table indicates the weighted
average lives of the Class A1, Class A2, Class B, Class C, Class D and Class E
Certificates and sets forth the percentages of the initial Class Balance of
each such class of Offered Certificates that would be outstanding after the
Distribution Date in _________ of each of the years indicated, at various
percentages of CPR. Neither CPR nor any other prepayment model or assumption
purports to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans included in the Mortgage Pool. Variations in the
actual prepayment experience and the balance of the Mortgage Loans that prepay
may increase or decrease the percentage of initial Class Balance (and weighted
average life) shown in the following table. Such variations may occur even if
the average prepayment experience of all such Mortgage Loans is the same as any
of the specified assumptions.
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<PAGE> 52
PERCENT OF INITIAL CLASS BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
Class A Class A2 Class B
Distribution ---------- ----------- -----------
Date 0% % % % 0% % % % 0% % % %
------------ -- --- --- --- -- --- --- --- -- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
WAL(1)
</TABLE>
<TABLE>
<CAPTION>
Class C Class D Class E
Distribution ---------- ----------- -----------
Date 0% % % % 0% % % % 0% % % %
------------ -- --- --- --- -- --- --- --- -- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
WAL(1)
</TABLE>
(1) The weighted average life of a class of Offered Certificates is determined
by (i) multiplying the amount of each distribution of principal by the
number of years from the date of issuance to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the total principal
distributions on such class of Certificates.
INTEREST ONLY CERTIFICATES YIELD CONSIDERATIONS
The sensitivity of the yield to maturity on the Interest Only
Certificates to both the timing of receipt of prepayments and the overall rate
of principal prepayments and defaults on the Mortgage Loans will be offset to
some extent by the payment of a portion of any Net Prepayment Premium to the
Interest Only Certificates entitled thereto. No such offset is available
following a default on a Mortgage Loan.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Interest Only Certificates to various constant rates of
prepayment on the Mortgage Loans by projecting the monthly aggregate payments
on the Interest Only Certificates and computing the corresponding pre-tax
yields to maturity on a corporate bond equivalent basis, based on the
assumptions described in clauses (i) through (vii) in the second paragraph
preceding the table entitled "Percent of Initial Class Balance Outstanding at
the Following Percentages of CPR" under the heading "Certain Prepayment,
Maturity and Yield Considerations -- Weighted Average Life of the Offered
Certificates" above, including the assumptions regarding the performance of the
Mortgage Loans which may differ from the actual performance thereof and
assuming the aggregate purchase prices and Pass-Through Rates set forth below
and assuming further that the initial Notional Amounts of the Interest Only
Certificates are as set forth herein. The yield maintenance calculations are
based on the market yield on ____________ of actively traded Treasury
securities of appropriate maturities. ____% of any Net Prepayment Premium will
be allocated to the Class A1X Certificates through the Distribution Date on
which the Class Balance of the Class A1 Certificates has been reduced to zero.
Thereafter, ____% of any Net Prepayment Premium will be allocated to the Class
A2X Certificates through the Distribution Date on which the Class Balance of
the Class A2 Certificates has been reduced to zero. Thereafter, ____% of any
Net Prepayment Premium will be allocated to the Class BCX Certificates through
the Distribution Date on which the Class Balances of the Class B and Class C
Certificates have been reduced to zero. Any differences between such
assumptions and the actual characteristics and performance of the Mortgage
Loans and of the Certificates may result in yields being different from those
shown in such tables. Discrepancies between assumed and actual characteristics
and performance underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
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<PAGE> 53
PRE-TAX YIELD TO MATURITY OF THE CLASS A1X CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE CPR PREPAYMENT ASSUMPTION RATES
AS A PERCENTAGE OF THE
NOTIONAL AMOUNT ASSUMED PASS-THROUGH RATE(1) 0% % % %
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
(1) Calculated based on the weighted average of the Remittance Rates of the
Mortgage Loans as of the Cut-off Date. The Pass-Through Rate on such
Certificates will be subject to adjustment on each Distribution Date.
PRE-TAX YIELD TO MATURITY OF THE CLASS A2X CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE
AS A PERCENTAGE OF THE CPR PREPAYMENT ASSUMPTION RATES
NOTIONAL AMOUNT ASSUMED PASS-THROUGH RATE(1) 0% % % %
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
(1) Calculated based on the weighted average of the Remittance Rates of the
Mortgage Loans as of the Cut-off Date. The Pass-Through Rate on such
Certificates will be subject to adjustment on each Distribution Date.
PRE-TAX YIELD TO MATURITY OF THE CLASS BCX CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE
AS A PERCENTAGE OF THE
NOTIONAL AMOUNT CPR PREPAYMENT ASSUMPTION RATES
OF EACH COMPONENT ASSUMED PASS-THROUGH RATE(2) 0% % % %
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
(2) Calculated based on the initial weighted average of the Pass-Through Rates
of the components. The Pass-Through Rate on the Class BCX Certificates will
be subject to adjustment on each Distribution Date.
Each pre-tax yield to maturity set forth in the preceding tables was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Interest Only Certificates would
cause the discounted present value of such assumed stream of cash flows to
equal the assumed purchase price listed in the corresponding table. Accrued
interest is included in the assumed purchase price of each class of Interest
Only Certificates and is used in computing the corporate bond equivalent yields
shown. These yields do not take into account the different interest rates at
which investors may be able to reinvest funds received by them as distributions
on the Interest Only Certificates, and thus do not reflect the return on any
investment in the Interest Only Certificates when, as applicable, any
reinvestment rates other than the discount rates set forth in the preceding
tables are considered.
Notwithstanding the assumed prepayment rates reflected in the
preceding tables, it is highly unlikely that the Mortgage Loans will be prepaid
according to one particular pattern. For this reason and because the timing of
cash flows is critical to determining yields, the pre-tax yield to maturity on
the Interest Only Certificates is likely to differ from those shown in the
tables, even if all of the Mortgage Loans prepay at the indicated constant
percentages of CPR over any given time period or over the entire life of the
Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Interest Only Certificates will
conform to the yields described herein. Moreover, the various remaining terms
to maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding tables at the various constant
percentages of CPR specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed. Investors are urged to make their
investment decisions based on their determinations as to anticipated rates of
prepayment under a variety of scenarios. Investors in the Interest Only
Certificates should fully consider the risk that an extremely rapid rate of
prepayments on the Mortgage Loans could result in the failure of such investors
to fully recover their investments. In addition, holders of the Class A1X and
Class A2X Certificates generally have rights to relatively larger portions of
interest payments on Mortgage Loans with higher Mortgage Interest Rates; thus,
the yield on the Class A1X and Class A2X Certificates will be materially
adversely affected to a greater extent than
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on the other Interest Only Certificates if the Mortgage Loans with higher
Mortgage Interest Rates prepay faster than the Mortgage Loans with lower
Mortgage Rates.
For additional considerations relating to the yield on the
Certificates, see "Yield Considerations" in the Prospectus.
CLASS C, CLASS BCX, CLASS D AND CLASS E YIELD CONSIDERATIONS
If the Class Balances of the Other Certificates are reduced to zero,
the yield to maturity on the Class E Certificates will become extremely
sensitive to losses on the Mortgage Loans (and the timing thereof), because the
entire amount of such losses will be allocated to the Class E Certificates. The
aggregate initial Class Balance of the Other Certificates is equal to
approximately ____% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date. If the Class Balances of the Other Certificates and the
Class E Certificates are reduced to zero, the yield to maturity on the Class D
Certificates will become extremely sensitive to losses on the Mortgage Loans
(and the timing thereof), because the entire amount of such losses will be
allocated to the Class D Certificates. The aggregate initial Class Balance of
the Class E and the Other Certificates is equal to approximately ____% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date. If
the Class Balances of the Other Certificates, the Class E and the Class D
Certificates are reduced to zero, the yield to maturity on the Class C and
Class BCX Certificates will become extremely sensitive to losses on the
Mortgage Loans (and the timing thereof), because the entire amount of such
losses will be allocated to the Class C and Class BCX Certificates. The
aggregate initial Class Balance of the Class D, Class E and Other Certificates
is equal to approximately ____% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date.
The Special Servicer will be entitled to receive, with respect to each
Specially Serviced Mortgage Loan compensation in the form of a percentage of
collections and a percentage of the outstanding principal balance of any
Specially Serviced Mortgage Loan which is returned to a performing status prior
to the right of Certificateholders to receive distributions on the
Certificates. Such compensation will result in shortfalls which will be
allocated to the Certificates in the manner provided for Realized Losses.
Consequently it is possible that shortfalls will be allocated to the Offered
Certificates with respect to any Specially Serviced Mortgage Loan
notwithstanding the fact that such Mortgage Loan is returned to a performing
status. See "Servicing -- Servicing and Other Compensation and Payment of
Expenses" herein.
The information set forth herein concerning the services has been
provided by the related Servicer. Neither the Depositor nor any other person
makes any representation or warranty as to the accuracy or completeness of such
information.
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of principal payments and Realized
Losses. Investors in the Class C and Class BCX Certificates and particularly
the Class D and Class E Certificates should fully consider to risk that
Realized Losses on the Mortgage Loans could result in a failure of such
investors to fully recover their investments. See "Yield Considerations" in the
Prospectus.
SERVICING
SERVICERS
AMRESCO Management, Inc. AMRESCO Management, Inc. ("AMI"), a Texas
corporation, will serve as Master Servicer and Special Servicer for all the
Mortgage Loans and as Primary Servicer for all the Mortgage Loans originated by
ACC.
AMI is a wholly owned subsidiary of AMRESCO, INC. ("AMRESCO"). The
principal offices of AMI are located at 700 North Pearl Street, Suite 2400,
L.B. No. 342, Dallas, Texas 75201. The servicing of all performing loans will
be performed by the AMRESCO Services Division of AMI located in Atlanta,
Georgia. As of ____________, 199__, AMRESCO's portfolio consisted of
approximately _________ loans with an aggregate principal balance of
approximately $______ billion.
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____________________. _________________________ ("_________"), a
__________ corporation, will serve as Primary Servicer for all the Mortgage
Loans originated by ________________________.
__________, a wholly-owned subsidiary of ____________________, is
engaged in the asset management, servicing, liquidation, collection, asset
valuation and consulting and related activities with nonaffiliated companies
and governmental entities, including the Federal Deposit Insurance Corporation
and Resolution Trust Corporation. _____________'s operating office is located
in ______________, __________, and _________ has managed and serviced real
estate assets in all 50 states, the District of Columbia and Puerto Rico.
As of __________________, 199__, ____________ was responsible for
managing and servicing of approximately _______ assets, consisting of loans,
foreclosed real estate assets and other assets with a total principal balance
in excess of $____billion of which $_____billion is administered under special
servicing contracts. ________ has provided servicing in some capacity for ____
portfolios securing commercial mortgage backed securities.
___________________________. _______________________, a __________
corporation ("_________"), will act as Primary Servicer with respect to the
Mortgage Loans originated by ________________. As of ___________, 199__,
___________ had a net worth of approximately $_____ million and a total
commercial and multifamily mortgage loan servicing portfolio (including
mortgage loans serviced for its own account and for others) of approximately
$___________ billion. ____________________'s principal executive offices are
located at _________________________________________________________________,
and its telephone number is (___) ___-____. ________________ conducts
operations from its headquarters in ____________ and from offices located in
_____________, ______________, _____________, ___________, ____________,
____________ and _________________.
The information set forth herein concerning the Servicers has been
provided by the related Servicer. Neither the Depositor nor any other person
makes any representation or warranty as to the accuracy or completeness of such
information.
RESPONSIBILITIES OF MASTER SERVICER AND PRIMARY SERVICER
Under the Servicing Agreements, the Master Servicer and each Primary
Servicer are required to service and administer the Mortgage Loans solely on
behalf of and in the best interests of and for the benefit of the
Certificateholders, in accordance with the terms of the Servicing Agreement and
the Mortgage Loans and to the extent consistent with such terms, with the
higher of (a) the standard of care, skill, prudence and diligence with which
the Master Servicer and each Primary Servicer, respectively, service and
administer mortgage loans that are held for other portfolios that are similar
to the Mortgage Loans and (b) the standard of care, skill, prudence and
diligence with which the Master Servicer and each Servicer, respectively,
service and administer mortgage loans for their own portfolio and are similar
to the Mortgage Loans, in either case, giving due consideration to customary
and usual standards of practice of prudent institutional multifamily and
commercial mortgage lenders, loan servicers and asset managers.
RESPONSIBILITIES OF SPECIAL SERVICER
The servicing responsibility on a particular Mortgage Loan will be
transferred to the Special Servicer upon the occurrence of certain servicing
transfer events (each, a "SERVICING TRANSFER EVENT"), including the following:
(i) the Mortgage Loan becomes a "DEFAULTED MORTGAGE LOAN" because it is more
than 60 days delinquent in whole or in part in respect of any monthly payment
or is delinquent in whole or in part in respect of the related Balloon Payment;
(ii) the related Mortgagor has entered into or consented to bankruptcy,
appointment of a receiver or conservator or a similar insolvency or similar
proceeding, or the Mortgagor has become the subject of a decree or order for
such a proceeding which shall have remained in force undischarged or unstayed
for a period of 60 days; (iii) the Master Servicer or the Primary Servicer
shall have received notice of the foreclosure or proposed foreclosure of any
other lien on the Mortgaged Property; (iv) in the judgment of the Master
Servicer or the Primary Servicer, a payment default has occurred and is not
likely to be cured by the related Mortgagor within 60 days; (v) the related
Mortgagor admits in writing its inability to pay its debts generally as they
become due, files a petition to take advantage of any applicable insolvency or
reorganization statute, makes an assignment for the benefit of its creditors,
or voluntarily suspends payment of its obligations; (vi) any other material
default has in the Master Servicer's or the Primary Servicer's judgment
occurred
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which is not reasonably susceptible to cure within the time periods and on the
conditions specified in the related mortgage; (vii) the related Mortgaged
Property becomes an REO Property; (viii) if for any reason, the Primary
Servicer cannot enter into an assumption agreement upon the transfer by the
related Mortgagor of the mortgage; or (ix) an event has occurred which has
materially and adversely affected the value of the related Mortgaged Property
in the reasonable judgment of the Master Servicer or the Primary Servicer. A
Mortgage Loan serviced by the Special Servicer is referred to herein as a
"SPECIALLY SERVICED MORTGAGE LOAN". The Special Servicer will collect certain
payments on such Specially Serviced Mortgage Loans and make certain remittances
to, and prepare certain reports for the Master Servicer with respect to such
Mortgage Loans. The Master Servicer shall have no responsibility for the
performance by the Special Servicer of its duties under the Pooling and
Servicing Agreement provided that the Master Servicer continues to perform
certain servicing functions on such Specially Serviced Mortgage Loans and,
based on the information provided to it by the Special Servicer, prepares
certain reports to the Trustee with respect to such Specially Serviced Mortgage
Loans. To the extent that any Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes a performing Mortgage Loan for a least three consecutive months, the
Special Servicer will return servicing of such Mortgage Loan to the Primary
Servicer.
Under the Pooling and Servicing Agreement the Special Servicer is
required to service, administer and dispose of Specially Serviced Mortgage
Loans solely in the best interests of and for the benefit of the
Certificateholders, in accordance with the Pooling and Servicing Agreement and
the Mortgage Loans and to the extent consistent with such terms, with the
higher of (a) the standard of care, skill, prudence and diligence with which
the Special Servicer services, administers and disposes of, distressed mortgage
loans and related real property that are held for other portfolios that are
similar to the Mortgage Loans, Mortgaged Property and REO Property and (b) the
standard of care, skill, prudence and diligence with which the Special Servicer
services, administers and disposes of distressed mortgage loans and related
real property for its own portfolio and are similar to the Mortgage Loans,
Mortgage Property and REO Property, giving due consideration to customary and
usual standards of practice of prudent institutional multifamily and commercial
mortgage lenders, loan servicers and asset managers, so as to maximize the net
present value of recoveries on the Mortgage Loans.
The Special Servicer shall have full power and authority to do any and
all things in connection with servicing and administering a Mortgage Loan that
it may deem in its best judgment necessary or advisable, including, without
limitation, to execute and deliver on behalf of the Trust Fund any and all
instruments of satisfaction or cancellation or of partial release or full
release or discharge and all other comparable instruments, to reduce the
related Mortgage Interest Rate, and to defer or forgive payment of interest
and/or principal with respect to any Specially Serviced Mortgage Loan or any
Mortgaged Property. The Special Servicer may not permit a modification of any
Mortgage Loan to extend the scheduled maturity date of any Specially Serviced
Mortgage Loan more than three years beyond the scheduled maturity date thereof
as of the Cut-off Date without the consent of the Extension Advisor. See
"--Extension Advisor" below. Notwithstanding the forgoing, the Special Servicer
may not permit any such modification with respect to a Balloon Mortgage Loan if
it results in the extension of such maturity date beyond the amortization term
of such Balloon Mortgage Loan absent the related Balloon Payment. The Special
Servicer will prepare a report (an "ASSET STRATEGY REPORT") for each Mortgage
Loan which becomes a Specially Serviced Mortgage Loan not later than thirty
(30) days after the servicing of such Mortgage Loan is transferred to the
Special Servicer. Each Asset Strategy Report will be delivered to each holder
of a Class F, Class G and Class NR Certificate upon request. The holders of the
fewest number of classes of Certificates representing the most subordinate
interests in the Trust Fund that equals at least a 2% interest therein (the
"MONITORING CERTIFICATEHOLDERS") will designate one Monitoring
Certificateholder pursuant to the Pooling and Servicing Agreement (the
"DIRECTING CERTIFICATEHOLDER"). Each Asset Strategy Report will be delivered to
the Directing Certificateholder. The Directing Certificateholder may object to
any Asset Strategy Report within 10 business days of receipt. If the Directing
Certificateholder does not disapprove an Asset Strategy Report within 10
business days, the Special Servicer shall implement the recommended action as
outlined in such Asset Strategy Report. If the Directing Certificateholder
disapproves such Asset Strategy Report and the Special Servicer has not made
the affirmative determination described below, the Special Servicer will revise
such Asset Strategy Report as soon as practicable. The Special Servicer will
revise such Asset Strategy Report until the Directing Certificateholder fails
to disapprove such revised Asset Strategy Report; provided, however, that the
Special Servicer shall implement the recommended action as outlined in such
Asset Strategy Report if it makes an affirmative determination that such
objection is not in the best interest of all Certificateholders. In connection
with making such affirmative determination, the Special Servicer may request a
vote by all the Certificateholders. Any Certificateholder may request and
obtain a
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copy of any Asset Strategy Report subject to delivery of a certificate
acknowledging certain possible limitations with respect to the use of such
report imposed by U.S. securities laws.
EXTENSION ADVISOR
The Extension Advisor will be responsible for approving any proposed
Mortgage Loan modification that extends the maturity date of a Mortgage Loan by
more than three (3) years beyond the scheduled maturity date of such loan as of
the Cut-off Date. The initial Extension Advisor, acting on behalf of the
holders of the Offered Certificates, shall only grant such approvals if it
shall have determined that the decision of the Special Servicer to so modify
the Mortgage Loan is consistent with the Special Servicer standard set forth in
the Pooling and Servicing Agreement. Any subsequent Extension Advisor may grant
such approvals if it shall have determined that the decision of the Special
Servicer to so modify the Mortgage Loan is in the best interest of the Holders
of the Offered Certificates.
The initial Extension Advisor will be _______________. The
responsibility of _____________ as Extension Advisor shall be carried out by
the Real Estate Division of the Commercial Banking Services Area of such bank.
At any time, the holders of a majority of the outstanding aggregate Certificate
Principal Balance of the Offered Certificates may remove the Extension Advisor.
In such event, the Trustee will so inform such Certificateholders, and a
majority of Certificate Principal Balance of the holders of such Certificates
shall have the right to appoint a replacement Extension Advisor.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer and each
respective Primary Servicer in respect of their servicing activities will be
the Servicing Fee. The Servicing Fee will be payable monthly and will accrue at
the applicable Servicing Fee Rate and will be computed on the basis of the same
principal amount and for the same period respecting which any related interest
payment on such Mortgage Loan is computed. The Servicing Fee Rate for any
Mortgage Loan will be the sum of the fee payable to the Master Servicer and the
fee payable to the Primary Servicer as described below. The fee payable to the
Master Servicer with respect to the Mortgage Loans will equal _____% per annum.
The fee payable to AMI and ________ as Primary Servicer with respect to the
Mortgage Loans will equal _______% per annum. The fee payable to __________ as
Primary Servicer will equal ______________% per annum.
The principal compensation to be paid to the Special Servicer in
respect of its special servicing activities will be the Special Servicing Fee.
The Special Servicing Fee will be payable monthly only from amounts received in
respect of each Specially Serviced Mortgage Loan. The Special Servicing Fee
will equal 1.00% of all amounts collected with respect to any Specially
Serviced Mortgage Loans and any Mortgage Loan which became a Specially Serviced
Mortgage Loan and was subsequently returned to a performing status.
CONFLICTS OF INTEREST
The Special Servicer or its affiliates own and are in the business of
acquiring assets similar to the Mortgage Loans held by the Trust Fund. To the
extent that any mortgage loans owned and/or serviced by the Special Servicer or
its affiliates are similar to the Mortgage Loans held by the Trust Fund, the
mortgaged properties related to such mortgage loans may, depending upon certain
circumstances such as the location of the mortgaged property, compete with the
Mortgaged Properties related to the Mortgage Loans held by the Trust Fund for
tenants, purchasers, financing and similar resources.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ___________, 199__ (the "POOLING AND SERVICING
AGREEMENT"), by and among the Depositor, the Master Servicer, the Special
Servicer and the Trustee. Following are summaries of certain provisions of the
Pooling and Servicing Agreement. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
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provisions of the Pooling and Servicing Agreement. The Trustee will provide to
a prospective or actual Certificateholder without charge, upon written request,
a copy (without exhibits) of the Pooling and Servicing Agreement. Requests
should be addressed to __________________________________________,
___________________________, Attention: Corporate Trust Department.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Delivery Date, ACC will assign or cause to be
assigned the Mortgage Loans, without recourse, to the Trustee for the benefit
of the Certificateholders. On or prior to the Delivery Date, the Depositor
will, as to each Mortgage Loan, deliver to the Trustee (or the Custodian),
among other things, the following documents (collectively, as to such Mortgage
Loan, the "MORTGAGE LOAN FILE"): (i) the original Mortgage, and any intervening
assignments thereof, in each case with evidence of recording thereon or in case
such documents have not been returned by the applicable recording office,
certified copies thereof; (ii) the original or, if accompanied by a "lost note"
affidavit, a copy of the Mortgage Note, endorsed by ACC, without recourse, in
blank or to the order of Trustee; (iii) an assignment of the Mortgage, executed
by ACC, in blank or to the order of the Trustee, in recordable form; (iv)
originals or certified copies of any related assignment of leases, rents and
profits and any related security agreement (if, in either case, such item is a
document separate from the Mortgage) and any intervening assignments of each
such document or instrument; (v) assignments of any related assignment of
leases, rents and profits and any related security agreement (if, in either
case, such item is a document separate from the Mortgage), executed by ACC, in
blank or to the order of the Trustee; (vi) originals or certified copies of all
assumption, modification and substitution agreements in those instances where
the terms or provisions of the Mortgage or Mortgage Note have been modified or
the Mortgage or Mortgage Note has been assumed; and (vii) the originals or
certificates of a lender's title insurance policy issued on the date of the
origination of such Mortgage Loan or, with respect to each Mortgage Loan not
covered by a lender's title insurance policy, an attorney's opinion of title
given by an attorney licensed to practice law in the jurisdiction where the
Mortgaged Property is located; (viii) originals or copies of any UCC financing
statements; (ix) originals or copies of any guaranties related to such Mortgage
Loan; (x) originals or copies of insurance policies related to the Mortgaged
Property; (xi) originals or certified copies of any environmental liabilities
agreement; (xii) originals or copies of any escrow agreements; (xiii) original
or certified copies of any prior assignments of mortgage if the Originator is
not the originator of record; (xiv) any collateral assignments of property
management agreements and other servicing agreements; (xv) the documents
specified in the Underwriting Guidelines for the due diligence investigation to
be performed by or on behalf of the Originator pursuant to the Mortgage Loan
Purchase Agreement; (xvi) any appraisals of the Mortgaged Property; (xvii) a
physical assessment report of the Mortgaged Property; (xviii) an environmental
site assessment of the Mortgaged Property; (xix) originals or certified copies
of any lease subordination agreements and tenant estoppels; and (xx) any
opinions of borrower's counsel. The Pooling and Servicing Agreement will
require the Depositor to cause each assignment of the Mortgage described in
clause (iv) above to be submitted for recording in the real property records of
the jurisdiction in which the related Mortgaged Property is located. Any such
assignment delivered in blank will be completed to the order of the Trustee
prior to recording. The Pooling and Servicing Agreement will also require the
Depositor to cause the endorsements on the Mortgage Notes delivered in blank to
be completed to the order of the Trustee.
TRUSTEE
____________________ shall serve as Trustee under the Pooling and
Servicing Agreement pursuant to which the Certificates are being issued. Except
in circumstances such as those involving defaults (when it might request
assistance from other departments in the bank), its responsibilities as trustee
are carried out by its Corporate Trust Department. Its principal corporate
trust office is located at _________________________________________.
COLLECTION ACCOUNTS AND CERTIFICATE ACCOUNT
The Primary Servicer is required to deposit all amounts received with
respect to the Mortgage Loans, net of certain amounts retained by the Primary
Servicer as additional servicing compensation, into a separate Collection
Account (the "PRIMARY COLLECTION ACCOUNT") maintained by the Primary Servicer
for the Trust Fund. On the third business day preceding each Distribution Date,
the Primary Servicer shall remit all amounts in the Primary Collection Account
to the Master Servicer for deposit into a separate Collection Account (the
"MASTER COLLECTION ACCOUNT") maintained by the Master Servicer for the Trust
Fund. The Master Servicer is required to deposit on the business day
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preceding each Distribution Date all amounts received with respect to the
Mortgage Loans into a separate account (the "CERTIFICATE ACCOUNT") maintained
with the Trustee. Interest or other income earned on funds in the Primary
Collection Account or the Master Collection Account will be paid to the
Servicer maintaining such account as additional servicing compensation. See
"Description of the Trust Funds -- Mortgage Loans" and "Description of the
Agreements -- Accounts -- Distribution Account" and "Description of the
Agreements -- Accounts -- Other Collection Accounts" in the Prospectus.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the Trustee shall furnish to each
Certificateholder, to the Depositor and to each Rating Agency a statement
setting forth certain information with respect to the Mortgage Loans and the
Certificates required pursuant to the Pooling and Servicing Agreement and in
the form of Annex B hereto. In addition, within a reasonable period of time
after each calendar year, the Trustee shall furnish to each person who at any
time during such calendar year was the holder of a Certificate a statement
containing certain information with respect to the Certificates required
pursuant to the Pooling and Servicing Agreement, aggregated for such calendar
year or portion thereof during which such person was a Certificateholder.
Unless and until Definitive Certificates are issued, such statements or reports
will be furnished only to Cede & Co., as nominee for DTC; provided, however,
that the Trustee shall furnish a copy of any such statement or report to any
Beneficial Owner which requests such copy and certifies to the Trustee that it
is the Beneficial Owner of a Certificate. The Trustee shall furnish a copy of
any such statement or report to any person who requests it for a nominal
charge. Any person may call the Master Servicer at ______________ in order to
inquire as to how to obtain such statement or report. Such statement or report
may be available to Beneficial Owners upon request to DTC or their respective
Participant or Indirect Participants. Any Asset Strategy Report shall be
delivered by the Trustee upon request to any Beneficial Owner of an Offered
Certificate subject to the second preceding sentence and the receipt by the
Trustee of a certificate acknowledging certain limitations with respect to the
use of such statement or report. See "Description of the Certificates --
Reports to Certificateholders" in the Prospectus. The Directing
Certificateholder shall receive all reports prepared or received by the Master
Servicer or the Special Servicer. In addition, each other Certificateholder may
obtain all such reports at its expense as described in the Pooling and
Servicing Agreement.
VOTING RIGHTS
At all times during the term of this Agreement, _____% of all Voting
Rights shall be allocated among the classes of Certificates (other than the
Interest Only Certificates) in proportion to the respective Class Balances,
_____% of all Voting Rights shall be allocated to each class of Interest Only
Certificates and _______% of all Voting Rights shall be allocated to each class
of Residual Certificates. Voting Rights allocated to a class of Certificates
shall be allocated among the holders of such class in proportion to the
Percentage Interests evidenced by their respective Certificates.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates" in the Prospectus, unless and until
Definitive Certificates are issued, except as otherwise expressly provided
herein, Certificate Owners may only exercise their rights as owners of
Certificates indirectly through DTC or their respective Participant or Indirect
Participant.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment or other liquidation
of the last Mortgage Loan or REO Property subject thereto, and (ii) the
purchase of all of the assets of the Trust Fund by any of the Master Servicer,
the Special Servicer, any holder of a Class R-I Certificate, the holders of an
aggregate Percentage Interest in excess of 50% of the Most Subordinate Class of
Certificates and (to the extent all of the remaining Mortgage Loans are being
serviced thereby as Primary Servicer) any Primary Servicer. The "MOST
SUBORDINATE CLASS OF CERTIFICATES" at the time of determination shall be the
class of Certificates to which Realized Losses would be allocated at such time
as described under "Description of the Certificates -- Subordination" herein.
Written notice of termination of the Pooling and Servicing Agreement will be
given to each Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at the office of the
Certificate Registrar specified in such notice of termination.
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Any such purchase of all the Mortgage Loans and other assets in the
Trust Fund is required to be made at a price equal to the greater of (1) the
aggregate fair market value of all the Mortgage Loans and REO Properties then
included in the Trust Fund, determined pursuant to the Pooling and Servicing
Agreement, and (2) the aggregate Class Balance of all the Certificates plus
accrued and unpaid interest thereon. Such purchase will effect early retirement
of the then outstanding Certificates, but the right to effect such termination
is subject to the requirement that the aggregate Stated Principal Balance of
the Mortgage Loans then in the Trust Fund is less than ____% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Andrews & Kurth L.L.P., counsel to the Depositor.
This summary is based on laws, regulations, including the REMIC regulations
promulgated by the Treasury Department (the "REMIC REGULATIONS"), rulings and
decisions now in effect or (with respect to regulations) proposed, all of which
are subject to change either prospectively or retroactively. This summary does
not address the federal income tax consequences of an investment in Offered
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Offered Certificates.
Three separate real estate mortgage investment conduit ("REMIC")
elections will be made with respect to the Trust Fund for federal income tax
purposes. Upon the issuance of the Certificates, Andrews & Kurth L.L.P.,
counsel to the Depositor, will deliver its opinion generally to the effect
that, assuming compliance with all provisions of the Pooling and Servicing
Agreement, for federal income tax purposes, the REMIC I, REMIC II and REMIC III
(each as defined in the Pooling and Servicing Agreement) will qualify as a
REMIC under the Code.
For federal income tax purposes, the Class R-I Certificates will be
the sole class of "residual interests" in REMIC I, the Class R-II Certificates
will be the sole class of "residual interests" in REMIC II, the Offered
Certificates (or, in the case of the Class BCX Certificates, each component
thereof) and the Class F, Class G and Class NR Certificates will be "regular
interests" of REMIC III and will be treated as debt instruments of the REMIC
III, and the Class R-III Certificates will be the sole class of "residual
interests" in REMIC III.
See "Certain Federal Income Tax Consequences -- REMICs" in the
Prospectus.
The Interest Only Certificates will, and the other classes of Offered
Certificates may, be treated as having been issued with original issue discount
for federal income tax reporting purposes. For purposes of computing the rate
of accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes it will be assumed that there are no prepayments on
the Mortgage Loan. No representation is made that the Mortgage Loans will not
prepay at another rate. See "Certain Federal Income Tax Consequences -- REMICs
- -- Taxation of Owners of REMIC Regular Certificates" and "--Original Issue
Discount and Premium" in the Prospectus.
Prepayment Premiums allocated to the Certificates will be taxable to
the holders of such Certificates on the date the amount of such premiums
becomes fixed.
The Offered Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a
class of Certificates will be treated as holding a certificate with amortizable
bond premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such class of Certificates
should consult their own
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tax advisors regarding the possibility of making an election to amortize such
premium. See "Certain Federal Income Tax Consequences -- REMICs -- Taxation of
Owners of REMIC Regular Certificates" and "--Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code and "real estate
assets" within the meaning of Section 856(c)(6)(B) of the Code generally in the
same proportion that the assets of the REMIC underlying such Certificates would
be so treated. In addition, interest (including original issue discount) on the
Offered Certificates will be interest described in Section 856(c)(3)(B) of the
Code to the extent that such Offered Certificates are treated as "real estate
assets" under Section 856(c)(6)(B) of the Code. Moreover, the Offered
Certificates will be "obligation[s]...which... [are] principally secured by an
interest in real property" within the meaning of Section 860G(a)(3)(C) of the
Code. The Offered Certificates will not be considered to represent an interest
in "loans...secured by an interest in real property" within the meaning of
Section 7701 (a)(19)(C)(v) of the Code except in the proportion that the assets
of the Trust Fund are represented by Mortgage Loans secured by multifamily
apartment buildings. See "Certain Federal Income Tax Consequences -- REMICs --
Characterization of Investments in REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences
of investing in the Certificates, see "Certain Federal Income Tax Consequences"
in the Prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences," potential investors should consider
the state income tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state. Therefore,
potential investors should consult their own tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code should carefully review with its legal advisors whether the
purchase or holding of any Class of Offered Certificates could give rise to a
transaction that is prohibited or is not otherwise permitted either under ERISA
or Section 4975 of the Code.
The U.S. Department of Labor issued an individual exemption,
Prohibited Transaction Exemption 89-88 (the "EXEMPTION"), on October 11, 1989
to Goldman, Sachs & Co., which generally exempts from the application of the
prohibited transaction provisions of Section 406 of ERISA, and the excise taxes
imposed on such prohibited transactions pursuant to Sections 4975(a) and (b) of
the Code and Section 501(i) of ERISA, certain transactions, among others,
relating to the servicing and operation of mortgage pools and the purchase,
sale and holding of mortgage pass-through certificates underwritten by an
Underwriter (as hereinafter defined), provided that certain conditions set
forth in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations", the term "UNDERWRITER" shall include (a) Goldman, Sachs & Co.,
(b) any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with Goldman, Sachs & Co.
and (c) any member of the underwriting syndicate or selling group of which a
person described in (a) or (b) is a manager or co-manager with respect to the
Class A1, Class A1X, Class A2 and Class A2X Certificates.
The Exemption sets forth six general conditions which must be
satisfied for a transaction involving the purchase, sale and holding of such
Classes of Offered Certificates to be eligible for exemptive relief thereunder.
First, the acquisition of such Classes of Offered Certificates by certain
employee benefit plans subject to Section 4975 of the Code (each, a "PLAN"),
must be on terms (including the price) that are at least as favorable to the
Plan as they would
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be in an arm's-length transaction with an unrelated party. Second, the rights
and interests evidenced by such Classes of Offered Certificates must not be
subordinate to the rights and interests evidenced by the other certificates of
the same trust. Third, such Classes of Offered Certificates at the time of
acquisition by the Plan must be rated in one of the three highest generic
rating categories by Standard & Poor's Corporation, Moody's Investors Service,
Inc., Duff & Phelps Credit Rating Co. or Fitch Investors Service, Inc. Fourth,
the Trustee cannot be an affiliate of any member of the "Restricted Group,"
which consists of the Underwriter, the Depositor, the Master Servicer, the
Special Servicer, each Primary Servicer and any Mortgagor with respect to
Mortgage Loans constituting more than 5% of the aggregate unamortized principal
balance of the Mortgage Loans as of the date of initial issuance of such
Classes of Offered Certificates. Fifth, the sum of all payments made to and
retained by the Underwriter must represent not more than reasonable
compensation for underwriting such Classes of Offered Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the assignment
of the Mortgage Loans to the Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer, the Special Servicer and any Primary Servicer
must represent not more than reasonable compensation for such person's services
under the Agreements and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501 (a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Because the Class A1, Class A1X, Class A2 and Class A2X Certificates
are not subordinate to any other class of Certificates, the second general
condition set forth above is satisfied with respect to such Certificates. It is
a condition of the issuance of such Classes of Certificates that they be rated
"______" by Fitch and either "____" or "____" by Standard & Poor's. A fiduciary
of a Plan contemplating purchasing any such Class of Certificates in the
secondary market must make its own determination that at the time of such
acquisition, any such Class of Certificates continues to satisfy the third
general condition set forth above. The Depositor expects that the fourth
general condition set forth above will be satisfied with respect to each of
such Classes of Certificates. A fiduciary of a Plan contemplating purchasing
any such Class of Certificate must make its own determination that the first,
third, fifth and sixth general conditions set forth above will be satisfied
with respect to any such Class of Certificate.
The Class B, Class C, Class BCX, Class D and Class E do not satisfy
the second condition described above because they are subordinated to the Class
A1, Class A1X, Class A2 and Class A2X Certificates, and furthermore the Class D
and Class E Certificates are not expected to satisfy the third condition
described above.
Before purchasing any such Class of Certificate, a fiduciary of a Plan
should itself confirm (a) that such Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions of
the Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in the Exemption, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions.
Purchasers using insurance company general account funds to effect
such purchase should consider the availability of Prohibited Transaction Class
Exemption 95-60 (60 Fed. Reg. 35925, July 12, 1995) issued by the U.S.
Department of Labor.
Any Plan fiduciary considering whether to purchase any such Class of
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. See "ERISA Considerations"
in the Prospectus.
LEGAL INVESTMENT
Upon issuance, the Offered Certificates will not be "mortgage related
securities" within the meaning of the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA").
In addition, institutions whose investment activities are subject to
review by certain regulatory authorities may be or may become subject to
restrictions, which may be retroactively imposed by such regulatory
authorities, on the investment by such institutions in certain forms of
mortgage-backed securities.
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The Depositor makes no representations as to the proper
characterization of the Offered Certificates for legal investment or other
purposes, or as to the ability of particular investors to purchase the Offered
Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of the Offered Certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates constitute a
legal investment or is subject to investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting
Agreement, dated _____________, 199___ (the "UNDERWRITING AGREEMENT"), the
Underwriter has agreed to purchase and the Depositor has agreed to sell to the
Underwriter the Offered Certificates. It is expected that delivery of the
Offered Certificates will be made only in book-entry form through the Same Day
Funds Settlement System of DTC on or about ______________, 199___, against
payment therefor in immediately available funds.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates if any are purchased. In the event of default by the Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the
underwriting may be terminated.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of its Certificates is subject to,
among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of
the Depositor's Registration Statement shall be in effect, and that no
proceedings for such purpose shall be pending before or threatened by the
Securities and Exchange Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Offered Certificates, before deducting
expenses payable by the Depositor, will be approximately ____________% of the
aggregate principal balance of the Offered Certificates as of the Cut-off Date,
plus accrued interest from the Cut-off Date. The Underwriter may effect such
transactions by selling its Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter for whom they act as agent. In
connection with the sale of the Offered Certificates, the Underwriter may be
deemed to have received compensation from the Depositor in the form of
underwriting compensation. The Underwriter and any dealers that participate
with the Underwriter in the distribution of the Offered Certificates may be
deemed to be underwriters and any profit on the resale of the Offered
Certificates positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended.
ContiFinancial Services Corporation and ING Baring (U.S.) Securities,
Inc., affiliates of ContiTrade and ING Capital, respectively, may act as
dealers on behalf of Goldman, Sachs & Co. with respect to certain classes of
the Offered Certificates to be purchased by the Underwriter.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter, and that under limited circumstances the Underwriter will
indemnify the Depositor, against certain civil liabilities under the Securities
Act of 1933, as amended, or contribute to payments to be made in respect
thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of ongoing information available to investors concerning the
Offered Certificates will be the reports discussed herein under "Description of
the Pooling and Servicing Agreement -- Reports to Certificateholders." Except
as described herein under "Description of the Pooling and Servicing Agreement
- -- Reports to Certificateholders", there can be no assurance that any
additional information regarding the Offered Certificates will be available
through any other source. In addition, the Depositor is not aware of any
source through which price information about the Offered Certificates will be
generally available on an ongoing basis. The limited
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nature of such information regarding the Offered Certificates may adversely
affect the liquidity of the Offered Certificates, even if a secondary market
for the Offered Certificates becomes available.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Andrews
& Kurth L.L.P., Dallas, Texas; and certain legal matters will be passed upon
for the Underwriter by ________________________, ________________________.
RATING
It is a condition of issuance of the Class A1 and Class A2
Certificates be rated "____" by Fitch Investors Service, L.P. ("FITCH") and
Standard & Poor's Ratings Services ("STANDARD & POOR'S"). It is a condition of
the issuance of the Class A1X and Class A2X Certificates that they be rated
"______" by Fitch and "_____" by Standard & Poor's. It is a condition of the
issuance of the Class B Certificates that they be rated not lower than "___" by
Fitch and Standard & Poor's. It is a condition of the issuance of the Class C
Certificates that they be rated not lower than "__" by Fitch and "___" by
Standard & Poor's. It is a condition to the issuance of the Class BCX
Certificates that they be rated not lower than "___" by Fitch. It is a
condition of the issuance of the Class D Certificates that they be rated not
lower than "___" by Fitch and Standard & Poor's. It is a condition to the
issuance of the Class E Certificates that they be rated not lower than "______"
by Fitch and Standard & Poor's.
The ratings on mortgage pass-through certificates address the
likelihood of the receipt by holders thereof of payments to which they are
entitled including the receipt of all principal payments by the Rated Final
Distribution Date. Such ratings take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
certificates, and the extent to which the payment stream in the mortgage pool
is adequate to make payments required under the certificates. Such ratings on
the Offered Certificates do not, however, constitute a statement regarding
frequency or likelihood of prepayments (whether voluntary or involuntary) of
the Mortgage Loans, or the degree to which such prepayments might differ from
those originally anticipated, or the likelihood of the collection of Prepayment
Premiums, and do not address the possibility that Certificateholders might
suffer a lower than anticipated yield. The ratings of the Interest Only
Certificates does not address the possibility that the holders of such
Certificates may fail to fully recover their initial investments due to a rapid
rate of prepayments, defaults or liquidations. See "Risk Factors" herein.
There can be no assurance as to whether any rating agency not
requested to rate the Offered Certificates will nonetheless issue a rating and,
if so, what such rating would be. A rating assigned to the Offered Certificates
by a rating agency that has not been requested by the Depositor to do so may be
lower than the rating assigned by Fitch or Standard & Poor's pursuant to the
Depositor's request.
The rating of the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
Each security rating should be evaluated independently of any other security
rating. A security rating does not address the frequency or likelihood of
prepayments (whether voluntary or involuntary) of Mortgage Loans, or the
corresponding effect on the yield to investors.
The ratings do not address the fact that the Pass-Through Rates on the
Offered Certificates, to the extent determined based on the Remittance Rates,
may be affected by changes therein.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
"30/360 Basis" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-40
"ACC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Adjusted Available Distribution Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-40
"Adjusted Collateral Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"ALP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"AMI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-48
"AMRESCO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48
"Asset Strategy Report" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
"Assignment of Leases and Rents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Assignment of Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Available Distribution Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
"Balloon Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Balloon Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Beneficial Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-38
"Borrower" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Cede" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
"CERCLA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
"Certificate Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Class Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
"Collateral Value Adjustment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
"Component" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"CON" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Cut-off Date LTV Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Debt Service Coverage Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
"Defaulted Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Definitive Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-38
"Delivery Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Depositor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-1
"Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Directing Certificateholder" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
"Distribution Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-1, S-39
"DOH" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"DSCR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-2, S-38
"DTC Registered Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-38
"Due Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-55
"ESA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15, S-21
"Exemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
"Facility" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"FIRREA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Fitch" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-10, S-58
"Form 8-K" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
"Interest Accrual Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
"Interest Distribution Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-40
"Interest Only Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Licenses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
</TABLE>
S-59
<PAGE> 66
<TABLE>
<S> <C>
"Loan Sale Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
"Lock-out Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
"Lock-out Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
"Loss Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Master Collection Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Maturity Date LTV Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Monitoring Certificateholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
"Monthly Payments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Mortgage File" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Mortgage Loan File" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Mortgage Loan Purchase Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
"Mortgage Loan Schedule" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-2
"Mortgage Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
"Mortgage Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-2
"Mortgaged Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Mortgaged Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
"Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
"Mortgagor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Most Subordinate Class of Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Net Operating Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
"Net Prepayment Premium" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
"Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Offered Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Operator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15, S-24
"Originators" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-18
"Other Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
"P&I Advances" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-43
"Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Pass-Through Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Percentage Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
"Permitted Exceptions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
"Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Physical Plant Standards" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
"Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
"Pooling and Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-51
"Prepayment Interest Excess" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
"Prepayment Interest Shortfall" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
"Prepayment Premium" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-35
"Primary Collection Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Principal Distribution Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-41
"Property Protection Expenses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Realized Loss" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Reassignment of Assignment of Leases and Rents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26, S-27
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-9, S-54
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
"Remittance Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Remittance Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
"REO Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
</TABLE>
S-60
<PAGE> 67
<TABLE>
<S> <C>
"REO Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
"Rules" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
"Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
"Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
"Servicing Transfer Event" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-56
"Special Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Specially Serviced Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-50
"Standard & Poor's" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-10, S-58
"Stated Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Third-Party Payors' Programs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
"Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Underwriter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-55
"Underwriting Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
</TABLE>
S-61
<PAGE> 68
ANNEX A
CERTAIN CHARACTERISTICS
OF THE MORTGAGE LOANS
[Annex A to follow this page]
A-1
<PAGE> 69
ANNEX B
FORM OF MONTHLY REPORT
[Annex B to follow this page]
B-1
<PAGE> 70
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED JANUARY 10, 1997
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"CERTIFICATES". Each Series of Certificates will represent in the aggregate the
entire beneficial ownership interest in a trust fund (with respect to any
Series, the "TRUST FUND") consisting of one or more segregated pools of various
types of multifamily or commercial mortgage loans (the "MORTGAGE LOANS"),
mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by multifamily or
commercial mortgage loans (collectively, the "CMBS") or a combination of
Mortgage Loans and/or CMBS (with respect to any Series, collectively, the
"MORTGAGE ASSETS"). If so specified in the related Prospectus Supplement, some
or all of the Mortgage Loans will include assignments of the leases of the
related Mortgaged Properties (as defined herein) and/or assignments of the
rental payments due from the lessees under such leases (each type of assignment,
a "LEASE ASSIGNMENT"). A significant or the sole source of payments on certain
Commercial Loans (as defined herein) and, therefore, of distributions on certain
Series of Certificates, will be such rent payments. If so specified in the
related Prospectus Supplement, the Trust Fund for a Series of Certificates may
include letters of credit, insurance policies, guarantees, reserve funds or
other types of credit support, or any combination thereof (with respect to any
Series, collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
---------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE UNDERWRITER OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR ANY ASSETS IN
THE RELATED TRUST FUND WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY ANY OTHER PERSON, UNLESS OTHERWISE PROVIDED IN THE
RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH TRUST FUND WILL BE HELD IN
TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED SERIES OF CERTIFICATES
PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR MORE SERVICING
AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 13 HEREIN AND SUCH INFORMATION AS MAY
BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates of
any Series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. This
Prospectus may not be used to consummate sales of the Offered Certificates of
any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
---------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 71
Each Series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or floating rates; (ii) be senior or subordinate to one or more
other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such Series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such
classes may include classes of Offered Certificates. See "Description of the
Certificates."
Principal and interest with respect to Certificates will be
distributable monthly, quarterly, semi-annually or at such other intervals and
on the dates specified in the related Prospectus Supplement. Distributions on
the Certificates of any Series will be made only from the assets of the related
Trust Fund.
The yield on each class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and under the caption "Certain Prepayment, Maturity and
Yield Considerations" in the related Prospectus Supplement. A Trust Fund may be
subject to early termination under the circumstances described herein and in
the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" (each, a "REMIC") for
federal income tax purposes. See "Certain Federal Income Tax Consequences"
herein.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and any
Prospectus Supplement with respect hereto do not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the Offered
Certificates or an offer of the Offered Certificates to any person in any state
or other jurisdiction in which such offer would be unlawful. The delivery of
this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date; however, if any material change occurs
while this Prospectus is required by law to be delivered, this Prospectus will
be amended or supplemented accordingly.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Offered Certificates of each Series will, among other things,
set forth with respect to such Certificates, as appropriate: (i) a description
of the class or classes of Certificates, the payment provisions with respect to
each such class and the Pass-Through Rate or method of determining the
Pass-Through Rate with respect to each such class; (ii) the aggregate principal
amount and distribution dates relating to such Series and, if applicable, the
initial and final scheduled distribution dates for each class; (iii)
information as to the assets comprising the Trust Fund, including the general
characteristics of the assets included therein, including the Mortgage Assets
and any Credit Support and Cash Flow Agreements (with respect to the
Certificates of any Series, the "TRUST ASSETS"); (iv) the circumstances, if
any, under which the Trust Fund may be subject to early termination; (v)
additional information with respect to the method of distribution of such
Certificates; (vi) whether one or more REMIC elections will be made and
designation of the regular interests and residual interests; (vii) the
aggregate original percentage ownership interest in the Trust Fund to be
evidenced by each class of Certificates; (viii) information as to any Master
Servicer, any Primary Servicer, any Special Servicer (or provision for the
- 2 -
<PAGE> 72
appointment thereof) and the Trustee, as applicable; (ix) information as to the
nature and extent of subordination with respect to any class of Certificates
that is subordinate in right of payment to any other class; and (x) whether
such Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"COMMISSION") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with
respect to the Offered Certificates. This Prospectus and the Prospectus
Supplement relating to each Series of Certificates contain summaries of the
material terms of the documents referred to herein and therein, but do not
contain all of the information set forth in the Registration Statement pursuant
to the rules and regulations of the Commission. For further information,
reference is made to such Registration Statement and the exhibits thereto. Such
Registration Statement and exhibits can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at its
Public Reference Section, 450 Fifth Street, N.W, Washington, D.C. 20549, and at
its Regional Offices located as follows: Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661; and Northeast
Regional Office, Seven World Trade Center, Suite 1300, New York, New York
10048. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including the Depositor, that file electronically with the
Commission.
To the extent described in the related Prospectus Supplement, some or
all of the Mortgage Loans may be secured by an assignment of the lessors'
(i.e., the related Mortgagors') rights in one or more leases (each, a "LEASE")
on the related Mortgaged Property. Unless otherwise specified in the related
Prospectus Supplement, no Series of Certificates will represent interests in or
obligations of any lessee (each, a "LESSEE") under a Lease. If indicated,
however, in the Prospectus Supplement for a given Series, a significant or the
sole source of payments on the Mortgage Loans in such Series, and, therefore,
of distributions on such Certificates, will be rental payments due from the
Lessees under the Leases. Under such circumstances, prospective investors in
the related Series of Certificates may wish to consider publicly available
information, if any, concerning the Lessees. Reference should be made to the
related Prospectus Supplement for information concerning the Lessees and
whether any such Lessees are subject to the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT").
A Master Servicer or the Trustee will be required to mail to holders of
Definitive Certificates (as defined herein) of each Series periodic unaudited
reports concerning the related Trust Fund. Unless and until Definitive
Certificates are issued, or unless otherwise provided in the related Prospectus
Supplement, such reports will be sent on behalf of the related Trust Fund to
Cede & Co. ("CEDE"), as nominee of The Depository Trust Company ("DTC") and
registered holder of the Offered Certificates, pursuant to the applicable
Agreement. Such reports may be available to Beneficial Owners (as defined
herein) in the Certificates upon request to their respective DTC Participants
or Indirect Participants (as defined herein). See "Description of the
Certificates -- Reports to Certificateholders" and "Description of the
Agreements -- Evidence as to Compliance."
The Depositor will file or cause to be filed with the Commission such
periodic reports with respect to each Trust Fund as are required under the
Exchange Act, and the rules and regulations of the Commission thereunder. The
Depositor intends to make a written request to the staff of the Commission that
the staff either (i) issue an order pursuant to Section 12(h) of the Exchange
Act exempting the Depositor from certain reporting requirements under the
Exchange Act with respect to each Trust Fund or (ii) state that the staff will
not recommend that the Commission take enforcement action if the Depositor
fulfills its reporting obligations as described in its written request. If such
request is granted, the Depositor will file or cause to be filed with the
Commission as to each Trust Fund the periodic unaudited reports to holders of
the Offered Certificates referenced in the preceding paragraph; however,
because of the nature of the Trust Funds, it is unlikely that any significant
additional information will be filed. In addition, because of the limited
number of Certificateholders expected for each series, the Depositor
anticipates that a significant portion of such reporting requirements will be
permanently suspended following the first fiscal year for the related Trust
Fund.
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<PAGE> 73
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge to
each person to whom this Prospectus is delivered in connection with the
offering of one or more classes of Offered Certificates, upon written or oral
request of such person, a copy of any or all documents or reports incorporated
herein by reference, in each case to the extent such documents or reports
relate to one or more of such classes of such Offered Certificates, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to AMRESCO Commercial Mortgage Funding I Corporation,
700 North Pearl Street, Suite 2400, L.B. No. 342, Dallas, Texas 75201,
Attention: L. Keith Blackwell. The Depositor has determined that its financial
statements are not material to the offering of any Offered Certificates.
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<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY OF PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Limited Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Limited Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Prepayments and Effect on Average
Life of Certificates
and Yields . . . . . . . . . . . . . . . . . . . . . . . . . 14
Limited Nature of Ratings . . . . . . . . . . . . . . . . . . . . . . 14
Risks Associated with Mortgage Loans
and Mortgaged Properties . . . . . . . . . . . . . . . . . . . 15
Risks Associated with Commercial Loans
and Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Balloon Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Junior Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . 16
Obligor Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Mortgagor Type . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Credit Support Limitations . . . . . . . . . . . . . . . . . . . . . 17
Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Environmental Risks . . . . . . . . . . . . . . . . . . . . . . . . . 18
Delinquent and Non-Performing
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . 18
Risks Associated With Mortgaged
Properties Not Located in
the United States . . . . . . . . . . . . . . . . . . . . . . 18
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . 18
Certain Federal Tax Considerations
Regarding REMIC Residual Certificates . . . . . . . . . . . . . . . 19
Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . 19
DESCRIPTION OF THE TRUST FUNDS . . . . . . . . . . . . . . . . . . . . . . . 19
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Cash Flow Agreements . . . . . . . . . . . . . . . . . . . . . . . . 25
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Timing of Payment of Interest . . . . . . . . . . . . . . . . . . . . 26
Payments of Principal; Prepayments . . . . . . . . . . . . . . . . . 26
Prepayments -- Maturity and Weighted
Average Life . . . . . . . . . . . . . . . . . . . . . . . . . 27
Other Factors Affecting Weighted
Average Life . . . . . . . . . . . . . . . . . . . . . . . . . 28
THE DEPOSITOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . 29
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . 30
Distributions of Interest on
the Certificates . . . . . . . . . . . . . . . . . . . . . . . 30
Distributions of Principal of
the Certificates . . . . . . . . . . . . . . . . . . . . . . . 31
Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Distributions on the Certificates of
Prepayment Premiums or in
Respect of Equity
Participations . . . . . . . . . . . . . . . . . . . . . . . . 31
Allocation of Losses and Shortfalls . . . . . . . . . . . . . . . . . 31
Advances in Respect of Delinquencies . . . . . . . . . . . . . . . . 32
Reports to Certificateholders . . . . . . . . . . . . . . . . . . . . 32
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Book-Entry Registration and
Definitive Certificates . . . . . . . . . . . . . . . . . . . 35
DESCRIPTION OF THE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 36
Assignment of Assets; Repurchases . . . . . . . . . . . . . . . . . . 37
Representations and Warranties;
Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . 38
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Collection and Other Servicing
Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Hazard Insurance Policies . . . . . . . . . . . . . . . . . . . . . . 45
Rental Interruption Insurance Policy . . . . . . . . . . . . . . . . 46
Fidelity Bonds and Errors and Omissions
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Due-on-Sale and Due-on-Encumbrance
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 46
Retained Interest; Servicing Compensation
and Payment of Expenses . . . . . . . . . . . . . . . . . . . 46
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . . 47
Certain Matters Regarding each Servicer
and the Depositor . . . . . . . . . . . . . . . . . . . . . . 47
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Rights Upon Event of Default . . . . . . . . . . . . . . . . . . . . 48
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Duties of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . 50
Certain Matters Regarding the Trustee . . . . . . . . . . . . . . . . 50
</TABLE>
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<PAGE> 75
<TABLE>
<S> <C>
Resignation and Removal of the Trustee . . . . . . . . . . . . . . . 50
DESCRIPTION OF CREDIT SUPPORT . . . . . . . . . . . . . . . . . . . . . . . . 51
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . 51
Cross-Support Provisions . . . . . . . . . . . . . . . . . . . . . . 51
Insurance or Guarantees with Respect
to the Whole Loans . . . . . . . . . . . . . . . . . . . . . . 52
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Insurance Policies and Surety Bonds . . . . . . . . . . . . . . . . . 52
Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Credit Support with respect to CMBS . . . . . . . . . . . . . . . . . 53
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES . . . . . . . . . 53
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Types of Mortgage Instruments . . . . . . . . . . . . . . . . . . . . 53
Interest in Real Property . . . . . . . . . . . . . . . . . . . . . . 54
Leases and Rents . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Personalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Cooperative Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Bankruptcy Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Environmental Legislation . . . . . . . . . . . . . . . . . . . . . . 62
Due-on-Sale and Due-on-Encumbrance . . . . . . . . . . . . . . . . . 64
Subordinate Financing . . . . . . . . . . . . . . . . . . . . . . . . 65
Default Interest, Prepayment Charges and
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 65
Acceleration on Default . . . . . . . . . . . . . . . . . . . . . . . 65
Applicability of Usury Laws . . . . . . . . . . . . . . . . . . . . . 65
Certain Laws and Regulations; Types of
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . 66
Americans With Disabilities Act . . . . . . . . . . . . . . . . . . . 66
Soldiers' and Sailors' Civil Relief
Act of 1940 . . . . . . . . . . . . . . . . . . . . . . . . . 67
Forfeitures in Drug and RICO
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 67
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Grantor Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . 68
REMICs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Prohibited Transactions and Other
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Liquidation and Termination . . . . . . . . . . . . . . . . . . . . . 87
Administrative Matters . . . . . . . . . . . . . . . . . . . . . . . 87
Tax-Exempt Investors . . . . . . . . . . . . . . . . . . . . . . . . 88
Residual Certificate Payments Non-U.S.
Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Tax-Related Restrictions on Transfers of
REMIC Residual Certificates . . . . . . . . . . . . . . . . . 88
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 90
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Prohibited Transactions . . . . . . . . . . . . . . . . . . . . . . . 90
Review by Plan Fiduciaries . . . . . . . . . . . . . . . . . . . . . 91
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
METHOD OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 95
</TABLE>
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<PAGE> 76
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each Series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such "Series." An Index of
Principal Definitions is included at the end of this Prospectus.
Title of Certificates . . . . . . Mortgage Pass-Through Certificates, issuable
in Series (the "CERTIFICATES").
Depositor . . . . . . . . . . . . AMRESCO Commercial Mortgage Funding I
Corporation, an indirect wholly-owned
subsidiary of AMRESCO, INC. (the
"DEPOSITOR"). See "The Depositor."
Master Servicer . . . . . . . . . The master servicer (the "MASTER SERVICER"),
if any, for each Series of Certificates,
which may be an affiliate of the Depositor,
will be named in the related Prospectus
Supplement. See "Description of the
Agreements -- Collection and Other Servicing
Procedures."
Special Servicer . . . . . . . . The special servicer (the "SPECIAL
SERVICER"), if any, for each Series of
Certificates, which may be an affiliate of
the Depositor, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus
Supplement. See "Description of the
Agreements -- Special Servicers."
Primary Servicer . . . . . . . . The primary servicer (the "PRIMARY
SERVICER"), if any, for each Series of
Certificates, which may be an affiliate of
the Depositor, will be named in the related
Prospectus Supplement. See "Description of
the Agreements -- Collection and Other
Servicing Procedures."
Trustee . . . . . . . . . . . . . The trustee (the "TRUSTEE") for each Series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Agreements -- The Trustee."
The Trust Assets. . . . . . . . . Each Series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting primarily of:
(a) Mortgage Assets . . . . . . . The Mortgage Assets with respect to each
Series of Certificates will consist of a
pool of multifamily and/or commercial
mortgage loans (collectively, the "MORTGAGE
LOANS") and mortgage participations,
mortgage pass-through certificates or other
mortgage-backed securities evidencing
interests in or secured by Mortgage Loans
(collectively, the "CMBS") or a combination
of Mortgage Loans and CMBS. The Mortgage
Loans will not be guaranteed or insured by
the Depositor or any of its affiliates or,
unless otherwise provided in the Prospectus
Supplement, by any governmental agency or
instrumentality or other person. The CMBS
may be guaranteed or insured by an affiliate
of the Depositor, the Federal Home Loan
Mortgage Corporation, the Federal National
Mortgage Association, the Government
National Mortgage Association, or any other
person specified in the related Prospectus
Supplement. As more specifically described
herein, the Mortgage Loans will be secured
by first or junior liens on, or security
interests in, properties consisting of (i)
residential properties consisting of five or
more rental or cooperatively owned dwelling
units (the "MULTIFAMILY PROPERTIES") or (ii)
office buildings, retail centers, hotels or
motels, nursing homes, congregate care
facilities, industrial properties, mini-
warehouse facilities or self-storage
facilities, mobile home parks, mixed use or
other types of commercial properties (the
"COMMERCIAL PROPERTIES"). The term
"MORTGAGED PROPERTIES" shall refer to
Multifamily Properties or Commercial
Properties, or both.
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<PAGE> 77
To the extent described in the related
Prospectus Supplement, some or all of the
Mortgage Loans may also be secured by an
assignment of one or more leases (each, a
"LEASE") of one or more lessees (each, a
"LESSEE") of all or a portion of the related
Mortgaged Properties. Unless otherwise
specified in the related Prospectus
Supplement, a significant or the sole source
of payments on certain Commercial Loans (as
defined herein) will be the rental payments
due under the related Leases. In certain
circumstances, with respect to Commercial
Properties, the material terms and
conditions of the related Leases may be set
forth in the related Prospectus Supplement.
See "Description of the Trust Funds --
Mortgage Loans -- Leases" and "Risk Factors
-- Limited Assets" herein.
The Mortgaged Properties may be located in
or outside the United States. All Mortgage
Loans will have individual principal
balances at origination of not less than
$250,000 and original terms to maturity of
not more than 40 years. All Mortgage Loans
will have been originated by persons other
than the Depositor, and all Mortgage Assets
will have been purchased, either directly or
indirectly, by the Depositor on or before
the date of initial issuance of the related
Series of Certificates. The related
Prospectus Supplement will indicate if any
such persons are affiliates of the
Depositor.
Each Mortgage Loan may provide for no
accrual of interest or for accrual of
interest thereon at an interest rate (a
"MORTGAGE INTEREST RATE") that is fixed over
its term or that adjusts from time to time,
or is partially fixed and partially floating
or that may be converted from a floating to
a fixed Mortgage Interest Rate, or from a
fixed to a floating Mortgage Interest Rate,
from time to time at the Mortgagor's
election, in each case as described in the
related Prospectus Supplement. The floating
Mortgage Interest Rates on the Mortgage
Loans in a Trust Fund may be based on one or
more indices. Each Mortgage Loan may provide
for scheduled payments to maturity, payments
that adjust from time to time to accommodate
changes in the Mortgage Interest Rate or to
reflect the occurrence of certain events,
and may provide for negative amortization or
accelerated amortization, in each case as
described in the related Prospectus
Supplement. Each Mortgage Loan may be fully
amortizing or require a balloon payment due
on its stated maturity date, in each case as
described in the related Prospectus
Supplement. Each Mortgage Loan may contain
prohibitions on prepayment or require
payment of a premium or a yield maintenance
penalty in connection with a prepayment, in
each case as described in the related
Prospectus Supplement. The Mortgage Loans
may provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such
other interval as is specified in the
related Prospectus Supplement. See
"Description of the Trust Funds -- Assets."
(b) Collection Accounts . . . . . Each Trust Fund will include one or more
accounts established and maintained on
behalf of the Certificateholders into which
the person or persons designated in the
related Prospectus Supplement will, to the
extent described herein and in such
Prospectus Supplement, deposit all payments
and collections received or advanced with
respect to the Mortgage Assets and other
assets in the Trust Fund. Such an account
may be maintained as an interest bearing or
a non-interest bearing account, and funds
held therein may be held as cash or invested
in certain short-term, investment grade
obligations, in each case as described in
the related Prospectus Supplement. See
"Description of the Agreements --
Distribution Account and Other Collection
Accounts."
(c) Credit Support . . . . . . . If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related Series in the
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form of subordination of one or more other
classes of Certificates of such Series,
which other classes may include one or more
classes of Offered Certificates, or by one
or more other types of credit support, such
as a letter of credit, insurance policy,
guarantee, reserve fund or another type of
credit support, or a combination thereof
(any such coverage with respect to the
Certificates of any Series, "CREDIT
SUPPORT"). The amount and types of coverage,
the identification of the entity providing
the coverage (if applicable) and related
information with respect to each type of
Credit Support, if any, will be described in
the Prospectus Supplement for a Series of
Certificates. The Prospectus Supplement for
any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS
will describe any similar forms of credit
support that are provided by or with respect
to, or are included as part of the trust
fund evidenced by or providing security for,
such CMBS. See "Risk Factors -- Credit
Support Limitations" and "Description of
Credit Support."
(d) Cash Flow Agreement . . . . . If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related Series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements,
such as interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects of
interest rate or currency exchange rate
fluctuations on the Mortgage Assets of one
or more classes of Certificates. The
principal terms of any such guaranteed
investment contract or other agreement (any
such agreement, a "CASH FLOW AGREEMENT"),
including, without limitation, provisions
relating to the timing, manner and amount of
payments thereunder and provisions relating
to the termination thereof, will be
described in the Prospectus Supplement for
the related Series. In addition, the related
Prospectus Supplement will provide certain
information with respect to the obligor
under any such Cash Flow Agreement. The
Prospectus Supplement for any Series of
Certificates evidencing an interest in a
Trust Fund that includes CMBS will describe
any cash flow agreements that are included
as part of the trust fund evidenced by or
providing security for such CMBS. See
"Description of the Trust Funds -- Cash Flow
Agreements."
Description of Certificates . . . Each Series of Certificates evidencing an
interest in a Trust Fund that includes
Mortgage Loans as part of its assets will be
issued pursuant to a pooling and servicing
agreement, and each Series of Certificates
evidencing an interest in a Trust Fund that
does not include Mortgage Loans will be
issued pursuant to a trust agreement. Unless
otherwise specified in the Prospectus
Supplment, the Mortgage Loans shall be
serviced pursuant to a pooling and servicing
agreement and one or more servicing
agreements. Pooling and servicing
agreements, servicing agreements and trust
agreements are referred to herein as the
"AGREEMENTS". Each Series of Certificates
will include one or more classes. Each
Series of Certificates (including any class
or classes of Certificates of such Series
not offered hereby) will represent in the
aggregate the entire beneficial ownership
interest in the Trust Fund. Each class of
Certificates (other than certain Stripped
Interest Certificates, as defined below)
will have a stated principal amount (a
"CERTIFICATE BALANCE") and (other than
certain Stripped Principal Certificates, as
defined below), will accrue interest thereon
based on a fixed, variable or floating
interest rate (a "PASS-THROUGH RATE"). The
related Prospectus Supplement will specify
the Certificate Balance, if any, and the
Pass-Through Rate, if any, for each class of
Certificates or, in the case of a variable
or floating Pass-Through Rate, the method
for determining the Pass-Through Rate.
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Distributions on Certificates . . Each Series of Certificates will consist of
one or more classes of Certificates that may
(i) provide for the accrual of interest
thereon based on fixed, variable or floating
rates; (ii) be senior (collectively, "SENIOR
CERTIFICATES") or subordinate (collectively,
"SUBORDINATE CERTIFICATES") to one or more
other classes of Certificates in respect of
certain distributions on the Certificates;
(iii) be entitled to principal
distributions, with disproportionately low,
nominal or no interest distributions
(collectively, "STRIPPED PRINCIPAL
CERTIFICATES"); (iv) be entitled to interest
distributions, with disproportionately low,
nominal or no principal distributions
(collectively, "STRIPPED INTEREST
CERTIFICATES"); (v) provide for
distributions of accrued interest thereon
commencing only following the occurrence of
certain events, such as the retirement of
one or more other classes of Certificates of
such Series (collectively, "ACCRUAL
CERTIFICATES"); (vi) provide for
distributions of principal sequentially,
based on specified payment schedules or
other methodologies; and/or (vii) provide
for distributions based on a combination of
two or more components thereof with one or
more of the characteristics described in
this paragraph, including a Stripped
Principal Certificate component and a
Stripped Interest Certificate component, to
the extent of available funds, in each case
as described in the related Prospectus
Supplement. Any such classes may include
classes of Offered Certificates. With
respect to Certificates with two or more
components, references herein to Certificate
Balance, notional amount and Pass-Through
Rate refer to the principal balance, if any,
notional amount, if any, and the Pass-
Through Rate, if any, for any such
component.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person,
unless otherwise provided in the related
Prospectus Supplement. See "Risk Factors --
Limited Assets" and "Description of the
Certificates."
(a) Interest . . . . . . . . . . Interest on each class of Offered
Certificates (other than Stripped Principal
Certificates and certain classes of Stripped
Interest Certificates) of each Series will
accrue at the applicable Pass-Through Rate
on the outstanding Certificate Balance
thereof and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of the
specified dates on which distributions are
to be made, a "DISTRIBUTION DATE").
Distributions with respect to interest on
Stripped Interest Certificates may be made
on each Distribution Date on the basis of a
notional amount as described in the related
Prospectus Supplement. Distributions of
interest with respect to one or more classes
of Certificates may be reduced to the extent
of certain delinquencies, losses, prepayment
interest shortfalls, and other contingencies
described herein and in the related
Prospectus Supplement. Stripped Principal
Certificates with no stated Pass-Through
Rate will not accrue interest. See "Risk
Factors -- Prepayments and Effect on Average
Life of Certificates and Yields," "Yield
Considerations" and "Description of the
Certificates -- Distributions of Interest on
the Certificates."
(b) Principal . . . . . . . . . . The Certificates of each Series initially
will have an aggregate Certificate Balance
no greater than the outstanding principal
balance of the Mortgage Assets as of, unless
the related Prospectus Supplement provides
otherwise, the close of business on the
first day of the month of formation of the
related Trust Fund (the "CUT-OFF DATE"),
after application of scheduled payments due
on or before such date, whether or not
received. The Certificate Balance of a
Certificate outstanding from time to time
represents the maximum amount that the
holder thereof is then entitled to receive
in respect of principal from future cash
flow on the assets in the related Trust
Fund. Unless otherwise provided in the
related Prospectus Supplement, distributions
of principal will be made on each
Distribution Date to the class or classes of
Certificates entitled thereto until the
Certificate Balances of such
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<PAGE> 80
Certificates have been reduced to zero.
Unless otherwise specified in the related
Prospectus Supplement, distributions of
principal of any class of Certificates will
be made on a pro rata basis among all of the
Certificates of such class or by random
selection, as described in the related
Prospectus Supplement or otherwise
established by the related Trustee. Stripped
Interest Certificates with no Certificate
Balance will not receive distributions in
respect of principal. See "Description of
the Certificates -- Distributions of
Principal of the Certificates."
Advances . . . . . . . . . . . . Unless otherwise provided in the related
Prospectus Supplement, the Primary Servicer,
the Special Servicer or the Master Servicer
(each, a "SERVICER") will be obligated as
part of its servicing responsibilities to
make certain advances with respect to
delinquent scheduled payments on the Whole
Loans in such Trust Fund which it deems
recoverable. Any such advances will be made
under and subject to any determinations or
conditions set forth in the related
Prospectus Supplement. Neither the Depositor
nor any of its affiliates will have any
responsibility to make such advances.
Advances made by a Master Servicer are
reimbursable generally from subsequent
recoveries in respect of such Whole Loans
and otherwise to the extent described herein
and in the related Prospectus Supplement. If
and to the extent provided in the Prospectus
Supplement for any Series, each Servicer
will be entitled to receive interest on its
outstanding advances, payable from amounts
in the related Trust Fund. The Prospectus
Supplement for any Series of Certificates
evidencing an interest in a Trust Fund that
includes CMBS will describe any
corresponding advancing obligation of any
person in connection with such CMBS. See
"Description of the Certificates -- Advances
in Respect of Delinquencies."
Termination . . . . . . . . . . . If so specified in the related Prospectus
Supplement, a Series of Certificates may be
subject to optional early termination
through the repurchase of the Mortgage
Assets in the related Trust Fund by the
party specified therein, under the
circumstances and in the manner set forth
therein. If so provided in the related
Prospectus Supplement, upon the reduction of
the Certificate Balance of a specified class
or classes of Certificates by a specified
percentage or amount or on and after a date
specified in such Prospectus Supplement, the
party specified therein will solicit bids
for the purchase of all of the Mortgage
Assets of the Trust Fund, or of a sufficient
portion of such Mortgage Assets to retire
such class or classes, or purchase such
Mortgage Assets at a price set forth in the
related Prospectus Supplement. In addition,
if so provided in the related Prospectus
Supplement, certain classes of Certificates
may be purchased subject to similar
conditions. See "Description of the
Certificates -- Termination."
Registration of Certificates . . If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an
interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event that
definitive certificates are issued under the
limited circumstances described herein. See
"Risk Factors -- Book-Entry Registration"
and "Description of the Certificates --
Book-Entry Registration and Definitive
Certificates."
Tax Status of the Certificates . The Certificates of each Series will
constitute either (i) "regular interests"
("REMIC REGULAR CERTIFICATES") or "residual
interests" ("REMIC RESIDUAL CERTIFICATES")
in a Trust Fund or a portion of a Trust Fund
treated as a real estate mortgage investment
conduit ("REMIC") under Sections 860A
through 860G of the Code, or (ii) interests
("GRANTOR TRUST CERTIFICATES") in a Trust
Fund treated as a grantor trust under
applicable provisions of the Code.
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<PAGE> 81
(a) REMIC . . . . . . . . . . . . REMIC Regular Certificates generally will be
treated as debt obligations of the
applicable REMIC for federal income tax
purposes. Certain REMIC Regular Certificates
may be issued with original issue discount
for federal income tax purposes. See
"Certain Federal Income Tax Consequences"
herein and in the related Prospectus
Supplement.
The Offered Certificates will be treated as
(i) "qualifying real property loans" within
the meaning of section 593(d)(1) of the
Internal Revenue Code of 1986, as amended
(the "CODE"), (ii) assets described in
section 7701(a)(19)(C) of the Code and (iii)
"real estate assets" within the meaning of
section 856(c)(5)(A) of the Code, in each
case to the extent described herein and in
the Prospectus. See "Certain Federal Income
Tax Consequences" herein and in the related
Prospectus Supplement.
(b) Grantor Trust . . . . . . . . If no election is made to treat the Trust
Fund relating to a Series of Certificates as
a REMIC, the Trust Fund will be classified
as a grantor trust and not as an association
taxable as a corporation for federal income
tax purposes, and therefore holders of
Certificates will be treated as the owners
of undivided pro rata interest in the
Mortgage Pool or pool of securities and any
other assets held by the Trust Fund.
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
ERISA Considerations . . . . . . A fiduciary of an employee benefit plan and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh plans,
and collective investment funds and separate
accounts in which such plans, accounts,
annuities or arrangements are invested, that
is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Code should carefully
review with its legal advisors whether the
purchase or holding of Offered Certificates
could give rise to a transaction that is
prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the
Code. See "ERISA Considerations" herein and
in the related Prospectus Supplement.
Certain classes of Certificates may not be
transferred unless the Trustee and the
Depositor are furnished with a letter of
representations or an opinion of counsel to
the effect that such transfer will not
result in a violation of the prohibited
transaction provisions of ERISA and the Code
and will not subject the Trustee, the
Depositor or the Master Servicer to
additional obligations. See "Description of
the Certificates -- General" and "ERISA
Considerations."
Legal Investment . . . . . . . . The related Prospectus Supplement will
specify whether the Offered Certificates
will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984.
Investors whose investment authority is
subject to legal restrictions should consult
their own legal advisors to determine
whether and to what extent the Offered
Certificates constitute legal investments
for them. See "Legal Investment" herein and
in the related Prospectus Supplement.
Rating . . . . . . . . . . . . . At the date of issuance, as to each Series,
each class of Offered Certificates will be
rated not lower than investment grade by one
or more nationally recognized statistical
rating agencies (each, a "RATING AGENCY").
See "Rating" herein and in the related
Prospectus Supplement.
A security rating is not a recommendation to
buy, sell or hold securities and may be
subject to revision or withdrawal at any
time by the assigning rating organization.
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<PAGE> 82
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any Series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such Series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of
Certificates by a holder in any secondary market that may develop may be at a
discount from 100% of their original principal balance or from their purchase
price. Furthermore, secondary market purchasers may look only hereto, to the
related Prospectus Supplement and to the reports to Certificateholders
delivered pursuant to the related Agreement as described herein under the
heading "Description of the Certificates -- Reports to Certificateholders,"
"--Book-Entry Registration and Definitive Certificates" and "Description of the
Agreements -- Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and
the Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates -- Termination."
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, any Servicer, or any of their affiliates. The only obligations with
respect to the Certificates or the Mortgage Assets will be the obligations (if
any) of the Depositor (or, if otherwise provided in the related Prospectus
Supplement, the person identified therein as the person making certain
representations and warranties with respect to the Mortgage Loans, as
applicable, the "WARRANTING PARTY") pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans. Since certain
representations and warranties with respect to the Mortgage Assets may have
been made and/or assigned in connection with transfers of such Mortgage Assets
prior to the Closing Date, the rights of the Trustee and the Certificateholders
with respect to such representations or warranties will be limited to their
rights as an assignee thereof. Unless otherwise specified in the related
Prospectus Supplement, none of the Depositor, any Servicer or any affiliate
thereof will have any obligation with respect to representations or warranties
made by any other entity. Unless otherwise specified in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Depositor, any Servicer or any of their affiliates. Proceeds of the assets
included in the related Trust Fund for each Series of Certificates (including
the Mortgage Assets and any form of credit enhancement) will be the sole source
of payments on the Certificates, and there will be no recourse to the Depositor
or any other entity in the event that such proceeds are insufficient or
otherwise unavailable to make all payments provided for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a
Series of Certificates will not have any claim against or security interest in
the Trust Funds for any other Series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Distribution Account, the Trust Master
Collection Account, Trust Primary Collection Account and Trust REO Account and
any accounts maintained as Credit Support, may be withdrawn under certain
conditions, as described in the related Prospectus Supplement. In the event of
such withdrawal, such amounts will not be available for future payment of
principal of or interest on the Certificates. If so provided in the Prospectus
Supplement for a Series of Certificates consisting of one or more classes of
Subordinate Certificates, on any Distribution Date in respect of which losses
or shortfalls in collections on the Trust Assets have been incurred, the amount
of such losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by the remaining classes of
Certificates in the priority and manner and subject to the limitations
specified in such Prospectus Supplement.
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<PAGE> 83
PREPAYMENTS AND EFFECT ON AVERAGE LIFE OF CERTIFICATES AND YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets
in any Trust Fund generally will result in a faster rate of principal payments
on one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly
below the applicable mortgage interest rates, principal prepayments are likely
to be higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A Series of Certificates may include one
or more classes of Certificates with priorities of payment and, as a result,
yields on other classes of Certificates, including classes of Offered
Certificates, of such Series may be more sensitive to prepayments on Mortgage
Assets. A Series of Certificates may include one or more classes offered at a
significant premium or discount. Yields on such classes of Certificates will be
sensitive, and in some cases extremely sensitive, to prepayments on Mortgage
Assets and, where the amount of interest payable with respect to a class is
disproportionately high, as compared to the amount of principal, as with
certain classes of Stripped Interest Certificates, a holder might, in some
prepayment scenarios, fail to recoup its original investment. A Series of
Certificates may include one or more classes of Certificates, including classes
of Offered Certificates, that provide for distribution of principal thereof
from amounts attributable to interest accrued but not currently distributable
on one or more classes of Accrual Certificates and, as a result, yields on such
Certificates will be sensitive to (a) the provisions of such Accrual
Certificates relating to the timing of distributions of interest thereon and
(b) if such Accrual Certificates accrue interest at a variable or floating
Pass-Through Rate, changes in such rate. See "Yield Considerations" herein and,
if applicable, in the related Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders
of Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
Series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates
of the related Series are entitled that is not covered by the applicable
rating.
The amount, type and nature of credit support, if any, established with
respect to a Series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage
loans in a larger group. Such analysis is often the basis upon which each
Rating Agency determines the amount of credit support required with respect to
each such class. There can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Mortgage Assets. No assurance can be given that values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related Mortgage Loans. Moreover, there is no assurance
that appreciation of real estate values generally will limit loss experiences
on the Mortgaged Properties. If the commercial or multifamily residential real
estate markets should experience an overall decline in property values such
that the outstanding principal balances of the Mortgage Loans underlying or
comprising the Mortgage Assets in a particular Trust Fund and any secondary
financing on the related Mortgaged Properties become equal to or greater than
the value of the Mortgaged Properties, the rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced by
institutional lenders. In addition, adverse economic conditions (which may or
may not affect real property values) may affect the timely payment by
Mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the rates of
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<PAGE> 84
delinquencies, foreclosures and losses with respect to any Trust Fund. To the
extent that such losses are not covered by the Credit Support, if any,
described in the related Prospectus Supplement, such losses will be borne, at
least in part, by the holders of one or more classes of the Certificates of the
related Series. See "Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds -- Assets." The ability of a
Mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the Mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a Mortgagor to repay a
single family loan typically is dependent primarily upon the Mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the Mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of
an income-producing property will likely affect both the performance of the
related loan as well as the liquidation value of such property, whereas a
decline in the income of a Mortgagor on a single family property will likely
affect the performance of the related loan but may not affect the liquidation
value of such property. Moreover, a decline in the value of a Mortgaged
Property will increase the risk of loss particularly with respect to any
related junior Mortgage Loan. See "--Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the Mortgagor to tenants as well as the liquidation value of
such property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants or,
if applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
Mortgagor default, recourse may be had only against the specific property and
such other assets, if any, as have been pledged to secure the related Mortgage
Loan. With respect to those Mortgage Loans that provide for recourse against
the Mortgagor and its assets generally, there can be no assurance that such
recourse will ensure a recovery in respect of a defaulted Mortgage Loan greater
than the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual Mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a single or limited number of Mortgage Loans and/or relate
to Leases to only a single Lessee or a limited number of Lessees.
If applicable, certain legal aspects of the Mortgage Loans for a Series
of Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each Mortgagor
under a Commercial Loan may be an entity created by the owner or purchaser of
the related Commercial Property solely to own or purchase such property, in
part to isolate the property from the debts and liabilities of such owner or
purchaser. Unless otherwise specified, each such Commercial Loan will represent
a nonrecourse obligation of the related Mortgagor secured by the lien of the
related Mortgage and the related Lease Assignments. Whether or not such loans
are recourse or nonrecourse obligations, it is not expected that the Mortgagors
will have any significant assets other than the Commercial Properties and the
related Leases, which will be pledged to the Trustee under the related
Agreement. Therefore, the payment of amounts due on any such Commercial Loans,
and, consequently, the payment of principal of and interest on the related
Certificates, will depend primarily or solely on rental payments by the
Lessees. Such rental payments will, in turn,
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depend on continued occupancy by, and/or the creditworthiness of, such Lessees,
which in either case may be adversely affected by a general economic downturn
or an adverse change in their financial condition. Moreover, to the extent a
Commercial Property was designed for the needs of a specific type of tenant
(e.g., a nursing home, hotel or motel), the value of such property in the event
of a default by the Lessee or the early termination of such Lease may be
adversely affected because of difficulty in re-leasing the property to a
suitable substitute lessee or, if re-leasing to such a substitute is not
possible, because of the cost of altering the property for another more
marketable use. As a result, without the benefit of the Lessee's continued
support of the Commercial Property, and absent significant amortization of the
Commercial Loan, if such loan is foreclosed on and the Commercial Property is
liquidated following a lease default, the net proceeds might be insufficient to
cover the outstanding principal and interest owing on such loan, thereby
increasing the risk that holders of the Certificates will suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity (the
"BALLOON MORTGAGE LOANS"). Mortgage Loans with balloon payments involve a
greater degree of risk because the ability of a Mortgagor to make a balloon
payment typically will depend upon its ability either to timely refinance the
loan or to timely sell the related Mortgaged Property. The ability of a
Mortgagor to accomplish either of these goals will be affected by a number of
factors, including the level of available mortgage interest rates at the time
of sale or refinancing, the Mortgagor's equity in the related Mortgaged
Property, the financial condition and operating history of the Mortgagor and
the related Mortgaged Property, tax laws, rent control laws (with respect to
certain Multifamily Properties and mobile home parks), reimbursement rates
(with respect to certain nursing homes), renewability of operating licenses,
prevailing general economic conditions and the availability of credit for
commercial or multifamily real properties, as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case of
liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loans would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to
maximize recoveries on defaulted Whole Loans, a Master Servicer or a Special
Servicer will be permitted (within prescribed parameters) to extend and modify
Whole Loans that are in default or as to which a payment default is imminent,
including in particular with respect to balloon payments. In addition, a Master
Servicer or a Special Servicer may receive a workout fee based on receipts from
or proceeds of such Whole Loans. While any such entity generally will be
required to determine that any such extension or modification is reasonably
likely to produce a greater recovery on a present value basis than liquidation,
there can be no assurance that such flexibility with respect to extensions or
modifications or payment of a workout fee will increase the present value of
receipts from or proceeds of Whole Loans that are in default or as to which a
payment default is imminent. Additionally, if so specified in the related
Prospectus Supplement, certain of the Mortgage Loans included in the Mortgage
Pool for a Series may have been subject to workouts or similar arrangements
following periods of delinquency and default.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The Mortgagor's sophistication and
form of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
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CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Support may not cover all potential losses or
risks; for example, Credit Support may or may not cover fraud or negligence by
a mortgage loan originator or other parties.
A Series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more
classes of Certificates of a Series are made in a specified order of priority,
any limits with respect to the aggregate amount of claims under any related
Credit Support may be exhausted before the principal of the lower priority
classes of Certificates of such Series has been repaid. As a result, the impact
of significant losses and shortfalls on the Trust Assets may fall primarily
upon those classes of Certificates having a lower priority of payment.
Moreover, if a form of Credit Support covers more than one Series of
Certificates (each, a "COVERED TRUST"), holders of Certificates evidencing an
interest in a Covered Trust will be subject to the risk that such Credit
Support will be exhausted by the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria
established by each Rating Agency rating such classes of Certificates based on
an assumed level of defaults, delinquencies, other losses or other factors.
There can, however, be no assurance that the loss experience on the related
Mortgage Assets will not exceed such assumed levels. See "--Limited Nature of
Ratings," "Description of the Certificates" and "Description of Credit
Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. The Master
Servicer will generally be permitted to reduce, terminate or substitute all or
a portion of the credit enhancement for any Series of Certificates, if the
applicable Rating Agency indicates that the then-current rating thereof will
not be adversely affected. The rating of any Series of Certificates by any
applicable Rating Agency may be lowered following the initial issuance thereof
as a result of the downgrading of the obligations of any applicable credit
support provider, or as a result of losses on the related Mortgage Assets
substantially in excess of the levels contemplated by such Rating Agency at the
time of its initial rating analysis. None of the Depositor, the Master Servicer
or any of their affiliates will have any obligation to replace or supplement
any credit enhancement, or to take any other action to maintain any rating of
any Series of Certificates.
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the Mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of
the Mortgagor. Such clauses are generally enforceable subject to certain
exceptions. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default. The equity courts of
any state, however, may refuse the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
Mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to
the lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
Mortgagor defaults, the license terminates and the lender is entitled to
collect rents. Such assignments are typically not perfected as security
interests prior to actual possession of the cash flows. Some state laws may
require that the lender take
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possession of the Mortgaged Property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
Mortgagor, the lender's ability to collect the rents may be adversely affected.
See "Certain Legal Aspects of the Mortgage Loans and the Leases -- Leases and
Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of
hazardous substances that require remedy at a property, if agents or employees
of the lender have become sufficiently involved in the operations of the
Mortgagor, regardless of whether or not the environmental damage or threat was
caused by a prior owner. A lender also risks such liability on foreclosure of
the mortgage. Each Pooling and Servicing Agreement will provide that no
Servicer, acting on behalf of the Trust Fund, may acquire title to a Mortgaged
Property securing a Mortgage Loan or take over its operation unless such
Servicer has previously determined, based upon a report prepared by a person
who regularly conducts environmental audits, that: (i) the Mortgaged Property
is in compliance with applicable environmental laws or, if not, that taking
such actions as are necessary to bring the Mortgaged Property in compliance
therewith is likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking such
actions and (ii) there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any Hazardous Materials (as
defined herein) for which investigation, testing, monitoring, containment,
cleanup or remediation could be required under any federal, state or local law
or regulation, or that, if any Hazardous Materials are present for which such
action would be required, taking such actions with respect to the affected
Mortgaged Property is reasonably likely to produce a greater recovery on a
present value basis, after taking into account any risks associated therewith,
than not taking such actions. Any additional restrictions on acquiring title to
a Mortgaged Property may be set forth in the related Prospectus Supplement. See
"Certain Legal Aspects of the Mortgage Loans and the Leases -- Environmental
Legislation."
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for
a particular series of Certificates may include Mortgage Loans that are past
due or are non-performing. Unless otherwise described in the related Prospectus
Supplement, the servicing of such Mortgage Loans as to which a specified number
of payments are delinquent will be performed by the Special Servicer; however,
the same entity may act as both Master Servicer and Special Servicer. Credit
Support provided with respect to a particular series of Certificates may not
cover all losses related to such delinquent or nonperforming Mortgage Loans,
and investors should consider the risk that the inclusion of such Mortgage
Loans in the Trust Fund may adversely affect the rate of defaults and
prepayments on the Mortgage Assets in such Trust Fund and the yield on the
Certificates of such series.
RISKS ASSOCIATED WITH MORTGAGED PROPERTIES NOT LOCATED IN THE UNITED STATES
If so provided in the related Prospectus Supplement, the Trust Fund for
a particular Series of Certificates may include Mortgage Loans secured by
Mortgaged Properties not located in the United States. The related Prospectus
Supplement will set forth certain material risks associated with such Mortgage
Loans which are different and additional to those associated with similar
properties in the United States including restrictions on enforcement of the
rights of the holder of the related Mortgage Notes, currency exchange rate
fluctuations, currency exchange controls and general trends or conditions in
the related real estate market.
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans
and transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
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ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
Series.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on
their federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Certain Federal Income Tax
Consequences -- REMICs." Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a
taxable year in excess of the cash received during such period. Individual
holders of REMIC Residual Certificates may be limited in their ability to
deduct servicing fees and other expenses of the REMIC. In addition, REMIC
Residual Certificates are subject to certain restrictions on transfer. Because
of the special tax treatment of REMIC Residual Certificates, the taxable income
arising in a given year on a REMIC Residual Certificate will not be equal to,
and may be substantially more than, the taxable income associated with
investment in a corporate bond or stripped instrument having similar cash flow
characteristics and pre-tax yield. Therefore, the after-tax yield on the REMIC
Residual Certificate may be significantly less than that of a corporate bond or
stripped instrument having similar cash flow characteristics. Additionally,
prospective purchasers of a REMIC Residual Certificate should be aware that
under applicable Treasury regulations REMIC residual interests cannot be
marked-to-market. See "Certain Federal Income Tax Consequences -- REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a Series or a similar means of allocating decision-making under
the related Agreement ("VOTING RIGHTS") will be required to direct, and will be
sufficient to bind all Certificateholders of such Series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description
of the Agreements -- Events of Default," "--Rights Upon Event of Default" and
"--Amendment."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Beneficial Owners or their nominees. Because of this,
unless and until Definitive Certificates are issued, Beneficial Owners will not
be recognized by the Trustee as "CERTIFICATEHOLDERS" (as that term is to be
used in the related Agreement). Hence, until such time, Beneficial Owners will
be able to exercise the rights of Certificateholders only indirectly through
DTC and its participating organizations. See "Description of the Certificates
- -- Book-Entry Registration and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund will include (i) one or more
multifamily and/or commercial mortgage loans (the "MORTGAGE LOANS"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities (collectively, the
"CMBS"), or (iii) a combination of Mortgage Loans and CMBS. As used herein,
"Mortgage Loans" refers to both whole Mortgage Loans and Mortgage Loans
underlying CMBS. Mortgage Loans that secure, or interests in which are
evidenced by, CMBS are herein sometimes referred to as "UNDERLYING MORTGAGE
LOANS". Mortgage Loans that are not Underlying Mortgage Loans are sometimes
referred to as "WHOLE LOANS". Any mortgage participations, pass-through
certificates or other asset-backed certificates in which an CMBS evidences an
interest or which secure an CMBS are sometimes referred to herein also as CMBS
or as "UNDERLYING CMBS". Mortgage Loans and CMBS are sometimes referred to
herein as "MORTGAGE ASSETS". No CMBS originally issued in a private placement
will be included as an asset of a Trust Fund until the holding period provided
for under Rule 144(k)
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promulgated under the Securities Act has expired or such CMBS has been
registered under the Securities Act. The Mortgage Assets will not be guaranteed
or insured by AMRESCO Commercial Mortgage Funding I Corporation (the
"DEPOSITOR") or any of its affiliates or, unless otherwise provided in the
Prospectus Supplement, by any governmental agency or instrumentality or by any
other person. Each Mortgage Asset will be selected by the Depositor for
inclusion in a Trust Fund from among those purchased, either directly or
indirectly, from a prior holder thereof (an "ASSET SELLER"), which may be an
affiliate of the Depositor and, with respect to Mortgage Assets, which prior
holder may or may not be the originator of such Mortgage Loan or the issuer of
such CMBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Mortgage Assets.
MORTGAGE LOANS
General
The Mortgage Loans will be secured by liens on, or security interests
in, Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively owned dwelling units in high-rise, mid-
rise or garden apartment buildings ("MULTIFAMILY PROPERTIES" and the related
loans, "MULTIFAMILY LOANS") or (ii) office buildings, retail centers, hotels or
motels, nursing homes, congregate care facilities, industrial properties, mini-
warehouse facilities or self-storage facilities, mobile home parks, mixed use
or other types of commercial properties ("COMMERCIAL PROPERTIES" and the
related loans, "COMMERCIAL LOANS") located, unless otherwise specified in the
related Prospectus Supplement, in any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico. To the extent specified in the
related Prospectus Supplement, the Mortgage Loans will be secured by first
mortgages or deeds of trust or other similar security instruments creating a
first lien on Mortgaged Property. Multifamily Properties may include mixed
commercial and residential structures and may include apartment buildings owned
by private cooperative housing corporations ("COOPERATIVES"). The Mortgaged
Properties may include leasehold interests in properties, the title to which is
held by third party lessors. The Prospectus Supplement will specify whether the
term of any such leasehold exceeds the term of the mortgage note by at least
ten years. Each Mortgage Loan will have been originated by a person (the
"ORIGINATOR") other than the Depositor. The related Prospectus Supplement will
indicate if any Originator is an affiliate of the Depositor. The Mortgage Loans
will be evidenced by promissory notes (the "MORTGAGE NOTES") secured by
mortgages or deeds of trust (the "MORTGAGES") creating a lien on the Mortgaged
Properties. Mortgage Loans will generally also be secured by an assignment of
leases and rents and/or operating or other cash flow guarantees relating to the
Mortgage Loan.
Leases
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or
a portion of such properties. Pursuant to a Lease Assignment, the related
Mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
Mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for
application to the monetary obligations of the Mortgagor. State law may limit
or restrict the enforcement of the Lease Assignments by a mortgagee until it
takes possession of the related Mortgaged Property and/or a receiver is
appointed. See "Certain Legal Aspects of the Mortgage Loans and the Leases --
Leases and Rents." Alternatively, to the extent specified in the related
Prospectus Supplement, the Mortgagor and the mortgagee may agree that payments
under Leases are to be made directly to a Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to
cover all scheduled payments of principal and interest on the related Mortgage
Loans and, in certain cases, their pro rata share of the operating expenses,
insurance premiums and real estate taxes associated with the Mortgaged
Properties. Certain of the Leases may require the Mortgagor to bear costs
associated with structural repairs and/or the maintenance of the exterior or
other portions of the Mortgaged Property or provide for certain limits on the
aggregate amount of operating expenses, insurance premiums, taxes and other
expenses that the Lessees are
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required to pay. If so specified in the related Prospectus Supplement, under
certain circumstances the Lessees may be permitted to set off their rental
obligations against the obligations of the Mortgagors under the Leases. In
those cases where payments under the Leases (net of any operating expenses
payable by the Mortgagors) are insufficient to pay all of the scheduled
principal and interest on the related Mortgage Loans, the Mortgagors must rely
on other income or sources (including security deposits) generated by the
related Mortgaged Property to make payments on the related Mortgage Loan. To
the extent specified in the related Prospectus Supplement, some Commercial
Properties may be leased entirely to one Lessee. In such cases, absent the
availability of other funds, the Mortgagor must rely entirely on rent paid by
such Lessee in order for the Mortgagor to pay all of the scheduled principal
and interest on the related Commercial Loan. To the extent specified in the
related Prospectus Supplement, certain of the Leases may expire prior to the
stated maturity of the related Mortgage Loan. In such cases, upon expiration of
the Leases the Mortgagors will have to look to alternative sources of income,
including rent payment by any new Lessees or proceeds from the sale or
refinancing of the Mortgaged Property, to cover the payments of principal and
interest due on such Mortgage Loans unless the Lease is renewed. As specified
in the related Prospectus Supplement, certain of the Leases may provide that
upon the occurrence of a casualty affecting a Mortgaged Property, the Lessee
will have the right to terminate its Lease, unless the Mortgagor, as lessor, is
able to cause the Mortgaged Property to be restored within a specified period
of time. Certain Leases may provide that it is the lessor's responsibility,
while other Leases provide that it is the Lessee's responsibility, to restore
the Mortgaged Property after a casualty to its original condition. Certain
Leases may provide a right of termination to the related Lessee if a taking of
a material or specified percentage of the leased space in the Mortgaged
Property occurs, or if the ingress or egress to the leased space has been
materially impaired.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the Mortgagor's assets, in the event of the Mortgagor's
default. Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. The "DEBT SERVICE COVERAGE RATIO" of a Mortgage Loan at
any given time is the ratio of the Net Operating Income for a twelve-month
period to the annualized scheduled payments on the Mortgage Loan. "NET
OPERATING INCOME" means, for any given period, unless otherwise specified in
the related Prospectus Supplement, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than
(i) non-cash items such as depreciation and amortization, (ii) capital
expenditures and (iii) debt service on loans secured by the Mortgaged Property.
The Net Operating Income of a Mortgaged Property will fluctuate over time and
may be sufficient or insufficient to cover debt service on the related Mortgage
Loan at any given time.
As the primary component of Net Operating Income, rental income (as well
as maintenance payments from tenant-stockholders of a Cooperative) is subject
to the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and self-
storage facilities, tend to be affected more rapidly by changes in market or
business conditions than do properties leased, occupied or used for longer
periods, such as (typically) retail centers, office buildings and industrial
properties. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the Mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
Mortgage Loan. As may be further described in the related Prospectus
Supplement, in some cases leases of Mortgaged Properties may provide that the
Lessee rather than the Mortgagor, is responsible for payment of some or all of
these expenses; however, because leases are subject to default risks as well
when a tenant's income is insufficient to cover its rent and operating
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expenses, the existence of such "net of expense" provisions will only temper,
not eliminate, the impact of expense increases on the performance of the
related Mortgage Loan. See "--Mortgage Loans -- Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities, the income
from which and the operating expenses of which are subject to state and/or
federal regulations, such as Medicare and Medicaid, and multifamily properties
and mobile home parks, which may be subject to state or local rent control
regulation and, in certain cases, restrictions on changes in use of the
property. Low- and moderate-income housing in particular may be subject to
legal limitations and regulations but, because of such regulations, may also be
less sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon Mortgage
Loan, for example, the risk of default as a result of the unavailability of a
source of funds to finance the related balloon payment at maturity on terms
comparable to or better than those of such Balloon Mortgage Loans could be
significant even though the related Debt Service Coverage Ratio is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the Loan-to-Value
Ratio of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the Mortgagor.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are
complete or relevant. See "Risk Factors -- Risks Associated with Mortgage Loans
and Mortgaged Properties," " --Balloon Payments," " --Junior Mortgage Loans," "
- --Obligor Default" and " --Mortgagor Type."
Loan-to-Value Ratio
The "LOAN-TO-VALUE RATIO" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance of
the Mortgage Loan to the Value of the related Mortgaged Property. The "VALUE"
of a Mortgaged Property, other than with respect to Refinance Loans, is
generally the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of such loan and (b) the sales price
for such property. "REFINANCE LOANS" are loans made to refinance existing
loans. Unless otherwise set forth in the related Prospectus Supplement, the
Value of the Mortgaged Property securing a Refinance Loan is the appraised
value thereof determined in an appraisal obtained at the time of origination of
the Refinance Loan. The Value of a Mortgaged Property as of the date of initial
issuance of the related Series of Certificates may be less than the value at
origination and will fluctuate from time to time based upon changes in economic
conditions and the real estate market.
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Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-
off Date, (ii) the type of property securing the Mortgage Loans (e.g.,
Multifamily Property or Commercial Property and the type of property in each
such category), (iii) the weighted average (by principal balance) of the
original and remaining terms to maturity of the Mortgage Loans, (iv) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(v) the weighted average (by principal balance) of the Loan-to-Value Ratios at
origination of the Mortgage Loans, (vi) the Mortgage Interest Rates or range of
Mortgage Interest Rates and the weighted average Mortgage Interest Rate borne
by the Mortgage Loans, (vii) the state or states in which most of the Mortgaged
Properties are located, (viii) information with respect to the prepayment
provisions, if any, of the Mortgage Loans, (ix) the weighted average Retained
Interest, if any, (x) with respect to Mortgage Loans with floating Mortgage
Interest Rates ("ARM LOANS"), the index, the frequency of the adjustment dates,
the highest, lowest and weighted average note margin and pass-through margin,
and the maximum Mortgage Interest Rate or monthly payment variation at the time
of any adjustment thereof and over the life of the ARM Loan and the frequency
of such monthly payment adjustments, (xi) the Debt Service Coverage Ratio
either at origination or as of a more recent date (or both) and (xii)
information regarding the payment characteristics of the Mortgage Loans,
including without limitation balloon payment and other amortization provisions.
The related Prospectus Supplement will also contain certain information
available to the Depositor with respect to the provisions of leases and the
nature of tenants of the Mortgaged Properties and other information referred to
in a general manner under "--Mortgage Loans -- Default and Loss Considerations
with Respect to the Mortgage Loans" above. If specific information respecting
the Mortgage Loans is not known to the Depositor at the time Certificates are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of the related
Certificates at or before the initial issuance thereof and will be filed as
part of a Current Report on Form 8-K with the Securities and Exchange
Commission within fifteen days after such initial issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination
of not less than $250,000, (ii) have original terms to maturity of not more
than 40 years and (iii) provide for payments of principal, interest or both, on
due dates that occur monthly, quarterly or semi-annually or at such other
interval as is specified in the related Prospectus Supplement. Each Mortgage
Loan may provide for no accrual of interest or for accrual of interest thereon
at an interest rate (a "MORTGAGE INTEREST RATE") that is fixed over its term or
that adjusts from time to time, or that is partially fixed and partially
floating, or that may be converted from a floating to a fixed Mortgage Interest
Rate, or from a fixed to a floating Mortgage Interest Rate, from time to time
pursuant to an election or as otherwise specified on the related Mortgage Note,
in each case as described in the related Prospectus Supplement. Each Mortgage
Loan may provide for scheduled payments to maturity or payments that adjust
from time to time to accommodate changes in the Mortgage Interest Rate or to
reflect the occurrence of certain events, and may provide for negative
amortization or accelerated amortization, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may be fully amortizing or
require a balloon payment due on its stated maturity date, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may contain
prohibitions on prepayment (a "LOCK-OUT PERIOD" and the date of expiration
thereof, a "LOCK-OUT DATE") or require payment of a premium or a yield
maintenance penalty (a "PREPAYMENT PREMIUM") in connection with a prepayment,
in each case as described in the related Prospectus Supplement. In the event
that holders of any class or classes of Offered Certificates will be entitled
to all or a portion of any Prepayment Premiums collected in respect of Mortgage
Loans, the related Prospectus Supplement will specify the method or methods by
which any such amounts will be allocated. A Mortgage Loan may also contain
provisions entitling the mortgagee to a share of profits realized from the
operation or disposition of the Mortgaged Property ("EQUITY PARTICIPATIONS"),
as described in the related Prospectus Supplement. In the event that holders of
any class or classes of Offered Certificates will be entitled to all or a
portion of an Equity Participation, the related Prospectus Supplement will
specify the terms and provisions of the Equity Participation and the method or
methods by which distributions in respect thereof will be allocated among such
Certificates.
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CMBS
Any CMBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture
or similar agreement (an "CMBS AGREEMENT"). A seller (the "CMBS ISSUER") and/or
servicer (the "CMBS SERVICER") of the underlying Mortgage Loans (or Underlying
CMBS) will have entered into the CMBS Agreement with a trustee or a custodian
under the CMBS Agreement (the "CMBS TRUSTEE"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or CMBS evidenced by
the CMBS.
Distributions of any principal or interest, as applicable, will be made
on CMBS on the dates specified in the related Prospectus Supplement. The CMBS
may be issued in one or more classes with characteristics similar to the
classes of Certificates described in this Prospectus. Any principal or interest
distributions will be made on the CMBS by the CMBS Trustee or the CMBS
Servicer. The CMBS Issuer or the CMBS Servicer or another person specified in
the related Prospectus Supplement may have the right or obligation to
repurchase or substitute assets underlying the CMBS after a certain date or
under other circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the CMBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying CMBS
evidenced by or securing such CMBS and other factors and generally will have
been established for the CMBS on the basis of requirements of either any Rating
Agency that may have assigned a rating to the CMBS or the initial purchasers of
the CMBS.
The Prospectus Supplement for a Series of Certificates evidencing
interests in Mortgage Assets that include CMBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the CMBS to be included
in the Trust Fund, (ii) the original and remaining term to stated maturity of
the CMBS, if applicable, (iii) whether such CMBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or bond
rate of the CMBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the CMBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the CMBS Issuer,
CMBS Servicer and CMBS Trustee, as applicable, (vii) certain characteristics of
the credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the related Underlying
Mortgage Loans, the Underlying CMBS or directly to such CMBS, (viii) the terms
on which the related Underlying Mortgage Loans or Underlying CMBS for such CMBS
or the CMBS may, or are required to, be purchased prior to their maturity, (ix)
the terms on which Mortgage Loans or Underlying CMBS may be substituted for
those originally underlying the CMBS, (x) the servicing fees payable under the
CMBS Agreement, (xi) to the extent available to the Depositor, the type of
information in respect of the Underlying Mortgage Loans described under
"--Mortgage Loans -- Mortgage Loan Information in Prospectus Supplements"
above, and the type of information in respect of the Underlying CMBS described
in this paragraph, (xii) the characteristics of any cash flow agreements that
are included as part of the trust fund evidenced or secured by the CMBS and
(xiii) whether the CMBS is in certificated form, book-entry form or held
through a depository such as The Depository Trust Company or the Participants
Trust Company.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Mortgage Assets and other assets in
the Trust Fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreements -- Accounts -- Distribution Account" and "--Accounts -- Other
Collection Accounts."
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<PAGE> 94
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Trust Assets in the
related Trust Fund may be provided to one or more classes of Certificates in
the related Series in the form of subordination of one or more other classes of
Certificates in such Series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee, reserve fund or
another type of credit support, or a combination thereof (any such coverage
with respect to the Certificates of any Series, "CREDIT SUPPORT"). The amount
and types of coverage, the identification of the entity providing the coverage
(if applicable) and related information with respect to each type of Credit
Support, if any, will be described in the Prospectus Supplement for a Series of
Certificates. See "Risk Factors -- Credit Support Limitations" and "Description
of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related Series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Mortgage
Assets or on one or more classes of Certificates. The principal terms of any
such guaranteed investment contract or other agreement (any such agreement, a
"CASH FLOW AGREEMENT"), including, without limitation, provisions relating to
the timing, manner and amount of payments thereunder and provisions relating to
the termination thereof, will be described in the Prospectus Supplement for the
related Series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Trust Assets and to pay for
certain expenses incurred in connection with such purchase of Trust Assets and
sale of Certificates. The Depositor expects to sell the Certificates from time
to time, but the timing and amount of offerings of Certificates will depend on
a number of factors, including the volume of Mortgage Assets acquired by the
Depositor, prevailing interest rates, availability of funds and general market
conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt
and timing of receipt of distributions on the Certificate and the weighted
average life of the Mortgage Assets in the related Trust Fund (which may be
affected by prepayments, defaults, liquidations or repurchases). See "Risk
Factors."
PASS-THROUGH RATE
Certificates of any class within a Series may have fixed, variable or
floating Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Assets in the related Trust Fund. The Prospectus
Supplement with respect to any Series of Certificates will specify the Pass-
Through Rate for each class of such Certificates or, in the case of a variable
or floating Pass-Through Rate, the method of determining the Pass-Through Rate;
the effect, if any, of the prepayment of any Mortgage Asset on the Pass-Through
Rate of one or more classes of Certificates; and whether the distributions of
interest on the Certificates of any class will be dependent, in whole or in
part, on the performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while
interest may accrue on each Mortgage Asset during a certain period, the
distribution of such interest will be made on a day which may be several days,
weeks or months following the period of accrual.
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<PAGE> 95
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related Series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Mortgage Assets may be made on the first day
of the Interest Accrual Period for a Distribution Date and not on such
Distribution Date. Such method would produce a lower effective yield than if
interest were calculated on the basis of the actual principal amount
outstanding during an Interest Accrual Period. The Interest Accrual Period for
any class of Offered Certificates will be described in the related Prospectus
Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Mortgage Assets (including principal prepayments
on Mortgage Loans resulting from voluntary prepayments by the Mortgagors,
insurance proceeds, condemnations and involuntary liquidations). Such payments
may be directly dependent upon the payments on Leases underlying such Mortgage
Loans. The rate at which principal prepayments occur on the Mortgage Loans will
be affected by a variety of factors, including, without limitation, the terms
of the Mortgage Loans, the level of prevailing interest rates, the availability
of mortgage credit and economic, demographic, geographic, tax, legal and other
factors. In general, however, if prevailing interest rates fall significantly
below the Mortgage Interest Rates on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund, such Mortgage Loans
are likely to be the subject of higher principal prepayments than if prevailing
rates remain at or above the rates borne by such Mortgage Loans. In this
regard, it should be noted that certain Mortgage Assets may consist of Mortgage
Loans with different Mortgage Interest Rates and the stated pass-through or
pay-through interest rate of certain CMBS may be a number of percentage points
higher or lower than certain of the underlying Mortgage Loans. The rate of
principal payments on some or all of the classes of Certificates of a Series
will correspond to the rate of principal payments on the Mortgage Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Mortgage Assets, and by the extent to which the servicer of any
such Mortgage Loan is able to enforce such provisions. Mortgage Loans with a
Lock-out Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal prepayments
than otherwise identical Mortgage Loans without such provisions, with shorter
Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Certificate offered at a premium calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is slower than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. In either
case, if so provided in the Prospectus Supplement for a Series of Certificates,
the effect on yield on one or more classes of the Certificates of such Series
of prepayments of the Mortgage Assets in the related Trust Fund may be
mitigated or exacerbated by any provisions for sequential or selective
distribution of principal to such classes.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for
the number of days in the month actually elapsed up to the date of the
prepayment. Unless otherwise specified in the related Prospectus Supplement,
the effect of prepayments in full will be to reduce the amount of interest paid
in the following month to holders of Certificates entitled to payments of
interest because interest on the principal amount of any Mortgage Loan so
prepaid will be paid only to the date of prepayment rather than for a full
month. Unless otherwise specified in the related Prospectus Supplement, a
partial prepayment of principal is applied so as to reduce the outstanding
principal balance of the related Mortgage Loan as of the Due Date in the month
in which such partial prepayment is received. As a result, unless otherwise
specified in the related Prospectus Supplement, the effect of a partial
prepayment on a Mortgage Loan will be to reduce the amount of interest
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<PAGE> 96
passed through to holders of Certificates in the month following the receipt of
such partial prepayment by an amount equal to one month's interest at the
applicable Pass-Through Rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on
such investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS -- MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage
Assets included in or comprising a Trust Fund and the rate at which payments
are made from any Credit Support or Cash Flow Agreement for the related Series
of Certificates may affect the ultimate maturity and the weighted average life
of each class of such Series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related Series.
If so provided in the Prospectus Supplement for a Series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such Series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a Series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the CMBS. If any Mortgage Loans comprising or underlying the
Mortgage Assets in a particular Trust Fund have actual terms to maturity of
less than those assumed in calculating final scheduled Distribution Dates for
the classes of Certificates of the related Series, one or more classes of such
Certificates may be fully paid prior to their respective final scheduled
Distribution Dates, even in the absence of prepayments. Accordingly, the
prepayment experience of the Mortgage Assets will, to some extent, be a
function of the mix of Mortgage Interest Rates and maturities of the Mortgage
Loans comprising or underlying such Mortgage Assets. See "Description of the
Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it
is likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any Series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each Series of Certificates
will contain tables, if applicable, setting forth the projected weighted
average life of each class of Offered Certificates of such Series and the
percentage of the initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans comprising or underlying the related Mortgage Assets are made at
rates corresponding to various percentages of CPR
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or at such other rates specified in such Prospectus Supplement. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average life
of the Certificates to various prepayment rates and will not be intended to
predict or to provide information that will enable investors to predict the
actual weighted average life of the Certificates. It is unlikely that
prepayment of any Mortgage Loans comprising or underlying the Mortgage Assets
for any Series will conform to any particular level of CPR or any other rate
specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
A number of Mortgage Loans may have balloon payments due at maturity,
and because the ability of a Mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the Mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement be permitted to modify Mortgage Loans that are in
default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a Mortgage Loan will tend
to extend the weighted average life of the Certificates, thereby lengthening
the period of time elapsed from the date of issuance of a Certificate until it
is retired.
Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage
Loans comprising or underlying the Mortgage Assets that are foreclosed in
relation to the number and principal amount of Mortgage Loans that are repaid
in accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related Series of Certificates. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Loans
and thus the weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Mortgage Assets may include "due-
on-sale" clauses or "due-on-encumbrance" clauses that allow the holder of the
Mortgage Loans to demand payment in full of the remaining principal balance of
the Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or Primary Servicer, on behalf of the Trust Fund, will be
required to exercise (or waive its right to exercise) any such right that the
Trustee may have as mortgagee to accelerate payment of the Whole Loan in a
manner consistent with the Servicing Standard. See "Certain Legal Aspects of
the Mortgage Loans and the Leases -- Due-on-Sale and Due-on-Encumbrance" and
"Description of the Agreements -- Due-on-Sale and Due-on-Encumbrance
Provisions."
Single Mortgage Loan or Single Mortgagor
The Mortgage Assets in a particular Trust Fund may consist of a single
Mortgage Loan or obligations of a single Mortgagor or related Mortgagors as
specified in the related Prospectus Supplement. Assumptions used with respect
to the prepayment standards or models based upon analysis of the behavior of
mortgage loans in a larger group will not necessarily be relevant in
determining prepayment experience on a single Mortgage Loan or with respect to
a single Mortgagor.
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THE DEPOSITOR
AMRESCO Commercial Mortgage Funding I Corporation, the Depositor, is an
indirect wholly-owned subsidiary of AMRESCO, INC. and was incorporated in the
State of Delaware on January 10, 1997. The principal executive offices of the
Depositor are located at 700 North Pearl Street, Suite 2400, L.B. No. 342,
Dallas, Texas 75201. Its telephone number is (214) 953-7700.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each Series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each Series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
floating rates; (ii) be senior (collectively, "SENIOR CERTIFICATES") or
subordinate (collectively, "SUBORDINATE CERTIFICATES") to one or more other
classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions (collectively,
"STRIPPED PRINCIPAL CERTIFICATES"); (iv) be entitled to interest distributions,
with disproportionately low, nominal or no principal distributions
(collectively, "STRIPPED INTEREST CERTIFICATES"); (v) provide for distributions
of accrued interest thereon commencing only following the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such Series (collectively, "ACCRUAL CERTIFICATES"); (vi) provide for payments
of principal sequentially, based on specified payment schedules, from only a
portion of the Trust Assets in such Trust Fund or based on specified
calculations, to the extent of available funds, in each case as described in
the related Prospectus Supplement; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph including a Stripped Principal
Certificate component and a Stripped Interest Certificate component. Any such
classes may include classes of Offered Certificates.
Each class of Offered Certificates of a Series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in
the related Prospectus Supplement. The transfer of any Offered Certificates may
be registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a Series may be issued in definitive form
("DEFINITIVE CERTIFICATES") or in book-entry form ("BOOK-ENTRY CERTIFICATES"),
as provided in the related Prospectus Supplement. See "Risk Factors -- Book-
Entry Registration" and "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates." Definitive Certificates will be
exchangeable for other Certificates of the same class and Series of a like
aggregate Certificate Balance, notional amount or percentage interest but of
different authorized denominations. See "Risk Factors -- Limited Liquidity" and
"--Limited Assets."
DISTRIBUTIONS
Distributions on the Certificates of each Series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such Series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month in
which the Distribution Date occurs (the "RECORD DATE"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "DETERMINATION DATE"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class or by random selection, as described in the related Prospectus Supplement
or otherwise established by the related Trustee. Payments will be made either
by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the
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related Prospectus Supplement, holds Certificates in the requisite amount
specified therein), or by check mailed to the address of the person entitled
thereto as it appears on the Certificate Register; provided, however, that the
final distribution in retirement of the Certificates (whether Definitive
Certificates or Book-Entry Certificates) will be made only upon presentation
and surrender of the Certificates at the location specified in the notice to
Certificateholders of such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each Series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"AVAILABLE DISTRIBUTION AMOUNT" for each Distribution Date equals the sum of
the following amounts:
(i) the total amount of all cash on deposit in the related Distribution
Account as of the corresponding Determination Date, including Servicer
advances, net of any scheduled payments due and payable after such
Distribution Date;
(ii) interest or investment income on amounts on deposit in the
Distribution Account, including any net amounts paid under any Cash Flow
Agreements; and
(iii) to the extent not on deposit in the related Distribution Account as
of the corresponding Determination Date, any amounts collected under, from
or in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or floating rate at which interest will
accrue on such class or a component thereof (the "PASS-THROUGH RATE"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or floating Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest
is distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "ACCRUED CERTIFICATE INTEREST" will be equal
to interest accrued for a specified period on the outstanding Certificate
Balance thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. Unless otherwise provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution
Date, at the applicable Pass-Through Rate, reduced as described below. The
method of determining the notional amount for any class of Stripped Interest
Certificates will be described in the related Prospectus Supplement. Reference
to notional amount is solely for convenience in certain calculations and does
not represent the right to receive any distributions of principal. Unless
otherwise provided in the related Prospectus Supplement, the Accrued
Certificate Interest on a Series of Certificates will be reduced in the event
of prepayment interest shortfalls, which are shortfalls in collections of
interest for a full accrual period resulting from prepayments prior to the due
date in such accrual period on the Mortgage Loans comprising or underlying the
Mortgage Assets in the Trust Fund for such Series. The particular manner in
which such
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shortfalls are to be allocated among some or all of the classes of Certificates
of that Series will be specified in the related Prospectus Supplement.
The related Prospectus Supplement will also describe the extent to which
the amount of Accrued Certificate Interest that is otherwise distributable on
(or; in the case of Accrual Certificates, that may otherwise be added to the
Certificate Balance of) a class of Offered Certificates may be reduced as a
result of any other contingencies, including delinquencies, losses and deferred
interest on or in respect of the Mortgage Loans comprising or underlying the
Mortgage Assets in the related Trust Fund. Unless otherwise provided in the
related Prospectus Supplement, any reduction in the amount of Accrued
Certificate Interest otherwise distributable on a class of Certificates by
reason of the allocation to such class of a portion of any deferred interest on
the Mortgage Loans comprising or underlying the Mortgage Assets in the related
Trust Fund will result in a corresponding increase in the Certificate Balance
of such class. See " Risk Factors -- Prepayments and Effect on Average Life of
Certificates and Yields" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each Series, other than certain classes of Stripped
Interest Certificates, will have a "CERTIFICATE BALANCE" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Mortgage Assets and
other assets included in the related Trust Fund. The outstanding Certificate
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon from time to time and, if and to the extent so provided in
the related Prospectus Supplement, by the amount of losses incurred in respect
of the related Mortgage Assets, may be increased in respect of deferred
interest on the related Mortgage Loans to the extent provided in the related
Prospectus Supplement and, in the case of Accrual Certificates prior to the
Distribution Date on which distributions of interest are required to commence,
will be increased by any related Accrued Certificate Interest. Unless otherwise
provided in the related Prospectus Supplement, the initial aggregate
Certificate Balance of all classes of Certificates of a Series will not be
greater than the outstanding aggregate principal balance of the related
Mortgage Assets as of the applicable Cut-off Date. The initial aggregate
Certificate Balance of a Series and each class thereof will be specified in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, distributions of principal will be made on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement until
the Certificate Balance of such class has been reduced to zero. Stripped
Interest Certificates with no Certificate Balance are not entitled to any
distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference
in such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF
EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a Series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or shortfalls
will be borne first by a class of Subordinate Certificates in the priority and
manner and subject to the limitations specified in such Prospectus Supplement
See
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"Description of Credit Support" for a description of the types of protection
that may be included in shortfalls on Mortgage Assets comprising such Trust
Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any Series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, a
Servicer or another entity described therein will be required as part of its
servicing responsibilities to advance on or before each Distribution Date its
own funds or funds held in the Distribution Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount
equal to the aggregate of payments of principal (other than any balloon
payments) and interest (net of related servicing fees and Retained Interest)
that were due on the Whole Loans in such Trust Fund and were delinquent on the
related Determination Date, subject to such Servicer's (or another entity's)
good faith determination that such advances will be reimbursable from Related
Proceeds (as defined below). In the case of a Series of Certificates that
includes one or more classes of Subordinate Certificates and if so provided in
the related Prospectus Supplement, each Servicer's (or another entity's)
advance obligation may be limited only to the portion of such delinquencies
necessary to make the required distributions on one or more classes of Senior
Certificates and/or may be subject to such Servicer's (or another entity's)
good faith determination that such advances will be reimbursable not only from
Related Proceeds but also from collections on other Trust Assets otherwise
distributable on one or more classes of such Subordinate Certificates. See
"Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of a
Servicer's (or another entity's) funds will be reimbursable only out of related
recoveries on the Mortgage Loans (including amounts received under any form of
Credit Support) respecting which such advances were made (as to any Mortgage
Loan, "RELATED PROCEEDS") and, if so provided in the Prospectus Supplement, out
of any amounts otherwise distributable on one or more classes of Subordinate
Certificates of such Series; provided, however, that any such advance will be
reimbursable from any amounts in the Distribution Account prior to any
distributions being made on the Certificates to the extent that a Servicer (or
such other entity) shall determine in good faith that such advance (a
"NONRECOVERABLE ADVANCE") is not ultimately recoverable from Related Proceeds
or, if applicable, from collections on other Trust Assets otherwise
distributable on such Subordinate Certificates. If advances have been made by a
Servicer from excess funds in the Distribution Account, such Servicer is
required to replace such funds in the Distribution Account on any future
Distribution Date to the extent that funds in the Distribution Account on such
Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligations of a Servicer (or another entity) to make advances
may be secured by a cash advance reserve fund, a surety bond, a letter of
credit or another form of limited guaranty. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any such
surety bond, will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, a
Servicer (or another entity) will be entitled to receive interest at the rate
specified therein on its outstanding advances and will be entitled to pay
itself such interest periodically from general collections on the Trust Assets
prior to any payment to Certificateholders or as otherwise provided in the
related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will describe any corresponding
advancing obligation of any person in connection with such CMBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a Series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
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(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by each Servicer
and such other customary information as any such Master Servicer or the
Trustee deems necessary or desirable, or that a Certificateholder
reasonably requests, to enable Certificateholders to prepare their tax
returns;
(v) the aggregate amount of advances included in such distribution, and the
aggregate amount of any unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) if applicable, the aggregate amount of any
interest accrued and payable on related servicing expenses and related
advances assuming such Mortgage Loan is subsequently liquidated through
foreclosure, (f) whether a notice of acceleration has been sent to the
Mortgagor and, if so, the date of such notice, (g) whether foreclosure
proceedings have been commenced and, if so, the date so commenced and (h)
if such Mortgage Loan is more than three months delinquent and foreclosure
has not been commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof, (b)
the manner in which it was liquidated and (c) the aggregate amount of
liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to each Servicer (or any other entity) in respect of such
Mortgage Loan and (b) the amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
loan number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the aggregate
amount of sale proceeds, (c) the portion of such sales proceeds payable or
reimbursable to each Servicer in respect of such REO Property or the
related Mortgage Loan and (d) the amount of any loss to Certificateholders
in respect of the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates not
offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate
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Balance of a class of Accrual Certificates in the event that Accrued
Certificate Interest has been added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the aggregate Accrued Certificate Interest and unpaid Accrued
Certificate Interest, if any, on each class of Certificates at the close of
business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with a floating Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date
occurs, the floating Pass-Through Rate applicable to such Distribution Date
and the immediately succeeding Distribution Date as calculated in
accordance with the method specified in the related Prospectus Supplement;
(xix) as to any Series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the Mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xvi) and (xvii) above, such amounts shall also be provided with
respect to each component, if any, of a class of Certificates. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder of any class of
Certificates, to the Depositor and to such other parties as may be specified in
the Agreement, a copy of any statements or reports received by the Master
Servicer or the Trustee, as applicable, with respect to any CMBS. The
Prospectus Supplement for each Series of Offered Certificates will describe any
additional information to be included in reports to the holders of such
Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force.
Unless and until Definitive Certificates are issued, or unless otherwise
provided in the related Prospectus Supplement, such statements or reports will
be forwarded by the Master Servicer or the Trustee to Cede. Such statements or
reports may be available to Beneficial Owners upon request to DTC or their
respective Participant or Indirect Participant. In addition, the Trustee shall
furnish a copy of any such statement or report to any Beneficial Owner which
requests such copy and certifies to the Trustee or the Master Servicer, as
applicable, that it is the Beneficial Owner of a Certificate. See "--Book-Entry
Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreements for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the Distribution Account or by any Servicer, if
any, or the Trustee and required to be paid to them pursuant to such Agreements
following the earlier of (i) the final payment or other liquidation of the last
Mortgage Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such
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termination, under the circumstances and in the manner set forth in the related
Prospectus Supplement. In no event, however, will the trust created by the
Agreements continue beyond the date specified in the related Prospectus
Supplement. Written notice of termination of the Agreements will be given to
each Certificateholder, and the final distribution will be made only upon
presentation and surrender of the Certificates at the location to be specified
in the notice of termination.
If so specified in the related Prospectus Supplement, a Series of
Certificates may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein, under the circumstances and in the manner set forth therein. If so
provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, the party specified therein will solicit bids
for the purchase of all assets of the Trust Fund, or of a sufficient portion of
such assets to retire such class or classes or purchase such class or classes
at a price set forth in the related Prospectus Supplement, in each case, under
the circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any Series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations ("PARTICIPANTS") and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in their accounts, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("INDIRECT PARTICIPANTS").
Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in Book-
Entry Certificates may do so only through Participants and Indirect
Participants. In addition, such investors ("BENEFICIAL OWNERS") will receive
all distributions on the Book-Entry Certificates through DTC and its
Participants. Under a book-entry format, Beneficial Owners will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede & Co., as nominee for DTC ("CEDE"), on each
such date DTC will forward such payments to its Participants which thereafter
will be required to forward them to Indirect Participants or Beneficial Owners.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the Agreements) will be Cede, as
nominee of DTC, and the Beneficial Owners will not be recognized by the Trustee
as Certificateholders under the Agreements. Beneficial Owners will be permitted
to exercise the rights of Certificateholders under the related Agreements only
indirectly through the Participants who in turn will exercise their rights
through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit distributions of principal
of and interest on the Book-Entry Certificates. Participants and Indirect
Participants with which Beneficial Owners have accounts with respect to the
Book-Entry Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Beneficial
Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Beneficial
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in the Book-Entry Certificates, may be limited due
to the lack of a physical certificate evidencing such interest.
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DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited. Under DTC's procedures, DTC will take actions
permitted to be taken by Holders of any class of Book-Entry Certificates under
the Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account the Book-Entry Certificates are credited and
whose aggregate holdings represent no less than any minimum amount of Voting
Rights required therefor. Therefore, Beneficial Owners will only be able to
exercise their Voting Rights to the extent permitted, and subject to the
procedures established, by their Participant and/or Indirect Participant, as
applicable. DTC may take conflicting actions with respect to any action of
Certificateholders of any Class to the extent that Participants authorize such
actions. None of the Servicers, the Depositor, the Trustee or any of their
respective affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Book-Entry Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Beneficial Owners or their nominees
("DEFINITIVE CERTIFICATES"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Beneficial Owners.
Upon surrender by DTC of the certificate or certificates representing the Book-
Entry Certificates, together with instructions for reregistration, the Trustee
will issue (or cause to be issued) to the Beneficial Owners identified in such
instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each Series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, if specified in the related
Prospectus Supplement, a Special Servicer and the Trustee. The Certificates of
each Series evidencing interests in a Trust Fund not including Whole Loans will
be issued pursuant to a Trust Agreement between the Depositor and a Trustee.
The Master Servicer, any Special Servicer and the Trustee with respect to any
Series of Certificates will be named in the related Prospectus Supplement. In
lieu of appointing a Master Servicer, a servicer may be appointed pursuant to
the Pooling and Servicing Agreement for any Trust Fund. The Mortgage Loans
shall be serviced pursuant to the terms of the Pooling and Servicing Agreement
and, unless otherwise specified in the Prospectus Supplement, a Servicing
Agreement among the Depositor (or an affiliate thereof), a Master Servicer, a
Special Servicer and a Primary Servicer. A manager or administrator may be
appointed pursuant to the Trust Agreement for any Trust Fund to administer such
Trust Fund. The provisions of each Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the
related Trust Fund. A form of a Pooling and Servicing Agreement and a form of
Servicing Agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. Any Trust Agreement will generally conform
to the form of Pooling and Servicing Agreement filed herewith, but will not
contain provisions with respect to the servicing and maintenance of Whole
Loans. The following summaries describe certain provisions that may appear in
each Agreement. The Prospectus Supplement for a Series of Certificates will
describe any provision of the Agreements relating to such Series that
materially differs from the description thereof contained in this Prospectus.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Agreements for each Trust Fund and the description of such provisions in the
related Prospectus Supplement. As used herein with respect to any Series, the
term "Certificate" refers to all of the Certificates of that Series, whether or
not offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. The Depositor will provide a copy of the Agreements
(without exhibits) relating to any Series of Certificates without charge upon
written request of a holder of a Certificate of such Series addressed to the
Trustee specified in the related Prospectus Supplement.
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Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans included in each Trust Fund were being serviced prior to the
issuance of the related Series of Certificates pursuant to the terms of a
Servicing Agreement by the Master Servicer, the Special Servicer and/or a
Primary Servicer. Unless otherwise specified in the related Prospectus
Supplement, following the issuance of the related Series of Certificates, such
Mortgage Loans will continue to be serviced pursuant to such Servicing
Agreement, together with the related Pooling and Servicing Agreement. Pursuant
to the terms of each Servicing Agreement, a Primary Servicer or a Special
Servicer will service the Mortgage Loans directly and a Master Servicer may
monitor the activities of each Primary Servicer and Special Servicer. The
Depositor shall assign its rights under each Servicing Agreement to the Trustee
for the benefit of the Certificateholders.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any Series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Trust
Assets to be included in the related Trust Fund, together with all principal
and interest to be received on or with respect to such Trust Assets after the
Cut-off Date, other than principal and interest due on or before the Cut-off
Date and other than any Retained Interest. The Trustee will, concurrently with
such assignment, deliver the Certificates to the Depositor in exchange for the
Trust Assets and the other assets comprising the Trust Fund for such Series.
Each Mortgage Asset will be identified in a schedule appearing as an exhibit to
the related Agreement. Unless otherwise provided in the related Prospectus
Supplement, such schedule will include detailed information (i) in respect of
each Whole Loan included in the related Trust Fund, including without
limitation, the address of the related Mortgaged Property and type of such
property, the Mortgage Interest Rate and, if applicable, the applicable index,
margin, adjustment date and any rate cap information, the original and
remaining term to maturity, the original and outstanding principal balance and
balloon payment, if any, the Value, Loan-to-Value Ratio and the Debt Service
Coverage Ratio as of the date indicated and payment and prepayment provisions,
if applicable, and (ii) in respect of each CMBS included in the related Trust
Fund, including without limitation, the CMBS Issuer, CMBS Servicer and CMBS
Trustee, the pass-through or bond rate or formula for determining such rate,
the issue date and original and remaining term to maturity, if applicable, the
original and outstanding principal amount and payment provisions, if
applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which unless otherwise specified in the related
Prospectus Supplement will include the original Mortgage Note endorsed, without
recourse, in blank or to the order of the Trustee, the original Mortgage (or a
certified copy thereof) with evidence of recording indicated thereon and an
assignment of the Mortgage to the Trustee in recordable form. Notwithstanding
the foregoing, a Trust Fund may include Mortgage Loans where the original
Mortgage Note is not delivered to the Trustee if the Company delivers to the
Trustee or the custodian a copy or a duplicate original of the Mortgage Note,
together with an affidavit certifying that the original thereof has been lost
or destroyed. With respect to such Mortgage Loans, the Trustee (or its nominee)
may not be able to enforce the Mortgage Note against the related borrower.
Unless otherwise provided in the related Prospectus Supplement, the related
Agreements will require that the Depositor or another party specified therein
promptly cause each such assignment of Mortgage to be recorded in the
appropriate public office for real property records, except in states where, in
the opinion of counsel acceptable to the Trustee, such recording is not
required to protect the Trustee's interest in the related Whole Loan against
the claim of any subsequent transferee or any successor to or creditor of the
Depositor, the Master Servicer, the relevant Asset Seller or any other prior
holder of the Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or a
custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Depositor. If the Depositor cannot cure the omission or defect within a
specified number of days after receipt of such notice, then unless otherwise
specified in the related Prospectus Supplement, the Depositor will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, this repurchase or substitution obligation constitutes
the sole remedy available to the Certificateholders or the Trustee for omission
of, or a material defect in, a constituent document. To the extent specified in
the related Prospectus Supplement, in lieu of curing any omission or defect in
the Mortgage Asset or repurchasing or substituting for such Mortgage Asset, the
Depositor may agree to cover any losses suffered by the Trust Fund as a result
of such breach or defect.
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If so provided in the related Prospectus Supplement, the Depositor will,
as to some or all of the Mortgage Loans, assign or cause to be assigned to the
Trustee the related Lease Assignments. In certain cases, the Trustee, or
Primary Servicer, as applicable, may collect all moneys under the related
Leases and distribute amounts, if any, required under the Lease for the payment
of maintenance, insurance and taxes, to the extent specified in the related
Lease agreement. The Trustee, or if so specified in the Prospectus Supplement,
the Master Servicer, as agent for the Trustee, may hold the Lease in trust for
the benefit of the Certificateholders.
With respect to each CMBS in certificated form, the Depositor will
deliver or cause to be delivered to the Trustee (or the custodian) the original
certificate or other definitive evidence of such CMBS together with bond power
or other instruments, certifications or documents required to transfer fully
such CMBS to the Trustee for the benefit of the Certificateholders. With
respect to each CMBS in uncertificated or book-entry form or held through a
"clearing corporation" within the meaning of the UCC the Depositor and the
Trustee will cause such CMBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any CMBS in certificated form not
registered in the name of the Trustee to be re-registered, with the applicable
persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign representations
and warranties, as of a specified date (the person making such representations
and warranties, the "WARRANTING PARTY") covering, by way of example, the
following types of matters: (i) the accuracy of the information set forth for
such Whole Loan on the schedule of Mortgage Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warranting Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related
Mortgaged Property; (v) the existence of customary provisions in the related
Mortgage Note and Mortgage to permit realization against the Mortgaged Property
of the benefit of the security of the Mortgage; and (vi) the existence of
hazard and extended perils insurance coverage on the Mortgaged Property.
Any Warranting Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related Series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warranting
Party will be obligated to reimburse the Trust Fund for losses caused by any
such breach or either cure such breach or repurchase or replace the affected
Whole Loan as described below. Since the representations and warranties may not
address events that may occur following the date as of which they were made,
the Warranting Party will have a reimbursement, cure, repurchase or
substitution obligation in connection with a breach of such a representation
and warranty only if the relevant event that causes such breach occurs prior to
such date. Such party would have no such obligations if the relevant event that
causes such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, the
Agreements will provide that the Master Servicer and/or Trustee will be
required to notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that
materially and adversely affects the value of such Whole Loan or the interests
therein of the Certificateholders. If such Warranting Party cannot cure such
breach within a specified period following the date on which such party was
notified of such breach, then such Warranting Party will be obligated to
repurchase such Whole Loan from the Trustee within a specified period from the
date on which the Warranting Party was notified of such breach, at the Purchase
Price therefor. As to any Whole Loan, unless otherwise specified in the related
Prospectus Supplement, the "PURCHASE PRICE" is equal to the sum of the unpaid
principal balance thereof, plus unpaid accrued interest thereon at the Mortgage
Interest Rate from the date as to which interest was last paid to the due date
in the Due Period in which the relevant purchase is to occur, plus certain
servicing expenses that are reimbursable to each Servicer. If so provided in
the Prospectus Supplement for a Series, a Warranting Party, rather
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than repurchase a Whole Loan as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such Series of
Certificates, to cause the removal of such Whole Loan from the Trust Fund and
substitute in its place one or more other Whole Loans, in accordance with the
standards described in the related Prospectus Supplement. If so provided in the
Prospectus Supplement for a Series, a Warranting Party, rather than repurchase
or substitute a Whole Loan as to which a breach has occurred, will have the
option to reimburse the Trust Fund or the Certificateholders for any losses
caused by such breach. Unless otherwise specified in the related Prospectus
Supplement, this reimbursement, repurchase or substitution obligation will
constitute the sole remedy available to holders of Certificates or the Trustee
for a breach of representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor any Servicer will be obligated to purchase or substitute for a Whole
Loan if a Warranting Party defaults on its obligation to do so, and no
assurance can be given that Warranting Parties will carry out such obligations
with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warranting Party will, with respect to a Trust Fund that includes CMBS, make or
assign certain representations or warranties, as of a specified date, with
respect to such CMBS, covering (i) the accuracy of the information set forth
therefor on the schedule of Mortgage Assets appearing as an exhibit to the
related Agreement and (ii) the authority of the Warranting Party to sell such
Mortgage Assets. The related Prospectus Supplement will describe the remedies
for a breach thereof.
Each Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Agreement. A breach of any such representation in a Pooling and
Servicing Agreement of a Master Servicer or Special Servicer which materially
and adversely affects the interests of the Certificateholders and which
continues unremedied for thirty days after the giving of written notice of such
breach to such Servicer by the Trustee or the Depositor, or to such Servicer,
the Depositor and the Trustee by the holders of Certificates evidencing not
less than 25% of the Voting Rights (unless otherwise specified in the related
Prospectus Supplement), will constitute an Event of Default under such Pooling
and Servicing Agreement. A breach of any such representation in a Servicing
Agreement of a Servicer which continues unremedied for thirty days after giving
notice of such breach to such Servicer will constitute an Event of Default
under such Servicing Agreement. See "Events of Default" and "Rights Upon Event
of Default."
ACCOUNTS
General
Each Servicer and/or the Trustee will, as to each Trust Fund, establish
and maintain or cause to be established and maintained one or more separate
accounts for the collection of payments on the related Mortgage Assets
(collectively, the "ACCOUNTS"), which must be either (i) an account or accounts
the deposits in which are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that the Certificateholders have a claim with
respect to the funds an Account or a perfected first priority security interest
against any collateral securing such funds that is superior to the claims of
any other depositors or general creditors of the institution with which such
Account is maintained or (ii) otherwise maintained with a bank or trust
company, and in a manner, satisfactory to the Rating Agency or Agencies rating
any class of Certificates of such Series. The collateral eligible to secure
amounts in an Account is limited to United States government securities and
other investment grade obligations specified in the Agreement ("PERMITTED
INVESTMENTS"). An Account may be maintained as an interest bearing or a non-
interest bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in certain short-term Permitted Investments.
Unless otherwise provided in the related Prospectus Supplement, any interest or
other income earned on funds in an Account will be paid to a Servicer or its
designee as additional servicing compensation. An Account may be maintained
with an institution that is an affiliate of a Servicer provided that such
institution meets the standards imposed by the Rating Agency or Agencies. If
permitted by the Rating Agency or Agencies and so specified in the related
Prospectus Supplement, an Account may contain funds relating to more than one
Series of mortgage pass-through certificates and may contain other funds
respecting payments on mortgage loans belonging to a Servicer or serviced or
master serviced by it on behalf of others.
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Deposits
Unless otherwise provided in the related Prospectus Supplement, the
Primary Servicer will deposit or cause to be deposited in an Account on a daily
basis, unless otherwise provided in the related Agreement, the following
payments and collections received, or advances made, by the Primary Servicer:
(i) all payments on account of principal, including principal prepayments,
on the Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets, including
any default interest collected, in each case net of any portion thereof
retained by a Servicer as its servicing compensation;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each Mortgaged
Property securing a Whole Loan in the Trust Fund (to the extent such
proceeds are not applied to the restoration of the property or released to
the Mortgagor in accordance with the normal servicing procedures of a
Servicer, subject to the terms and conditions of the related Mortgage and
Mortgage Note) and all proceeds of rental interruption policies, if any,
insuring against losses arising from the failure of Lessees under a Lease
to make timely rental payments because of certain casualty events
(collectively, "INSURANCE PROCEEDS") and all other amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans in
the Trust Fund, by foreclosure, condemnation or otherwise ("LIQUIDATION
PROCEEDS"), together with the net proceeds on a monthly basis with respect
to any Mortgaged Properties acquired for the benefit of Certificateholders
by foreclosure or by deed in lieu of foreclosure or otherwise;
(iv) any advances made as described under "Description of the Certificates
-- Advances in Respect of Delinquencies";
(v) any amounts representing Prepayment Premiums;
(vi) any amounts received from a Special Servicer;
but excluding any REO Proceeds and penalties or modification fees which
may be retained by the Primary Servicer. REO Proceeds shall be maintained in an
Account by the Special Servicer.
Once a month the Primary Servicer and the Special Servicer remit funds
on deposit in the Account each maintains together with any P&I Advances to the
Master Servicer for deposit in an Account maintained by the Master Servicer.
Withdrawals
A Servicer may, from time to time, unless otherwise provided in the
related Agreement and described in the related Prospectus Supplement, make
withdrawals from an Account for each Trust Fund for any of the following
purposes:
(i) to reimburse a Servicer for unreimbursed amounts advanced as described
under "Description of the Certificates -- Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by such Servicer as late collections of
interest on and principal of the particular Whole Loans with respect to
which the advances were made;
(ii) to reimburse a Servicer for unpaid servicing fees earned and certain
unreimbursed servicing expenses incurred with respect to Whole Loans and
properties acquired in respect thereof, such reimbursement to be made out
of amounts that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular Whole Loans and properties, and net income
collected on the particular properties, with respect to which such fees
were earned or such expenses were incurred;
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(iii) to reimburse a Servicer for any advances described in clause (i)
above and any servicing expenses described in clause (ii) above which, in
the Master Servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (i) and (ii), respectively, such reimbursement
to be made from amounts collected on other Trust Assets or, if and to the
extent so provided by the related Agreement and described in the related
Prospectus Supplement, just from that portion of amounts collected on other
Trust Assets that is otherwise distributable on one or more classes of
Subordinate Certificates, if any, remain outstanding, and otherwise any
outstanding class of Certificates, of the related Series;
(iv) if and to the extent described in the related Prospectus Supplement,
to pay a Servicer interest accrued on the advances described in clause (i)
above and the servicing expenses described in clause (ii) above while such
remain outstanding and unreimbursed;
(v) unless otherwise provided in the related Prospectus Supplement, to pay
a Servicer, as additional servicing compensation, interest and investment
income earned in respect of amounts held in the Account; and
(vi) to make any other withdrawals permitted by the related Agreement and
described in the related Prospectus Supplement.
If and to the extent specified in the Prospectus Supplement amounts
may be withdrawn from any Account to cover additional costs, expenses or
liabilities associated with: the preparation of environmental site
assessments with respect to, and for containment, clean-up or remediation
of hazardous wastes and materials, the proper operation, management and
maintenance of any Mortgaged Property acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise, such payments to be made out of income received on such
property; if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to
the extent described under "Certain Federal Income Tax Consequences --
REMIC -- Prohibited Transactions and Other Taxes"; retaining an independent
appraiser or other expert in real estate matters to determine a fair sale
price for a defaulted Whole Loan or a property acquired in respect thereof
in connection with the liquidation of such Whole Loan or property; and
obtaining various opinions of counsel pursuant to the related Agreement for
the benefit of Certificateholders.
Distribution Account
Unless otherwise specified in the related Prospectus Supplement, the
Trustee will, as to each Trust Fund, establish and maintain, or cause to be
established and maintained, one or more separate Accounts for the collection of
payments from the Master Servicer immediately preceding each Distribution Date
(the "DISTRIBUTION ACCOUNT"). The Trustee will also deposit or cause to be
deposited in a Distribution Account the following amounts:
(i) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related Series of Certificates as
described under "Description of Credit Support";
(ii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds -- Cash Flow Agreements";
(iii) all proceeds of any Trust Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person, and all proceeds of any Mortgage
Asset purchased as described under "Description of the Certificates --
Termination" (also, Liquidation Proceeds); and
(iv) any other amounts required to be deposited in the Distribution Account
as provided in the related Agreement and described in the related
Prospectus Supplement.
The Trustee may, from time to time, unless otherwise provided in the
related Agreements and described in the related Prospectus Supplement, make a
withdrawal from a Distribution Account to make distributions to the
Certificateholders on each Distribution Date.
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Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any Series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Primary Servicer or Special Servicer will
deposit on a daily basis the amounts described under "--Accounts -- Deposits"
above for one or more Series of Certificates. Any amounts on deposit in any
such collection account will be withdrawn therefrom and deposited into the
appropriate Distribution Account by a time specified in the related Prospectus
Supplement. To the extent specified in the related Prospectus Supplement, any
amounts which could be withdrawn from the Distribution Account as described
under "--Accounts -- Withdrawals" above, may also be withdrawn from any such
collection account. The Prospectus Supplement will set forth any restrictions
with respect to any such collection account, including investment restrictions
and any restrictions with respect to financial institutions with which any such
collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
Primary Servicer
The Primary Servicer is required under each Servicing Agreement to make
reasonable efforts to collect all scheduled payments under the Mortgage Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Mortgage Loans
and held for its own account, provided such procedures are consistent with (i)
the terms of the related Servicing Agreement, (ii) applicable law and (iii) the
general servicing standard specified in the related Prospectus Supplement or,
if no such standard is so specified, its normal servicing practices (in either
case, the "SERVICING STANDARD").
Each Primary Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the Mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of Mortgagors for payment of taxes, insurance and other
items required to be paid by any Mortgagor pursuant to the Mortgage Loan;
processing assumptions or substitutions in those cases where the Primary
Servicer has determined not to enforce any applicable due-on-sale clause;
attempting to cure delinquencies; supervising foreclosures; inspecting and
managing Mortgaged Properties under certain circumstances; and maintaining
accounting records relating to the Mortgage Loans.
Master Servicer
The Master Servicer shall monitor the actions of the Primary Servicer
and the Special Servicer to confirm compliance with the Agreements.
Unless otherwise specified in the related Prospectus Supplement, a
Master Servicer, as servicer of the Mortgage Loans, on behalf of itself, the
Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Mortgage Loans. See "Description of Credit Support."
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Mortgage Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Distribution Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Mortgage Loan, unreimbursed servicing expenses incurred with respect to
the Mortgage Loan and any unreimbursed advances of delinquent payments made
with respect to the Mortgage Loan. See "--Hazard Insurance Policies" and
"Description of Credit Support."
Special Servicer
A Mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such Mortgagor's ability
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to make timely payment of taxes and to pay for necessary maintenance of the
related Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, upon the occurrence of any of the following events (each a
"SERVICING TRANSFER EVENT") with respect to a Mortgage Loan, servicing for such
Mortgage Loan (thereafter, a "SPECIALLY SERVICED MORTGAGE LOAN") will be
transferred from the Primary Servicer to the Special Servicer:
a) such Mortgage Loan becomes a defaulted Mortgage Loan,
b) the occurrence of certain events indicating the possible insolvency of
the Mortgagor,
c) the receipt by the Primary Servicer of a notice of foreclosure of any
other lien on the related Mortgaged Property,
d) the Master Servicer or the Primary Servicer determines that a payment
default is imminent,
e) with respect to a Balloon Mortgage Loan, no assurances have been given
as to the ability of the Mortgagor to make the final payment thereon, or
f) the occurrence of certain other events constituting defaults under the
terms of such Mortgage Loan.
The Special Servicer is required to monitor any Mortgage Loan which is
in default, contact the Mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action
in cooperation with the Mortgagor if cure is likely, inspect the Mortgaged
Property and take such other actions as are consistent with the Servicing
Standard. A significant period of time may elapse before the Special Servicer
is able to assess the success of such corrective action or the need for
additional initiatives.
The time within which the Special Servicer makes the initial
determination of appropriate action evaluates the success of corrective action,
develops additional initiatives, institutes foreclosure proceedings and
actually forecloses (or takes a deed to a Mortgaged Property in lieu of
foreclosure) on behalf of the Certificateholders, may vary considerably
depending on the particular Mortgage Loan, the Mortgaged Property, the
Mortgagor, the presence of an acceptable party to assume the Mortgage Loan and
the laws of the jurisdiction in which the Mortgaged Property is located. Under
federal bankruptcy law, the Special Servicer in certain cases may not be
permitted to accelerate a Mortgage Loan or to foreclose on a Mortgaged Property
for a considerable period of time. See "Certain Legal Aspects of the Mortgage
Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Mortgage Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Mortgage Loan as to which a specified
number of scheduled payments thereunder are delinquent. Any such right granted
to the holder of an Offered Certificate will be described in the related
Prospectus Supplement. The related Prospectus Supplement will also describe any
such right granted to any person if the predetermined purchase price is less
than the Purchase Price described under "--Representations and Warranties;
Repurchases."
The Special Servicer may agree to modify, waive or amend any term of any
Specially Serviced Mortgage Loan in a manner consistent with the Servicing
Standard so long as the modification, waiver or amendment will not (i) affect
the amount or timing of any scheduled payments of principal or interest on the
Mortgage Loan or (ii) in its judgment, materially impair the security for the
Mortgage Loan or reduce the likelihood of timely payment of amounts due
thereon. The Special Servicer also may agree to any modification, waiver or
amendment that would so affect or impair the payments on, or the security for,
a Mortgage Loan if, unless otherwise provided in the related Prospectus
Supplement, (i) in its judgment, a material default on the Mortgage Loan has
occurred or a payment default is imminent and (ii) in its judgment, such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan on a present value basis than would
liquidation. The Special Servicer is required to notify the Trustee in the
event of any modification, waiver or amendment of any Mortgage Loan.
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The Special Servicer, on behalf of the Trustee, may at any time
institute foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to a
Mortgaged Property securing a Mortgage Loan by operation of law or otherwise,
if such action is consistent with the Servicing Standard and a default on such
Mortgage Loan has occurred or, in the Special Servicer's judgment, is imminent.
Unless otherwise specified in the related Prospectus Supplement, the Special
Servicer may not acquire title to any related Mortgaged Property or take any
other action that would cause the Trustee, for the benefit of
Certificateholders, or any other specified person to be considered to hold
title to, to be a "mortgagee-in-possession" of, or to be an "owner" or an
"operator" of such Mortgaged Property within the meaning of certain federal
environmental laws, unless the Special Servicer has previously determined,
based on a report prepared by a person who regularly conducts environmental
audits (which report will be an expense of the Trust Fund), that:
(i) the Mortgaged Property is in compliance with applicable environmental
laws; or if not, that taking such actions as are necessary to bring the
Mortgaged Property in compliance therewith is reasonably likely to produce
a greater recovery on a present value basis, after taking into account any
risks associated therewith, than not taking such actions; and
(ii) and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation or
that, if any such materials are present, taking such action with respect to
the affected Mortgaged Property is reasonably likely to produce a greater
recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions.
Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Special Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property within two years of acquisition,
unless (i) the Internal Revenue Service grants an extension of time to sell
such property or (ii) the Trustee receives an opinion of independent counsel to
the effect that the holding of the property by the Trust Fund subsequent to two
years after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing, the
Special Servicer will be required to (i) solicit bids for any Mortgaged
Property so acquired in such a manner as will be reasonably likely to realize a
fair price for such property and (ii) accept the first (and, if multiple bids
are contemporaneously received, the highest) cash bid received from any person
that constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Special
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Special Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the operations and ownership of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of the Mortgage Loans and the Leases -- Foreclosure."
If recovery on a defaulted Mortgage Loan under any related instrument of
Credit Support is not available, the Special Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Mortgage Loan. If the proceeds of any liquidation of the property securing the
defaulted Mortgage Loan are less than the outstanding principal balance of the
defaulted Mortgage Loan plus interest accrued thereon at the Mortgage Interest
Rate plus the aggregate amount of expenses incurred by the Special Servicer in
connection with such proceedings and which are reimbursable under the
Agreement, the Trust Fund will realize a loss in the amount of such difference.
The Special Servicer will be entitled to withdraw or cause to be withdrawn from
a related Account out of the Liquidation Proceeds recovered on any defaulted
Mortgage Loan, prior to the distribution of such Liquidation Proceeds to
Certificateholders, amounts representing its normal
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servicing compensation on the Mortgage Loan, unreimbursed servicing expenses
incurred with respect to the Mortgage Loan and any unreimbursed advances of
delinquent payments made with respect to the Mortgage Loan.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
the related instrument of Credit Support, if any, the Special Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Primary
Servicer to cause the Mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage. Unless otherwise specified in the related Prospectus Supplement, such
coverage will be in general in an amount equal to the amount necessary to fully
compensate for any damage or loss to the improvements on the Mortgaged Property
on a replacement cost basis, but not less than the amount necessary to avoid
the application of any co-insurance clause contained in the hazard insurance
policy. The ability of the Primary Servicer to assure that hazard insurance
proceeds are appropriately applied may be dependent upon its being named as an
additional insured under any hazard insurance policy and under any other
insurance policy referred to below, or upon the extent to which information in
this regard is furnished by Mortgagors. All amounts collected by the Primary
Servicer under any such policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the Mortgagor in
accordance with the Primary Servicer's normal servicing procedures, subject to
the terms and conditions of the related Mortgage and Mortgage Note) will be
deposited in a related Account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be underwritten
by different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry
rot, vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, such clause generally
provides that the insurer's liability in the event of partial loss does not
exceed the lesser of (i) the replacement cost of the improvements less physical
depreciation and (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
The Agreements for a Trust Fund that includes Whole Loans will require
the Primary Servicer to cause the Mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of
the related Mortgage, which insurance may typically include flood insurance (if
the related Mortgaged Property was located at the time of origination in a
federally designated flood area).
In addition, to the extent required by the related Mortgage, the Primary
Servicer may require the Mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance. Any cost
incurred by the Master Servicer in maintaining any such insurance policy will
be added to the amount owing under the Mortgage Loan where the terms of the
Mortgage Loan so permit; provided, however, that the addition of such cost will
not be taken into account for purposes of calculating the distribution to be
made to Certificateholders. Such costs may be recovered by a Servicer from a
related Account, with interest thereon, as provided by the Agreements.
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RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Primary
Servicer or the Mortgagors will maintain rental interruption insurance policies
in full force and effect with respect to some or all of the Leases. Although
the terms of such policies vary to some degree, a rental interruption insurance
policy typically provides that, to the extent that a Lessee fails to make
timely rental payments under the related Lease due to a casualty event, such
losses will be reimbursed to the insured. If so specified in the related
Prospectus Supplement, the Primary Servicer will be required to pay from its
servicing compensation the premiums on the rental interruption policy on a
timely basis. If so specified in the Prospectus Supplement, if such rental
interruption policy is canceled or terminated for any reason (other than the
exhaustion of total policy coverage), the Primary Servicer will exercise its
best reasonable efforts to obtain from another insurer a replacement policy
comparable to the rental interruption policy with a total coverage that is
equal to the then existing coverage of the terminated rental interruption
policy; provided that if the cost of any such replacement policy is greater
than the cost of the terminated rental interruption policy, the amount of
coverage under the replacement policy will, unless otherwise specified in the
related Prospectus Supplement, be reduced to a level such that the applicable
premium does not exceed, by a percentage that may be set forth in the related
Prospectus Supplement, the cost of the rental interruption policy that was
replaced. Any amounts collected by the Primary Servicer under the rental
interruption policy in the nature of insurance proceeds will be deposited in a
related Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related Prospectus Supplement, the
Agreements will require that the Servicers obtain and maintain in effect a
fidelity bond or similar form of insurance coverage (which may provide blanket
coverage) or any combination thereof insuring against loss occasioned by fraud,
theft or other intentional misconduct of the officers, employees and agents of
such Servicer. The related Agreements will allow a Servicer to self-insure
against loss occasioned by the errors and omissions of the officers, employees
and agents of the Master Servicer or the Special Servicer so long as certain
criteria set forth in the Agreements are met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged Property,
or due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. Unless otherwise provided in the related
Prospectus Supplement, the Primary Servicer, on behalf of the Trust Fund, will
exercise any right the Trustee may have as mortgagee to accelerate payment of
any such Whole Loan or to withhold its consent to any transfer or further
encumbrance. Unless otherwise specified in the related Prospectus Supplement,
any fee collected by or on behalf of the Primary Servicer for entering into an
assumption agreement will be retained by or on behalf of the Primary Servicer
as additional servicing compensation. See "Certain Legal Aspects of the
Mortgage Loans and the Leases -- Due-on-Sale and Due-on-Encumbrance."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in the Mortgage Assets, and, if so,
the initial owner thereof. If so, the Retained Interest will be established on
a loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "RETAINED INTEREST" in a Mortgage Asset represents a specified
portion of the interest payable thereon. The Retained Interest will be deducted
from Mortgagor payments as received and will not be part of the related Trust
Fund.
Unless otherwise specified in the related Prospectus Supplement, each
Servicer's primary servicing compensation with respect to a Series of
Certificates will come from the periodic payment to it of a portion of the
interest payment on each Mortgage Asset. Since any Retained Interest and a
Servicer's primary compensation are percentages of the principal balance of
each Mortgage Asset, such amounts will decrease in accordance with the
amortization of the Mortgage Assets. The Prospectus Supplement with respect to
a Series of Certificates evidencing
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interests in a Trust Fund that includes Whole Loans may provide that, as
additional compensation, a Servicer may retain all or a portion of assumption
fees, modification fees, late payment charges or Prepayment Premiums collected
from Mortgagors and any interest or other income which may be earned on funds
held in a related Account.
The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Mortgage Assets,
including, without limitation, payment of the fees and disbursements of the
Trustee and independent accountants, payment of expenses incurred in connection
with distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement. Certain other
expenses, including certain expenses relating to defaults and liquidations on
the Whole Loans and, to the extent so provided in the related Prospectus
Supplement, interest thereon at the rate specified therein, and the fees of any
Special Servicer, may be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Servicing Agreement will provide that on or before a specified date
in each year, beginning on a date specified therein, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers, the servicing by or on behalf of each Servicer was conducted in
compliance with the terms of such agreements except for any exceptions the
Uniform Single Attestation Program for Mortgage Bankers requires it to report.
Each Servicing Agreement will also provide for delivery to the Trustee,
on or before a specified date in each year, of an annual statement signed by an
officer of each Servicer to the effect that such Servicer has fulfilled its
obligations under the Agreement throughout the preceding calendar year or other
specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies
of such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders and Beneficial Owners without charge upon
written request to the Master Servicer at the address set forth in the related
Prospectus Supplement; provided that such Beneficial Owner shall have certified
to the Master Servicer that it is the Beneficial Owner of a Certificate.
CERTAIN MATTERS REGARDING EACH SERVICER AND THE DEPOSITOR
The Master Servicer, the Primary Servicer and the Special Servicer, or a
servicer for substantially all the Whole Loans under each Agreement will be
named in the related Prospectus Supplement. Each entity serving as Servicer (or
as such servicer) may be an affiliate of the Depositor and may have other
normal business relationships with the Depositor or the Depositor's affiliates.
Reference herein to a Servicer shall be deemed to be to the servicer of
substantially all of the Whole Loans, if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that any Servicer may resign from its
obligations and duties thereunder only with the consent of the Trustee, which
may not be unreasonably withheld or upon a determination that its duties under
the Agreement are no longer permissible under applicable law. No such
resignation will become effective until a successor servicer has assumed such
Servicer's obligations and duties under the related Servicing Agreement. If a
Primary Servicer resigns, the Master Servicer shall assume the obligations
thereof.
Unless otherwise specified in the related Prospectus Supplement, each
Servicing Agreement will further provide that none of the Servicers, or any
officer, employee, or agent thereof will be under any liability to the related
Trust Fund or Certificateholders for any action taken, or for refraining from
the taking of any action in accordance with the Servicing standards set forth
in the Servicing Agreement, in good faith pursuant to the related Servicing
Agreement; provided, however, that no Servicer nor any such person will be
protected against any breach of a representation or warranty made in such
Agreement, or against any liability specifically imposed thereby, or against
any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties thereunder
or by reason of reckless disregard of obligations and duties thereunder.
Unless otherwise specified in the related Prospectus Supplement, the Depositor
shall be liable only to the extent of its obligations specifically imposed
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upon and undertaken by the Depositor. Unless otherwise specified in the related
Prospectus Supplement, each Servicing Agreement will further provide that each
Servicer will be entitled to indemnification by the related Trust Fund against
any loss, liability or expense incurred in connection with any legal action
relating to the related Servicing Agreement or the Mortgage Loans; provided,
however, that such indemnification will not extend to any loss, liability or
expense incurred by reason of misfeasance, bad faith or negligence in the
performance of obligations or duties thereunder, or by reason of reckless
disregard of such obligations or duties. In addition, each Servicing Agreement
will provide that no Servicer will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its
responsibilities under the Servicing Agreement and which in its opinion may
involve it in any expense or liability. Any Servicer may, however, with the
consent of the Trustee undertake any such action which it may deem necessary or
desirable with respect to the Agreement and the rights and duties of the
parties thereto and the interests of the Certificateholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Certificateholders,
and the Servicer will be entitled to be reimbursed therefor.
Any person into which a Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
a Servicer or the Depositor is a party, or any person succeeding to the
business of a Servicer or the Depositor will be the successor of such Servicer
or the Depositor, as applicable, under the related Agreements.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a
Trust Fund that includes Whole Loans, "EVENTS OF DEFAULT" with respect to a
Servicer under the related Agreements will include (i) any failure by such
Servicer to distribute or cause to be distributed to the Trustee, another
Servicer or the Certificateholders, any required payment within one Business
Day of the date due; (ii) any failure by such Servicer to timely deliver a
report that continues unremedied for two days after receipt of notice of such
failure has been given to such Servicer by the Trustee or another Servicer;
(iii) any failure by such Servicer duly to observe or perform in any material
respect any of its other covenants or obligations under the Agreement which
continues unremedied for thirty days after written notice of such failure has
been given to such Servicer; (iv) any breach of a representation or warranty
made by such Servicer under the Agreement which materially and adversely
affects the interests of Certificateholders and which continues unremedied for
thirty days after written notice of such breach has been given to such
Servicer; (v) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings and certain actions by or on
behalf of such Servicer indicating its insolvency or inability to pay its
obligations; and (vi) any failure by such Servicer to maintain a required
license to do business or service the Mortgage Loans pursuant to the related
Agreements. Material variations to the foregoing Events of Default (other than
to shorten cure periods or eliminate notice requirements) will be specified in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Trustee shall, not later than the later of 60 days
after the occurrence of any event which constitutes or, with notice or lapse of
time or both, would constitute an Event of Default and five days after certain
officers of the Trustee become aware of the occurrence of such an event,
transmit by mail to the Depositor and all Certificateholders of the applicable
Series notice of such occurrence, unless such default shall have been cured or
waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Certificates evidencing not less than 25% of the Voting Rights, the Trustee
shall, terminate all of the rights and obligations of the related Servicer
under the Agreement and in and to the Mortgage Loans (other than as a
Certificateholder or as the owner of any Retained Interest), whereupon the
Master Servicer (or if such Servicer is the Master Servicer, the Trustee) will
succeed to all of the responsibilities, duties and liabilities of such Servicer
under the Agreements (except that if the Trustee is prohibited by law from
obligating itself to make advances regarding delinquent mortgage loans, or if
the related Prospectus Supplement so specifies, then the Trustee will not be
obligated to make such advances) and will be entitled to similar compensation
arrangements. Unless otherwise specified in the related Prospectus Supplement,
in the event that the Trustee is unwilling or unable so to act, it may or, at
the written request of the holders of Certificates entitled to at least 25% of
the Voting Rights, it shall appoint, or petition a court of competent
jurisdiction for the appointment of, a loan servicing institution acceptable to
the Rating Agency with a net worth at the time of such appointment of at least
$15,000,000 to act as successor to the Master Servicer under
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the Agreement. Pending such appointment, the Trustee is obligated to act in
such capacity. The Trustee and any such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default involving a failure to distribute a required payment
to Certificateholders described in clause (i) under "--Events of Default" may
be waived only by all of the Certificateholders. Upon any such waiver of an
Event of Default, such Event of Default shall cease to exist and shall be
deemed to have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made
written request upon the Trustee to institute such proceeding in its own name
as Trustee thereunder and have offered to the Trustee reasonable indemnity, and
the Trustee for sixty days has neglected or refused to institute any such
proceeding. The Trustee, however, is under no obligation to exercise any of the
trusts or powers vested in it by any Agreement or to make any investigation of
matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the holders of Certificates covered by such Agreement, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates," unless and until Definitive
Certificates are issued, Beneficial Owners may only exercise their rights as
owners of Certificates indirectly through DTC, or their respective Participants
and Indirect Participants.
AMENDMENT
Each Agreement may be amended by the parties thereto, without the
consent of any of the holders of Certificates covered by the Agreement, (i) to
cure any ambiguity, (ii) to correct, modify or supplement any provision therein
which may be inconsistent with any other provision therein, (iii) to make any
other provisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions thereof, or (iv) to
comply with any requirements imposed by the Code; provided that such amendment
(other than an amendment for the purpose specified in clause (iv) above) will
not (as evidenced by an opinion of counsel to such effect) adversely affect in
any material respect the interests of any holder of Certificates covered by the
Agreement. Unless otherwise specified in the related Prospectus Supplement,
each Agreement may also be amended by the Depositor, the Master Servicer, if
any, and the Trustee, with the consent of the holders of Certificates affected
thereby evidencing not less than 51% of the Voting Rights, for any purpose;
provided, however, that unless otherwise specified in the related Prospectus
Supplement, no such amendment may (i) reduce in any manner the amount of or
delay the timing of, payments received or advanced on Mortgage Loans which are
required to be distributed on any Certificate without the consent of the holder
of such Certificate, (ii) adversely affect in any material respect the
interests of the holders of any class of Certificates in a manner other than as
described in (i), without the consent of the holders of all Certificates of
such class or (iii) modify the provisions of such Agreement described in this
paragraph without the consent of the holders of all Certificates covered by
such Agreement then outstanding. However, with respect to any Series of
Certificates as to which a REMIC election is to be made, the Trustee will not
consent to any amendment of the Agreement unless it shall first have received
an opinion of counsel to the effect that such amendment will not result in the
imposition of a tax on the related Trust Fund or cause the related Trust Fund
to fail to qualify as a REMIC at any time that the related Certificates are
outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
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DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Trust Asset or related
document and is not accountable for the use or application by or on behalf of
any Servicer of any funds paid to such Servicer or its designee in respect of
the Certificates or the Trust Assets, or deposited into or withdrawn from any
Account or any other account by or on behalf of any Servicer. If no Event of
Default has occurred and is continuing, the Trustee is required to perform only
those duties specifically required under the related Agreements. However, upon
receipt of the various certificates, reports or other instruments required to
be furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreements.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Distribution Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii)
defending or prosecuting any legal action in respect of the related Agreement
or Series of Certificates, (iii) being the mortgagee of record with respect to
the Mortgage Loans in a Trust Fund and the owner of record with respect to any
Mortgaged Property acquired in respect thereof for the benefit of
Certificateholders, or (iv) acting or refraining from acting in good faith at
the direction of the holders of the related Series of Certificates entitled to
not less than 25% (or such higher percentage as is specified in the related
Agreement with respect to any particular matter) of the Voting Rights for such
Series; provided, however, that such indemnification will not extend to any
loss, liability or expense that constitutes a specific liability of the Trustee
pursuant to the related Agreement, or to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence on the part
of the Trustee in the performance of its obligations and duties thereunder, or
by reason of its reckless disregard of such obligations or duties, or as may
arise from a breach of any representation, warranty or covenant of the Trustee
made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreements, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any Series entitled to at
least 51% of the Voting Rights for such Series may at any time remove the
Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any Series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies, guarantees, the
establishment of one or more reserve funds or another method of Credit Support
described in the related Prospectus Supplement, or any combination of the
foregoing. If so provided in the related Prospectus Supplement, any form of
Credit Support may be structured so as to be drawn upon by more than one Series
to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
Series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one Series
of Certificates (each, a "COVERED TRUST"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a Series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment thereunder
not otherwise described herein, (c) the conditions (if any) under which the
amount of coverage under such Credit Support may be reduced and under which
such Credit Support may be terminated or replaced and (d) the material
provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, and its stockholders' or policyholders'
surplus, if applicable, as of the date specified in the Prospectus Supplement.
See "Risk Factors -- Credit Support Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a Series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the
holders of Subordinate Certificates to receive distributions of principal and
interest from the Distribution Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Certificates. If so
provided in the related Prospectus Supplement, the subordination of a class may
apply only in the event of (or may be limited to) certain types of losses or
shortfalls. The related Prospectus Supplement will set forth information
concerning the amount of subordination of a class or classes of Subordinate
Certificates in a Series, the circumstances in which such subordination will be
applicable and the manner, if any, in which the amount of subordination will be
effected.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a Series are divided into separate groups,
each supporting a separate class or classes of Certificates of a Series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one group
of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a Series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
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INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a Series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any such
material instrument for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related Series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit,
issued by a bank or financial institution specified in such Prospectus
Supplement (the "L/C BANK"). Under a letter of credit, the L/C Bank will be
obligated to honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified in
the related Prospectus Supplement of the aggregate principal balance of the
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws in the
event of only certain types of losses and shortfalls. The amount available
under the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the L/C Bank under the
letter of credit for each Series of Certificates will expire at the earlier of
the date specified in the related Prospectus Supplement or the termination of
the Trust Fund. A copy of any such letter of credit for a Series will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Certificates of the related Series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided by one or more insurance companies or sureties. Such instruments
may cover, with respect to one or more classes of Certificates of the related
Series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. A copy
of any such instrument for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed with the Commission within
15 days of issuance of the Certificates of the related Series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more reserve funds in which
cash, a letter of credit, Permitted Investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in such Prospectus
Supplement. The reserve funds for a Series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Trust Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a Series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the
related Prospectus Supplement, reserve funds may be established to provide
limited protection against only certain types of losses and shortfalls.
Following each Distribution Date amounts in a reserve fund in excess of any
amount required to be maintained therein may be released from the reserve fund
under the conditions and to the extent specified in the related Prospectus
Supplement and will not be available for further application to the
Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited to
the related Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
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payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a Series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund may
be applied to make distributions to Certificateholders and use of investment
earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO CMBS
If so provided in the Prospectus Supplement for a Series of
Certificates, the CMBS in the related Trust Fund and/or the Mortgage Loans
underlying such CMBS may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify as to
each such form of Credit Support the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans. See
"Description of the Trust Funds -- Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the
instrument in the appropriate public recording office. However, recording does
not generally establish priority over governmental claims for real estate taxes
and assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties -- a Mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
Mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "MORTGAGOR" includes
the trustor under a deed of trust and a grantor under a security deed or a deed
to secure debt. Under a deed of trust, the Mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. In case the Mortgagor under a mortgage is a land
trust, there would be an additional party because legal title to the property
is held by a land trustee under a land trust agreement for the benefit of the
Mortgagor. At origination of a mortgage loan involving a land trust, the
Mortgagor executes a separate undertaking to make payments on the mortgage
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the mortgage, the law of the state in
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which the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailors' Civil Relief Act of 1940) and, in some
cases, in deed of trust transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are
secured by an interest in a leasehold estate. Such representation and
warranties will be set forth in the Prospectus Supplement if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the Mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the Mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the Mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the Mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the Mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect
the rents. In most states, hotel and motel room rates are considered accounts
receivable under the UCC; generally these rates are either assigned by the
Mortgagor, which remains entitled to collect such rates absent a default, or
pledged by the Mortgagor, as security for the loan. In general, the lender must
file financing statements in order to perfect its security interest in the
rates and must file continuation statements, generally every five years, to
maintain perfection of such security interest. Even if the lender's security
interest in room rates is perfected under the UCC, the lender will generally be
required to commence a foreclosure or otherwise take possession of the property
in order to collect the room rates after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service the
mortgage debt if the leases on the property are at below-market rents, or as
the result of excessive maintenance, repair or other obligations which a lender
succeeds to as landlord.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership. See "Environmental Legislation"
below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender
generally must file UCC financing statements and, to maintain perfection of
such security interest, file continuation statements generally every five
years.
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COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Offered Certificate, the Mortgage Loans may also consist of cooperative
apartment loans ("COOPERATIVE LOANS") secured by security interests in shares
issued by cooperative housing corporation (a "COOPERATIVE") and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the cooperatives' buildings. The security agreement
will create a lien upon, or grant a title interest in, the property which it
covers, the priority of which will depend on the terms of the particular
security agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and,
in most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the
case, or an underlying lease of the land, as is the case in some instances, the
cooperative, as property Mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket
mortgage is ordinarily incurred by the cooperative in connection with either
the construction or purchase of the cooperative's apartment building or
obtaining of capital by the cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that cooperative is the
landlord are generally subordinate to the interest of the holder of a blanket
mortgage and to the interest of the holder of a land lease. If the cooperative
is unable to meet the payment obligations (i) arising under a blanket mortgage,
the mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity.
The inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreement. In either event,
a foreclosure by the holder of a blanket mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by whomever financed the purchase by an individual tenant
stockholder of cooperative shares or, in the case of the Mortgage Loans, the
collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
an assignment of and a security interest in the occupancy agreement or
proprietary lease and a security interest in the related cooperative shares.
The lender generally takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "--Foreclosure -- Cooperative Loans" below.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the Mortgagor defaults in payment or performance of its
obligations
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under the note or mortgage, the mortgagee has the right to institute
foreclosure proceedings to sell the mortgaged property at public auction to
satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest
of record in the real property and all parties in possession of the property,
under leases or otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. Upon successful
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other officer to conduct a
public sale of the mortgaged property, the proceeds of which are used to
satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
Mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may
require the lender to undertake affirmative and expensive actions to determine
the cause of the Mortgagor's default and the likelihood that the Mortgagor will
be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate Mortgagors who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the mortgage is not
monetary, e.g., the Mortgagor failed to maintain the mortgaged property
adequately or the Mortgagor executed a junior mortgage on the mortgaged
property. The exercise by the court of its equity powers will depend on the
individual circumstances of each case presented to it. Finally, some courts
have been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that a
Mortgagor receive notice in addition to statutorily-prescribed minimum notice.
For the most part, these cases have upheld the reasonableness of the notice
provisions or have found that a public sale under a mortgage providing for a
power of sale does not involve sufficient state action to afford constitutional
protections to the Mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the Mortgagor was insolvent (or the Mortgagor was rendered insolvent as a
result of such sale) and within one year (or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-
judicial trustee's sale pursuant to the power of sale granted in the deed of
trust. A power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
Mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the Mortgagor and to any other party
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who has recorded a request for a copy of a notice of default and notice of
sale. In addition in some states the trustee must provide notice to any other
party having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. The
Mortgagor or junior lienholder may then have the right, during a reinstatement
period required in some states, to cure the default by paying the entire actual
amount in arrears (without acceleration) plus the expenses incurred in
enforcing the obligation. In other states, the Mortgagor or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and
vary among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of
trust, except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to
secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
Mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's and
the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or bankruptcy
proceedings. Furthermore, a few states require that any environmental
contamination at certain types of properties be cleaned up before a property
may be resold. In addition, a lender may be responsible under federal or state
law for the cost of cleaning up a mortgaged property that is environmentally
contaminated. See "Environmental Legislation." Generally state law controls the
amount of foreclosure expenses and costs, including attorneys' fees, that may
be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans which are junior mortgage loans, if the lender purchases
the property the lender's title will be subject to all senior mortgages, prior
liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the Mortgagor is in default. Any additional
proceeds are generally payable to the Mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
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In connection with a Series of Certificates for which an election is
made to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the Mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee have an equity of redemption and may redeem the property by paying
the entire debt with interest. In addition, in some states, when a foreclosure
action has been commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to
be cut off and terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the
Mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the Mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale price.
In other states, redemption may be authorized if the former Mortgagor pays only
a portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The
exercise of a right of redemption would defeat the title of any purchaser from
a foreclosure sale or sale under a deed of trust. Consequently, the practical
effect of the redemption right is to force the lender to maintain the property
and pay the expenses of ownership until the redemption period has expired. In
some states, a post-sale statutory right of redemption may exist following a
judicial foreclosure, but not following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. Unless
otherwise provided in the related Prospectus Supplement, with respect to a
Series of Certificates for which an election is made to qualify the Trust Fund
or a part thereof as a REMIC, the Agreement will permit foreclosed property to
be held for more than two years if the Internal Revenue Service grants an
extension of time within which to sell such property or independent counsel
renders an opinion to the effect that holding such property for such additional
period is permissible under the REMIC Provisions.
Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
Mortgagor. Even if a mortgage loan by its terms provides for recourse to the
Mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the Mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former Mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the Mortgagor. In certain other states, the lender has the
option of bringing a personal action against the Mortgagor on the debt without
first exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the Mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former Mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
Mortgagor as a result of low or no bids at the judicial sale.
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Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the Mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate
if, among other reasons, the ground lessee breaches or defaults in its
obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground leases
that secure Mortgage Loans may not contain some of these protective provisions,
and mortgages may not contain the other protections discussed in the next
paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults
by the Mortgagor; the right to cure such defaults, with adequate cure periods;
if a default is not susceptible of cure by the leasehold mortgagee, the right
to acquire the leasehold estate through foreclosure or otherwise; the ability
of the ground lease to be assigned to and by the leasehold mortgagee or
purchaser at a foreclosure sale and for the concomitant release of the ground
lessee's liabilities thereunder; and the right of the leasehold mortgagee to
enter into a new ground lease with the ground lessor on the same terms and
conditions as the old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground
lessor's bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "BANKRUPTCY CODE"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed
by the provisions of the ground lease.
Cooperative Loans
The cooperative shares owned by the tenant-stockholder and pledged to
the lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's Certificate of Incorporation and By- laws, as well
as the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permits the
Cooperative to terminate such lease or agreement in the event an obligor fails
to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the Cooperative enter into a recognition
agreement which establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement is terminated, the Cooperative will recognize the lender's lien
against proceeds from the sale of the Cooperative apartment, subject, however,
to the Cooperative's right to sums due under such proprietary lease or
occupancy agreement. The total amount owed to the Cooperative by the tenant-
stockholder, which the lender generally cannot restrict and does not monitor,
could reduce the value of the collateral below the outstanding principal
balance of the Cooperative Loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
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In some states, foreclosure on the Cooperative shares is accomplished by
a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a
foreclosure sale has been conducted in a "commercially reasonable" manner will
depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to
the usual practice of banks selling similar collateral will be considered
reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperatives to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building was so converted.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the
amount of each scheduled payment, which reduction may result from a reduction
in the rate of interest and/or the alteration of the repayment schedule (with
or without affecting the unpaid principal balance of the loan), and/or an
extension (or reduction) of the final maturity date. Some courts with federal
bankruptcy jurisdiction have approved plans, based on the particular facts of
the reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, under federal bankruptcy law, a
bankruptcy court may permit a debtor through its rehabilitative plan to de-
accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been
entered in state court (provided no sale of the property had yet occurred)
prior to the filing of the debtor's petition. This may be done even if the full
amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or modified
at any time after the commencement of a case under the Bankruptcy Code solely
on the basis of a provision in the lease to such effect or because of certain
other similar events. This prohibition on so-called "ipso facto clauses" could
limit the ability of the Trustee for a Series of Certificates to exercise
certain contractual remedies with respect to the Leases. In addition, Section
362 of the Bankruptcy Code operates as an automatic stay of, among other
things, any act to obtain possession of property from a debtor's estate, which
may delay a Trustee's exercise of such remedies for a related Series of
Certificates in the event that a related Lessee or a related Mortgagor becomes
the subject of a proceeding under the Bankruptcy Code. For example, a mortgagee
would be stayed from enforcing a Lease Assignment by a Mortgagor related to a
Mortgaged Property if the related Mortgagor
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was in a bankruptcy proceeding. The legal proceedings necessary to resolve the
issues could be time-consuming and might result in significant delays in the
receipt of the assigned rents. Similarly, the filing of a petition in
bankruptcy by or on behalf of a Lessee of a Mortgaged Property would result in
a stay against the commencement or continuation of any state court proceeding
for past due rent, for accelerated rent, for damages or for a summary eviction
order with respect to a default under the Lease that occurred prior to the
filing of the Lessee's petition. Rents and other proceeds of a Mortgage Loan
may also escape an assignment thereof if the assignment is not fully perfected
under state law prior to commencement of the bankruptcy proceeding. See
"--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the Mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach,
which could adversely affect the security for the related Mortgage Loan. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of one
year or 15%, not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as debtor-
in-possession, rejects an unexpired lease of real property, the lessee may
treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or
extension thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such date.
To the extent provided in the related Prospectus Supplement, the Lessee will
agree under certain Leases to pay all amounts owing thereunder the Master
Servicer without offset. To the extent that such a contractual obligation
remains enforceable against the Lessee, the Lessee would not be able to avail
itself of the rights of offset generally afforded to lessees of real property
under the Bankruptcy Code.
In a bankruptcy or similar proceeding of a Mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the Mortgagor, or made directly by the related Lessee,
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a Mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in
writing in the limited partnership agreement. This provision may be construed
as an "ipso facto" clause and, in the event of the general partner's
bankruptcy, may not be enforceable. To the extent described in
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the related Prospectus Supplement, certain limited partnership agreements of
the Mortgagors may provide that the commencement of a case under the Bankruptcy
Code with respect to the related general partner constitutes an event of
withdrawal (assuming the enforceability of the clause is not challenged in
bankruptcy proceedings or, if challenged, is upheld) that might trigger the
dissolution of the limited partnership, the winding up of its affairs and the
distribution of its assets, unless (i) at the time there was at least one other
general partner and the written provisions of the limited partnership permit
the business of the limited partnership to be carried on by the remaining
general partner and that general partner does so or (ii) the written provisions
of the limited partnership agreement permit the limited partner to agree within
a specified time frame (often 60 days) after such withdrawal to continue the
business of the limited partnership and to the appointment of one or more
general partners and the limited partners do so. In addition, the laws
governing general partnerships in certain states provide that the commencement
of a case under the Bankruptcy Code or state bankruptcy laws with respect to a
general partner of such partnerships triggers the dissolution of such
partnership, the winding up of its affairs and the distribution of its assets.
Such state laws, however, may not be enforceable or effective in a bankruptcy
case. The dissolution of a Mortgagor, the winding up of its affairs and the
distribution of its assets could result in an acceleration of its payment
obligation under a related Mortgage Loan, which may reduce the yield on the
related Series of Certificates in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the
corporate veil. In such a case, the respective Mortgaged Property, for example,
would become property of the estate of such bankrupt general partner. Not only
would the Mortgaged Property be available to satisfy the claims of creditors of
such general partner, but an automatic stay would apply to any attempt by the
Trustee to exercise remedies with respect to such Mortgaged Property. However,
such an occurrence should not affect the Trustee's status as a secured creditor
with respect to the Mortgagor or its security interest in the Mortgaged
Property.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity. Such environmental liabilities may give rise
to (i) a diminution in value of property securing any Mortgage Loan, (ii)
limitation on the ability to foreclose against such property or (iii) in
certain circumstances as more fully described below, liability for clean up
costs or other remedial actions, which liability could exceed the value of the
principal balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give rise
to a lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either to
the government or to private parties for cleanup costs on a property securing a
loan, even if the lender does not cause or contribute to the contamination.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed to
the contamination. Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
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A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly
construed CERCLA's secured-creditor exemption. The court held that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under
CERCLA; rather, liability could attach to a lender if its involvement with the
management of the facility is broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to influence such decision
could be inferred from the extent of its involvement in the facility's
financial management.
On April 29, 1992, in response to the decision in Fleet Factors Corp.,
the United States Environmental Protection Agency (the "EPA") adopted a rule
interpreting and delineating CERCLA's secured-creditor exemption in EPA
enforcement proceedings. The rule attempted to define and specify the range of
permissible actions that may be undertaken by a foreclosing lender/holder of a
contaminated facility without exceeding the bounds of the secured-creditor
exemption. The rule also attempted to specify the circumstances under which
governmental or government-appointed entities that acquire possession or
control of contaminated facilities as conservators or receivers will be
considered "involuntary" owners for purposes of CERCLA's "innocent landowner"
defense to liability. Issuance of this rule by the EPA under CERCLA does not
necessarily affect the potential for liability in actions by either a state or
a private party under CERCLA or in actions under other federal or state laws
which may impose liability on "owners or operators" but do not incorporate the
secured-creditor exemption.
The validity of the EPA rule was challenged in the U.S. Court of Appeals
for the District of Columbia in Kelley v. EPA. In an opinion issued on February
4, 1994, the D.C. Circuit Court invalidated EPA's lender liability rule,
holding that EPA exceeded its authority in enacting the rule. The U.S. Supreme
Court denied certiorari on January 17, 1995. Legislation has been proposed that
would clarify, by statute, the range of activities a secured creditor may
undertake without being deemed to have participated in the management of the
facility, and thus losing the benefit of the secured-creditor exemption.
Under the Kelley case, the secured-creditor exemption under CERCLA will
be subject to existing case law interpretations. Some of those cases have
interpreted the exemption extremely narrowly, but most of the cases since
promulgation of the EPA rule have held that a lender is entitled to the
protection of the secured-creditor exemption provided that a lender complies
with the provisions set out in the EPA rule and does not itself (or through its
agents) cause or contribute to contamination. As a result of Kelley, the cases
applying the EPA rule have little, if any, precedential value and, thus,
lenders should expect a return to the narrower interpretations of the
exemption.
In September 1995, EPA issued a guidance document stating that, in its
enforcement of CERCLA, EPA would apply the protections afforded to secured
creditors under the lender liability rule that was invalidated in the Kelley
decision. However, this EPA policy is not binding on the courts nor on states
or private parties.
The secured-creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. The definition of
"hazardous substances" under CERCLA specifically excludes petroleum products,
and the secured-creditor exemption does not govern liability for cleanup costs
under federal laws other than CERCLA, in particular Subtitle I of the federal
Resource Conservation and Recovery Act ("RCRA"), which regulates underground
petroleum (other than heating oil) storage tanks. However, the EPA has adopted
a lender liability rule for underground storage tanks under Subtitle I of RCRA.
Under such rule, a holder of a security interest in an underground storage tank
or real property containing an underground storage tank is not considered an
operator of the underground storage tank as long as petroleum is not added to,
stored in or dispensed from the tank. It should be noted, however, that
liability for cleanup of petroleum contamination may be governed by state law,
which may not provide for any specific protections for secured creditors.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental
hazard, but that person or entity may be bankrupt or otherwise judgment proof.
It is possible that cleanup costs could become a liability of the Trust Fund
and occasion a loss to Certificateholders in certain circumstances described
above if such remedial costs were incurred.
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The related Agreement will provide that the Special Servicer, acting on
behalf of the Trustee, may not acquire title to a Mortgaged Property or take
over its operation unless the Special Servicer has previously determined, based
on a report prepared by a person who regularly conducts environmental
assessments, that: (i) such Mortgaged Property is in compliance with applicable
environmental laws, or, if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is likely to produce a
greater recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions and (ii) there are no
circumstances present at the Mortgaged Property relating to the use, management
or disposal of any Hazardous Materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation. This requirement effectively
precludes enforcement of the security for the related Mortgage Note until a
satisfactory environmental inquiry is undertaken, or that, if any Hazardous
Materials are present for which such action could be required, taking such
actions with respect to the affected Mortgaged Property is reasonably likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions, reducing the
likelihood that a given Trust Fund will become liable for any condition or
circumstance that may give rise to any environmental claim (an "ENVIRONMENTAL
HAZARD CONDITION") affecting a Mortgaged Property, but making it more difficult
to realize on the security for the Mortgage Loan. However, there can be no
assurance that any environmental assessment obtained by the Special Servicer
will detect all possible Environmental Hazard Conditions, that any estimate of
the costs of effecting compliance at any Mortgaged Property and the recovery
thereon will be correct, or that the other requirements of the Agreement, even
if fully observed by the Master Servicer or Special Servicer, as the case may
be, will in fact insulate a given Trust Fund from liability for Environmental
Hazard Conditions. Any additional restrictions on acquiring titles to a
Mortgaged Property may be set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely
that any environmental assessments which would have been conducted with respect
to any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warranting Party will represent and
warrant that based on an environmental audit commissioned by Warranting Party,
as of the date of the origination of a Mortgage Loan, the related Mortgaged
Property is not affected by a Disqualifying Condition (as defined below). No
such person will however, be responsible for any Disqualifying Condition which
may arise on a Mortgaged Property after the date of origination of the related
Mortgage Loan, whether due to actions of the Mortgagor, the Master Servicer,
the Primary Servicer, the Special Servicer or any other person. It may not
always be possible to determine whether a Disqualifying Condition arose prior
or subsequent to the date of the origination of the related Mortgage Loan.
A "DISQUALIFYING CONDITION" is defined generally as a condition which
would reasonably be expected to (1) constitute or result in a violation of
applicable environmental laws, (2) require any expenditure material in relation
to the principal balance of the related Mortgage Loan to achieve or maintain
compliance in all material respects with any applicable environmental laws, or
(3) require substantial cleanup, remedial action or other extraordinary
response under any applicable environmental laws in excess of a specified
escrowed amount.
"HAZARDOUS MATERIALS" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products and urea formaldehyde.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and due-on-
encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the Mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the Mortgagor of an otherwise
non-recourse loan, the Mortgagor becomes personally liable for the mortgage
debt. The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states and, in some cases, the enforceability
of these clauses was limited or denied. However, with respect to certain loans
the Garn-St Germain Depository Institutions Act of 1982 preempts state
constitutional, statutory and case law that prohibits the enforcement
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of due-on-sale clauses and permits lenders to enforce these clauses in
accordance with their terms subject to certain limited exceptions. Unless
otherwise provided in the related Prospectus Supplement, a Master Servicer or a
Primary Servicer, on behalf of the Trust Fund, will determine whether to
exercise any right the Trustee may have as mortgagee to accelerate payment of
any such Mortgage Loan or to withhold its consent to any transfer or further
encumbrance in a manner consistent with the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
SUBORDINATE FINANCING
Where the Mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the Mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the Mortgagor (as junior loans often do) and
the senior loan does not, a Mortgagor may be more likely to repay sums due on
the junior loan than those on the senior loan. Second, acts of the senior
lender that prejudice the junior lender or impair the junior lender's security
may create a superior equity in favor of the junior lender. For example, if the
Mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the Mortgagor is
additionally burdened. Third, if the Mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior lender.
Moreover, the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the Mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a Mortgagor for delinquent payments. Certain states
also limit the amounts that a lender may collect from a Mortgagor as an
additional charge if the loan is prepaid. The enforceability, under the laws of
a number of states of provisions providing for prepayment fees or penalties
upon, or prohibition of, an involuntary prepayment is unclear, and no assurance
can be given that, at the time a Prepayment Premium is required to be made on a
Mortgage Loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such prohibition, will be
enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher Mortgage
Interest Rates, may increase the likelihood of refinancing or other early
retirements of the Mortgage Loans.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related Prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the Mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("TITLE V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal
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statute was in effect with respect to mortgage loans made during the first
three months of 1980. The statute authorized any state to reimpose interest
rate limits by adopting, before April 1, 1983, a law or constitutional
provision that expressly rejects application of the federal law. In addition,
even where Title V is not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on mortgage loans
covered by Title V. Certain states have taken action to reimpose interest rate
limits and/or to limit discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that residential first mortgage loans that are originated on
or after January 1, 1980 are subject to federal preemption. Therefore, in a
state that has not taken the requisite action to reject application of Title V
or to adopt a provision limiting discount points or other charges prior to
origination of such mortgage loans, any such limitation under such state's
usury law would not apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state action will be eligible
for inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the Mortgagor's counsel
has rendered an opinion that such choice of law provision would be given
effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only
for the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages on
Mortgaged Properties which are owned by the Mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who
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is financially more capable than the Mortgagor of complying with the
requirements of the ADA may be subject to more stringent requirements than
those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "RELIEF ACT"), a Mortgagor who enters military service after
the origination of such Mortgagor's Mortgage Loan (including a Mortgagor who
was in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such Mortgagor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to Mortgagors who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
Mortgagors who enter military service (including reservists who are called to
active duty) after origination of the related Mortgage Loan, no information can
be provided as to the number of loans that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of any servicer to collect full amounts of interest
on certain of the Mortgage Loans. Any shortfalls in interest collections
resulting from the application of the Relief Act would result in a reduction of
the amounts distributable to the holders of the related Series of Certificates,
and would not be covered by advances or, unless otherwise specified in the
related Prospectus Supplement, any form of Credit Support provided in
connection with such Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the servicer to foreclose on an
affected Mortgage Loan during the Mortgagor's period of active duty status,
and, under certain circumstances, during an additional three month period
thereafter. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of drug-
related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "CRIME
CONTROL ACT"), the government may seize the property even before conviction.
The government must publish notice of the forfeiture proceeding and may give
notice to all parties "known to have an alleged interest in the property,"
including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Andrews & Kurth L.L.P., counsel to the Depositor.
This summary is based on laws, regulations, including the REMIC regulations
promulgated by the Treasury Department (the "REMIC REGULATIONS"), rulings and
decisions now in effect or (with respect to regulations) proposed, all of which
are subject to change either prospectively or retroactively. Andrews & Kurth
L.L.P. will deliver an opinion to the Depositor that the information set forth
under this caption, "Certain Federal Income Tax Consequences," to the extent
that it constitutes matters of law or legal conclusions, is correct in all
material respects. This summary does not address the federal income tax
consequences of an investment in Certificates applicable to all categories of
investors, some of which (for example, banks and insurance companies) may be
subject to special rules. Prospective investors should consult their tax
advisors regarding the federal, state, local and any other tax consequences to
them of the purchase, ownership and disposition of Certificates.
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GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund, or a
segregated portion thereof, relating to a particular Series of Certificates as
a REMIC under the Code. The Prospectus Supplement for each Series of
Certificates will specify whether a REMIC election will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Andrews & Kurth L.L.P. will deliver its
opinion that the Trust Fund will not be classified as an association taxable as
a corporation and that each such Trust Fund will be classified as a grantor
trust under subpart E, Part I of subchapter J of Chapter 1 of Subtitle A of the
Code. In this case, owners of Certificates will be treated for federal income
tax purposes as owners of a portion of the Trust Fund's assets as described
below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Grantor Trust Certificates. In this case, each Grantor Trust Certificateholder
will be treated as the owner of a pro rata undivided interest in the interest
and principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162
or 212 each Grantor Trust Certificateholder will be entitled to deduct its pro
rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late payment charges retained by the Master
Servicer, provided that such amounts are reasonable compensation for services
rendered to the Trust Fund. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses as itemized deductions only to the extent such expenses plus all other
Code Section 212 expenses exceed two percent of its adjusted gross income. In
addition, the amount of itemized deductions otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds the applicable
amount (which amount will be adjusted for inflation) will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. A Grantor Trust Certificateholder using the cash method of
accounting must take into account its pro rata share of income and deductions
as and when collected by or paid to the Master Servicer. A Grantor Trust
Certificateholder using an accrual method of accounting must take into account
its pro rata share of income and deductions as they become due or are paid to
the Master Servicer, whichever is earlier. If the servicing fees paid to the
Master Servicer are deemed to exceed reasonable servicing compensation, the
amount of such excess could be considered as an ownership interest retained by
the Master Servicer (or any person to whom the Master Servicer assigned for
value all or a portion of the servicing fees) in a portion of the interest
payments on the Mortgage Assets. The Mortgage Assets would then be subject to
the "coupon stripping" rules of the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement, as to
each Series of Certificates Andrews & Kurth L.L.P. will have advised the
Depositor that, except as described below under "b. Multiple Class of Grantor
Trust Certificates - Treatment of Certain Owners":
(i) a Grantor Trust Certificate owned by a "domestic building and
loan association" within the meaning of Code Section 7701(a)(19)
representing principal and interest payments on Mortgage Assets will be
considered to represent "loans . . . secured by an interest in real
property which is . . . residential property" within the meaning of Code
Section 7701(a)(19)(C)(v), to the extent that the Mortgage Assets
represented by that Grantor Trust Certificate are of a type described in
such Code section;
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(ii) a Grantor Trust Certificate owned by a financial institution
described in Code Section 593(a) representing principal and interest
payments on Mortgage Assets will be considered to represent "qualifying
real property loans" within the meaning of Code Section 593(d) and the
Treasury regulations under Code Section 593, to the extent that the
Mortgage Assets represented by that Grantor Trust Certificate are of a type
described in such Code section;
(iii) a Grantor Trust Certificate owned by a real estate investment
trust representing an interest in Mortgage Assets will be considered to
represent "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest income on the Mortgage Assets will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), to the extent that the Mortgage
Assets represented by that Grantor Trust Certificate are of a type
described in such Code section; and
(iv) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3).
Stripped Bonds and Coupons. Certain Trust Funds may consist of
Government Securities which constitute "stripped bonds" or "stripped coupons"
as those terms are defined in Section 1286 of the Code, and, as a result, such
assets would be subject to the stripped bond provisions of the Code.
Under these rules, such Government Securities are treated as having
original issue discount based on the purchase price and the stated redemption
price at maturity of each Security. As such, Grantor Trust Certificateholders
would be required to include in income their pro rata share of the original
issue discount on each Government Security recognized in any given year on an
economic accrual basis even if the Grantor Trust Certificateholder is a cash
method taxpayer. Accordingly, the sum of the income includible to the Grantor
Trust Certificateholder in any taxable year may exceed amounts actually
received during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Mortgage Asset based
on each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A
Grantor Trust Certificateholder that acquires an interest in Mortgage Assets at
a premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage
Assets were originated after September 27, 1985. Premium allocable to mortgage
loans originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable
premium is applied to offset interest payments. It is not clear whether a
reasonable prepayment assumption should be used in computing amortization of
premium allowable under Code Section 171. A Certificateholder that makes this
election for a Certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Certificateholder acquires during the
year of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at a
premium should recognize a loss if a Mortgage Loan (or an underlying mortgage
loan with respect to a Mortgage Asset) prepays in full, equal to the difference
between the portion of the prepaid principal amount of such Mortgage Loan (or
underlying mortgage loan) that is allocable to the Certificate and the portion
of the adjusted basis of the Certificate that is allocable to such Mortgage
Loan (or underlying mortgage loan). If a reasonable prepayment assumption is
used to amortize such premium, it appears that such a loss would be available,
if at all, only if prepayments have occurred at a rate faster than the
reasonable assumed prepayment rate. It is not clear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
Original Issue Discount. The Internal Revenue Service (the "IRS") has
stated in published rulings that, in circumstances similar to those described
herein, the special rules of the Code relating to original issue discount
("OID") (currently Code Sections 1271 through 1273 and 1275) and Treasury
regulations issued on January 27, 1994, under such Sections (the "OID
REGULATIONS"), will be applicable to a Grantor Trust Certificateholder's
interest in those Mortgage Assets meeting the conditions necessary for these
sections to apply. Rules regarding periodic inclusion of OID income
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are applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate Mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984. Such
OID could arise by the financing of points or other charges by the originator
of the mortgages in an amount greater than a statutory de minimis exception to
the extent that the points are not currently deductible under applicable Code
provisions or are not for services provided by the lender. OID generally must
be reported as ordinary gross income as it accrues under a constant interest
method. See "--Grantor Trust Funds -- Multiple Classes of Grantor Trust
Certificates -- Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to one of the following methods.
If a Grantor Trust Certificate is issued with OID, the amount of market
discount that accrues during any accrual period would be equal to the product
of (i) the total remaining market discount and (ii) a fraction, the numerator
of which is the OID accruing during the period and the denominator of which is
the total remaining OID at the beginning of the accrual period. For Grantor
Trust Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of
the accrual period. For purposes of calculating market discount under any of
the above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same prepayment
assumption applicable to calculating the accrual of OID will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a Grantor
Trust Certificate purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of the excess of the interest paid or
incurred for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry such Grantor Trust Certificate purchased with
market discount over the interest distributable thereon. For these purposes,
the de minimis rule referred above applies. Any such deferred excess interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in
which such market discount is includible in income. The amount of any remaining
deferred deduction is to be taken into account in the taxable year in which the
Grantor Trust Certificate matures or is disposed of in a taxable transaction.
In the case of a disposition in which gain or loss is not recognized in whole
or in part, any remaining deferred deduction will be allowed to the extent of
gain recognized on the disposition. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
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Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--Grantor Trust Funds -- Single Class of Grantor Trust Certificates --
Premium." The election to accrue interest, discount and premium on a constant
yield method with respect to a Certificate is irrevocable.
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and
interest, or principal only, on all or a portion of the Mortgage Assets (the
"STRIPPED BOND CERTIFICATES"), while the second class of Grantor Trust
Certificates may represent the right to some or all of the interest on such
portion (the "STRIPPED COUPON CERTIFICATES").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Asset principal balance) or the Certificates are initially sold with a de
minimis discount (assuming no prepayment assumption is required), any non de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Asset by Mortgage Asset basis, which
could result in some Mortgage Assets being treated as having more than 100
basis points of interest stripped off.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a Mortgage Asset is larger than a de minimis amount (as calculated
for purposes of the OID rules) a purchaser of such a Certificate will be
required to accrue the discount under the OID rules of the Code. See "--Grantor
Trust Funds -- Single Class of Grantor Trust Certificates -- Original Issue
Discount." However, a purchaser of a Stripped Bond Certificate will be required
to account for any discount on the Mortgage Assets as market discount rather
than OID if either (i) the amount of OID with respect to the Mortgage Assets is
treated as zero under the OID de minimis rule when the Certificate was stripped
or (ii) no more than 100 basis points (including any amount of servicing fees
in excess of reasonable servicing fees) is stripped off of the Trust Fund's
Mortgage Assets.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that OID
computations be made for each payment from each Mortgage Asset. However, based
on the recent IRS guidance, it appears that all payments from a Mortgage Asset
underlying a Stripped Coupon Certificate should be treated as a single
installment obligation subject to the OID rules of the Code, in which case, all
payments from such Mortgage Asset would be included in the Mortgage Asset's
stated redemption price at maturity for purposes of calculating income on such
certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to such Grantor Trust Certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate faster than the assumed prepayment rate.
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However, if such Certificate is treated as an interest in discrete Mortgage
Assets, or if no prepayment assumption is used, then when a Mortgage Asset is
prepaid, the holder of such Certificate should be able to recognize a loss
equal to the portion of the adjusted issue price of such Certificate that is
allocable to such Mortgage Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper treatment
of these Certificates for federal income tax purposes.
Treatment of Certain Owners
Several Code sections provide beneficial treatment to certain taxpayers
that invest in Mortgage Assets of the type that make up the Trust Fund. With
respect to these Code sections, no specific legal authority exists regarding
whether the character of the Grantor Trust Certificates, for federal income tax
purposes, will be the same as that of the underlying Mortgage Assets. While
Code Section 1286 treats a stripped obligation as a separate obligation for
purposes of the Code provisions addressing OID, it is not clear whether such
characterization would apply with regard to these other Code sections. Although
the issue is not free from doubt, based on policy considerations, each class of
Grantor Trust Certificates, unless otherwise specified in the related
Prospectus Supplement, should be considered to represent "qualifying real
property loans" within the meaning of Code Section 593(d), "real estate assets"
within the meaning of Code Section 856(c)(6)(B) and "loans . . . secured by, an
interest in real property which is . . . residential real property" within the
meaning of Code Section 7701(a)(19)(C)(v), and interest income attributable to
Grantor Trust Certificates should be considered to represent "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), provided that in each case the underlying Mortgage Assets
and interest on such Mortgage Assets qualify for such treatment. Prospective
purchasers to which such characterization of an investment in Certificates is
material should consult their own tax advisors regarding the characterization
of the Grantor Trust Certificates and the income therefrom. Grantor Trust
Certificates will be "obligation[s] . . . which [are] principally secured,
directly or indirectly, by an interest in real property" within the meaning of
Code Section 860G(a)(3).
Grantor Trust Certificates Representing Interests in Loans Other Than
ARM Loans
The original issue discount rules of Code Sections 1271 through 1275
will be applicable to a Certificateholder's interest in those Mortgage Assets
as to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate Mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984.
Under the OID Regulations, such original issue discount could arise by the
charging of points by the originator of the mortgage in an amount greater than
the statutory de minimis exception, including a payment of points that is
currently deductible by the borrower under applicable Code provisions, or under
certain circumstances, by the presence of "teaser" rates on the Mortgage
Assets. OID on each Grantor Trust Certificate must be included in the owner's
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash attributable to such income. The
amount of OID required to be included in an owner's income in any taxable year
with respect to a Grantor Trust Certificate representing an interest in
Mortgage Assets other than Mortgage Assets with interest rates that adjust
periodically ("ARM LOANS") likely will be computed as described below under
"--Accrual of Original Issue Discount." The following discussion is based in
part on the OID Regulations and in part on the provisions of the Tax Reform Act
of 1986 (the "1986 ACT"). The OID Regulations generally are effective for debt
instruments issued on or after April 4, 1994, but may be relied upon as
authority with respect to debt instruments, such as the Grantor Trust
Certificates, issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the Mortgage Assets should be used, or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to
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the mortgagee, which may be adjusted to take into account certain loan
origination fees. The stated redemption price at maturity of a Mortgage Asset
is the sum of all payments to be made on such Mortgage Asset other than
payments that are treated as qualified stated interest payments. The accrual of
this OID, as described below under "--Accrual of Original Issue Discount,"
will, unless otherwise specified in the related Prospectus Supplement, utilize
the original yield to maturity of the Grantor Trust Certificate calculated
based on a reasonable assumed prepayment rate for the mortgage loans underlying
the Grantor Trust Certificates (the "PREPAYMENT ASSUMPTION"), and will take
into account events that occur during the calculation period. The Prepayment
Assumption will be determined in the manner prescribed by regulations that have
not yet been issued. The legislative history of the 1986 Act (the "LEGISLATIVE
HISTORY") provides, however, that the regulations will require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the offering price of such Certificate. No representation is made that any
Certificate will prepay at the Prepayment Assumption or at any other rate. The
prepayment assumption contained in the Code literally only applies to debt
instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments,
such as the Certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the Master
Servicer intends to calculate and report OID under the method described below.
Accrual of Original Issue Discount
Generally, the owner of a Grantor Trust Certificate must include in
gross income the sum of the "daily portions," as defined below, of the OID on
such Grantor Trust Certificate for each day on which it owns such Certificate,
including the date of purchase but excluding the date of disposition. In the
case of an original owner, the daily portions of OID with respect to each
component generally will be determined as set forth under the OID Regulations.
A calculation will be made by the Master Servicer or such other entity
specified in the related Prospectus Supplement of the portion of OID that
accrues during each successive monthly accrual period (or shorter period from
the date of original issue) that ends on the day in the calendar year
corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
state redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of
a Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other
than a payment of qualified stated interest made at the end of or during that
accrual period. The OID accruing during such accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of OID must be
determined according to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of
an obligation is reduced when the obligation is acquired after its initial
issuance at a price greater than the sum of the original issue price and the
previously accrued original issue discount, less prior payments of principal.
Accordingly, if such Mortgage Assets acquired by a Certificateholder are
purchased at a price equal to the then unpaid principal amount of such Mortgage
Asset, no original issue discount attributable to the difference between the
issue price and the original principal amount of such Mortgage Asset (i.e.,
points) will be includible by such holder. Other original issue discount on the
Mortgage Assets (e.g., that arising from a "teaser" rate) would still need to
be accrued.
Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("STRIPPED ARM OBLIGATIONS") to holders in a manner it believes is
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consistent with the rules described above under "--Grantor Trust Funds --
Multiple Classes of Grantor Trust Certificates -- Grantor Trust Certificates
Representing Interests in Loans Other Than ARM Loans" and with the OID
Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("DEFERRED INTEREST") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the seller.
Such gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a "capital asset" within the meaning of Code Section 1221,
and will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for
interest by an applicable tax treaty. Accrued OID recognized by the owner on
the sale or exchange of such a Grantor Trust Certificate also will be subject
to federal income tax at the same rate. Generally, such payments would not be
subject to withholding to the extent that a Grantor Trust Certificate evidences
ownership in Mortgage Assets issued after July 18, 1984, by natural persons if
such Grantor Trust Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor
Trust Certificateholder is not a U.S. Person and providing the name and address
of such Grantor Trust Certificateholder). Additional restrictions apply to
Mortgage Assets where the Mortgagor is not a natural person in order to qualify
for the exemption from withholding.
As used herein, a "U.S. PERSON" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States or any political subdivision thereof or an estate or trust,
the income of which from sources outside the United States is includible in
gross income for federal income tax purposes regardless of its connection with
the conduct of a trade or business within the United States.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer or Trustee will furnish or make available, within a
reasonable time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary
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of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however "--REMICs -- Taxation of Owners of REMIC Residual
Certificates" and "--Prohibited Transactions and Other Taxes" below), if a
Trust Fund with respect to which a REMIC election is made fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year, including the implementation of restrictions on the purchase and
transfer of the residual interests in a REMIC as described below under
"--REMICs -- Taxation of Owners of REMIC Residual Certificates," the Code
provides that a Trust Fund will not be treated as a REMIC for such year and
thereafter. In that event, such entity may be taxable as a separate
corporation, and the related Certificates (the "REMIC CERTIFICATES") may not be
accorded the status or given the tax treatment described below. While the Code
authorizes the Treasury Department to issue regulations providing relief in the
event of an inadvertent termination of the status of a trust fund as a REMIC,
no such regulations have been issued. Any such relief, moreover, may be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC's income for the period in which the requirements for such
status are not satisfied. With respect to each Trust Fund that elects REMIC
status, Andrews & Kurth L.L.P. will deliver its opinion generally to the effect
that, under then existing law and assuming compliance with all provisions of
the related Pooling and Servicing Agreement, such Trust Fund will qualify as a
REMIC, and the related Certificates will be considered to be regular interests
("REMIC REGULAR CERTIFICATES") or a single class of residual interests ("REMIC
RESIDUAL CERTIFICATES") in the REMIC. The related Prospectus Supplement for
each Series of Certificates will indicate whether the Trust Fund will make a
REMIC election and whether a class of Certificates will be treated as a regular
or residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally
secured by an interest in real property and that is transferred to the REMIC
within a prescribed time period in exchange for regular or residual interests
in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed as
a "mutual savings bank" or "domestic building and loan association" will
represent interests in "qualifying real property loans" within the meaning of
Code Section 593(d)(1); (ii) Certificates held by a thrift institution taxed as
a "domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (iii) Certificates held by a real estate
investment trust will constitute "real estate assets" within the meaning of
Code Section 856(c)(6)(B); and (iv) interest on Certificates held by a real
estate investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Assets held pending distribution on the REMIC Certificates will be
considered to be qualifying real property loans for purposes of Code Section
593(d)(1) and real estate assets for purposes of Code Section 856(c).
Tiered REMIC Structures. For certain Series of Certificates, two
separate elections may be made to treat designated portions of the related
Trust Fund as REMICs (respectively, the "SUBSIDIARY REMIC" and the "MASTER
REMIC") for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Andrews & Kurth L.L.P., counsel to the Depositor, will deliver
its opinion generally to the effect that, assuming compliance with all
provisions of the related Agreement, the Master REMIC as well as any Subsidiary
REMIC will each qualify as a REMIC, and the REMIC Certificates issued by the
Master REMIC and the Subsidiary REMIC, respectively, will be considered to
evidence ownership of REMIC Regular Certificates or REMIC Residual Certificates
in the related REMIC within the meaning of the REMIC provisions.
Only REMIC Certificates, other than the residual interest in the
Subsidiary REMIC, issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC and the Master REMIC will be treated as one REMIC solely
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for purposes of determining whether the REMIC Certificates will be (i)
"qualifying real property loans" under Section 593(d) of the Code; (ii) "real
estate assets" within the meaning of Section 856(c)(6)(B) of the Code; (iii)
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code; and (iv) whether the income on such Certificates is interest
described in Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may
be issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular
Certificate and its "issue price." Holders of any class of Certificates issued
with OID will be required to include such OID in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest
method based on the compounding of interest as it accrues rather than in
accordance with receipt of the interest payments. The following discussion is
based in part on the OID Regulations and in part on the provisions of the 1986
Act. Holders of REMIC Regular Certificates (the "REMIC REGULAR
CERTIFICATEHOLDERS") should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as
the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative
History provides, however, that Congress intended the regulations to require
that the Prepayment Assumption be the prepayment assumption that is used in
determining the initial offering price of such REMIC Regular Certificates. The
Prospectus Supplement for each Series of REMIC Regular Certificates will
specify the Prepayment Assumption to be used for the purpose of determining the
amount and rate of accrual of OID. No representation is made that the REMIC
Regular Certificates will prepay at the Prepayment Assumption or at any other
rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price
of a REMIC Regular Certificate is the first price at which a substantial amount
of REMIC Regular Certificates of that class are first sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of REMIC Regular Certificates is sold
for cash on or prior to the date of their initial issuance (the "CLOSING
DATE"), the issue price for such class will be treated as the fair market value
of such class on the Closing Date. The issue price of a REMIC Regular
Certificate also includes the amount paid by an initial Certificateholder for
accrued interest that relates to a period prior to the issue date of the REMIC
Regular Certificate. The stated redemption price at maturity of a REMIC Regular
Certificate includes the original principal amount of the REMIC Regular
Certificate, but generally will not include distributions of interest if such
distributions constitute "qualified stated interest." Qualified stated interest
generally means interest payable at a single fixed rate or qualified variable
rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the REMIC Regular Certificate. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the interval
between payments. Distributions of interest on REMIC Regular Certificates with
respect to which Deferred Interest will accrue will not constitute qualified
stated interest payments, and the stated redemption price at maturity of such
REMIC Regular Certificates includes all distributions of interest as well as
principal thereon.
Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is longer than the interval between
subsequent Distribution Dates, the greater of any original issue discount
(disregarding the rate in the first period) and any interest foregone during
the first period is treated as the amount by which the stated
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redemption price at maturity of the Certificate exceeds its issue price for
purposes of the de minimis rule described below. The OID Regulations suggest
that all interest on a long first period REMIC Regular Certificate that is
issued with non-de minimis OID, as determined under the foregoing rule, will be
treated as OID. Where the interval between the issue date and the first
Distribution Date on a REMIC Regular Certificate is shorter than the interval
between subsequent Distribution Dates, interest due on the first Distribution
Date in excess of the amount that accrued during the first period would be
added to the Certificates stated redemption price at maturity. REMIC Regular
Certificateholders should consult their own tax advisors to determine the issue
price and stated redemption price at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and
the denominator of which is the stated redemption price at maturity of the
REMIC Regular Certificate. Although currently unclear, it appears that the
schedule of such distributions should be determined in accordance with the
Prepayment Assumption. The Prepayment Assumption with respect to a Series of
REMIC Regular Certificates will be set forth in the related Prospectus
Supplement. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the REMIC
Regular Certificate is held as a capital asset. However, accrual method holders
may elect to accrue all de minimis OID as well as market discount under a
constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"SUPER-PREMIUM CERTIFICATES"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be
issued with OID. The calculation of income in this manner could result in
negative original issue discount (which delays future accruals of OID rather
than being immediately deductible) when prepayments on the Mortgage Assets
exceed those estimated under the Prepayment Assumption. The IRS might contend,
however, that certain contingent payment rules contained in regulations
proposed on April 8, 1986, with respect to original issue discount should apply
to such Certificates. Under those rules, a Super-Premium Certificate would not
be required to report income on the basis of a yield based on the Prepayment
Assumption, but rather would use a yield equal to the applicable Federal rate
(which is an average yield on Treasury obligations), until the initial price of
the respective Super-Premium Certificate is fully recovered. The IRS recently
proposed and then withdrew a revised set of proposed contingent payment
regulations which differed substantially from the contingent payment
regulations proposed in 1986. The proposed regulations regarding contingent
interest have not been adopted in final form and may not currently be relied
upon. If the Super Premium Certificates were treated as contingent payment
obligations, it is unclear how holders of those Certificates would report
income or recover their basis. In the alternative, the IRS could assert that
the stated redemption price at maturity of such REMIC Regular Certificates
should be limited to their principal amount (subject to the discussion below
under "--REMICs -- Taxation of Owners of REMIC Regular Certificates -- Accrued
Interest Certificates"), so that such REMIC Regular Certificates would be
considered for federal income tax purposes to be issued at a premium. If such a
position were to prevail, the rules described below under "--REMICs -- Taxation
of Owners of REMIC Regular Certificates -- Premium" would apply. It is unclear
when a loss may be claimed for any unrecovered basis for a Super-Premium
Certificate. It is possible that a holder of a Super-Premium Certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments or when the final payment is received
with respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Premium" should apply. However, it is possible that holders of
REMIC Regular Certificates
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issued at a premium, even if the premium is less than 25% of such Certificate's
actual principal balance, will be required to amortize the premium under an
original issue discount method or contingent interest method even though no
election under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on a
REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the disposition
date. In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on the
first day or first business day of the immediately preceding month, interest
may be treated as payable on the last day of the immediately preceding month)
and begins on the day after the end of the immediately preceding accrual period
(or on the issue date in the case of the first accrual period). This will be
done, in the case of each full accrual period, by (i) adding (a) the present
value at the end of the accrual period (determined by using as a discount
factor the original yield to maturity of the REMIC Regular Certificates as
calculated under the Prepayment Assumption) of all remaining payments to be
received on the REMIC Regular Certificates under the Prepayment Assumption and
(b) any payments included in the stated redemption price at maturity received
during such accrual period, and (ii) subtracting from that total the adjusted
issue price of the REMIC Regular Certificates at the beginning of such accrual
period. The adjusted issue price of a REMIC Regular Certificate at the
beginning of the first accrual period is its issue price; the adjusted issue
price of a REMIC Regular Certificate at the beginning of a subsequent accrual
period is the adjusted issue price at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual
period and reduced by the amount of any payment other than a payment of
qualified stated interest made at the end of or during that accrual period. The
OID accrued during an accrual period will then be divided by the number of days
in the period to determine the daily portion of OID for each day in the accrual
period. The calculation of OID under the method described above will cause the
accrual of OID to either increase or decrease (but never below zero) in a given
accrual period to reflect the fact that prepayments are occurring faster or
slower than under the Prepayment Assumption. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of OID may be
determined according to an appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue
price but less than the stated redemption price at maturity), however, the
daily portion is reduced by the amount that would be the daily portion for such
day (computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for
that REMIC Regular Certificate for all days beginning on the date after the
purchase date and ending on the maturity date computed under the Prepayment
Assumption. A holder who pays an acquisition premium instead may elect to
accrue OID by treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable
rate will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates" that do not operate in a manner that
significantly accelerates or defers interest payments on such REMIC Regular
Certificate.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--REMICs -- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount and Premium" by assuming generally that the index used for the
variable rate will remain fixed throughout the term of the Certificate.
Appropriate adjustments are made for the actual variable rate.
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Although unclear at present, the Depositor intends to treat interest on
a REMIC Regular Certificate that is a weighted average of the net interest
rates on Mortgage Loans as qualified stated interest.
In such case, the weighted average rate used to compute the initial
pass-through rate on the REMIC Regular Certificates will be deemed to be the
index in effect through the life of the REMIC Regular Certificates. It is
possible, however, that the IRS may treat some or all of the interest on REMIC
Regular Certificates with a weighted average rate as taxable under the rules
relating to obligations providing for contingent payments. Such treatment may
effect the timing of income accruals on such REMIC Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--REMICs -- Taxation of Owners of REMIC Regular Certificates -- Premium"
below. The election to accrue interest, discount and premium on a constant
yield method with respect to a Certificate is irrevocable.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such
certificate's stated redemption price at maturity. In particular, under Section
1276 of the Code such a holder generally will be required to allocate each such
distribution first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If
made, such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to which
such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and
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(ii) a fraction, the numerator of which is the OID accruing during the period
and the denominator of which is the total remaining OID at the beginning of the
period. For REMIC Regular Certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of (a) the total
remaining market discount and (b) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the period. For purposes of calculating market discount under any
of the above methods in the case of instruments (such as the REMIC Regular
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same Prepayment
Assumption applicable to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of the excess of the interest paid or
incurred for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry such Certificate purchased with market discount
over the interest distributable thereon. For these purposes, the de minimis
rule referred to above applies. Any such deferred excess interest expense would
not exceed the market discount that accrues during such taxable year and is, in
general, allowed as a deduction not later than the year in which such market
discount is includible in income. The amount of any remaining deferred
deduction is to be taken into account in the taxable year in which the
Certificate matures or is disposed of in a taxable transaction. In the case of
a disposition in which gain or loss is not recognized in whole or in part, any
remaining deferred deduction will be allowed to the extent of gain recognized
on the disposition. If such holder elects to include market discount in income
currently as it accrues on all market discount instruments acquired by such
holder in that taxable year or thereafter, the interest deferral rule described
above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will
be considered to have purchased the REMIC Regular Certificate at a premium and
may elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose.
However, the Legislative History states that the same rules that apply to
accrual of market discount (which rules require use of a Prepayment Assumption
in accruing market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have OID) will also apply in amortizing
bond premium under Code Section 171. The Code provides that amortizable bond
premium will be allocated among the interest payments on such REMIC Regular
Certificates and will be applied as an offset against such interest payment.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all
or a portion of the interest payable on such Certificates must be included in
the stated redemption price at maturity of the Certificates and accounted for
as OID (which could accelerate such inclusion). Interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method by the
holders of such Certificates and, therefore, applying the latter analysis may
result only in a slight difference in the timing of the inclusion in income of
interest on such REMIC Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates
may contain one or more classes of Subordinated Certificates, and in the event
there are defaults or delinquencies on the Mortgage Assets, amounts that would
otherwise be distributed on the Subordinated Certificates may instead be
distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such
Certificates under an accrual method without giving effect to delays and
reductions in distributions on such Subordinated Certificates attributable to
defaults and delinquencies on the Mortgage Assets, except to the extent that it
can be established that such amounts are uncollectible. As a result, the amount
of income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of
defaults and delinquencies on the Mortgage Assets.
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Timing and characterization of such losses is discussed in "--REMICs --
Taxation of Owners of REMIC Regular Certificates -- Treatment of Realized
Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption,
or retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption
price at maturity previously received by the seller and by any amortized
premium. Similarly, a holder who receives a payment that is part of the stated
redemption price at maturity of a REMIC Regular Certificate will recognize gain
equal to the excess, if any, of the amount of the payment over the holder's
adjusted basis in the REMIC Regular Certificate. A REMIC Regular
Certificateholder who receives a final payment that is less than the holder's
adjusted basis in the REMIC Regular Certificate will generally recognize a
loss. Except as provided in the following paragraph and as provided under
"--REMICs -- Taxation of Owners of REMIC Regular Certificates -- Market
Discount" above, any such gain or loss will be capital gain or loss, provided
that the REMIC Regular Certificate is held as a "capital asset" (generally,
property held for investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent that such gain does not exceed the excess, if any, of (i) the amount
that would have been includible in such holder's income with respect to the
REMIC Regular Certificate had income accrued thereon at a rate equal to 110% of
the AFR as defined in Code Section 1274(d) determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount actually
includible in such holder's income.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
Section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC may
not have, it appears that the information reports will only require information
pertaining to the appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the REMIC Regular Certificates
("PAYMENT LAG CERTIFICATES") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that
ends prior to each such Distribution Date. The period between the Closing Date
for Payment Lag Certificates and their first Distribution Date may or may not
exceed such interval. Purchasers of Payment Lag Certificates for which the
period between the Closing Date and the first Distribution Date does not exceed
such interval could pay upon purchase of the REMIC Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the Distribution Date were interest accrued from Distribution Date to
Distribution Date. If a portion of the initial purchase price of a REMIC
Regular Certificate is allocable to interest that has accrued prior to the
issue date ("pre-issuance accrued interest") and the REMIC Regular Certificate
provides for a payment of stated interest on the first payment date (and the
first payment date is within one year of the issue date) that equals or exceeds
the amount of the pre-issuance accrued interest, then the REMIC Regular
Certificates' issue price may be computed by subtracting from the issue price
the amount of pre-issuance accrued interest, rather than as an amount payable
on the REMIC Regular Certificate. However, it is unclear under this method how
the OID Regulations treat interest on Payment Lag Certificates. Therefore, in
the case of a Payment Lag Certificate, the Trust Fund intends to include
accrued interest in the issue price and report interest payments made on the
first Distribution Date as interest to the extent such payments represent
interest for the number of days that the Certificateholder has held such
Payment Lag Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
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Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will
be allocated as a separate item to those REMIC Regular Certificateholders that
are "pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of
these rules on an investment in the REMIC Regular Certificates. See "--REMICs
- -- Taxation of Owners of REMIC Residual Certificates -- Pass-Through of Non-
Interest Expenses of the REMIC" below.
Treatment of Realized Losses. Although not entirely clear, it appears
that holders of REMIC Regular Certificates that are corporations should in
general be allowed to deduct as an ordinary loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly or partially
worthless, and that, in general, holders of Certificates that are not
corporations should be allowed to deduct as a short-term capital loss any loss
sustained during the taxable year on account of any such Certificates becoming
wholly worthless. Although the matter is not entirely clear, non-corporate
holders of Certificates may be allowed a bad debt deduction at such time that
the principal balance of any such Certificate is reduced to reflect realized
losses resulting from any liquidated Mortgage Assets. The Internal Revenue
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect realized losses only after all Mortgage
Assets remaining in the related Trust Fund have been liquidated or the
Certificates of the related Series have been otherwise retired. Potential
investors and holders of the Certificates are urged to consult their own tax
advisors regarding the appropriate timing, amount and character of any loss
sustained with respect to such Certificates, including any loss resulting from
the failure to recover previously accrued interest or discount income. Special
loss rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a
trade or business within the United States will not be subject to federal
withholding tax if (i) such REMIC Regular Certificateholder does not actually
or constructively own 10 percent or more of the combined voting power of all
classes of equity in the Issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the Issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding, distributions
of interest to such holder, including distributions in respect of accrued OID,
may be subject to a 30% withholding tax, subject to reduction under any
applicable tax treaty.
Further, a REMIC Regular Certificate will not be included in the estate
of a non-resident alien individual and will not be subject to United States
estate taxes. However, Certificateholders who are non-resident alien
individuals should consult their tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC RESIDUAL CERTIFICATEHOLDER")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income
tax returns, or to enable holders to make such information available to
beneficial owners or financial intermediaries that hold such REMIC Regular
Certificates on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments.
Any amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
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B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual
Certificates. The REMIC will not be subject to federal income tax except with
respect to income from prohibited transactions and certain other transactions.
See "--Prohibited Transactions and Other Taxes" below. Instead, each original
holder of a REMIC Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined
by allocating the taxable income of the REMIC for each calendar quarter ratably
to each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder.
Investors should consult their own tax advisors concerning the federal income
tax treatment of a REMIC Residual Certificate and the impact of such tax
treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder
owns such REMIC Residual Certificate. Those daily amounts generally would equal
the amounts that would have been reported for the same days by an original
REMIC Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that
purchased such REMIC Residual Certificate at a price greater than (or less
than) the adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder. See "--REMICs --
Taxation of Owners of REMIC Residual Certificates -- Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether such
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Non-Interest Expenses of the REMIC," other expenses. REMIC
taxable income is generally determined in the same manner as the taxable income
of an individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for
the production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, reduced by amortization of any premium on the
Mortgage Loans, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized losses
to the REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificate- holders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and original issue discount expense on the REMIC Regular Certificates,
servicing fees on the Mortgage Loans, other administrative expenses of the
REMIC and realized losses on the Mortgage Loans. The requirement that REMIC
Residual Certificateholders report their pro rata share of taxable
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income or net loss of the REMIC will continue until there are no Certificates
of any class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent
that the REMIC's basis therein is less than or greater than its principal
balance, respectively. Any such discount (whether market discount or OID) will
be includible in the income of the REMIC as it accrues, in advance of receipt
of the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
expects to elect under Code Section 171 to amortize any premium on the Mortgage
Assets. Premium on any Mortgage Asset to which such election applies would be
amortized under a constant yield method. It is not clear whether the yield of a
Mortgage Asset would be calculated for this purpose based on scheduled payments
or taking account of the Prepayment Assumption. Additionally, such an election
would not apply to the yield with respect to any underlying mortgage loan
originated on or before September 27, 1985. Instead, premium with respect to
such a mortgage loan would be allocated among the principal payments thereon
and would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be
calculated for this purpose in the same manner as described above with respect
to REMIC Regular Certificates except that the 0.25% per annum de minimis rule
and adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and,
as described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--REMICs -- Taxation of Owners of
REMIC Residual Certificates -- Sale or Exchange of REMIC Residual Certificates"
below. For a discussion of possible adjustments to income of a subsequent
holder of a REMIC Residual Certificate to reflect any difference between the
actual cost of such REMIC Residual Certificate to such holder and the adjusted
basis such REMIC Residual Certificate would have in the hands of an original
REMIC Residual Certificateholder, see "--REMICs -- Taxation of Owners of REMIC
Residual Certificates -- Allocation of the Income of the REMIC to the REMIC
Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual
Certificate will not be deductible by the holder to the extent that such net
loss exceeds such holder's adjusted basis in such REMIC Residual Certificate.
Any net loss that is not currently deductible by reason of this limitation may
only be used by such REMIC Residual Certificateholder to offset its share of
the REMIC's taxable income in future periods (but not otherwise). The ability
of REMIC Residual Certificateholders that are individuals or closely held
corporations to deduct net losses may be subject to additional limitations
under the Code.
Mark to Market Rules. A REMIC Residual Certificate acquired after
January 3, 1995 can not be marked-to-market.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders
of the REMIC Residual Certificates. In the case of a single class REMIC,
however, the expenses and a matching amount of additional income will be
allocated, under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is one
that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and is structured with the
principal purpose of avoiding the single class REMIC
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rules. Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related REMIC
Residual Certificates in their entirety and not to holders of the related REMIC
Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in
a REMIC Regular Certificate or a REMIC Residual Certificate directly or through
a pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g., a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "APPLICABLE AMOUNT") will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
the Applicable Amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. REMIC Residual Certificateholders that are pass-through interest
holders should consult their own tax advisors about the impact of these rules
on an investment in the REMIC Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any calendar
quarter will, with an exception discussed below for certain thrift
institutions, be subject to federal income tax in all events. Thus, for
example, an excess inclusion (i) may not, except as described below, be offset
by any unrelated losses, deductions or loss carryovers of a REMIC Residual
Certificateholder; (ii) will be treated as "unrelated business taxable income"
within the meaning of Code Section 512 if the REMIC Residual Certificateholder
is a pension fund or any other organization that is subject to tax only on its
unrelated business taxable income (see "--Tax-Exempt Investors" below); and
(iii) is not eligible for any reduction in the rate of withholding tax in the
case of a REMIC Residual Certificateholder that is a foreign investor. See
"--Non-U.S. Persons" below. The exception for thrift institutions is available
only to the institution holding the REMIC Residual Certificate and not to any
affiliate of the institution, unless the affiliate is a subsidiary all the
stock of which, and substantially all the indebtedness of which, is held by the
institution, and which is organized and operated exclusively in connection with
the organization and operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar
quarter is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days
during the calendar quarter on which the REMIC Residual Certificateholder holds
such REMIC Residual Certificate. For this purpose, the daily accruals with
respect to a REMIC Residual Certificate are determined by allocating to each
day in the calendar quarter its ratable portion of the product of the "adjusted
issue price" (as defined below) of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120 percent of the "Federal long-term
rate" in effect at the time the REMIC Residual Certificate is issued. For this
purpose, the "adjusted issue price" of a REMIC Residual Certificate at the
beginning of any calendar quarter equals the issue price of the REMIC Residual
Certificate, increased by the amount of daily accruals for all prior quarters,
and decreased (but not below zero) by the aggregate amount of payments made on
the REMIC Residual Certificate before the beginning of such quarter. The
"federal long-term rate" is an average of current yields on Treasury securities
with a remaining term of greater than nine years, computed and published
monthly by the IRS.
As an exception to the general rule described above, the Treasury
Department has authority to issue regulations that would treat the entire
amount of income accruing on a REMIC Residual Certificate as excess inclusions
if the REMIC Residual Certificates in the aggregate are considered not to have
"significant value." Under the REMIC Regulations, REMIC Residual
Certificateholders that are thrift institutions described in Code Section 593
can offset excess inclusions with unrelated deductions, losses and loss
carryovers provided the REMIC Residual Certificates have "significant value."
For purposes of applying this rule, thrift institutions that are members of an
affiliated group filing
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a consolidated return, together with their subsidiaries formed to issue REMICs,
are treated as separate corporations. REMIC Residual Certificates have
"significant value" if: (i) the REMIC Residual Certificates have an aggregate
issue price that is at least equal to 2% of the aggregate issue price of all
REMIC Residual Certificates and REMIC Regular Certificates with respect to the
REMIC and (ii) the anticipated weighted average life of the REMIC Residual
Certificates is at least 20% of the anticipated weighted average life of the
REMIC based on the anticipated principal payments to be received with respect
thereto (using the Prepayment Assumption and any required or permitted clean up
calls or required liquidation provided for in the REMIC's organizational
documents), except that all anticipated distributions are to be used to
calculate the weighted average life of REMIC Regular Certificates that are not
entitled to any principal payments or are entitled to a disproportionately
small principal amount relative to interest payments thereon and all
anticipated distributions are to be used to calculate the weighted average life
of the REMIC Residual Certificates. The principal amount will be considered
disproportionately small if the issue price of the REMIC Residual Certificates
exceeds 125% of their initial principal amount. Finally, an ordering rule under
the REMIC Regulations provides that a thrift institution may only offset its
excess inclusion income with deductions after it has first applied its
deductions against income that is not excess inclusion income.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
Payments. Any distribution made on a REMIC Residual Certificate to a
REMIC Residual Certificateholder will be treated as a non-taxable return of
capital to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
exceeds such adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or
exchange and its adjusted basis in the REMIC Residual Certificate (except that
the recognition of loss may be limited under the "wash sale" rules described
below). A holder's adjusted basis in a REMIC Residual Certificate generally
equals the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC Residual
Certificates will be "evidences of indebtedness" within the meaning of Code
Section 582(c)(1), so that gain or loss recognized from sale of a REMIC
Residual Certificate by a bank or thrift institution to which such Section
applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool" (as
defined in Code Section 7701(i)) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject
to the "wash sale" rules of Code Section 1091. In that event, any loss realized
by the REMIC Residual Certificateholder on the sale will not be deductible,
but, instead, will increase such REMIC Residual Certificateholder's adjusted
basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "PROHIBITED TRANSACTIONS TAX"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with
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the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day
on which such Trust Fund issues all of its interests could result in the
imposition of a tax on the Trust Fund equal to 100% of the value of the
contributed property (the "CONTRIBUTIONS TAX"). No Trust Fund for any Series of
Certificates will accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Master Servicer's, Trustee's or
Seller's obligations, as the case may be, under the related Agreement for such
Series, such tax will be borne by such Master Servicer, Trustee or Seller, as
the case may be, out of its own funds or (ii) the Seller's obligation to
repurchase a Mortgage Loan, such tax will be borne by the Seller. In the event
that such Master Servicer, Trustee or Seller, as the case may be, fails to pay
or is not required to pay any such tax as provided above, such tax will be
payable out of the Trust Fund for such Series and will result in a reduction in
amounts available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting
an administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
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TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--REMICs -- Taxation
of Owners of REMIC Residual Certificates -- Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--REMICs -- Taxation of Owners of REMIC Regular Certificates --
Non-U.S. Persons" above) are treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Amounts distributed to
holders of REMIC Residual Certificates should qualify as "portfolio interest,"
subject to the conditions described in "--REMICs -- Taxation of Owners of REMIC
Regular Certificates" above, but only to the extent that the underlying
mortgage loans were originated after July 18, 1984. Furthermore, the rate of
withholding on any income on a REMIC Residual Certificate that is excess
inclusion income will not be subject to reduction under any applicable tax
treaties. See "--REMICs -- Taxation of Owners of REMIC Residual Certificates --
Excess Inclusions" above. If the portfolio interest exemption is unavailable,
such amount will be subject to United States withholding tax when paid or
otherwise distributed (or when the REMIC Residual Certificate is disposed of)
under rules similar to those for withholding upon disposition of debt
instruments that have OID. The Code, however, grants the Treasury Department
authority to issue regulations requiring that those amounts be taken into
account earlier than otherwise provided where necessary to prevent avoidance of
tax (for example, where the REMIC Residual Certificates do not have significant
value). See "--REMICs -- Taxation of Owners of REMIC Residual Certificates --
Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or
lower treaty rate) withholding will not apply. Instead, the amounts paid to
such non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax-Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to
a "disqualified organization." The amount of the tax equals the product of (A)
an amount (as determined under the REMIC Regulations) equal to the present
value of the total anticipated "excess inclusions" with respect to such
interest for periods after the transfer and (B) the highest marginal federal
income tax rate applicable to corporations. The tax is imposed on the
transferor unless the transfer is through an agent (including a broker or other
middleman) for a disqualified organization, in which event the tax is imposed
on the agent. The person otherwise liable for the tax shall be relieved of
liability for the tax if the transferee furnished to such person an affidavit
that the transferee is not a disqualified organization and, at the time of the
transfer, such person does not have actual knowledge that the affidavit is
false. A "disqualified organization" means (A) the United States, any State,
possession or political subdivision thereof, any foreign government, any
international organization or any agency or instrumentality of any of the
foregoing (provided that such term does not include an instrumentality if all
its activities are subject to tax and, except for FHLMC, a majority of its
board of directors is not selected by any such governmental agency), (B) any
organization (other than certain farmers' cooperatives) generally exempt from
federal income taxes unless such organization is subject to the tax on
"unrelated business taxable income" and (C) a rural electric or telephone
cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year
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allocable to the interest held by the disqualified organization and (B) the
highest marginal federal income tax rate applicable to corporations. The pass-
through entity otherwise liable for the tax, for any period during which the
disqualified organization is the record holder of an interest in such entity,
will be relieved of liability for the tax if such record holder furnishes to
such entity an affidavit that such record holder is not a disqualified
organization and, for such period, the pass-through entity does not have actual
knowledge that the affidavit is false. For this purpose, a "pass-through
entity" means (i) a regulated investment company, real estate investment trust
or common trust fund, (ii) a partnership, trust or estate and (iii) certain
cooperatives. Except as may be provided in Treasury regulations not yet issued,
any person holding an interest in a pass-through entity as a nominee for
another will, with respect to such interest, be treated as a pass-through
entity. Under proposed legislation, large partnerships (generally with 250 or
more partners) will be taxable on excess inclusion income as if all partners
were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate
as a nominee or agent for a disqualified organization and (ii) a covenant by
the proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a Noneconomic REMIC
Residual Certificate to a "U.S. Person," as defined above, unless no
significant purpose of the transfer is to enable the transferor to impede the
assessment or collection of tax. A Noneconomic REMIC Residual Certificate is
any REMIC Residual Certificate (including a REMIC Residual Certificate with a
positive value at issuance) unless, at the time of transfer, taking into
account the Prepayment Assumption and any required or permitted clean up calls
or required liquidation provided for in the REMIC's organizational documents,
(i) the present value of the expected future distributions on the REMIC
Residual Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. A significant
purpose to impede the assessment or collection of tax exists if the transferor,
at the time of the transfer, either knew or should have known that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor is presumed not to have such
knowledge if (i) the transferor conducted a reasonable investigation of the
transferee and (ii) the transferee acknowledges to the transferor that the
residual interest may generate tax liabilities in excess of the cash flow and
the transferee represents that it intends to pay such taxes associated with the
residual interest as they become due. If a transfer of a Noneconomic REMIC
Residual Certificate is disregarded, the transferor would continue to be
treated as the owner of the REMIC Residual Certificate and would continue to be
subject to tax on its allocable portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United States trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and
the foreign transferor will continue to be treated as the owner, if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions. The Agreement will provide that no record of beneficial
ownership interest in a REMIC Residual Certificate may be transferred, directly
or indirectly, to a non-U.S. Person unless such person provides the Trustee
with a duly completed I.R.S. Form 4224 and the Trustee consents to such
transfer in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in REMIC Residual Certificates are advised to
consult their
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own tax advisors with respect to transfers of the REMIC Residual Certificates
and, in addition, pass-through entities are advised to consult their own tax
advisors with respect to any tax which may be imposed on a pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans subject to
ERISA ("ERISA PLANS") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such ERISA Plans.
Section 4975 of the Code imposes essentially the same prohibited transaction
restrictions on tax qualified retirement plans described in Section 401(a) of
the Code and on individual retirement accounts described in Section 408 of the
Code ("Qualified Plans" and together with ERISA Plans, "Plans"). Certain
employee benefit plans, such as governmental plans and church plans (if no
election has been made under Section 410(d) of the Code), are not subject to
the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below,
subject to other applicable federal and state law. However, any such
governmental or church plan which is qualified under Section 401(a) of the Code
and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving an ERISA Plan and
its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to Section 502(i) of ERISA) on
parties in interest which engage in nonexempt prohibited transactions.
The United States Department of Labor ("LABOR") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships,
trusts and certain other entities in which a Plan makes an "equity investment"
will be deemed for purposes of ERISA to be assets of the Plan unless certain
exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets
would include an undivided interest in the Mortgage Loans and any other assets
held by the Trust. In such an event, the Depositor, the Servicers, the Trustee
and other persons, in providing services with respect to the assets of the
Trust, may be parties in interest, subject to the fiduciary responsibility
provisions of Title I of ERISA, including the prohibited transaction provisions
of Section 406 of ERISA (and of Section 4975 of the Code), with respect to
transactions involving such assets unless such transactions are subject to a
statutory or administrative exemption.
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The regulations contain a de minimis safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by Plans is not significant. For this purpose, equity participation
in the entity will be significant if immediately after any acquisition of any
equity interest in the entity, "benefit plan investors" in the aggregate, own
at least 25% of the value of any class of equity interest. "Benefit plan
investors" are defined as Plans as well as employee benefit plans not subject
to ERISA (e.g., governmental plans). The 25% limitation must be met with
respect to each class of certificates, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
Availability of Underwriter's Exemption for Certificates
Labor has granted to Goldman, Sachs & Co. Prohibited Transaction
Exemption 89-88 (the "EXEMPTION"), which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition,
sale and holding by Plans of certain certificates representing an undivided
interest in certain asset-backed pass-through trusts, with respect to which
Goldman, Sachs & Co. or any of its affiliates is the sole underwriter or the
manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, provided
that the general conditions and certain other conditions set forth in the
Exemption are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets
forth the following general conditions which must be satisfied before a
transaction involving the acquisition, sale and holding of the Certificates or
a transaction in connection with the servicing, operation and management of the
Trust Fund may be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms (including
the price for such Certificates) that are at least as favorable to the
investing Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust Fund;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest rating
categories from any of Duff & Phelps Inc., Fitch Investors Service, Inc.,
Moody's Investors Service, Inc. and Standard & Poor's Ratings Group;
(4) The Trustee is not an affiliate of the Underwriters, the Depositor, the
Servicers, any borrower whose obligations under one or more Mortgage Loans
constitute more than 5% of the aggregate unamortized principal balance of
the assets in the Trust, or any of their respective affiliates (the
"RESTRICTED GROUP");
(5) The sum of all payments made to and retained by the Underwriters in
connection with the distribution of the Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the sale of
the Mortgage Loans to the Trust represents not more than the fair market
value of such Mortgage Loans; the sum of all payments made to and retained
by the Servicers represent not more than reasonable compensation for the
Servicers' services under the Agreements and reimbursement of the
Servicer's reasonable expenses in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject
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to the fiduciary responsibility provisions of ERISA or an employee benefit plan
subject to the prohibited transaction provisions of the Code should make its
own determination as to the availability of the exemptive relief provided in
the Exemption, and also consider the availability of any other prohibited
transaction exemptions. The Prospectus Supplement with respect to a Series of
Certificates may contain additional information regarding the application of
the Exemption, PTCE 83-1, or any other exemption, with respect to the
Certificates offered thereby.
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Such classes will constitute "mortgage
related securities" for so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization (the "SMMEA CERTIFICATES"). As "mortgage related securities," the
SMMEA Certificates will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including, but not limited to, state chartered savings banks, commercial
banks, savings and loan associations and insurance companies, as well as
trustees and state government employee retirement systems) created pursuant to
or existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for such
entities. Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia,
Illinois, Kansas, Maryland, Michigan, Missouri, Nebraska, New Hampshire, New
York, North Carolina, Ohio, South Dakota, Utah, Virginia and West Virginia
enacted legislation, on or before the October 4, 1991 cutoff established by
SMMEA for such enactments, limiting to varying extents the ability of certain
entities (in particular, insurance companies) to invest in mortgage related
securities, in most cases by requiring the affected investors to rely solely
upon existing state law, and not SMMEA. Accordingly, the investors affected by
such legislation will be authorized to invest in SMMEA Certificates only to the
extent provided in such legislation. Accordingly, investors whose investment
authority is subject to legal restrictions should consult their own legal
advisors to determine whether and to what extent the Offered Certificates
constitute legal investments for them.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain classes of Offered Certificates. Any
financial institution which is subject to the jurisdiction of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation ("FDIC"), the Office of Thrift
Supervision ("OTS"), the National Credit Union Administration ("NCUA") or other
federal or state agencies with similar authority should review any applicable
rules, guidelines and regulations prior to purchasing any Offered Certificate.
The Federal Financial Institutions Examination Council, for example, has issued
a Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "POLICY STATEMENT"). The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement prohibits depository
institutions from investing in certain "high-risk mortgage securities"
(including securities such as certain classes of Offered Certificates), except
under limited circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "MODEL LAW") which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
- 92 -
<PAGE> 162
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
this Offered Certificate under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Notwithstanding SMMEA, there may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase any
Offered Certificates or to purchase Offered Certificates representing more than
a special percentage of the investors' assets.
Except as to the status of SMMEA Certificates identified in the
Prospectus Supplement for a Series as "mortgage related securities" under
SMMEA, the Depositor will make no representations as to the proper
characterization of the Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase any Offered Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of the
Certificates.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or
to purchase Offered Certificates representing more than a specified percentage
of the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates constitute
legal investments for such investors.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or mor of the methods
described below. The Prospectus Supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds to the Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination
of two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Depositor with institutional investors
through dealers; and
3. By direct placements by the Depositor with institutional
investors.
In addition, if specified in the related Prospectus Supplement, the
Offered Certificates of a series may be offered in whole or in part to the
seller of the related Mortgage Assets that would comprise the Trust Fund for
such Certificates.
If underwriters are used in a sale of any Offered Certificates (other
than in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of Offered Certificates of a particular series
will be set forth on the cover of the Prospectus Supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement.
- 93 -
<PAGE> 163
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions.
Underwriters and dealers participating in the distribution of the Offered
Certificates may be deemed to be underwriters in connection with such
Certificates, and any discounts or commissions received by them from the
Depositor and any profit on the resale of Offered Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
It is anticipated that the underwriting agreement pertaining to the sale
of the Offered Certificates of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Offered Certificates of such series.
The Depositor anticipates that the Certificates offered hereby will be
sold primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act in connection with reoffers and sales by them of Offered Certificates.
Holders of Offered Certificates should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Andrews & Kurth L.L.P., Dallas, Texas.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will he included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage pass-
through certificates do not represent any assessment of the likelihood of
principal prepayments by Mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
- 94 -
<PAGE> 164
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
"1986 Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
"Accounts" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
"Accrual Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . 10, 29
"Accrued Certificate Interest" . . . . . . . . . . . . . . . . . . . . . . . 30
"ADA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
"Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Applicable Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
"ARM Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 72
"Asset Seller" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Available Distribution Amount" . . . . . . . . . . . . . . . . . . . . . . . 30
"Balloon Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Bankruptcy Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
"Beneficial Owners" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Book-Entry Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Cash Flow Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 25
"Cash Flow Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Cede" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 35
"CERCLA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 62
"Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"Certificate Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 31
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 91
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"CMBS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 19
"CMBS Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"CMBS Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"CMBS Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"CMBS Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Commercial Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Commercial Properties" . . . . . . . . . . . . . . . . . . . . . . . . . 7, 20
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Contributions Tax" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
"Cooperative" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
"Cooperative Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
"Cooperatives" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Covered Trust" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 51
"CPR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
"Credit Support" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9, 25
"Crime Control Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Debt Service Coverage Ratio" . . . . . . . . . . . . . . . . . . . . . . . . 21
"Deferred Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"Definitive Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 29, 36
"Depositor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 20
"Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Disqualifying Condition" . . . . . . . . . . . . . . . . . . . . . . . . . . 64
"Distribution Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Distribution Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 35
"Environmental Hazard Condition" . . . . . . . . . . . . . . . . . . . . . . 64
"EPA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
- 95 -
<PAGE> 165
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Equity Participations" . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 90
"Excess Servicing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Exemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
"FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39, 92
"Grantor Trust Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 11
"Hazardous Materials" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
"Indirect Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Insurance Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
"IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
"Labor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
"Lease" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 8
"Lease Assignment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Legislative History" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Lessee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 8
"Liquidation Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
"Loan-to-Value Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Lock-out Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Lock-out Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Master REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Model Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Mortgage Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 19
"Mortgage Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . 8, 23
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 19
"Mortgage Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Mortgaged Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Mortgages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Mortgagor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
"Multifamily Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Multifamily Properties" . . . . . . . . . . . . . . . . . . . . . . . . 7, 20
"NCUA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Net Operating Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Nonrecoverable Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Offered Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"OID" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68, 69
"OID Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
"Originator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"OTS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Parties in Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
"Pass-Through Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Payment Lag Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . 81
"Permitted Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
"Plans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
"Policy Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Prepayment Assumption" . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Prepayment Premium" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Primary Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Prohibited Transactions Tax" . . . . . . . . . . . . . . . . . . . . . . . . 86
</TABLE>
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<PAGE> 166
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"Rating Agency" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"RCRA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Refinance Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Related Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Relief Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 11
"REMIC Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
"REMIC Regular Certificateholders" . . . . . . . . . . . . . . . . . . . . . 76
"REMIC Regular Certificates" . . . . . . . . . . . . . . . . . . . . . . 11, 75
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"REMIC Residual Certificateholder" . . . . . . . . . . . . . . . . . . . . . 82
"REMIC Residual Certificates" . . . . . . . . . . . . . . . . . . . . . . 11, 75
"Restricted Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
"Retained Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"RICO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"Senior Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 29
"Series" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Servicing Standard" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
"Servicing Transfer Event" . . . . . . . . . . . . . . . . . . . . . . . . . 43
"SMMEA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Special Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Specially Serviced Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . 43
"Stripped ARM Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Stripped Bond Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 71
"Stripped Coupon Certificates" . . . . . . . . . . . . . . . . . . . . . . . 71
"Stripped Interest Certificates" . . . . . . . . . . . . . . . . . . . . 10, 29
"Stripped Principal Certificates" . . . . . . . . . . . . . . . . . . . . 10, 29
"Subordinate Certificates" . . . . . . . . . . . . . . . . . . . . . . . 10, 29
"Subsidiary REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
"Super-Premium Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 77
"Title V" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
"Trust Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"U.S. Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"UCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Underlying CMBS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Underlying Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Voting Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Warranting Party" . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 38
</TABLE>
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<PAGE> 167
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Prospectus Supplement............... S-1
Risk Factors................................... S-12
Description of the Mortgage Pool............... S-18
Description of the Certificates................ S-37
Certain Prepayment, Maturity and Yield
Considerations............................... S-44
Servicing...................................... S-48
Description of the Pooling and Servicing
Agreement.................................... S-51
Use of Proceeds................................ S-54
Certain Federal Income Tax Consequences........ S-54
State Tax Considerations....................... S-55
ERISA Considerations........................... S-55
Legal Investment............................... S-56
Method of Distribution......................... S-57
Legal Matters.................................. S-58
Rating......................................... S-58
Index of Principal Definitions................. S-59
Annex A: Certain Characteristics of the
Mortgage Loans............................... A-1
Annex B: Form of Monthly Report................ B-1
PROSPECTUS
Prospectus Supplement.......................... 2
Available Information.......................... 3
Incorporation of Certain Information by
Reference.................................... 4
Summary of Prospectus.......................... 7
Risk Factors................................... 13
Description of the Trust Funds................. 19
Use of Proceeds................................ 25
Yield Considerations........................... 25
The Depositor.................................. 29
Description of the Certificates................ 29
Description of the Agreements.................. 36
Description of Credit Support.................. 51
Certain Legal Aspects of Mortgage
Loans and the Leases......................... 53
Certain Federal Income Tax Consequences........ 67
State Tax Considerations....................... 90
ERISA Considerations........................... 90
Legal Investment............................... 92
Method of Distribution......................... 93
Legal Matters.................................. 94
Financial Information.......................... 94
Rating......................................... 94
Index of Principal Definitions................. 95
</TABLE>
================================================================================
================================================================================
$
(APPROXIMATE)
AMRESCO COMMERCIAL MORTGAGE FUNDING I
CORPORATION
CLASS A1, CLASS A1X, CLASS A2,
CLASS A2X, CLASS B, CLASS C,
CLASS BCX, CLASS D AND CLASS E
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199 -
---------------------
PROSPECTUS SUPPLEMENT
---------------------
GOLDMAN, SACHS & CO.
, 199
================================================================================
<PAGE> 168
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of
the securities, other than underwriting discounts and commissions*, are as
follows:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission . . . . . . . . $ **
Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . . . $ **
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . $ **
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . $ **
Trustee Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . $ **
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . $ **
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . . . . . . $ **
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ **
</TABLE>
- -----------
* To be provided for each Series of Securities on the cover page of the
related Prospectus Supplement.
** To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the proposed form of Underwriting Agreement to be filed as
Exhibit 1.1 hereto, the Underwriter will be obligated under certain
circumstances to indemnify officers and directors of AMRESCO Commercial
Mortgage Funding I Corporation (the "Company") who sign the Registration
Statement, and certain controlling persons of the Company, against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
and the Securities Exchange Act of 1934, as amended.
The Company's Certificate of Incorporation provides for
indemnification of directors and officers of the Company to the full extent
permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are
or were such directors, officers, employees or agents, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred in any such action, suit or proceeding. The Delaware General
Corporation Law also provides that the Registrant may purchase insurance on
behalf of any such director, officer, employee or agent.
The Pooling and Servicing Agreement will provide that no director,
officer, employee or agent of the Company will be liable to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking
of any action pursuant to the Pooling and Servicing Agreement, except for such
person's own misfeasance, bad faith or gross negligence in the performance of
duties. The Pooling and Servicing Agreement will provide further that, with
the exceptions stated above, any director, officer, employee or agent of the
Company will be indemnified and held harmless by the Trust Fund against any
loss, liability or expense incurred in connection with any legal action
relating to the Pooling and Servicing Agreement or the Certificates, other than
any loss, liability or expense (i) related to any specific Mortgage Loan or
Mortgage Loans (except as any such loss, liability or expense shall be
otherwise reimbursable pursuant to the Pooling and Servicing Agreement), (ii)
incurred in connection with any violation by him or her of any state or federal
securities law or (iii) imposed by any taxing authority if such loss, liability
or expense is not specifically reimbursable pursuant to the terms of the
Pooling and Servicing Agreement.
II-1
<PAGE> 169
ITEM 16. EXHIBITS
Exhibit
Number
-------
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Servicing Agreement*
5.1 Opinion of Andrews & Kurth L.L.P. regarding the legality of the
Certificates*
8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters*
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits 5.1
and 8.1 hereto)*
24.1 Power of Attorney (included on Page II-4)
- ----------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement: (i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933 (the "Securities Act"); (ii) to reflect
in the Prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration
Statement; (iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement; provided, however, that no such post-effective
amendment shall be required if the information which would be required
by clauses (i) and (ii) is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post- effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 170
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Dallas, State of Texas, on the 10th day of
January 1997.
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
By: /s/Michael N. Maberry
---------------------------------------------
Michael N. Maberry, President
Each person whose signature appears below does hereby make, constitute
and appoint Michael N. Maberry, Michael L. McCoy and Mark L. Morganfield and
each of them his true and lawful attorney with full power of substitution to
execute, deliver and file with the Securities and Exchange Commission, for and
on his behalf and in his capacity or capacities as stated below, any amendment
(including post-effective amendments) to the Registration Statement with all
exhibits thereto, making such changes in the Registration Statement as the
Registrant deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert H. Lutz, Jr. Director (Chairman of the Board of January 10, 1997
------------------------------------- Directors) and Chief Executive
Robert H. Lutz, Jr. Officer (Principal Executive
Officer)
/s/ Michael N. Maberry President January 10, 1997
-------------------------------------
Michael N. Maberry
/s/ Barry L. Edwards Director, Executive Vice President January 10, 1997
------------------------------------- and Chief Financial Officer
Barry L. Edwards (Principal Financial Officer)
/s/ Robert L. Adair III Director and Executive Vice January 10, 1997
------------------------------------- President
Robert L. Adair III
/s/ Ronald B. Kirkland Vice President and Chief January 10, 1997
------------------------------------- Accounting Officer
Ronald B. Kirkland (Principal Accounting Officer)
</TABLE>
II-4
<PAGE> 172
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Servicing Agreement*
5.1 Opinion of Andrews & Kurth L.L.P. regarding the legality of the Certificates*
8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters*
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits 5.1 and 8.1 hereto)*
24.1 Power of Attorney (included on Page II-4)
</TABLE>
- -------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
The undersigned person, acting as sole incorporator of the corporation
pursuant to the General Corporation Law of the State of Delaware, does hereby
make this Certificate of Incorporation for such corporation, declaring and
certifying that this is my act and deed and that the facts herein stated are
true:
ARTICLE ONE
The name of this Corporation is AMRESCO Commercial Mortgage Funding I
Corporation (the "Corporation").
ARTICLE TWO
The registered office of this Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE THREE
The purpose of this Corporation is limited to engaging in the
following activities: (a) To acquire, own, hold, sell, transfer, assign,
pledge, finance, refinance and otherwise deal with loans or credit agreements
secured by mortgages, deeds of trust, long-term leaseholds, or similar liens on
real property or shares issued by corporations or partnerships formed for the
purpose of cooperative ownership of real estate (collectively, "Mortgage
Loans") and, either directly or indirectly, to acquire, own, hold, sell,
transfer, assign, pledge, finance, refinance and otherwise deal with
certificates, participation interest, bonds, notes or other instruments
evidencing interest in or secured by Mortgage Loans or other similar
certificates, participation interest, bonds, notes or instruments
(collectively, "Mortgage Backed Instruments");
(b) To acquire, own, hold, service, sell, assign, pledge, finance,
refinance and otherwise deal with collateral securing Mortgage Loans, related
insurance policies, related agreements with affiliates, agreements with
originators or servicers of Mortgage Loans and any proceeds or further rights
associated therewith;
(c) To sell, assign, pledge or otherwise transfer Mortgage Loans,
Mortgage Backed Instruments and rights and properties referred to in paragraph
(b) above to trusts or to affiliates of the Corporation;
(d) To create trusts to acquire, own, hold, assign, pledge and
otherwise deal with Mortgage Loans, Mortgage Backed Instruments and related
collateral;
<PAGE> 2
(e) To authorize, offer, issue, sell, transfer and deliver or
participate in the issuance of one or more series, classes or subclasses of
participation certificates or other evidences of interest, bonds, notes or debt
("Certificates") issued by trusts;
(f) To authorize, issue, sell and deliver bonds or other evidences
of indebtedness ("Bonds") that are secured by a pledge or other assignment of
Mortgage Loans, Mortgage Backed Instruments and related collateral, reserve
funds, guaranteed investment contracts, letters of credit, insurance contracts
or surety bonds;
(g) To hold, and enjoy all of the rights and privileges as a
holder of, any Certificates or Bonds;
(h) To negotiate, authorize, execute, deliver, assume the
obligations under, and perform, any agreement or instrument or document
relating to the activities set forth in clauses (a) through (g) above,
including but not limited to any trust agreement, sale and servicing agreement,
pooling and servicing agreement, indenture, reimbursement agreement, credit
support agreement, insurance agreements, purchase agreement, indemnification
agreement, placement agreement or underwriting agreement; and
(i) To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware
that are related or incidental to the foregoing and necessary, suitable or
convenient to accomplish the foregoing.
ARTICLE FOUR
The total number of shares of stock which the Corporation shall have
authority to issue is 1,000 shares of Common Stock, each having a par value of
$0.01 per share.
ARTICLE FIVE
The business and affairs of the Corporation shall be managed by or
under the direction of the board of directors. In furtherance and not in
limitation of the power conferred upon the board of directors by law, the board
of directors shall have power to make, adopt, alter, amend and repeal from time
to time By-Laws of this Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to alter and repeal By-Laws made by the
board of directors. The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided by, the By-Laws of the
Corporation. The election of directors need not be by ballot unless the
By-Laws shall so require.
ARTICLE SIX
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation. The number of directors consisting of the
initial board of directors of the Corporation is three (3), and the names and
addresses of the persons who are to serve as initial directors until the first
annual meeting of the shareholders or until their successors are elected and
qualified are:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
Robert H. Lutz, Jr. 700 North Pearl Street
Suite 2400, L.B. No. 342
Dallas, Texas 75201
Robert L. Adair III 700 North Pearl Street
Suite 2400, L.B. No. 342
Dallas, Texas 75201
Barry L. Edwards 700 North Pearl Street
Suite 2400, L.B. No. 342
Dallas, Texas 75201
</TABLE>
ARTICLE SEVEN
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. No repeal or modification of this
Article Seven shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such repeal or modification.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
ARTICLE NINE
Meetings of the stockholders may be held within or without the State
of Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the Delaware General Corporation
Law) outside the State of Delaware at such place or places as may be designated
from time to time by the board of directors or in the By-Laws of the
Corporation.
- 3 -
<PAGE> 4
ARTICLE TEN
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate
of Incorporation in the manner now or hereafter prescribed herein and by the
laws of the State of Delaware, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE ELEVEN
The name and mailing address of the sole incorporator is as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Albert Li 4400 Thanksgiving Tower
Dallas, Texas 75201
</TABLE>
IN WITNESS WHEREOF, this Certificate of Incorporation has been
duly adopted by the sole incorporator of the Corporation, pursuant to the
General Corporation Law of the State of Delaware this 9th day of January 1997.
/s/ ALBERT LI
----------------------------------
Albert Li
Sole Incorporator
- 4 -
<PAGE> 1
EXHIBIT 3.2
BY - LAWS
OF
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
(A DELAWARE CORPORATION)
______________________
ARTICLE I
Stockholders
Section 1.1. The annual meeting of the stockholders of the Corporation
for the election of Directors and for the transaction of such other business as
may properly come before the meeting shall be held annually on such date and at
such time as may be fixed by the Board of Directors. Notice of time, place and
purpose or purposes of such meeting shall be given no fewer than 10 nor more
than 60 days before said meeting by mailing postage prepaid or delivering
personally such notice, signed by the Chairman of the Board, the President, a
Managing Director, a Vice President, the Secretary or an Assistant Secretary,
to each stockholder of record entitled to vote at such meeting at his address
as it appears on the stock ledger of the Corporation, unless he shall have
filed with the Secretary a written request that notices intended for him be
mailed to some other address, in which case they shall be mailed to the address
designated in such request.
Section 1.2. Meetings of the stockholders for the election of Directors
or for any other purpose shall be held at such time and place, either within or
without the State of Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 1.3. Special meetings of the stockholders may be called by the
Chairman of the Board or the President or by order of the Board of Directors.
Notice of any special meeting, stating
<PAGE> 2
the time, place and purpose or purposes thereof, shall be given by mail to the
stockholders in the manner provided in Section 1.1 for the calling of annual
meetings of stockholders.
Section 1.4. Notice of any annual or special meeting shall not be
required to be given to any stockholder who shall waive such notice in writing
or who shall attend such meeting in person or by proxy unless such attendance
is for the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened.
Section 1.5. At any meeting of stockholders, unless otherwise provided
by law, stockholders entitled to cast a majority of the votes thereat, present
either in person or by proxy, shall constitute a quorum and any question
brought before such meeting shall be decided by the stockholders owning a
majority of the capital stock represented at such meeting, voting either in
person or by proxy. If a quorum shall not be present at any meeting, a
majority of stockholders present may have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting until a
quorum is present.
Section 1.6. Any action required or permitted to be taken at any annual
or special meeting of the stockholders may be taken without a meeting, without
prior notice and without a vote, if consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Section 1.7. The Chairman of the Board, or in his absence the
President, or in his absence one of the other Directors, shall preside at all
meetings of stockholders, and the order in which the business thereof shall be
disposed of, in the absence of a contrary vote by stockholders, shall be
determined by the presiding officer.
<PAGE> 3
ARTICLE II
Board of Directors
Section 2.1. The business of the Corporation shall be managed and its
corporate powers exercised by a Board of Directors. The number of Directors
constituting the Board of Directors shall be as determined from time to time by
the Board of Directors by a vote of a majority of Directors then in office, and
until the first such determination shall be [FOUR].
Section 2.2. At each annual meeting of stockholders each of the
Directors shall be elected to serve until his successor is elected and
qualified or until his earlier resignation or removal.
Section 2.3. As promptly as practicable after each annual meeting of
stockholders for the election of Directors, the Board of Directors shall meet
for the purpose of organization, the election of officers and the transaction
of other business. If such meeting is not a regular meeting, notice thereof
must be given as hereinafter provided for special meetings of the Board of
Directors.
Section 2.4. The Board of Directors shall hold regular meetings at such
time and place, within or without the State of Delaware, as may be determined
from time to time by the Board of Directors, the Chairman or the President.
After there has been such determination, and notice thereof has been once given
to each member of the Board of Directors, regular meetings may be held without
further notice being given.
Section 2.5. Special meetings of the Board of Directors may be called
by the Chairman of the Board or the President, and either of them shall call a
special meeting whenever requested to do so by any two members of the Board of
Directors. Notice of such meeting shall be mailed to each Director addressed
to him at his usual residence or place of business at least two days before the
day on which such meeting is to be held, or shall be sent to him at such
address by mail, telegram,
-3-
<PAGE> 4
telecopy or telex or given personally or by telephone not later than the day
before such meeting is to be held.
Section 2.6. Notice of any annual or special meeting shall not be
required to be given to any director who shall waive such notice in writing or
who shall attend such meeting in person unless such attendance is for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 2.7. Except as otherwise required by law, one-third of the
number of Directors (but not fewer than two Directors), as fixed from time to
time, shall constitute a quorum.
Section 2.8. Directors, as such, shall be entitled to receive such
compensation, if any, and such fees, if any, for attendance as the Board of
Directors shall fix from time to time. Nothing herein contained shall be
construed to preclude any Director from serving in any other capacity and
receiving compensation therefor.
Section 2.9. Vacancies and newly created directorships resulting from
any increase in the authorized number of Directors may be filled by a majority
of the Directors then in office, though less than a quorum, or by a sole
remaining Director, unless otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
Section 2.10. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 2.11. Directors and members of any committee designated by the
Board of Directors may participate in a meeting of the Board of Directors or of
such committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons
-4-
<PAGE> 5
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section shall constitute presence in person at such
meeting.
Section 2.12. Any Director of the Corporation may resign at any time by
giving written notice to the Chairman of the Board, the President or the
Secretary of the Corporation. The resignation of any Director shall take
effect upon receipt of notice thereof or at such later time as shall be
specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
When one or more Directors shall resign from the Board, effective at a future
date, a majority of the Directors then in office, including those who have so
resigned shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective.
ARTICLE III
Committees
Section 3.1. The Board of Directors may from time to time designate one
or more committees, each committee to consist of one or more directors of the
Corporation, which, to the extent permitted by law, shall exercise all the
powers of the Board of Directors permitted by the laws of the State of Delaware
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committees shall determine their own quorums and adopt
their own rules of procedure and shall hold meetings upon request of any member
thereof.
Section 3.2. No such committee shall have the power or authority in
reference to the following matters: (i) approving or adopting, or recommending
to the stockholders, any action or matter expressly required by law, the
certificate of incorporation, or these By-Laws to be submitted to stockholders
for approval or (ii) adopting, amending or repealing any bylaw of the
Corporation.
-5-
<PAGE> 6
Section 3.3. Unless otherwise ordered by the Board of Directors, in the
absence or disqualification of any member of any such committee, whether or not
such member or members constitute a quorum, the member or members present at
any meeting and not disqualified from voting may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Section 3.4. The Board of Directors may fill any vacancy in any
committee.
ARTICLE IV
Officers and Employees
Section 4.1. The Board of Directors, at its first meeting and at its
first meeting after each annual meeting of stockholders, may elect a Chairman
of the Board, who shall be a director; one or more vice Chairmen of the Board,
who shall be directors; a President, who shall be a director; one or more
Managing Directors, who may be directors; a Secretary; a Treasurer; a
Controller; one or more Vice Presidents (any one or more of whom may be
designated Executive Vice Presidents or Senior Vice Presidents); one or more
Assistant Secretaries; one or more Assistant Treasurers; and such other
officers as they may deem fit. Each such officer shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
The Board of Directors may provide for the election or appointment of officers
who are not members of the Board of Directors in such manner as the Board of
Directors may determine or delegate. All officers elected or appointed
pursuant to this paragraph shall hold office at the pleasure of the Board of
Directors. The compensation of officers shall be fixed either by the Board of
Directors or as the Board of Directors may determine or delegate.
-6-
<PAGE> 7
Section 4.2. All other agents and employees of the Corporation shall be
appointed, their duties prescribed and other compensation fixed by the Board of
Directors, the Chairman of the Board, the President or any officer authorized
to do so by any of the foregoing.
Section 4.3. Any or all of the officers or employees of the Corporation
may be required to give such bonds as the Board of Directors may determine.
Section 4.4. The Chairman of the Board shall have general supervision
of the policies and operations of the Corporation on behalf of the Board of
Directors and shall be the chief executive officer of the Corporation. He
shall preside at the meetings of the stockholders and at meetings of the Board
of Directors. The Chairman shall have the power to conduct any and all
business on behalf of the Corporation, and in connection with the business of
the Corporation, to sign and deliver on behalf of the Corporation any contract,
agreement and any and all other documents and instruments.
Section 4.5. The President of the Corporation participate in the
supervision of the policies of the Corporation on behalf of the Board of
Directors and shall manage and administer the Corporation's operations. He
shall perform all duties incident to the office of President, and, except as
these By-Laws otherwise provide or the Board of Directors or the Chairman of
the Board shall otherwise direct, in the event of the absence or disability of
the Chairman of the Board shall act in his place and assume his duties. The
President shall have the power to conduct any and all business on behalf of the
Corporation, and in connection with the business of the Corporation, to sign
and deliver on behalf of the Corporation any contract, agreement and any and
all other documents and instruments. In the absence of the President, such
officer as the Board of Directors or the Chairman of the Board may designate
shall act in his stead.
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Section 4.6. Each Vice Chairman of the Board, if any, shall participate
in the supervision of the policies and operations of the Corporation on behalf
of the Board of Directors, and shall have such duties as shall be assigned to
him by the Board of Directors or the Chairman of the Board. Each Vice Chairman
shall have the power to conduct any and all business on behalf of the
Corporation, and in connection with the business of the Corporation, to sign
and deliver on behalf of the Corporation any contract, agreement and any and
all other documents and instruments.
Section 4.7. Each Managing Director, if any, shall have the duties and
authority usually pertaining to such office and such other duties as shall be
assigned to him by the Board of Directors, the Chairman of the Board or the
President. Unless otherwise ordered by the Board of Directors, each Managing
Director shall have the power to conduct any and all business on behalf of the
Corporation, and in connection with the business of the Corporation, to sign
and deliver on behalf of the Corporation any contract, agreement and any and
all other documents and instruments.
Section 4.8. Each Vice President, if any, shall have the duties and
authority usually pertaining to such office and such other duties as shall be
assigned to him by the Board of Directors, the Chairman of the Board or the
President. Unless otherwise ordered by the Board of Directors, each Vice
President shall have the power to conduct any and all business on behalf of the
Corporation, and in connection with the business of the Corporation, to sign
and deliver on behalf of the Corporation any contract, agreement and any and
all other documents and instruments.
Section 4.9. The Treasurer shall have the supervision and care of all
the funds and securities of the Corporation. He shall keep permanent records
of the evidences of property or indebtedness and all fiscal transactions of the
Corporation. He shall perform all acts incident to the office of the Treasurer
and shall have such further duties as the Board of Directors shall assign to
him. Unless otherwise ordered by the Board of Directors, the Treasurer shall
have the power to
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conduct any and all business on behalf of the Corporation, and in connection
with the business of the Corporation, to sign and deliver on behalf of the
Corporation any contract, agreement and any and all other documents and
instruments.
Section 4.10. The Controller shall exercise general supervision over,
and be responsible for, the operation of all matters pertaining to the
accounting and bookkeeping of the Corporation. He shall exercise general
supervision over, and be responsible for, the operation of all matters
pertaining to the auditing of the Corporation. He shall render to the Board of
Directors such regular statements and reports as may be requested of him and
such other reports as in his judgment are necessary in the performance of his
duties. He shall perform all acts incident to the office of Controller and
shall have such further duties as the Board of Directors shall assign to him.
Unless otherwise ordered by the Board of Directors, the Controller shall have
the Power to conduct any and all business on behalf of the Corporation, and in
connection with the business of the Corporation, to sign and deliver on behalf
of the Corporation any contract, agreement and any and all other documents and
instruments.
Section 4.11. The Secretary shall keep the minutes of all meetings of
the Board of Directors and of all meetings of the stockholders; he shall attend
to the giving and receiving of all notices of and to the Corporation; he may
sign, with other authorized officers, all contracts, instruments or other
documents in the name of the Corporation and may affix or cause to be affixed
thereto the seal of the Corporation, of which he shall be the custodian; he
shall be empowered to certify resolutions of the Directors or stockholders of
the Corporation; and he shall in general perform all the duties and exercise
all the powers normally incident to the office of Secretary and shall have such
further duties as the Board of Directors shall assign to him.
Section 4.12. Any Assistant Treasurer shall perform such duties as may
be designated by the Board of Directors, the Chairman of the Board or the
President. In the absence or inability of
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the Treasurer to act, or at the behest of the Treasurer, any Assistant
Treasurer may perform all the duties and exercise all the powers of the
Treasurer.
Section 4.13. Any Assistant Secretary shall perform such duties as may
be designated by the Board of Directors, the Chairman of the Board or the
President. Any Assistant Secretary may perform all the duties and may exercise
any of the Powers of the Secretary.
Section 4.14. All other Officers of the Corporation shall perform such
duties as may be designated by the Board of Directors, the Chairman of the
Board, the President or any officer authorized to do so by any of the
foregoing.
Section 4.15. All agreements, checks, orders and other instruments and
documents shall be signed by the officers authorized in these By-Laws to do so
or by such other officers or by such employees and agents other than officers
as the Board of Directors, the Chairman of the Board or the President shall
authorize, subject to such restrictions as shall be prescribed in connection
with such authorization. The Board of Directors may delegate to one or more
officers of the Corporation all or part of the authority to grant signing
powers contained in this Section 4.15.
ARTICLE V
Seal
Section 5.1. The Corporation shall have a seal which shall be in such
form as the Board of Directors shall approve.
ARTICLE VI
Capital Stock
Section 6.1. All certificates of stock shall be signed by the Chairman
of the Board, a Vice Chairman of the Board, the President or a Vice President
(who may be an Executive Vice President or a Senior Vice President), and the
Treasurer or an Assistant Treasurer or the Secretary or an
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Assistant Secretary. The signatures may be facsimile, engraved or printed, to
the extent permitted by law. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Section 6.2. No transfer of stock of the Corporation shall be permitted
except upon the surrender of the outstanding certificate of stock. No new
certificate shall be issued until the former certificate is canceled, except
that in the case of loss or destruction of a certificate, a new certificate may
be issued upon such terms as the Board of Directors may prescribe.
Section 6.3. The Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
ARTICLE VII
Voting of Stock of Other Corporations
Section 7.1. Shares of the capital stock of other corporations held by
the Corporation shall be voted in such manner as may be determined by the
Chairman of the Board or the President, unless otherwise ordered by the Board
of Directors.
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ARTICLE VIII
Amendments
Section 8.1. Except as may be otherwise provided by law, these By-Laws
may be altered or repealed at any meeting of the Board of Directors, whether or
not such alteration or repeal shall or may affect any By-Law which does or may
be deemed to limit the powers of the Directors. Stockholders may make
additional By-laws and may alter and repeal any By- Laws whether adopted by
them or otherwise.
ARTICLE IX
Indemnification
Section 9.1. The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law and pursuant to Section 145 of the
General Corporation Law of the State of Delaware, as it presently exists or may
hereafter be amended, any person who has or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he or she, or a person for whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorney's fees) reasonably incurred by such person. The Corporation shall be
required to indemnify a person in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
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