<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 21, 1997
REGISTRATION NO. 333-19591
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
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>
<C> <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 CORPORATION
L.B. NO. 342 700 NORTH PEARL STREET
DALLAS, TEXAS 75201 SUITE 2400, L.B. NO. 342
(214) 953-7700 DALLAS, TEXAS 75201
(Address, including zip code, and telephone (214) 953-7700
number, including area code, of registrant's (Name, address, including zip code, and telephone
principal executive offices) 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(2)
- ------------------------------------------------------------------------------------------------------------------
Mortgage Pass-Through
Certificates.................... $1,000,000 100% $1,000,000 $303.03
==================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) Previously paid to the Commission on January 10, 1997 in connection with the
filing of the Registration Statement.
---------------------
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 FEBRUARY 21, 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)
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.
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.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE S-12 HEREIN AND PAGE 14 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_____________________________________
("__________") and _______________________ ("____________"). It is a condition
of the issuance of the Class A1X and Class A2X Certificates that they be rated
"___" by ___________ and "____" by ___________________. It is a condition of
the issuance of the Class B Certificates that they be rated not lower than
"___" by ________________ and ________________ . It is a condition of the
issuance of the Class C Certificates that they be rated not lower than "___" by
________________ and "__" by ________________ . It is a condition of the
issuance of the Class BCX Certificates that they be rated not lower than "___"
by _____________. It is a condition of the issuance of the Class D Certificates
that they be rated not lower than "___" by ________________ and
________________ . It is a condition of the issuance of the Class E
Certificates that they be rated not lower than "____" by ________________ and
________________ . The ratings by ________________ 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)
- iii -
<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
"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.
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.
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.
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.
- iv -
<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
FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . .S-54
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . .S-55
</TABLE>
- v -
<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>
- vi -
<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.
S-1
<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
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<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.
Except in certain limited circumstances, 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
S-3
<PAGE> 10
the Remittance Rates in effect from time to
time on the Mortgage Loans minus the 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
S-4
<PAGE> 11
the Master Servicer for reductions in its
compensation due to Prepayment Interest
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.
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 "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 and any entity whose underlying
assets include assets of such a plan by
reason of any such plan's investment in the
entity 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 an individual exemption, Prohibited
Transaction Exemption 89-88(54 Fed. Reg.
42581 (1969)), 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 certain such
prohibited transactions by Sections 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 ________________
("_____________ ") and __________________
("________________ "). It is a condition of
the issuance of the Class A1X and Class A2X
Certificates that they be rated "______" by
________________ and "_______" by
________________ . It is a condition of the
issuance of the Class B Certificates that
they be rated not lower than "____" by
________________ and ________________. It is
a condition of the issuance of the Class C
Certificate that they be rated not lower than
"___" by ________________ and "____" by
________________. It is a condition of the
issuance of the Class BCX Certificates that
they be rated not lower than "____" by
________________. It is a condition of the
issuance of the Class D Certificates that
they be rated not lower than "_____" by
________________ and ________________. It is
a condition of the issuance of the Class E
Certificates that they be rated not lower
than "________" by ________________ and
________________. 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
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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.
Legal Investment . . . . . The Class ___, Class ___, Class ___, Class
___ and Class ___ Certificates will be
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as
they are rated in one of the two highest
rating categories by at least one nationally
recognized statistical rating organization.
The Class ___, Class ___ and Class ___
Certificates will not be "mortgage related
securities" within the meaning of SMMEA. 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.
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. Furthermore,
certain states have enacted legislation
overriding the legal investment provisions of
SMMEA. 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.
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<PAGE> 20
Risks Particular to 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.
Risks Particular to Retail and Office Properties. _______ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by retail, office and combination
retail/office properties. In addition to risks generally associated with real
estate, such Mortgage Loans are also affected significantly by adverse changes
in consumer spending patterns, local competitive conditions (such as the supply
of retail or office space or the existence or construction of new competitive
shopping centers, shopping malls or office buildings), alternative forms of
retailing (such as direct mail and video shopping networks which reduce the
need for retail space by retail companies), the quality and management
philosophy of management, the attractiveness of the properties to tenants and
their customers or clients, the public perception of the safety of customers at
shopping malls and shopping centers, and the need to make major repairs or
improvements to satisfy the needs of major tenants.
Retail properties may be adversely affected if a significant tenant
ceases operations at such locations (which may occur on account of a voluntary
decision not to renew a lease, bankruptcy or insolvency of such tenant, such
tenant's general cessation of business activities or for other reasons).
Significant tenants at a retail property play an important part in generating
customer traffic and making a retail property a desirable location for other
tenants at such property. In addition, certain tenants at retail properties may
be entitled to terminate their leases if an anchor tenant ceases operations at
such property. In such cases, there can be no assurance that any such anchor
tenants will continue to occupy space in the related shopping centers.
Risks Particular to Multifamily Rental Properties. _________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by multifamily rental properties.
Adverse economic conditions, either local or national, may limit the amount of
rent that can be charged for rental units, and may result in a reduction in
timely rent payments or a reduction in occupancy levels. Occupancy and rent
levels may also be affected by construction of additional housing units, local
military base closings and national and local politics, including, in the case
of multifamily rental properties, current or future rent stabilization and rent
control laws and agreements. In addition, the level of mortgage interest rates
may encourage tenants in multifamily rental properties to purchase
single-family housing. Further, the cost of operating a multifamily property
may increase, including the cost of utilities and the costs of required capital
expenditures. Furthermore, the rent limitations imposed on Section 42
Properties (as defined herein) may adversely affect the ability of the
applicable borrowers to increase rents to maintain such Mortgaged Properties in
proper condition during periods of rapid inflation or declining market value of
such Mortgaged Properties. In addition, the income restrictions on tenants
imposed by Section 42 of the Code may reduce the number of eligible tenants in
such Mortgaged Properties and result in a reduction in occupancy rates
applicable thereto. Furthermore, some eligible tenants may not find any
differences in rents between the Section 42 Properties and other multifamily
rental properties in the same area to be a sufficient economic incentive to
reside at a Section 42 Property, which may have fewer amenities or otherwise be
less attractive as a residence. All of these conditions and events may increase
the possibility that a borrower may be unable to meet its obligations under its
Mortgage Loan.
Risks Particular to Self-Storage Facilities. ____________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by self-storage properties.
Self-storage properties are considered vulnerable to competition because both
acquisition costs and break-even occupancy are relatively low. The conversion
of self-storage facilities to alternative uses would generally require
substantial capital expenditures. Thus, if the operation of any of the
self-storage Mortgaged Properties becomes unprofitable due to decreased demand,
competition, age of improvements or other factors such that the borrower
becomes unable to meet its obligation on the related Mortgage Loan, the
liquidation value of that self-storage Mortgaged Property may be substantially
less, relative to the amount owing on the Mortgage Loan, than would be the case
if the self-storage Mortgaged Property were readily adaptable to other uses.
Tenant privacy, anonymity and efficient access may heighten environmental
risks. The environmental assessments discussed herein did not include an
inspection of the contents of the self-storage units included in the
self-storage Mortgaged Properties and there is no assurance that all of the
units included in the self-storage Mortgaged Properties are free from hazardous
substances or other pollutants or contaminants or will remain so in the future;
however, substantially all of the lease agreements used in connection with such
Mortgaged Properties prohibit the storage of hazardous substances, pollutants
or contaminants.
Risks Particular to Mobile Home Parks. _______ Mortgage Loans,
representing ______% of the aggregate principal balance of the Mortgage Loans
as of the Cut-off Date, secured by mobile home parks pose risks not associated
with loans secured by liens on other types of income-producing real estate. The
successful operation of a Mortgaged Property operated as a mobile home park
will generally depend upon the number of competing mobile home parks and other
residential developments in the local market, as well as upon other factors
such as its age, appearance, reputation, management and the types of services
it provides.
Mobile home parks are "special purpose" properties that could not be
readily converted to general residential, retail or office use. Thus, if the
operation of any of the Mortgaged Properties constituting mobile home parks
becomes unprofitable due to competition, age of the improvements or other
factors such that the borrower becomes unable to meet its obligations on the
related Mortgage Loan, the liquidation value of that Mortgaged Property may be
substantially less, relative to the amount owing on the Mortgage Loan, than
would be the case if the Mortgaged Property were readily adaptable to other
uses.
Risks Particular to Nursing Home Properties. ____________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by nursing home properties. Nursing
home facilities typically receive a substantial portion of their revenues from
government reimbursement programs, primarily Medicaid and Medicare. Medicaid
and Medicare are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions, all of which can adversely
affect revenues from operation. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers and
there are currently under consideration various proposals for national health
care relief that could further limit these payments. In addition, providers of
long-term nursing care and other medical services are highly regulated by
federal, state and local law and are subject to, among other things, federal
and state licensing requirements, facility inspections, rate setting,
reimbursement policies, and laws relating to the adequacy of medical care,
distribution of pharmaceuticals, equipment, personnel operating policies and
maintenance of and additions to facilities and services, any or all of which
factors can increase the cost of operation, limit growth and in extreme cases,
require or result in suspension or cessation of operations.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a Mortgaged Property that
is operated as a nursing home facility, none of the Trustee, the Special
Servicer or a subsequent lessee or operator of the Mortgaged Property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective Mortgaged Properties prior to such foreclosure. Furthermore, in the
event of foreclosure, there can be no assurance that the Trustee (or Special
Servicer) or purchaser in a foreclosure sale would be entitled to the rights
under any required licenses and regulatory approvals and such party may have to
apply in its own right for such licenses and approvals. There can be no
assurance that a new license could be obtained or that a new approval would be
granted. In addition, nursing home facilities are generally "special purpose"
properties that could not be readily converted to general residential, retail
or office use, and transfers of nursing homes and other health care related
facilities are subject to regulatory approvals under state, and in some cases
federal, law not required for transfers of other types of commercial operations
and other types of real estate, all of which may adversely affect the
liquidation value.
Risks Particular to Industrial Properties. ____________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by industrial properties. Industrial
properties may be adversely affected by reduced demand for industrial space
occasioned by a decline in a particular industry segment, and an industrial
property that suited the particular needs of its original tenant may be
difficult to relet to another tenant or may become functionally obsolete
relative to newer 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,
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<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 _____ 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,
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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. ____ 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 originated by ACC were originated for
sale to ALP. All the Mortgage Loans originated by ACC 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
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__________________________. Each Servicer will 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
the Depositor 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 the Depositor and which have
been delivered to the Depositor. 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 the Depositor.
(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 as of the applicable closing date.
(viii) As of the applicable closing date 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 the Depositor; on the date of transfer and assignment
of such Mortgage Loan to the Depositor, such title insurance policy
is valid and in full force and effect, and, immediately following the
transfer and assignment of such Mortgage Loan to the Depositor, such
title insurance policy will inure to the benefit of the Depositor, 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 the
Depositor, and the related Reassignment of Assignment of Leases and
Rents, if any, constitutes a legal, valid and binding assignment
thereof to the Depositor.
(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 the Depositor hereunder except for
Mortgage Loans which are cross-collateralized with other Mortgage
Loans being conveyed to the Depositor 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, does not restrict the use of the mortgaged property,
lessee, its successors and assigns in a manner that would
adversely affect the security provided 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 without
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
S-23
<PAGE> 30
the right, following termination of the existing ground lease
or rejection thereof by a bankruptcy 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) To the extent ACC originated the Mortgage Loan,
such Mortgage Loan has been originated in compliance in all material
respects with its 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);
S-24
<PAGE> 31
(2) amend or otherwise change any
Facility's authorized bed capacity and/or the number
of beds approved by the DOH; or
(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.
S-25
<PAGE> 32
(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.
(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.
S-26
<PAGE> 33
"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 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
Number Number Aggregate Aggregate
of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
Mortgage Rate Loans Loans the Cut-off Date the Cut-off Date
- ------------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Mortgage Interest Rate: _______%
</TABLE>
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%
------- -------
Average Principal Balance as of the Cut-off Date: $_____________
</TABLE>
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%
------- -------
Weighted Average Original Term to Maturity in Months: ______
</TABLE>
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%
------- -------
Weighted Average Remaining Term to Maturity in Months: _______
</TABLE>
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%
------- -------
Weighted Average Original Term to Maturity in Months: _____
</TABLE>
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%
------- -------
Weighted Average Remaining Term to Maturity in Months: _____
</TABLE>
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%
------- -------
Weighted Average Remaining Amortization Term in Months: _____
</TABLE>
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
Cut-off 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%
------- -------
Weighted Average Cut-off Date LTV Ratio: _________.
</TABLE>
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%
------- -------
Weighted Average Maturity Date LTV Ratio: _________.
</TABLE>
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%
------- -------
Weighted Average Debt Service Coverage Ratio: _________.
</TABLE>
[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%
------- -------
Weighted Average Property Age in Years: _____
</TABLE>
(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%
------- -------
Weighted Average Occupancy Percentage: ________%
</TABLE>
(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%
------- -------
Weighted Average Occupancy Percentage: __________%
</TABLE>
(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%
------- -------
Weighted Average Occupancy Percentage: ______%
</TABLE>
(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%
------- -------
Weighted Average Occupancy Percentage: ___________%
</TABLE>
(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%
------- -------
Weighted Average Occupancy Percentage: ___________%
</TABLE>
(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>
JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE
CURRENT
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<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.
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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.
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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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<PAGE> 45
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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<PAGE> 46
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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<PAGE> 47
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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<PAGE> 48
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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<PAGE> 49
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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<PAGE> 51
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>
Distribution Class A Class A2 Class B
------- -------- -------
Date 0% % % % 0% % % % 0% % % %
---- -- --- --- --- -- --- --- --- -- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
WAL(1)
</TABLE>
<TABLE>
<CAPTION>
Distribution Class C Class D Class E
------- ------- -------
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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<PAGE> 54
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 an indirect 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 December 31, 1996, AMRESCO's portfolio
consisted of approximately 9,146 loans with an aggregate principal balance of
approximately $16 billion.
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<PAGE> 55
____________________. _________________________ ("_________"), a
__________ corporation, will serve as Primary Servicer for all the Mortgage
Loans originated by ________________________.
__________, an indirect 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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<PAGE> 56
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.
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 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 " 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 " 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 " 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)(A) 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 " 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 " Federal Income Tax Consequences" in the
Prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "
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 plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, and any entity whose underlying
assets include assets of such a plan by reason of any such plan's investment in
the entity that is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the Code (each, a "Plan") 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
certain 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 502(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 a Plan, must
be on terms (including the price) that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party. Second,
the rights
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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 ________________ and either "____" or "____" by ________________.
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 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 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
The Class ___, Class ___, Class ___, Class ___ and Class ___
Certificates will be "mortgage related securities" within the meaning of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") 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 Class ___, Class
___ and Class ___ Certificates will not be "mortgage related securities" within
the meaning of 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
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investment by such institutions in certain forms of mortgage-backed securities.
Furthermore, certain states have enacted legislation overriding the legal
investment provisions of SMMEA.
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 are 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 --
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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 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 Latham & Watkins, New York, New York.
RATING
It is a condition of issuance of the Class A1 and Class A2
Certificates be rated "____" by ________________ ("________________ ") and
________________ ("________________ "). It is a condition of the issuance of
the Class A1X and Class A2X Certificates that they be rated "______" by
________________ and "_____" by ________________. It is a condition of the
issuance of the Class B Certificates that they be rated not lower than "___" by
________________ and ________________. It is a condition of the issuance of
the Class C Certificates that they be rated not lower than "__" by
________________ and "___" by ________________. It is a condition to the
issuance of the Class BCX Certificates that they be rated not lower than "___"
by ________________. It is a condition of the issuance of the Class D
Certificates that they be rated not lower than "___" by ________________ and
________________. It is a condition to the issuance of the Class E Certificates
that they be rated not lower than "______" by ________________ and
________________.
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 ________________ or ________________
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.
S-58
<PAGE> 65
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" . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-1, S-56
"Class Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
"Collateral Value Adjustment" . . . . . . . . . . . . . . . . . . . . . . . S-42
"Component" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"CON" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
** 1 "Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Cut-off Date LTV Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"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
"Form 8-K" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
"Interest Accrual Amount" . . . . . . . . . . . . . . . . . . . . . . . . . S-40
"Interest Distribution Amount" . . . . . . . . . . . . . . . . . . . . S-4, S-40
"Interest Only Certificates" . . . . . . . . . . . . . . . . . . . . . . . . ii
</TABLE>
S-59
<PAGE> 66
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Licenses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"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
** 2 "Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
"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
"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" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"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- 27
"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- 27
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-9
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
</TABLE>
S-60
<PAGE> 67
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Remittance Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Remittance Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
"REO Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
"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
"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 FEBRUARY 21, 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, TO THE EXTENT 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 14 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 "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;
- 2 -
<PAGE> 72
(vii) the aggregate original percentage ownership interest in the Trust Fund to
be evidenced by each class of Certificates; (viii) information as to any Master
Servicer, any Primary Servicer, any Special Servicer (or provision for the
appointment thereof) and the Trustee, as applicable; (ix) information as to the
nature and extent of subordination with respect to any class of Certificates
that is subordinate in right of payment to any other class; and (x) whether
such Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"COMMISSION") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended (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 to the extent 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.
- 4 -
<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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Limited Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Limited Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Prepayments and Effect on Average
Life of Certificates and Yields . . . . . . . . . . . . . . . 15
Limited Nature of Ratings . . . . . . . . . . . . . . . . . . . . . . 15
Risks Associated with Mortgage Loans
and Mortgaged Properties . . . . . . . . . . . . . . . . . . 16
Risks Associated with Commercial
Loans and Leases . . . . . . . . . . . . . . . . . . . . . . . 16
Balloon Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Junior Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . 17
Obligor Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Mortgagor Type . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Credit Support Limitations . . . . . . . . . . . . . . . . . . . . . 18
Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Environmental Risks . . . . . . . . . . . . . . . . . . . . . . . . . 19
Delinquent and Non-Performing
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . 19
Risks Associated With Mortgaged
Properties Not Located in the
United States . . . . . . . . . . . . . . . . . . . . . . . . 19
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . 19
Certain Federal Tax Considerations
Regarding REMIC
Residual Certificates . . . . . . . . . . . . . . . . . . . . 20
Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . 20
DESCRIPTION OF THE TRUST FUNDS . . . . . . . . . . . . . . . . . . . . . . . 20
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Cash Flow Agreements . . . . . . . . . . . . . . . . . . . . . . . . 26
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Timing of Payment of Interest . . . . . . . . . . . . . . . . . . . . 27
Payments of Principal; Prepayments . . . . . . . . . . . . . . . . . 27
Prepayments -- Maturity and Weighted
Average Life . . . . . . . . . . . . . . . . . . . . . . . . 28
Other Factors Affecting Weighted
Average Life . . . . . . . . . . . . . . . . . . . . . . . . . 29
THE DEPOSITOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . 30
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . 31
Distributions of Interest on the
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 32
Distributions of Principal of the
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 32
Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Distributions on the Certificates of
Prepayment Premiums or
in Respect of Equity
Participations . . . . . . . . . . . . . . . . . . . . . . . . 33
Allocation of Losses and Shortfalls . . . . . . . . . . . . . . . . . 33
Advances in Respect of Delinquencies . . . . . . . . . . . . . . . . 33
Reports to Certificateholders . . . . . . . . . . . . . . . . . . . . 34
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Book-Entry Registration and
Definitive Certificates . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF THE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 38
Assignment of Assets; Repurchases . . . . . . . . . . . . . . . . . . 38
Representations and Warranties;
Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . 39
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Collection and Other Servicing
Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Hazard Insurance Policies . . . . . . . . . . . . . . . . . . . . . . 46
Rental Interruption Insurance Policy . . . . . . . . . . . . . . . . 47
Fidelity Bonds and Errors and
Omissions Insurance . . . . . . . . . . . . . . . . . . . . . 47
Due-on-Sale and Due-on-Encumbrance
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 47
Retained Interest; Servicing Compensation
and Payment of Expenses . . . . . . . . . . . . . . . . . . . 48
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . . 48
Certain Matters Regarding each Servicer
and the Depositor . . . . . . . . . . . . . . . . . . . . . . 49
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Rights Upon Event of Default . . . . . . . . . . . . . . . . . . . . 50
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Duties of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . 51
Certain Matters Regarding the Trustee . . . . . . . . . . . . . . . . 51
</TABLE>
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<PAGE> 75
<TABLE>
<S> <C>
Resignation and Removal of the
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
DESCRIPTION OF CREDIT SUPPORT . . . . . . . . . . . . . . . . . . . . . . . . 52
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . 53
Cross-Support Provisions . . . . . . . . . . . . . . . . . . . . . . 53
Insurance or Guarantees with Respect
to the Whole Loans . . . . . . . . . . . . . . . . . . . . . . 53
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Insurance Policies and Surety Bonds . . . . . . . . . . . . . . . . . 53
Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Credit Support with respect to CMBS . . . . . . . . . . . . . . . . . 54
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES . . . . . . . . . 54
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Types of Mortgage Instruments . . . . . . . . . . . . . . . . . . . . 55
Interest in Real Property . . . . . . . . . . . . . . . . . . . . . . 55
Leases and Rents . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Personalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Cooperative Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Bankruptcy Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Environmental Legislation . . . . . . . . . . . . . . . . . . . . . . 63
Due-on-Sale and Due-on-Encumbrance . . . . . . . . . . . . . . . . . 66
Subordinate Financing . . . . . . . . . . . . . . . . . . . . . . . . 66
Default Interest, Prepayment Charges
and Prepayments . . . . . . . . . . . . . . . . . . . . . . . 67
Acceleration on Default . . . . . . . . . . . . . . . . . . . . . . . 67
Applicability of Usury Laws . . . . . . . . . . . . . . . . . . . . . 67
Certain Laws and Regulations; Types
of Mortgaged Properties . . . . . . . . . . . . . . . . . . . . 68
Americans With Disabilities Act . . . . . . . . . . . . . . . . . . . 68
Soldiers' and Sailors' Civil Relief Act
of 1940 . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Forfeitures in Drug and RICO
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 69
FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . 69
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Grantor Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . 69
REMICs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Prohibited Transactions and Other
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Liquidation and Termination . . . . . . . . . . . . . . . . . . . . . 89
Administrative Matters . . . . . . . . . . . . . . . . . . . . . . . 89
Tax-Exempt Investors . . . . . . . . . . . . . . . . . . . . . . . . 90
Residual Certificate Payments to
Non-U.S. Persons . . . . . . . . . . . . . . . . . . . . . . . 90
Tax-Related Restrictions on Transfers of
REMIC Residual
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 90
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Prohibited Transactions . . . . . . . . . . . . . . . . . . . . . . . 92
Review by Plan Fiduciaries . . . . . . . . . . . . . . . . . . . . . 94
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
METHOD OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
</TABLE>
- 6 -
<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 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/or 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.
- 7 -
<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. To the extent 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
- 8 -
<PAGE> 78
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. To the
extent specified in the Prospectus
Supplement, 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. To the extent
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. To
the extent 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 . . . . . . . . . . . To the extent 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 a single
class of "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
Internal Revenue Code of 1986, as amended
(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 "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 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 related
Prospectus Supplement. See "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 interests in the Mortgage
Pool or pool of securities and any other
assets held by the Trust Fund.
Investors are urged to consult their tax
advisors and to review "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 and
any entity whose underlying assets include
assets of such a plan by reason of any such
plan's investment in the entity, 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.
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<PAGE> 82
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> 83
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 Collection 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> 84
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> 85
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. To the extent specified in the related Prospectus Supplement, 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
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<PAGE> 86
payments will, in turn, depend on continued occupancy by, and/or the
creditworthiness of, such Lessees, which in either case may be adversely
affected by a general economic downturn or an adverse change in their financial
condition. Moreover, to the extent a Commercial Property was designed for the
needs of a specific type of tenant (e.g., a nursing home, hotel or motel), the
value of such property in the event of a default by the Lessee or the early
termination of such Lease may be adversely affected because of difficulty in
re-leasing the property to a suitable substitute lessee or, if re-leasing to
such a substitute is not possible, because of the cost of altering the property
for another more marketable use. As a result, without the benefit of the
Lessee's continued support of the Commercial Property, and absent significant
amortization of the Commercial Loan, if such loan is foreclosed on and the
Commercial Property 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. To the extent 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 "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 "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
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a private placement will be included as an asset of a Trust Fund until the
holding period provided for under Rule 144(k) promulgated under the Securities
Act 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 related 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.
To the extent 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, to the extent 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
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on the aggregate amount of operating expenses, insurance premiums, taxes and
other expenses that the Lessees are required to pay. If so specified in the
related Prospectus Supplement, under certain circumstances the Lessees may be
permitted to set off their rental obligations against the obligations of the
Mortgagors under the Leases. In those cases where payments under the Leases
(net of any operating expenses payable by the Mortgagors) are insufficient to
pay all of the scheduled principal and interest on the related Mortgage Loans,
the Mortgagors must rely on other income or sources (including security
deposits) generated by the related Mortgaged Property to make payments on the
related Mortgage Loan. To the extent specified in the related Prospectus
Supplement, some Commercial Properties may be leased entirely to one Lessee. In
such cases, absent the availability of other funds, the Mortgagor must rely
entirely on rent paid by such Lessee in order for the Mortgagor to pay all of
the scheduled principal and interest on the related Commercial Loan. To the
extent specified in the related Prospectus Supplement, certain of the Leases
may expire prior to the stated maturity of the related Mortgage Loan. In such
cases, upon expiration of the Leases the Mortgagors will have to look to
alternative sources of income, including rent payment by any new Lessees or
proceeds from the sale or refinancing of the Mortgaged Property, to cover the
payments of principal and interest due on such Mortgage Loans unless the Lease
is renewed. As specified in the related Prospectus Supplement, certain of the
Leases may provide that upon the occurrence of a casualty affecting a Mortgaged
Property, the Lessee will have the right to terminate its Lease, unless the
Mortgagor, as lessor, is able to cause the Mortgaged Property to be restored
within a specified period of time. Certain Leases may provide that it is the
lessor's responsibility, while other Leases provide that it is the Lessee's
responsibility, to restore the Mortgaged Property after a casualty to its
original condition. Certain Leases may provide a right of termination to the
related Lessee if a taking of a material or specified percentage of the leased
space in the Mortgaged Property occurs, or if the ingress or egress to the
leased space has been materially impaired.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. To the extent 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, to the extent 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,
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because leases are subject to default risks as well when a tenant's income is
insufficient to cover its rent and operating expenses, the existence of such
"net of expense" provisions will only temper, not eliminate, the impact of
expense increases on the performance of the related Mortgage Loan. See
"--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. To the extent 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
To the extent 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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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
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may accrue on each Mortgage Asset during a certain period, the distribution of
such interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--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. To the extent 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. To the
extent 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
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in the month in which such partial prepayment is received. As a result, to the
extent specified in the related Prospectus Supplement, the effect of a partial
prepayment on a Mortgage Loan will be to reduce the amount of interest passed
through to holders of Certificates in the month following the receipt of such
partial prepayment by an amount equal to one month's interest at the applicable
Pass-Through Rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on
such investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS -- MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage
Assets included in or comprising a Trust Fund and the rate at which payments
are made from any Credit Support or Cash Flow Agreement for the related Series
of Certificates may affect the ultimate maturity and the weighted average life
of each class of such Series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related Series.
If so provided in the Prospectus Supplement for a Series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such Series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a Series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the CMBS. If any Mortgage Loans comprising or underlying the
Mortgage Assets in a particular Trust Fund have actual terms to maturity of
less than those assumed in calculating final scheduled Distribution Dates for
the classes of Certificates of the related Series, one or more classes of such
Certificates may be fully paid prior to their respective final scheduled
Distribution Dates, even in the absence of prepayments. Accordingly, the
prepayment experience of the Mortgage Assets will, to some extent, be a
function of the mix of Mortgage Interest Rates and maturities of the Mortgage
Loans comprising or underlying such Mortgage Assets. See "Description of the
Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it
is likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any Series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each Series of Certificates
will contain tables, if applicable, setting forth the projected weighted
average life of each class of Offered Certificates of such Series and the
percentage of the initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the
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assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Mortgage Loans comprising or underlying the related Mortgage
Assets are made at rates corresponding to various percentages of CPR or at such
other rates specified in such Prospectus Supplement. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average life
of the Certificates to various prepayment rates and will not be intended to
predict or to provide information that will enable investors to predict the
actual weighted average life of the Certificates. It is unlikely that
prepayment of any Mortgage Loans comprising or underlying the Mortgage Assets
for any Series will conform to any particular level of CPR or any other rate
specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
A number of Mortgage Loans may have balloon payments due at maturity,
and because the ability of a Mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the Mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement be permitted to modify Mortgage Loans that are in
default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a Mortgage Loan will tend
to extend the weighted average life of the Certificates, thereby lengthening
the period of time elapsed from the date of issuance of a Certificate until it
is retired.
Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage
Loans comprising or underlying the Mortgage Assets that are foreclosed in
relation to the number and principal amount of Mortgage Loans that are repaid
in accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related Series of Certificates. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Loans
and thus the weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Mortgage Assets may include "due-
on-sale" clauses or "due-on-encumbrance" clauses that allow the holder of the
Mortgage Loans to demand payment in full of the remaining principal balance of
the Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, to the extent 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. The Depositor acquires and holds Mortgage Loans for
subsequent sale or transfer to trusts or for purposes of securitization.
AMRESCO, INC. performs a wide range of commercial mortgage banking
services, including originating, underwriting, placing and selling commercial
real estate loans through its subsidiaries, including AMRESCO CAPITAL
CORPORATION ("ACC"), and servicing commercial real estate loans through AMRESCO
Services, a division of AMRESCO Management, Inc., a subsidiary of AMRESCO, INC.
ACC is a mortgage banker that originates and underwrites commercial real estate
loans that are funded primarily by Conduit Purchasers and the Federal National
Mortgage Association ("FANNIE MAE"). ACC targets mortgage loans for commercial
real estate properties suitable for sale to Conduit Purchasers that accumulate
loans for securitization programs. ACC serves its market directly through ACC's
offices located in Dallas, Miami, Washington, D.C. and Winston-Salem, as well
as through a network of approximately 38 independent mortgage brokers located
throughout the United States. ACC is approved by Fannie Mae to participate in
its Delegated Underwriting and Servicing program, which ACC believes makes it a
more competitive loan originator and underwriter of multifamily mortgages. ACC
is also an approved lender in the Federal Home Loan Mortgage Corporation
multifamily sales/servicer program in the states of Florida, North Carolina and
South Carolina. As used herein, "CONDUIT PURCHASERS" means investment bankers
and other financial intermediaries who purchase or otherwise accumulate pools
or portfolios of loans having common features (e.g., real estate mortgages,
etc.), with the intent of securitizing such loan assets and selling them to a
trust that obtains its funds by selling undivided interests in the revenue
streams generated by the loans to public or private investors. AMRESCO
Management, Inc. serves as a primary servicer for whole loans and as a
master/full servicer for securitized pools of commercial mortgages through
AMRESCO Services. The dominant users of commercial loan servicers are
commercial mortgage-backed bond trusts and similar securitized commercial
asset-backed loan portfolios made up of numerous passive investors.
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
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or more of the characteristics described in this paragraph including a Stripped
Principal Certificate component and a Stripped Interest Certificate component.
Any such classes may include classes of Offered Certificates.
Each class of Offered Certificates of a Series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in
the related Prospectus Supplement. The transfer of any Offered Certificates may
be registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a Series may be issued in definitive form
("DEFINITIVE CERTIFICATES") or in book-entry form ("BOOK-ENTRY CERTIFICATES"),
as provided in the related Prospectus Supplement. See "Risk Factors -- Book-
Entry Registration" and "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates." Definitive Certificates will be
exchangeable for other Certificates of the same class and Series of a like
aggregate Certificate Balance, notional amount or percentage interest but of
different authorized denominations. See "Risk Factors -- Limited Liquidity" and
"--Limited Assets."
DISTRIBUTIONS
Distributions on the Certificates of each Series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such Series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month in
which the Distribution Date occurs (the "RECORD DATE"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "DETERMINATION DATE"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class or by random selection, as described in the related Prospectus Supplement
or otherwise established by the related Trustee. Payments will be made either
by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, holds Certificates in the requisite amount specified therein), or
by check mailed to the address of the person entitled thereto as it appears on
the Certificate Register; provided, however, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each Series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"AVAILABLE DISTRIBUTION AMOUNT" for each Distribution Date equals the sum of
the following amounts:
(i) the total amount of all cash on deposit in the related Distribution
Account as of the corresponding Determination Date, including Servicer
advances, net of any scheduled payments due and payable after such
Distribution Date;
(ii) interest or investment income on amounts on deposit in the Distribution
Account, including any net amounts paid under any Cash Flow Agreements; and
(iii) to the extent not on deposit in the related Distribution Account as of
the corresponding Determination Date, any amounts collected under, from or
in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
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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. To the extent 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. To the extent 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. To the
extent provided in the related Prospectus Supplement, the Accrued Certificate
Interest on a Series of Certificates will be reduced in the event of prepayment
interest shortfalls, which are shortfalls in collections of interest for a full
accrual period resulting from prepayments prior to the due date in such accrual
period on the Mortgage Loans comprising or underlying the Mortgage Assets in
the Trust Fund for such Series. The particular manner in which such shortfalls
are to be allocated among some or all of the classes of Certificates of that
Series will be specified in the related Prospectus Supplement.
The related Prospectus Supplement will also describe the extent to which
the amount of Accrued Certificate Interest that is otherwise distributable on
(or; in the case of Accrual Certificates, that may otherwise be added to the
Certificate Balance of) a class of Offered Certificates may be reduced as a
result of any other contingencies, including delinquencies, losses and deferred
interest on or in respect of the Mortgage Loans comprising or underlying the
Mortgage Assets in the related Trust Fund. To the extent 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
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Balance of a Series and each class thereof will be specified in the related
Prospectus Supplement. To the extent provided in the related Prospectus
Supplement, distributions of principal will be made on each Distribution Date
to the class or classes of Certificates entitled thereto in accordance with the
provisions described in such Prospectus Supplement until the Certificate
Balance of such class has been reduced to zero. Stripped Interest Certificates
with no Certificate Balance are not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference
in such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF
EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a Series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or shortfalls
will be borne first by a class of Subordinate Certificates in the priority and
manner and subject to the limitations specified in such Prospectus Supplement
See "Description of Credit Support" for a description of the types of
protection that may be included in shortfalls on Mortgage Assets comprising
such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any Series of Certificates evidencing an interest in a
Trust Fund, to the extent 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. To the
extent 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
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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
To the extent provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a Series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such class
applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by each Servicer
and such other customary information as any such Master Servicer or the
Trustee deems necessary or desirable, or that a Certificateholder reasonably
requests, to enable Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and the
aggregate amount of any unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled payments
are delinquent, (c) three or more scheduled payments are delinquent and (d)
foreclosure proceedings have been commenced; y(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;
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(ix) with respect to any Whole Loan liquidated during the related Due Period
(other than by payment in full), (a) the loan number thereof, (b) the manner
in which it was liquidated and (c) the aggregate amount of liquidation
proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due Period,
(a) the portion of such liquidation proceeds payable or reimbursable to each
Servicer (or any other entity) in respect of such Mortgage Loan and (b) the
amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and included
in the Trust Fund as of the end of the related Due Period, (a) the loan
number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such Mortgage
Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the aggregate
amount of sale proceeds, (c) the portion of such sales proceeds payable or
reimbursable to each Servicer in respect of such REO Property or the related
Mortgage Loan and (d) the amount of any loss to Certificateholders in
respect of the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates not
offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate Balance of a class of
Accrual Certificates in the event that Accrued Certificate Interest has been
added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the aggregate Accrued Certificate Interest and unpaid Accrued
Certificate Interest, if any, on each class of Certificates at the close of
business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate, the
Pass- Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with a floating Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date
occurs, the floating Pass-Through Rate applicable to such Distribution Date
and the immediately succeeding Distribution Date as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xix) as to any Series which includes Credit Support, the amount of coverage
of each instrument of Credit Support included therein as of the close of
business on such Distribution Date; and
(xx) the aggregate amount of payments by the Mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xvi) and (xvii) above, such amounts shall also be provided with
respect to each component, if any, of a class of Certificates. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder of any class of
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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 to the extent
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 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. In such an event, the
applicable purchase price will be sufficient to pay the aggregate Certificate
Balance and any undistributed shortfall in interest of such class or classes of
Certificates.
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
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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.
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.
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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, to the extent specified in the related 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.
To the extent 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. To the extent 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. To the extent 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.
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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 to the extent 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. To the extent 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. To the extent 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 to the extent
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. To the extent specified in the related
Prospectus Supplement, this repurchase or substitution obligation constitutes
the sole remedy available to the Certificateholders or the Trustee for omission
of, or a material defect in, a constituent document. To the extent specified in
the related Prospectus Supplement, in lieu of curing any omission or defect in
the Mortgage Asset or repurchasing or substituting for such Mortgage Asset, the
Depositor may agree to cover any losses suffered by the Trust Fund as a result
of such breach or defect.
If so provided in the related Prospectus Supplement, the Depositor will,
as to some or all of the Mortgage Loans, assign or cause to be assigned to the
Trustee the related Lease Assignments. In certain cases, the Trustee, or
Primary Servicer, as applicable, may collect all moneys under the related
Leases and distribute amounts, if any, required under the Lease for the payment
of maintenance, insurance and taxes, to the extent specified in the related
Lease agreement. The Trustee, or if so specified in the Prospectus Supplement,
the Master Servicer, as agent for the Trustee, may hold the Lease in trust for
the benefit of the Certificateholders.
With respect to each CMBS in certificated form, the Depositor will
deliver or cause to be delivered to the Trustee (or the custodian) the original
certificate or other definitive evidence of such CMBS together with bond power
or other instruments, certifications or documents required to transfer fully
such CMBS to the Trustee for the benefit of the Certificateholders. With
respect to each CMBS in uncertificated or book-entry form or held through a
"clearing corporation" within the meaning of the UCC the Depositor and the
Trustee will cause such CMBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. To the extent 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
To the extent 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
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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. To the extent 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.
To the extent provided in the related Prospectus Supplement, the
Agreements will provide that the Master Servicer and/or Trustee will be
required to notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that
materially and adversely affects the value of such Whole Loan or the interests
therein of the Certificateholders. If such Warranting Party cannot cure such
breach within a specified period following the date on which such party was
notified of such breach, then such Warranting Party will be obligated to
repurchase such Whole Loan from the Trustee within a specified period from the
date on which the Warranting Party was notified of such breach, at the Purchase
Price therefor. As to any Whole Loan, unless otherwise specified in the related
Prospectus Supplement, the "PURCHASE PRICE" is equal to the sum of the unpaid
principal balance thereof, plus unpaid accrued interest thereon at the Mortgage
Interest Rate from the date as to which interest was last paid to the due date
in the Due Period in which the relevant purchase is to occur, plus certain
servicing expenses that are reimbursable to each Servicer. If so provided in
the Prospectus Supplement for a Series, a Warranting Party, rather than
repurchase a Whole Loan as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such Series of
Certificates, to cause the removal of such Whole Loan from the Trust Fund and
substitute in its place one or more other Whole Loans, in accordance with the
standards described in the related Prospectus Supplement. If so provided in the
Prospectus Supplement for a Series, a Warranting Party, rather than repurchase
or substitute a Whole Loan as to which a breach has occurred, will have the
option to reimburse the Trust Fund or the Certificateholders for any losses
caused by such breach. To the extent 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.
To the extent 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
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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.
To the extent provided in the related Prospectus Supplement, any interest or
other income earned on funds in an Account will be paid to a Servicer or its
designee as additional servicing compensation. An Account may be maintained
with an institution that is an affiliate of a Servicer provided that such
institution meets the standards imposed by the Rating Agency or Agencies. If
permitted by the Rating Agency or Agencies and so specified in the related
Prospectus Supplement, an Account may contain funds relating to more than one
Series of mortgage pass-through certificates and may contain other funds
respecting payments on mortgage loans belonging to a Servicer or serviced or
master serviced by it on behalf of others.
Deposits
To the extent provided in the related Prospectus Supplement, the Primary
Servicer will deposit or cause to be deposited in an Account on a daily basis,
to the extent 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;
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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, to the extent provided in the related
Agreement and described in the related Prospectus Supplement, make withdrawals
from an Account for each Trust Fund for any of the following purposes:
(i) to reimburse a Servicer for unreimbursed amounts advanced as described
under "Description of the Certificates -- Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by such Servicer as late collections of interest
on and principal of the particular Whole Loans with respect to which the
advances were made;
(ii) to reimburse a Servicer for unpaid servicing fees earned and certain
unreimbursed servicing expenses incurred with respect to Whole Loans and
properties acquired in respect thereof, such reimbursement to be made out of
amounts that represent Liquidation Proceeds and Insurance Proceeds collected
on the particular Whole Loans and properties, and net income collected on
the particular properties, with respect to which such fees were earned or
such expenses were incurred;
(iii) to reimburse a Servicer for any advances described in clause (i) above
and any servicing expenses described in clause (ii) above which, in the
Master Servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (i) and (ii), respectively, such reimbursement
to be made from amounts collected on other Trust Assets or, if and to the
extent so provided by the related Agreement and described in the related
Prospectus Supplement, just from that portion of amounts collected on other
Trust Assets that is otherwise distributable on one or more classes of
Subordinate Certificates, if any, remain outstanding, and otherwise any
outstanding class of Certificates, of the related Series;
(iv) if and to the extent described in the related Prospectus Supplement, to
pay a Servicer interest accrued on the advances described in clause (i)
above and the servicing expenses described in clause (ii) above while such
remain outstanding and unreimbursed;
(v) to the extent 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 "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.
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Distribution Account
To the extent 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, to the extent provided in the
related Agreements and described in the related Prospectus Supplement, make a
withdrawal from a Distribution Account to make distributions to the
Certificateholders on each Distribution Date.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any Series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Primary Servicer or Special Servicer will
deposit on a daily basis the amounts described under "--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.
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Master Servicer
The Master Servicer shall monitor the actions of the Primary Servicer
and the Special Servicer to confirm compliance with the Agreements.
To the extent specified in the related Prospectus Supplement, a Master
Servicer, as servicer of the Mortgage Loans, on behalf of itself, the Trustee
and the Certificateholders, will present claims to the obligor under each
instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Mortgage Loans. See "Description of Credit Support."
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Mortgage Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Distribution Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Mortgage Loan, unreimbursed servicing expenses incurred with respect to
the Mortgage Loan and any unreimbursed advances of delinquent payments made
with respect to the Mortgage Loan. See "--Hazard Insurance Policies" and
"Description of Credit Support."
Special Servicer
A Mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such Mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. To the extent 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."
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Any Agreement relating to a Trust Fund that includes Mortgage Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Mortgage Loan as to which a specified
number of scheduled payments thereunder are delinquent. Any such right granted
to the holder of an Offered Certificate will be described in the related
Prospectus Supplement. The related Prospectus Supplement will also describe any
such right granted to any person if the predetermined purchase price is less
than the Purchase Price described under "--Representations and Warranties;
Repurchases."
The Special Servicer may agree to modify, waive or amend any term of any
Specially Serviced Mortgage Loan in a manner consistent with the Servicing
Standard so long as the modification, waiver or amendment will not (i) affect
the amount or timing of any scheduled payments of principal or interest on the
Mortgage Loan or (ii) in its judgment, materially impair the security for the
Mortgage Loan or reduce the likelihood of timely payment of amounts due
thereon. The Special Servicer also may agree to any modification, waiver or
amendment that would so affect or impair the payments on, or the security for,
a Mortgage Loan if, unless otherwise provided in the related Prospectus
Supplement, (i) in its judgment, a material default on the Mortgage Loan has
occurred or a payment default is imminent and (ii) in its judgment, such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan on a present value basis than would
liquidation. The Special Servicer is required to notify the Trustee in the
event of any modification, waiver or amendment of any Mortgage Loan.
The Special Servicer, on behalf of the Trustee, may at any time
institute foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to a
Mortgaged Property securing a Mortgage Loan by operation of law or otherwise,
if such action is consistent with the Servicing Standard and a default on such
Mortgage Loan has occurred or, in the Special Servicer's judgment, is imminent.
Unless otherwise specified in the related Prospectus Supplement, the Special
Servicer may not acquire title to any related Mortgaged Property or take any
other action that would cause the Trustee, for the benefit of
Certificateholders, or any other specified person to be considered to hold
title to, to be a "mortgagee-in-possession" of, or to be an "owner" or an
"operator" of such Mortgaged Property within the meaning of certain federal
environmental laws, unless the Special Servicer has previously determined,
based on a report prepared by a person who regularly conducts environmental
audits (which report will be an expense of the Trust Fund), that:
(i) the Mortgaged Property is in compliance with applicable environmental
laws; or if not, that taking such actions as are necessary to bring the
Mortgaged Property in compliance therewith is reasonably likely to produce a
greater recovery on a present value basis, after taking into account any
risks associated therewith, than not taking such actions; and
(ii) and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation or
that, if any such materials are present, taking such action with respect to
the affected Mortgaged Property is reasonably likely to produce a greater
recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions.
To the extent 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,
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however, will not relieve the Special Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. To the
extent specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the operations and ownership of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of the Mortgage Loans and the Leases -- Foreclosure."
If recovery on a defaulted Mortgage Loan under any related instrument of
Credit Support is not available, the Special Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Mortgage Loan. If the proceeds of any liquidation of the property securing the
defaulted Mortgage Loan are less than the outstanding principal balance of the
defaulted Mortgage Loan plus interest accrued thereon at the Mortgage Interest
Rate plus the aggregate amount of expenses incurred by the Special Servicer in
connection with such proceedings and which are reimbursable under the
Agreement, the Trust Fund will realize a loss in the amount of such difference.
The Special Servicer will be entitled to withdraw or cause to be withdrawn from
a related Account out of the Liquidation Proceeds recovered on any defaulted
Mortgage Loan, prior to the distribution of such Liquidation Proceeds to
Certificateholders, amounts representing its normal servicing compensation on
the Mortgage Loan, unreimbursed servicing expenses incurred with respect to the
Mortgage Loan and any unreimbursed advances of delinquent payments made with
respect to the Mortgage Loan.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
the related instrument of Credit Support, if any, the Special Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
HAZARD INSURANCE POLICIES
To the extent 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. To the extent 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.
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The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, such clause generally
provides that the insurer's liability in the event of partial loss does not
exceed the lesser of (i) the replacement cost of the improvements less physical
depreciation and (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
The Agreements for a Trust Fund that includes Whole Loans will require
the Primary Servicer to cause the Mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of
the related Mortgage, which insurance may typically include flood insurance (if
the related Mortgaged Property was located at the time of origination in a
federally designated flood area).
In addition, to the extent required by the related Mortgage, the Primary
Servicer may require the Mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance. Any cost
incurred by the Master Servicer in maintaining any such insurance policy will
be added to the amount owing under the Mortgage Loan where the terms of the
Mortgage Loan so permit; provided, however, that the addition of such cost will
not be taken into account for purposes of calculating the distribution to be
made to Certificateholders. Such costs may be recovered by a Servicer from a
related Account, with interest thereon, as provided by the Agreements.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Primary
Servicer or the Mortgagors will maintain rental interruption insurance policies
in full force and effect with respect to some or all of the Leases. Although
the terms of such policies vary to some degree, a rental interruption insurance
policy typically provides that, to the extent that a Lessee fails to make
timely rental payments under the related Lease due to a casualty event, such
losses will be reimbursed to the insured. If so specified in the related
Prospectus Supplement, the Primary Servicer will be required to pay from its
servicing compensation the premiums on the rental interruption policy on a
timely basis. If so specified in the Prospectus Supplement, if such rental
interruption policy is canceled or terminated for any reason (other than the
exhaustion of total policy coverage), the Primary Servicer will exercise its
best reasonable efforts to obtain from another insurer a replacement policy
comparable to the rental interruption policy with a total coverage that is
equal to the then existing coverage of the terminated rental interruption
policy; provided that if the cost of any such replacement policy is greater
than the cost of the terminated rental interruption policy, the amount of
coverage under the replacement policy will, to the extent 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
To the extent 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
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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. To the extent 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.
To the extent 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.
To the extent 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 47 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.
To the extent 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.
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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.
To the extent 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.
To the extent 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. To the
extent specified in the related Prospectus Supplement, the Depositor shall be
liable only to the extent of its obligations specifically imposed upon and
undertaken by the Depositor. To the extent 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
To the extent 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
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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. To the extent 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. To the extent specified in the related Prospectus Supplement, in
the event that the Trustee is unwilling or unable so to act, it may or, at the
written request of the holders of Certificates entitled to at least 25% of the
Voting Rights, it shall appoint, or petition a court of competent jurisdiction
for the appointment of, a loan servicing institution acceptable to the Rating
Agency with a net worth at the time of such appointment of at least $15,000,000
to act as successor to the Master Servicer under the Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
any such successor may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation payable to the Master Servicer
under the Agreement.
To the extent 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
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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. To the extent 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 to the extent
specified in the related Prospectus Supplement, no such amendment may (i)
reduce in any manner the amount of or delay the timing of, payments received or
advanced on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the holder of such Certificate, (ii)
adversely affect in any material respect the interests of the holders of any
class of Certificates in a manner other than as described in (i), without the
consent of the holders of all Certificates of such class or (iii) modify the
provisions of such Agreement described in this paragraph without the consent of
the holders of all Certificates covered by such Agreement then outstanding.
However, with respect to any Series of Certificates as to which a REMIC
election is to be made, the Trustee will not consent to any amendment of the
Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a
REMIC at any time that the related Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Trust Asset or related
document and is not accountable for the use or application by or on behalf of
any Servicer of any funds paid to such Servicer or its designee in respect of
the Certificates or the Trust Assets, or deposited into or withdrawn from any
Account or any other account by or on behalf of any Servicer. If no Event of
Default has occurred and is continuing, the Trustee is required to perform only
those duties specifically required under the related Agreements. However, upon
receipt of the various certificates, reports or other instruments required to
be furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreements.
CERTAIN MATTERS REGARDING THE TRUSTEE
To the extent 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.
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RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreements, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any Series entitled to at
least 51% of the Voting Rights for such Series may at any time remove the
Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any Series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies, guarantees, the
establishment of one or more reserve funds or another method of Credit Support
described in the related Prospectus Supplement, or any combination of the
foregoing. If so provided in the related Prospectus Supplement, any form of
Credit Support may be structured so as to be drawn upon by more than one Series
to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
Series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one Series
of Certificates (each, a "COVERED TRUST"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a Series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment thereunder
not otherwise described herein, (c) the conditions (if any) under which the
amount of coverage under such Credit Support may be reduced and under which
such Credit Support may be terminated or replaced and (d) the material
provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, and its stockholders' or policyholders'
surplus, if applicable, as of the date specified in the Prospectus Supplement.
See "Risk Factors -- Credit Support Limitations."
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SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a Series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the
holders of Subordinate Certificates to receive distributions of principal and
interest from the Distribution Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Certificates. If so
provided in the related Prospectus Supplement, the subordination of a class may
apply only in the event of (or may be limited to) certain types of losses or
shortfalls. The related Prospectus Supplement will set forth information
concerning the amount of subordination of a class or classes of Subordinate
Certificates in a Series, the circumstances in which such subordination will be
applicable and the manner, if any, in which the amount of subordination will be
effected.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a Series are divided into separate groups,
each supporting a separate class or classes of Certificates of a Series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one group
of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a Series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a Series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any such
material instrument for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related Series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit,
issued by a bank or financial institution specified in such Prospectus
Supplement (the "L/C BANK"). Under a letter of credit, the L/C Bank will be
obligated to honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified in
the related Prospectus Supplement of the aggregate principal balance of the
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws in the
event of only certain types of losses and shortfalls. The amount available
under the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the L/C Bank under the
letter of credit for each Series of Certificates will expire at the earlier of
the date specified in the related Prospectus Supplement or the termination of
the Trust Fund. A copy of any such letter of credit for a Series will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Certificates of the related Series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided by one or more insurance companies or sureties. Such instruments
may cover, with respect to one or more classes of Certificates of the related
Series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. A copy
of any such instrument for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed with the Commission within
15 days of issuance of the Certificates of the related Series.
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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. To the extent specified in the related Prospectus Supplement, any
reinvestment income or other gain from such investments will be credited to the
related Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a Series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund may
be applied to make distributions to Certificateholders and use of investment
earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO CMBS
If so provided in the Prospectus Supplement for a Series of
Certificates, the CMBS in the related Trust Fund and/or the Mortgage Loans
underlying such CMBS may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify as to
each such form of Credit Support the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans. See
"Description of the Trust Funds -- Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend
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on the terms of the particular security instrument, as well as separate,
recorded, contractual arrangements with others holding interests in the
mortgaged property, the knowledge of the parties to such instrument as well as
the order of recordation of the instrument in the appropriate public recording
office. However, recording does not generally establish priority over
governmental claims for real estate taxes and assessments and other charges
imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties -- a Mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
Mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "MORTGAGOR" includes
the trustor under a deed of trust and a grantor under a security deed or a deed
to secure debt. Under a deed of trust, the Mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. In case the Mortgagor under a mortgage is a land
trust, there would be an additional party because legal title to the property
is held by a land trustee under a land trust agreement for the benefit of the
Mortgagor. At origination of a mortgage loan involving a land trust, the
Mortgagor executes a separate undertaking to make payments on the mortgage
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the mortgage, the law of the state in
which the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailors' Civil Relief Act of 1940) and, in some
cases, in deed of trust transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The 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
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under the UCC, the lender will generally be required to commence a foreclosure
or otherwise take possession of the property in order to collect the room rates
after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service the
mortgage debt if the leases on the property are at below-market rents, or as
the result of excessive maintenance, repair or other obligations which a lender
succeeds to as landlord.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership. See "Environmental Legislation"
below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender
generally must file UCC financing statements and, to maintain perfection of
such security interest, file continuation statements generally every five
years.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Offered Certificate, the Mortgage Loans may also consist of cooperative
apartment loans ("COOPERATIVE LOANS") secured by security interests in shares
issued by cooperative housing corporation (a "COOPERATIVE") and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the cooperatives' buildings. The security agreement
will create a lien upon, or grant a title interest in, the property which it
covers, the priority of which will depend on the terms of the particular
security agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and,
in most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the
case, or an underlying lease of the land, as is the case in some instances, the
cooperative, as property Mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket
mortgage is ordinarily incurred by the cooperative in connection with either
the construction or purchase of the cooperative's apartment building or
obtaining of capital by the cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that cooperative is the
landlord are generally subordinate to the interest of the holder of a blanket
mortgage and to the interest of the holder of a land lease. If the cooperative
is unable to meet the payment obligations (i) arising under a blanket mortgage,
the mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity.
The inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy 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.
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The cooperative is owned by tenant-stockholders who, through ownership
of stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
an assignment of and a security interest in the occupancy agreement or
proprietary lease and a security interest in the related cooperative shares.
The lender generally takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "--Foreclosure -- Cooperative Loans" below.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the Mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest
of record in the real property and all parties in possession of the property,
under leases or otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. Upon successful
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other officer to conduct a
public sale of the mortgaged property, the proceeds of which are used to
satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
Mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may
require the lender to undertake affirmative and expensive actions to determine
the cause of the Mortgagor's default and the likelihood that the Mortgagor will
be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate Mortgagors who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the mortgage is not
monetary, e.g., the Mortgagor failed to maintain the mortgaged property
adequately or the Mortgagor executed a junior mortgage on the mortgaged
property. The exercise by the court of its equity powers will depend on the
individual circumstances of each case presented to it. Finally, some courts
have been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that a
Mortgagor receive notice in addition to
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statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the Mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the Mortgagor was insolvent (or the Mortgagor was rendered insolvent as a
result of such sale) and within one year (or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-
judicial trustee's sale pursuant to the power of sale granted in the deed of
trust. A power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
Mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the Mortgagor and to any other party who has
recorded a request for a copy of a notice of default and notice of sale. In
addition in some states the trustee must provide notice to any other party
having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. The
Mortgagor or junior lienholder may then have the right, during a reinstatement
period required in some states, to cure the default by paying the entire actual
amount in arrears (without acceleration) plus the expenses incurred in
enforcing the obligation. In other states, the Mortgagor or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and
vary among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of
trust, except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to
secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
Mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's and
the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure
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and/or bankruptcy proceedings. Furthermore, a few states require that any
environmental contamination at certain types of properties be cleaned up before
a property may be resold. In addition, a lender may be responsible under
federal or state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "Environmental Legislation." Generally state
law controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans which are junior mortgage loans, if the lender purchases
the property the lender's title will be subject to all senior mortgages, prior
liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the Mortgagor is in default. Any additional
proceeds are generally payable to the Mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
In connection with a Series of Certificates for which an election is
made to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the Mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee have an equity of redemption and may redeem the property by paying
the entire debt with interest. In addition, in some states, when a foreclosure
action has been commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to
be cut off and terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the
Mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the Mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale price.
In other states, redemption may be authorized if the former Mortgagor pays only
a portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The
exercise of a right of redemption would defeat the title of any purchaser from
a foreclosure sale or sale under a deed of trust. Consequently, the practical
effect of the redemption right is to force the lender to maintain the property
and pay the expenses of ownership until the redemption period has expired. In
some states, a post-sale statutory right of redemption may exist following a
judicial foreclosure, but not following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. To the extent
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
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time within which to sell such property or independent counsel renders an
opinion to the effect that holding such property for such additional period is
permissible under the REMIC Provisions.
Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
Mortgagor. Even if a mortgage loan by its terms provides for recourse to the
Mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the Mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former Mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the Mortgagor. In certain other states, the lender has the
option of bringing a personal action against the Mortgagor on the debt without
first exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the Mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former Mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
Mortgagor as a result of low or no bids at the judicial sale.
Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the Mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate
if, among other reasons, the ground lessee breaches or defaults in its
obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground leases
that secure Mortgage Loans may not contain some of these protective provisions,
and mortgages may not contain the other protections discussed in the next
paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults
by the Mortgagor; the right to cure such defaults, with adequate cure periods;
if a default is not susceptible of cure by the leasehold mortgagee, the right
to acquire the leasehold estate through foreclosure or otherwise; the ability
of the ground lease to be assigned to and by the leasehold mortgagee or
purchaser at a foreclosure sale and for the concomitant release of the ground
lessee's liabilities thereunder; and the right of the leasehold mortgagee to
enter into a new ground lease with the ground lessor on the same terms and
conditions as the old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground
lessor's bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "BANKRUPTCY CODE"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed
by the provisions of the ground lease.
Cooperative Loans
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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.
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.
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In many jurisdictions, the outstanding amount of the loan secured by the real
property may be reduced to the then-current value of the property (with a
corresponding partial reduction of the amount of lender's security interest)
pursuant to a confirmed plan or lien avoidance proceeding, thus leaving the
lender a general unsecured creditor for the difference between such value and
the outstanding balance of the loan. Other modifications may include the
reduction in the amount of each scheduled payment, which reduction may result
from a reduction in the rate of interest and/or the alteration of the repayment
schedule (with or without affecting the unpaid principal balance of the loan),
and/or an extension (or reduction) of the final maturity date. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years. Also, under federal
bankruptcy law, a bankruptcy court may permit a debtor through its
rehabilitative plan to de-accelerate a secured loan and to reinstate the loan
even though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's petition. This may be
done even if the full amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or modified
at any time after the commencement of a case under the Bankruptcy Code solely
on the basis of a provision in the lease to such effect or because of certain
other similar events. This prohibition on so-called "ipso facto clauses" could
limit the ability of the Trustee for a Series of Certificates to exercise
certain contractual remedies with respect to the Leases. In addition, Section
362 of the Bankruptcy Code operates as an automatic stay of, among other
things, any act to obtain possession of property from a debtor's estate, which
may delay a Trustee's exercise of such remedies for a related Series of
Certificates in the event that a related Lessee or a related Mortgagor becomes
the subject of a proceeding under the Bankruptcy Code. For example, a mortgagee
would be stayed from enforcing a Lease Assignment by a Mortgagor related to a
Mortgaged Property if the related Mortgagor was in a bankruptcy proceeding. The
legal proceedings necessary to resolve the issues could be time-consuming and
might result in significant delays in the receipt of the assigned rents.
Similarly, the filing of a petition in bankruptcy by or on behalf of a Lessee
of a Mortgaged Property would result in a stay against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the Lease that occurred prior to the filing of the Lessee's petition.
Rents and other proceeds of a Mortgage Loan may also escape an assignment
thereof if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the Mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach,
which could adversely affect the security for the related Mortgage Loan. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of one
year or 15%, not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as debtor-
in-possession, rejects an unexpired lease of real property, the lessee may
treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or
extension thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such date.
To the extent provided in the related Prospectus Supplement, the Lessee will
agree under certain Leases to pay all amounts owing thereunder the Master
Servicer without offset. To the extent that such a contractual obligation
remains
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enforceable against the Lessee, the Lessee would not be able to avail itself of
the rights of offset generally afforded to lessees of real property under the
Bankruptcy Code.
In a bankruptcy or similar proceeding of a Mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the Mortgagor, or made directly by the related Lessee,
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a Mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in
writing in the limited partnership agreement. This provision may be construed
as an "ipso facto" clause and, in the event of the general partner's
bankruptcy, may not be enforceable. To the extent described in the related
Prospectus Supplement, certain limited partnership agreements of the Mortgagors
may provide that the commencement of a case under the Bankruptcy Code with
respect to the related general partner constitutes an event of withdrawal
(assuming the enforceability of the clause is not challenged in bankruptcy
proceedings or, if challenged, is upheld) that might trigger the dissolution of
the limited partnership, the winding up of its affairs and the distribution of
its assets, unless (i) at the time there was at least one other general partner
and the written provisions of the limited partnership permit the business of
the limited partnership to be carried on by the remaining general partner and
that general partner does so or (ii) the written provisions of the limited
partnership agreement permit the limited partner to agree within a specified
time frame (often 60 days) after such withdrawal to continue the business of
the limited partnership and to the appointment of one or more general partners
and the limited partners do so. In addition, the laws governing general
partnerships in certain states provide that the commencement of a case under
the Bankruptcy Code or state bankruptcy laws with respect to a general partner
of such partnerships triggers the dissolution of such partnership, the winding
up of its affairs and the distribution of its assets. Such state laws, however,
may not be enforceable or effective in a bankruptcy case. The dissolution of a
Mortgagor, the winding up of its affairs and the distribution of its assets
could result in an acceleration of its payment obligation under a related
Mortgage Loan, which may reduce the yield on the related Series of Certificates
in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the
corporate veil. In such a case, the respective Mortgaged Property, for example,
would become property of the estate of such bankrupt general partner. Not only
would the Mortgaged Property be available to satisfy the claims of creditors of
such general partner, but an automatic stay would apply to any attempt by the
Trustee to exercise remedies with respect to such Mortgaged Property. However,
such an occurrence should not affect the Trustee's status as a secured creditor
with respect to the Mortgagor or its security interest in the Mortgaged
Property.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity or that are in close proximity to such
properties. Such environmental liabilities may give rise to (i)
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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 and to some degree under Federal law,
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.
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 did 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 did 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. In response, the Department of
Justice ("DOJ") and the Agency issued a policy statement entitled "The Effect
of Superfund on Lenders That Hold Security Interests in Contaminated Property,"
published in the Federal Register in Volume 60, Number 237, at pages 63517 to
63519 (December 11, 1995). That policy statement directed parties to the
voided rule as the Agency's definitive view on CERCLA's secured creditor
exemption, and stated that EPA and DOJ will generally follow the approach of
the Lender Liability Rule and its preamble when exercising their enforcement
discretion with respect to lenders.
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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 expected a return to the narrower interpretations of the exemption. In
fact, recent judicial opinions indicate that a court facing lender liability
issues is likely to apply principles and rationale that are consistent with EPA
and DOJ's Lender Policy. See, e.g., United States v. Wallace, 893 F. Supp. 627
(N.D. Tex. 1995); Z & Z Leasing, Inc. v. Graying Reel, Inc., 873 F. Supp. 51
(E.D. Mich. 1995); Kemp Industries, Inc. v. Safety Light Corp., 857 F. Supp.
373 (D.N.J. 1994).
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 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.
Finally, as part of the Omnibus Consolidated Appropriations Bill for
Fiscal Year 1997 signed by President Clinton on September 30, 1996, Congress
enacted the Asset Conservation, Lender Liability, and Deposit Insurance
Protection Act of 1996 ("the Act"). The Act includes lender and fiduciary
liability amendments to CERCLA, amendments to the secured creditor exemption
set forth in Subtitle I of RCRA, and validation of the portion of the CERCLA
Lender Liability Rule that addresses involuntary acquisitions by government
entities. The amendments made by the Act apply to all claims not finally
adjudicated as of September 30, 1996, which include all cases that are in the
process of being settled, and are generally based on the CERCLA Lender
Liability Rule. However, the amendments do not explicitly describe the steps a
lender can take to avoid liability after foreclosure.
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
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Servicer, as the case may be, will in fact insulate a given Trust Fund from
liability for Environmental Hazard Conditions. Any additional restrictions on
acquiring titles to a Mortgaged Property may be set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely
that any environmental assessments which would have been conducted with respect
to any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warranting Party will represent and
warrant that based on an environmental audit commissioned by Warranting Party,
as of the date of the origination of a Mortgage Loan, the related Mortgaged
Property is not affected by a Disqualifying Condition (as defined below). No
such person will however, be responsible for any Disqualifying Condition which
may arise on a Mortgaged Property after the date of origination of the related
Mortgage Loan, whether due to actions of the Mortgagor, the Master Servicer,
the Primary Servicer, the Special Servicer or any other person. It may not
always be possible to determine whether a Disqualifying Condition arose prior
or subsequent to the date of the origination of the related Mortgage Loan.
A "DISQUALIFYING CONDITION" is defined generally as a condition which
would reasonably be expected to (1) constitute or result in a violation of
applicable environmental laws, (2) require any expenditure material in relation
to the principal balance of the related Mortgage Loan to achieve or maintain
compliance in all material respects with any applicable environmental laws, or
(3) require substantial cleanup, remedial action or other extraordinary
response under any applicable environmental laws in excess of a specified
escrowed amount.
"HAZARDOUS MATERIALS" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products and urea formaldehyde.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and due-on-
encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the Mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the Mortgagor of an otherwise
non-recourse loan, the Mortgagor becomes personally liable for the mortgage
debt. The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states and, in some cases, the enforceability
of these clauses was limited or denied. However, with respect to certain loans
the Garn-St Germain Depository Institutions Act of 1982 preempts state
constitutional, statutory and case law that prohibits the enforcement of due-
on-sale clauses and permits lenders to enforce these clauses in accordance with
their terms subject to certain limited exceptions. To the extent 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
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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
To the extent specified in the related Prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the Mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("TITLE V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that residential first mortgage loans that are originated on
or after January 1, 1980 are subject to federal preemption. Therefore, in a
state that has not taken the requisite action to reject application of Title V
or to adopt a provision limiting discount points or other charges prior to
origination of such mortgage loans, any such limitation under such state's
usury law would not apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state action will be eligible
for inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the Mortgagor's counsel
has rendered an opinion that such choice of law provision would be given
effect.
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Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only
for the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages on
Mortgaged Properties which are owned by the Mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "RELIEF ACT"), a Mortgagor who enters military service after
the origination of such Mortgagor's Mortgage Loan (including a Mortgagor who
was in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such Mortgagor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to Mortgagors who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
Mortgagors who enter military service (including reservists who are called to
active duty) after origination of the related Mortgage Loan, no information can
be provided as to the number of loans that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of any servicer to collect full amounts of interest
on certain of the Mortgage Loans. Any shortfalls in interest collections
resulting from the application of the Relief Act would result in a reduction of
the amounts distributable to the holders of the related Series of Certificates,
and would not be covered by advances or, unless otherwise specified in the
related Prospectus Supplement, any form of Credit Support provided in
connection with such Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the servicer to foreclose on an
affected Mortgage Loan during the Mortgagor's period of
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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.
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, "Federal Income Tax Consequences," to the extent that it
constitutes matters of law or legal conclusions, is correct in all material
respects. This summary does not address the federal income tax consequences of
an investment in Certificates applicable to all categories of investors, some
of which (for example, banks and insurance companies) may be subject to special
rules. Prospective investors should consult their tax advisors regarding the
federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund, 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.
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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 their 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;
(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 OID based on the
purchase price and the stated redemption price at maturity of each Government
Security. As such, Grantor Trust Certificateholders would be required to
include in income their pro rata share of the OID 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.
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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 holds 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 OID (currently Code Sections
1271 through 1273 and 1275) and Treasury regulations issued on January 27,
1994, as amended on June 14, 1996, under such Sections (the "OID REGULATIONS"),
will be applicable to a Grantor Trust Certificateholder's interest in those
Mortgage Assets meeting the conditions necessary for these sections to apply.
Rules regarding periodic inclusion of OID income are applicable to mortgages of
corporations originated after May 27, 1969, mortgages of noncorporate
Mortgagors (other than individuals) originated after July 1, 1982, and
mortgages of individuals originated after March 1, 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.
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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 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 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.
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 OID) 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 except with the approval of the IRS.
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").
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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. 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 by
an interest in real property" within the meaning of Code Section 860G(a)(3).
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Grantor Trust Certificates Representing Interests in Loans Other Than
ARM Loans
The OID 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 OID 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 1, 1984. Under the OID Regulations, such OID could arise
by the charging of points by the originator of the mortgage in an amount
greater than the statutory de minimis exception, including a payment of points
that is currently deductible by the borrower under applicable Code provisions,
or under certain circumstances, by the presence of "teaser" rates on the
Mortgage Assets. OID on each Grantor Trust Certificate must be included in the
owner's ordinary income for federal income tax purposes as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to such
income. The amount of OID required to be included in an owner's income in any
taxable year with respect to a Grantor Trust Certificate representing an
interest in Mortgage Assets other than Mortgage Assets with interest rates that
adjust periodically ("ARM LOANS") likely will be computed as described below
under "--Accrual of Original Issue Discount." The following discussion is based
in part on the OID Regulations and in part on the provisions of the Tax Reform
Act of 1986 (the "1986 ACT"). The OID Regulations generally are effective for
debt instruments issued on or after April 4, 1994, but may be relied upon as
authority with respect to debt instruments, such as the Grantor Trust
Certificates, issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the Mortgage Assets should be used, or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described below
under "--Accrual of Original Issue Discount," will, unless otherwise specified
in the related Prospectus Supplement, utilize the original yield to maturity of
the Grantor Trust Certificate calculated based on a reasonable assumed
prepayment rate for the mortgage loans underlying the Grantor Trust
Certificates (the "PREPAYMENT ASSUMPTION"), and will take into account events
that occur during the calculation period. The Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. The legislative history of the 1986 Act (the "LEGISLATIVE HISTORY")
provides, however, that the regulations will require that the Prepayment
Assumption be the prepayment assumption that is used in determining the
offering price of such Certificate. No representation is made that any
Certificate will prepay at the Prepayment Assumption or at any other rate. The
prepayment assumption contained in the Code literally only applies to debt
instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments,
such as the Certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the Master
Servicer intends to calculate and report OID under the method described below.
Accrual of Original Issue Discount
Generally, the owner of a Grantor Trust Certificate must include in
gross income the sum of the "daily portions," as defined below, of the OID on
such Grantor Trust Certificate for each day on which it owns such Certificate,
including the date of purchase but excluding the date of disposition. In the
case of an original owner, the daily portions of OID with respect to each
component generally will be determined as set forth under the OID Regulations.
A calculation will be made by the Master Servicer or such other entity
specified in the related Prospectus Supplement of the portion of OID that
accrues during each successive monthly accrual period (or shorter period from
the date of original issue) that ends on the day in the calendar year
corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period,
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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 stated 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.
OID 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 OID
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 OID, 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 OID 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 OID 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
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.
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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, an estate, 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 or a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have
authority to control all substantial decisions of the trust.
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 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. The REMIC must fulfill an asset test, which requires that
no more than a de minimis amount of the assets of the REMIC, as of the close of
the third calendar month beginning after the "STARTUP DAY" (which for purposes
of this discussion is the date of issuance of the Certificates by the REMIC
(the "REMIC Certificates")) and at all times thereafter, may consist of assets
other than "qualified mortgages" and "permitted investments." The REMIC
Regulations provide a "safe harbor" pursuant to which the de minimis
requirement will be met if at all times the aggregate adjusted basis of any
nonqualified assets (i.e., assets other than qualified mortgages and permitted
investments) is less than 1% of the aggregate adjusted basis of all the REMIC's
assets. 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, the classification of the REMIC for federal income tax purposes is
uncertain. The REMIC might be entitled to treatment as a grantor trust under
the rules described above under "--Grantor Trust Funds". In that case, no
entity-level tax would be imposed on the REMIC. Alternatively, the REMIC
Regular Certificates may continue to be treated as debt instruments for federal
income tax purposes; but the REMIC pool could be treated
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as a taxable mortgage pool (a "TMP"). If the REMIC is treated as a TMP, any
residual income of the REMIC (i.e., income from the Mortgage Loans less
interest and OID expense allocable to the REMIC Regular Certificates and any
administrative expenses of the REMIC) would be subject to corporate income tax
at the REMIC level. If such entity is taxable as a separate corporation,
the related 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 REMIC Regular Certificates or 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 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. Moreover, the REMIC Regulations provide that,
for purposes of Code Sections 593(d)(1) and 856(c)(5)(A), payments of principal
and interest on the mortgage loans that are reinvested pending distribution to
holders of REMIC Certificates constitute qualifying assets for such entities.
Where two REMIC Pools are part of a tiered structure they will be treated as
one REMIC for purposes of the test described above respecting asset ownership
of more or less than 95%. Notwithstanding the foregoing, however, REMIC income
received by a real estate investment trust ("REIT") owning a residual interest
in a REMIC could be treated in part as non-qualifying REIT income if the REMIC
holds mortgage loans with respect to which income is contingent on mortgagor
profits or property appreciation. In addition, if the assets of the REMIC
include buy-own mortgage loans, it is possible that the percentage of such
assets constituting "qualifying real property loans" or "loans . . . secured by
an interest in real property" for
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purposes of Code Sections 593(d)(1) and 7701(a)(19)(C)(v), respectively, may be
required to be reduced by the amount of the related buy-down funds. REMIC
Certificates held by a regulated investment company will not constitute
"government securities" within the meaning of Code Section 851(b)(4)(A)(i).
REMIC Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1).
However, REMIC Regular Certificates acquired by another REMIC on its Startup
Day in exchange for regular or residual interests in the REMIC will constitute
"qualified mortgages" within the meaning of Code Section 860G(a)(3).
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. In general, interest and OID on a REMIC Regular Certificate will be
treated as ordinary income to a holder of the REMIC Regular Certificate (a
"REMIC REGULAR CERTIFICATEHOLDER") as they accrue, and principal payments on a
REMIC Regular Certificate will be treated as a return of capital to the extent
of the REMIC Regular Certificateholder's basis in the REMIC Regular Certificate
allocable thereto. 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. 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. Moreover, the OID Regulations include an anti-abuse rule allowing the IRS
to apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory provisions.
A tax result will not be considered unreasonable under the anti-abuse rule in
the absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion herein and the appropriate method for reporting interest and
original issue discount with respect to the REMIC Regular Certificates.
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
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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 OID (disregarding the rate in
the first period) and any interest foregone during the first period is treated
as the amount by which the stated redemption price at maturity of the
Certificate exceeds its issue price for purposes of the de minimis rule
described below. The OID Regulations suggest that all interest on a long first
period REMIC Regular Certificate that is issued with non-de minimis OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first Distribution Date on a REMIC Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
interest due on the first Distribution Date in excess of the amount that
accrued during the first period would be added to the Certificates, stated
redemption price at maturity. REMIC Regular Certificateholders should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and
the denominator of which is the stated redemption price at maturity of the
REMIC Regular Certificate. Although currently unclear, it appears that the
schedule of such distributions should be determined in accordance with the
Prepayment Assumption. The Prepayment Assumption with respect to a Series of
REMIC Regular Certificates will be set forth in the related Prospectus
Supplement. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the REMIC
Regular Certificate is held as a capital asset. However, accrual method holders
may elect to accrue all de minimis OID as well as market discount under a
constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"SUPER-PREMIUM CERTIFICATES"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be
issued with OID. The calculation of income in this manner could result in
negative OID (which delays future accruals of OID rather than being immediately
deductible) when prepayments on the Mortgage Assets exceed those estimated
under the Prepayment Assumption. If the Super Premium Certificates were treated
as contingent payment obligations, it is unclear how holders of those
Certificates would report income or recover their basis. The OID Regulations,
as they relate to the treatment of contingent interest, are by their terms not
applicable to Regular Certificates. However, if final regulations dealing with
contingent interest with respect to Regular Certificates apply the same
principles as the OID Regulations, such regulations may lead to different
timing of income inclusion and different characterization of any gain on the
sale of a Super-Premium Certificate than discussed above. 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
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Super-Premium Certificate. Investors should consult their tax advisors
regarding the appropriate treatment of Super-Premium Certificates.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than a 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 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 OID 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
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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.
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 OID) 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 except with the approval of the IRS.
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, regardless of whether
the holder is a cash-basis or an accrual basis taxpayer. 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
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accrued market discount for purposes of determining the tax treatment of
subsequent principal payments or dispositions of the market discount bond is to
be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at
the beginning of the period. For REMIC Regular Certificates issued without OID,
the amount of market discount that accrues during a period is equal to the
product of (a) the total remaining market discount and (b) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the period. For purposes of
calculating market discount under any of the above methods in the case of
instruments (such as the REMIC Regular Certificates) that provide for payments
that may be accelerated by reason of prepayments of other obligations securing
such instruments, the same Prepayment Assumption applicable to calculating the
accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of 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 holds 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
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would otherwise be distributed on the Subordinated Certificates may instead be
distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such
Certificates under an accrual method without giving effect to delays and
reductions in distributions on such Subordinated Certificates attributable to
defaults and delinquencies on the Mortgage Assets, except to the extent that it
can be established that such amounts are uncollectible. As a result, the amount
of income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of
defaults and delinquencies on the Mortgage Assets. Timing and characterization
of such losses is discussed in "--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 (i) if
a REMIC Regular Certificate is held as part of a "conversion transaction" as
defined in Code Section 1258(c), up to the amount of interest that would have
accrued on the REMIC Regular Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate under
Code Section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction,
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxes
as investment income at ordinary income rates, or (iii) in the case of a REMIC
Regular Certificate.
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
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payment date (and the first payment date is within one year of the issue date)
that equals or exceeds the amount of the pre-issuance accrued interest, then
the REMIC Regular Certificates' issue price may be computed by subtracting from
the issue price the amount of pre-issuance accrued interest, rather than as an
amount payable on the REMIC Regular Certificate. However, it is unclear under
this method how the OID Regulations treat interest on Payment Lag Certificates.
Therefore, in the case of a Payment Lag Certificate, the Trust Fund intends to
include accrued interest in the issue price and report interest payments made
on the first Distribution Date as interest to the extent such payments
represent interest for the number of days that the Certificateholder has held
such Payment Lag Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will
be allocated as a separate item to those REMIC Regular Certificateholders that
are "pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of
these rules on an investment in the REMIC Regular Certificates. See "--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.
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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.
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
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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, OID 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 OID expense on the REMIC Regular Certificates, servicing fees on the
Mortgage Loans, other administrative expenses of the REMIC and realized losses
on the Mortgage Loans. The requirement that REMIC Residual Certificateholders
report their pro rata share of taxable income or net loss of the REMIC will
continue until there are no Certificates of any class of the related Series
outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent
that the REMIC's basis therein is less than or greater than its principal
balance, respectively. Any such discount (whether market discount or OID) will
be includible in the income of the REMIC as it accrues, in advance of receipt
of the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
expects to elect under Code Section 171 to amortize any premium on the Mortgage
Assets. Premium on any Mortgage Asset to which such election applies would be
amortized under a constant yield method. It is not clear whether the yield of a
Mortgage Asset would be calculated for this purpose based on scheduled payments
or taking account of the Prepayment Assumption. Additionally, such an election
would not apply to the yield with respect to any underlying mortgage loan
originated on or before September 27, 1985. Instead, premium with respect to
such a mortgage loan would be allocated among the principal payments thereon
and would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be
calculated for this purpose in the same manner as described above with respect
to REMIC Regular Certificates except that the 0.25% per annum de minimis rule
and adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and,
as described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--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.
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Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders
of the REMIC Residual Certificates. In the case of a single class REMIC,
however, the expenses and a matching amount of additional income will be
allocated, under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is one
that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable Prospectus Supplement, the expenses of the REMIC will
be allocated to holders of the related REMIC Residual Certificates in their
entirety and not to holders of the related REMIC Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in
a REMIC Regular Certificate or a REMIC Residual Certificate directly or through
a pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g., a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "APPLICABLE AMOUNT") will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
the Applicable Amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. REMIC Residual Certificateholders that are pass-through interest
holders should consult their own tax advisors about the impact of these rules
on an investment in the REMIC Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any calendar
quarter will, 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
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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 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
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the sale will not be deductible, but, instead, will increase such REMIC
Residual Certificateholder's adjusted basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "PROHIBITED TRANSACTIONS TAX"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day
on which such Trust Fund issues all of its interests could result in the
imposition of a tax on the Trust Fund equal to 100% of the value of the
contributed property (the "CONTRIBUTIONS TAX"). No Trust Fund for any Series of
Certificates will accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Master Servicer's, Trustee's or
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.
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Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting
an administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--REMICs -- Taxation
of Owners of REMIC Residual Certificates -- Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS TO 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
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United States, any State, possession or political subdivision thereof, any
foreign government, any international organization or any agency or
instrumentality of any of the foregoing (provided that such term does not
include an instrumentality if all its activities are subject to tax and, except
for FHLMC, a majority of its board of directors is not selected by any such
governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization
is the record holder of an interest in such entity, will be relieved of
liability for the tax if such record holder furnishes to such entity an
affidavit that such record holder is not a disqualified organization and, for
such period, the pass-through entity does not have actual knowledge that the
affidavit is false. For this purpose, a "pass-through entity" means (i) a
regulated investment company, real estate investment trust or common trust
fund, (ii) a partnership, trust or estate and (iii) certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any person
holding an interest in a pass-through entity as a nominee for another will,
with respect to such interest, be treated as a pass-through entity.
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. The
Agreement will require the transferee of a REMIC Residual Certificate to state
as part of the affidavit described above under "--Tax-Related Restrictions on
Transfers of REMIC Residual Certificates--Disqualified Organizations" that such
transferee (i) has historically paid its debts as they come due, (ii) intends
to continue to pay its debts as they come due in the future; (iii) understands
that, as the holder of a noneconomic REMIC Residual Certificate, it may incur
tax liabilities in excess of any cash flows generated by the REMIC Residual
Certificate as they become due. The transferor must have no reason to believe
that such statement is untrue.
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
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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 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 "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 and on any entity whose underlying assets include assets of such a plan
by reason of any such plan's investment in the entity ("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
substantially similar 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
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transaction. Section 4975 of the Code imposes certain excise taxes (and, 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.
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
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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 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. In addition, pursuant to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "1994
AMENDMENT"), Congress expanded the definition of securities entitled to the
benefits of SMMEA to include those evidencing ownership of, or secured by,
notes secured by a first lien on one or more parcels of real estate, upon which
is located one or more commercial structures. The terms of this amendment
permit states to prohibit or limit, by specific legislation, the authority of
persons, trusts, corporations, partnerships, associations, business trusts or
business entities to purchase, hold or invest, in securities evidencing
ownership of, or secured by, such notes to the extent predicated on the
expansion of SMMEA. The 1994 Amendment permits enactment of such restrictions
until September 23, 2001. It provides, however, that no enactment will affect
the validity of a contractual commitment to purchase, hold or invest in
securities made before such enactment, or require sale of any securities
previously acquired. The Prospectus Supplement for each Series will identify
the states, if any, that have enacted any such limitations through the date of
the Prospectus Supplement. Enactment of such restrictions could adversely
affect the liquidity of any Offered Certificates entitled to the benefits of
SMMEA solely by reason of the 1994 Amendment. 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
- 94 -
<PAGE> 164
financial institution which is subject to the jurisdiction of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation ("FDIC"), the Office of Thrift
Supervision ("OTS"), the National Credit Union Administration ("NCUA") or other
federal or state agencies with similar authority should review any applicable
rules, guidelines and regulations prior to purchasing any Offered Certificate.
The Federal Financial Institutions Examination Council, for example, has issued
a Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "POLICY STATEMENT"). The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement prohibits depository
institutions from investing in certain "high-risk mortgage securities"
(including securities such as certain classes of Offered Certificates), except
under limited circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "MODEL LAW") which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
these Offered Certificates 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 specified 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 more 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:
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<PAGE> 165
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.
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.
Goldman, Sachs & Co. is not affiliated with the Depositor. However, an
affiliate of Goldman, Sachs & Co. is a limited partner of AMRESCO Commercial
Mortgage Funding, L.P., the entity that accumulates the Mortgage Loans prior to
their securitization, from which entity the Depositor, through one of its
affiliates, will purchase the Mortgage Loans for transfer to the Trust. The
general partner and the other limited partner of AMRESCO Commercial Mortgage
Funding, L.P. are affiliates of the Depositor.
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<PAGE> 166
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.
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<PAGE> 167
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
"1986 Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"1994 Amendment". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Accounts" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Accrual Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . 10, 30
"Accrued Certificate Interest" . . . . . . . . . . . . . . . . . . . . . . . 32
"ACC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"ADA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
"Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Applicable Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
"ARM Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 74
"Asset Seller" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Available Distribution Amount" . . . . . . . . . . . . . . . . . . . . . . . 31
"Balloon Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Bankruptcy Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Beneficial Owners" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
"Book-Entry Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Cash Flow Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 26
"Cash Flow Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Cede" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 37
"CERCLA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 64
"Certificate Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 32
"Certificateholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 94
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
"CMBS Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"CMBS Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"CMBS Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"CMBS Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"CMBS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 20
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Commercial Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Commercial Properties" . . . . . . . . . . . . . . . . . . . . . . . . . 7, 21
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Conduit Purchasers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Contributions Tax" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
"Cooperative Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"Cooperative" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"Cooperatives" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Covered Trust" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 52
"CPR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Credit Support" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9, 26
"Crime Control Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
"Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Debt Service Coverage Ratio" . . . . . . . . . . . . . . . . . . . . . . . . 22
"Deferred Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
- 98 -
<PAGE> 168
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Definitive Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 31, 37
"Depositor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 21
"Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Disqualifying Condition" . . . . . . . . . . . . . . . . . . . . . . . . . . 66
"Distribution Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
"Distribution Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 36
"Environmental Hazard Condition" . . . . . . . . . . . . . . . . . . . . . . 65
"EPA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
"Equity Participations" . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 92
"ERISA Plans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Excess Servicing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Exemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
"Fannie Mae" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 94
"Grantor Trust Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 11
"Hazardous Materials" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
"Holliday Fenoglio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Indirect Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
"Insurance Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
"L/C Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
"Labor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Lease" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 8
"Lease Assignment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Legislative History" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"Lessee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 8
"Liquidation Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Loan-to-Value Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Lock-out Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Lock-out Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Master REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Model Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
"Mortgage Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 20
"Mortgage Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . 8, 24
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 20
"Mortgage Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Mortgaged Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Mortgages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Mortgagor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
"Multifamily Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Multifamily Properties" . . . . . . . . . . . . . . . . . . . . . . . . 7, 21
"NCUA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Net Operating Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Nonrecoverable Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Offered Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"OID" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
"OID Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
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<PAGE> 169
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Originator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"OTS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"Parties in Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Pass-Through Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Payment Lag Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . 83
"Permitted Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Plans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Policy Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
"Prepayment Assumption" . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"Prepayment Premium" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Primary Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Prohibited Transactions Tax" . . . . . . . . . . . . . . . . . . . . . . . . 89
"Prospectus Supplement" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
"Rating Agency" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"RCRA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Refinance Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"REIT" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Related Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Relief Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 11
"REMIC Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"REMIC Regular Certificateholder" . . . . . . . . . . . . . . . . . . . . . . 78
"REMIC Regular Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 11
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
"REMIC Residual Certificateholder" . . . . . . . . . . . . . . . . . . . . . 84
"REMIC Residual Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 11
"Restricted Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
"Retained Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"RICO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
"Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Senior Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 30
"Series" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Servicing Standard" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
"Servicing Transfer Event" . . . . . . . . . . . . . . . . . . . . . . . . . 44
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"SMMEA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Special Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Specially Serviced Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . 44
"Startup Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"Stripped ARM Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . 75
"Stripped Bond Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 72
"Stripped Coupon Certificates" . . . . . . . . . . . . . . . . . . . . . . . 72
"Stripped Interest Certificates" . . . . . . . . . . . . . . . . . . . . 10, 30
"Stripped Principal Certificates" . . . . . . . . . . . . . . . . . . . . 10, 30
"Subordinate Certificates" . . . . . . . . . . . . . . . . . . . . . . . 10, 30
</TABLE>
- 100 -
<PAGE> 170
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Subsidiary REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Super-Premium Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 79
"Title V" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"TMP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"Trust Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"U.S. Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"UCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"Underlying CMBS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Underlying Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Voting Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Warranting Party" . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 39
"Whole Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
- 101 -
<PAGE> 171
======================================================
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
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................................... 14
Description of the Trust Funds................. 20
Use of Proceeds................................ 26
Yield Considerations........................... 26
The Depositor.................................. 30
Description of the Certificates................ 30
Description of the Agreements.................. 38
Description of Credit Support.................. 52
Certain Legal Aspects of the Mortgage
Loans and the Leases......................... 54
Federal Income Tax Consequences................ 69
State Tax Considerations....................... 92
ERISA Considerations........................... 92
Legal Investment............................... 94
Method of Distribution......................... 95
Legal Matters.................................. 97
Financial Information.......................... 97
Rating......................................... 97
Index of Principal Definitions................. 98
</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> 172
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> 173
ITEM 16. EXHIBITS
Exhibit
Number
1.1 Form of Underwriting Agreement**
3.1 Certificate of Incorporation of the Company (1)
3.2 By-Laws of the Company (1)
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Loan Sale 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 (1)
- ---------------
* Filed herewith.
** To be filed by amendment.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Form S-3 Registration Statement (File No. 333-19591) on January 10, 1997
and incorporated by reference herein.
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> 174
(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> 175
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
Amendment No. 1 to Registration Statement No. 333-19591 to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Dallas,
State of Texas, on the 21st day of February 1997.
AMRESCO COMMERCIAL MORTGAGE FUNDING I
CORPORATION
By: /s/ Michael N. Maberry
----------------------------------
Michael N. Maberry
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the 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>
Robert H. Lutz, Jr.* Director (Chairman of the Board of February 21, 1997
---------------------------------------- Directors) and Chief Executive
Robert H. Lutz, Jr. Officer (Principal Executive
Officer)
/s/ Michael N. Maberry President February 21, 1997
----------------------------------------
Michael N. Maberry
Barry L. Edwards* Director, Executive Vice President February 21, 1997
---------------------------------------- and Chief Financial Officer
Barry L. Edwards (Principal Financial Officer)
Robert L. Adair III* Director and Executive Vice February 21, 1997
---------------------------------------- President
Robert L. Adair III
Ronald B. Kirkland* Vice President and Chief February 21, 1997
---------------------------------------- Accounting Officer
Ronald B. Kirkland (Principal Accounting Officer)
* By: /s/ Michael N. Maberry
----------------------------------
Michael N. Maberry
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 176
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Certificate of Incorporation of the Company (1)
3.2 By-Laws of the Company (1)
4.1 Form of Pooling and Servicing Agreement*
4.2 Form of Loan Sale 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 (1)
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
================================================================================
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
Depositor
AMRESCO MANAGEMENT, INC.,
Servicer/Special Servicer
LASALLE NATIONAL BANK,
Trustee
and
_______________________________________________,
Fiscal Agent
________________________________________________________
POOLING AND SERVICING AGREEMENT
Dated as of _____________, 1997
______________________________________________________
MORTGAGE PASS-THROUGH CERTIFICATES
Series 1997-1
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.01. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.02. Certain Calculations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 1.03. Certain Constructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE II CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 2.01. Conveyance of Mortgage Loans; Assignment of Mortgage
Loan Purchase and Sale Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 2.02. Acceptance by Custodian and the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 2.03. Representations and Warranties of the Depositor. . . . . . . . . . . . . . . . . . . . . . 47
SECTION 2.04. Representations, Warranties and Covenants of the Servicer
and Special Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 2.05. Execution and Delivery of Certificates; Issuance of
Lower-Tier Regular Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 2.06. Miscellaneous REMIC and Grantor Trust Provisions. . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE III ADMINISTRATION AND SERVICING OF
THE MORTGAGE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.01. Servicer to Act as Servicer; Administration of the Mortgage
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.02. Liability of the Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 3.03. Collection of Certain Mortgage Loan Payments. . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 3.04. Collection of Taxes, Assessments and Similar Items;
Escrow Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 3.05. Collection Account; Distribution Account; Upper-Tier
Distribution Account; Default Interest Distribution Account;
and Excess Interest Distribution Account. . . . . . . . . . . . . . . . . . . . . . 60
SECTION 3.06. Permitted Withdrawals from the Collection Account. . . . . . . . . . . . . . . . . . . . . 62
SECTION 3.07. Investment of Funds in the Collection Account, the REO
Account, the Lock-Box Accounts, the Cash Collateral Accounts,
the Interest Reserve Account and the Reserve Accounts. . . . . . . . . . . . . . . 64
SECTION 3.08. Maintenance of Insurance Policies and Errors and Omissions
and Fidelity Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 3.09. Enforcement of Due-On-Sale Clauses; Assumption
Agreements; Defeasance Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 3.10. Appraisals; Realization Upon Defaulted Mortgage Loans . . . . . . . . . . . . . . . . . . . 71
SECTION 3.11. Trustee to Cooperate; Release of Mortgage Files. . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.12. Servicing Fees, Trustee Fees and Special Servicing
Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 3.13. Reports to the Trustee; Collection Account Statements. . . . . . . . . . . . . . . . . . . 78
SECTION 3.14. Annual Statement as to Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 3.15. Annual Independent Public Accountants' Servicing Report . . . . . . . . . . . . . . . . . . 79
SECTION 3.16. Access to Certain Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 3.17. Title and Management of REO Properties and
REO Account Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 3.18. Sale of Specially Serviced Mortgage Loans and
REO Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 3.19. Additional Obligations of the Servicer and Special
Servicer; Inspections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 3.20. Authenticating Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 3.21. Appointment of Custodians. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 3.22. Reports to the Securities and Exchange Commission;
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 3.23. Lock-Box Accounts, Cash Collateral Accounts, Escrow
Accounts and Reserve Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 3.24. Property Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 3.25. Appointment of Special Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 3.26. Transfer of Servicing Between Servicer and Special Servicer;
Record Keeping. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 3.27. Interest Reserve Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 3.28. Limitations on and Authorizations of the Servicer and
Special Servicer with Respect to Certain Mortgage Loans. . . . . . . . . . . . . . 94
SECTION 3.29. Residual Trigger Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 3.30. Modification, Waiver, Amendment and Consents. . . . . . . . . . . . . . . . . . . . . . . 97
ARTICLE IV DISTRIBUTIONS TO CERTIFICATEHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 4.01. Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 4.02. Statements to Certificateholders; Available Information;
Information Furnished to Financial Market Publisher . . . . . . . . . . . . . . . . 108
SECTION 4.03. Compliance with Withholding Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . 110
SECTION 4.04. REMIC Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 4.05. Imposition of Tax on the Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SECTION 4.06. Remittances; P&I Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SECTION 4.07. Grantor Trust Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 4.08. Special Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
ARTICLE V THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 5.01. The Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 5.02. Registration of Transfer and Exchange of Certificates . . . . . . . . . . . . . . . . . . . 118
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates. . . . . . . . . . . . . . . . . . . . . 121
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
SECTION 5.04. Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
ARTICLE VI THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER . . . . . . . . . . . . . . . . . . . . . . . . 122
SECTION 6.01. Liability of the Depositor, the Servicer and the
Special Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
SECTION 6.02. Merger or Consolidation of the Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . 122
SECTION 6.03. Limitation on Liability of the Depositor, the Servicer
and Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
SECTION 6.04. Limitation on Resignation of the Servicer and the
Special Servicer; Termination of the Servicer and the
Special Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
SECTION 6.05. Rights of the Depositor and the Trustee in Respect of the
Servicer and the Special Servicer. . . . . . . . . . . . . . . . . . . . . . . . . 124
SECTION 6.06. Servicer or Special Servicer as Owner of a Certificate. . . . . . . . . . . . . . . . . . . 125
ARTICLE VII DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
SECTION 7.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
SECTION 7.02. Trustee to Act; Appointment of Successor. . . . . . . . . . . . . . . . . . . . . . . . . . 129
SECTION 7.03. Notification to Certificateholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
SECTION 7.04. Other Remedies of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
SECTION 7.05. Waiver of Past Events of Default; Termination. . . . . . . . . . . . . . . . . . . . . . . 131
ARTICLE VIII CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
SECTION 8.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
SECTION 8.02. Certain Matters Affecting the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . 133
SECTION 8.03. Trustee and Fiscal Agent Not Liable for Certificates
or Mortgage Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
SECTION 8.04. Trustee and Fiscal Agent May Own Certificates. . . . . . . . . . . . . . . . . . . . . . . 136
SECTION 8.05. Payment of Trustee's Fees and Expenses; Indemnification . . . . . . . . . . . . . . . . . . 136
SECTION 8.06. Eligibility Requirements for Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
SECTION 8.07. Resignation and Removal of the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . 139
SECTION 8.08. Successor Trustee and Fiscal Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
SECTION 8.09. Merger or Consolidation of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee. . . . . . . . . . . . . . . . . . . . . . . 141
SECTION 8.11. Fiscal Agent Appointed; Concerning the Fiscal Agent . . . . . . . . . . . . . . . . . . . . 142
ARTICLE IX TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
SECTION 9.01. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
ARTICLE X MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
SECTION 10.01. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
SECTION 10.02. Limitation on Rights of Certificateholders. . . . . . . . . . . . . . . . . . . . . . . . . 146
SECTION 10.03. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
SECTION 10.04. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
SECTION 10.05. Severability of Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
SECTION 10.06. Notice to the Depositor and Each Rating Agency. . . . . . . . . . . . . . . . . . . . . . . 149
SECTION 10.07. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
SECTION 10.08. Confirmation of Intent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
SECTION 10.09. Streit Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
SECTION 10.10. No Intended Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 153
</TABLE>
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<PAGE> 6
TABLE OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A-1 [Form of Certificates]
Exhibit B Mortgage Loan Schedule
Exhibit C Form of Transferor Certificate
Exhibit D Form of Investment Letter - Qualified Institutional Buyer
Exhibit E Form of Investment Letter - Institutional Accredited Investor
Exhibit F-1 Form of Transfer Affidavit
Exhibit F-2 Form of Transferor Certificate
Exhibit G Form of Request for Release
Exhibit H Form of Agreement Report
Exhibit I Securities Legend
Exhibit J Form of Mortgage Loan Purchase and Sale Agreement
Exhibit K Form of Summary Report
Exhibit L Schedule of Replacement Reserve Amounts
</TABLE>
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<PAGE> 7
Pooling and Servicing Agreement, dated as of _________, 1997, among AMRESCO
Commercial Mortgage Funding I Corporation, as Depositor, AMRESCO Management,
Inc., as Servicer and Special Servicer, LaSalle National Bank, as Trustee, and
_________________, as Fiscal Agent.
PRELIMINARY STATEMENT:
(Terms used but not defined in this Preliminary Statement shall have the
meanings specified in Article I hereof)
[Confirm to Structure of Securities Tranches]
The Depositor intends to sell pass-through certificates to be issued
hereunder in multiple Classes which in the aggregate will evidence the entire
beneficial ownership interest in the Trust Fund consisting primarily of the
Mortgage Loans. As provided herein, the Trustee will elect that the Trust
Fund, exclusive of the Lock-Box Accounts, Cash Collateral Accounts, Reserve
Accounts, the Default Interest, the Default Interest Distribution Account, the
Excess Interest and the Excess Interest Distribution Account (such portion of
the Trust Fund, the "Trust REMICs"), be treated for federal income tax purposes
as two separate real estate mortgage investment conduits (each, a "REMIC" or,
in the alternative, the "Lower-Tier REMIC" and the "Upper-Tier REMIC,"
respectively). The Class ______, Class ______, Class ______, Class ______,
Class _____, Class _____, Class _____, Class _____, Class _____, Class _____,
Class _____, Class _____, Class _____, Class _____ and Class ______
Certificates constitute "regular interests" in the Upper-Tier REMIC and the
Class R Certificates constitute the sole Class of "residual interests" in the
Upper-Tier REMIC for purposes of the REMIC Provisions. The Class LR
Certificates constitute the sole Class of "residual interests" in the Lower-
Tier REMIC for purposes of the REMIC Provisions. There are also ______ Classes
of uncertificated Lower-Tier Regular Interests issued under this Agreement (the
Class ______, Class ______, Class _____, Class ______, Class _____, Class
______, Class _____, Class _____, Class _____, Class _____, Class _____, Class
_____ and Class _____ Interests), each of which will constitute a regular
interest in the Lower-Tier REMIC. All such Lower-Tier Regular Interests will
be held by the Trustee as assets of the Upper-Tier REMIC. The parties intend
that the portions of the Trust Fund representing the Default Interest, the
Default Interest Distribution Account, the Excess Interest and the Excess
Interest Distribution Account will be treated as a grantor trust under Subpart
E of Part 1 of Subchapter J of the Code, that the Class V-1 Certificates
represent pro rata undivided beneficial interests in the portion of the Trust
Fund consisting of the Default Interest and the Default Interest Distribution
Account and that the Class V-2 Certificates represent pro rata undivided
beneficial interests in the portion of the Trust Fund consisting of the Excess
Interest and the Excess Interest Distribution Account.
The following table sets forth the designation and aggregate initial
Certificate Balance (or, with respect to the Class _____ and Class _____
Certificates, Notional Balance) for each Class of Certificates comprising
interests in the Upper-Tier REMIC.
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<PAGE> 8
<TABLE>
<CAPTION>
Class Certificate Balance or Notional Balance
----- ---------------------------------------
<S> <C> <C>
Class ____ $__________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
Class ____ __________.00
</TABLE>
(1) The Class ______ Certificates are composed of one Strip Component: the
Class _____ Strip Component. The Class ______ Strip Component has an initial
Component Balance of $__________ which is equal to the initial Certificate
Balance of the Class ____ Certificates.
(2) The Class ______ Certificates are composed of ____ Strip Components:
the Class _____ Strip Component, the Class _____ Strip Component, the Class
____ Strip Component, Class ____ Strip Component, Class ____ Strip Component,
the Class ____ Strip Component and the Class ____ Strip Component. The Class
____ Strip Component has an initial Component Balance of $_______.00, which is
equal to the initial Certificate Balance of the Class A-1B Certificates. The
Class ____ Strip Component has an initial Component Balance of $_______.00,
which is equal to the initial Certificate Balance of the Class _____
Certificates. The Class _____ Strip Component has an initial Component Balance
of $_______.00, which is equal to the Certificate Balance of the Class _____
Certificates. The Class ____ Strip Component has an initial Component Balance
of $________.00, which is equal to the initial Certificate Balance of the Class
_____ Certificates. The Class ____ Strip Component has an initial Component
Balance of $________.00, which is equal to the initial Certificate Balance of
the Class _____ Certificates. The Class ____ Strip Component has an initial
Component Balance of $________.00, which is equal to the initial Certificate
Balance of the Class _____ Certificates. The Class _____ Strip Component has
an initial Component Balance of $________.00, which is equal to the initial
Certificate Balance of the Class _____ Certificates.
The initial Certificate Balance of each of the Class V-1, Class V-2,
Class R and Class LR Certificates is zero. Additionally, the Class V-1, Class
V-2, Class R and Class LR Certificates do not have a Notional Balance. The
Certificate Balance of any Class of Certificates outstanding at any time
represents the maximum amount which holders thereof are entitled to receive as
distributions allocable to principal from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund; provided, however, that in the event
that amounts previously allocated as Realized Losses to a Class of Certificates
in reduction of the Certificate Balance thereof are recovered subsequent to the
reduction of the Certificate Balance of such Class to zero, such Class may
receive distributions in respect of such recoveries in accordance with the
priorities set forth in Section 4.01.
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<PAGE> 9
As of the Cut-off Date, the Mortgage Loans have an aggregate Stated
Principal Balance equal to approximately $________.00.
In consideration of the mutual agreements herein contained, the
Depositor, the Servicer, the Special Servicer, the Trustee and the Fiscal Agent
agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the meanings specified in
this Article.
"Act": The Securities Act of 1933, as it may be amended from time to
time.
"Actual/360 Mortgage Loans": The Mortgage Loans indicated as such in
the Mortgage Loan Schedule.
"Additional Servicing Fee": With respect to each Mortgage Loan and
for any Distribution Date, an amount per Interest Accrual Period equal to the
product of (i) one-twelfth of the Additional Servicing Fee Rate and (ii) the
Stated Principal Balance of such Mortgage Loan as of the Due Date (after giving
effect to all payments of principal on such Mortgage Loan on such Due Date) in
the month preceding the month in which such Distribution Date occurs.
"Additional Servicing Fee Rate": A rate equal to ____% per annum.
"Advance": Any P&I Advance or Property Advance.
"Advance Interest Amount": Interest at the Advance Rate on the
aggregate amount of P&I Advances and Property Advances for which the Servicer,
the Special Servicer, the Trustee or the Fiscal Agent, as applicable, have not
been reimbursed and Servicing Fees, Trustee Fees or Special Servicing
Compensation for which the Servicer, the Trustee or the Special Servicer, as
applicable, has not been timely paid or reimbursed for the number of days from
the date on which such Advance was made or such Servicing Fees, Trustee Fees or
Special Servicing Compensation were due through the date of payment or
reimbursement of the related Advance or other such amount, less any amount of
interest previously paid on such Advance or Servicing Fees, Trustee Fees or
Special Servicing Compensation; provided, that, with respect to a P&I Advance,
in the event that the related Borrower makes payment of the amount in respect
of which such P&I Advance was made with interest at the Default Rate, the
Advance Interest Amount payable to the Servicer, the Trustee or the Fiscal
Agent shall be paid (i) first from the amount of Default Interest paid by the
Borrower and (ii) to the extent such amounts are insufficient therefor, from
amounts on deposit in the Collection Account.
"Advance Rate": A per annum rate equal to the sum of (i) the Prime
Rate (as most recently published in the "Money Rates" section of The Wall
Street Journal, New York edition, on or before
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<PAGE> 10
the related Record Date) plus (ii) 1%, compounded monthly as of each Servicer
Remittance Date. Interest at the Advance Rate will accrue from (and including)
the date on which the related Advance is made or the related expense incurred
to (but excluding) the first Servicer Remittance Date after the date on which
such amounts are recovered out of amounts received on the Mortgage Loan as to
which such Advances were made or servicing expenses incurred or the first
Servicer Remittance Date after a determination of non-recoverability, as the
case may be, is made, provided that such interest at the Advance Rate will
continue to accrue to the extent funds are not available in the Collection
Account for such reimbursement of such Advance.
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. The Trustee may
obtain and rely on an Officers' Certificate of the Servicer, the Special
Servicer, or the Depositor to determine whether any Person is an Affiliate of
such party.
"Affiliated Person": Any Person (other than a Rating Agency) involved
in the organization or operation of the Depositor or an affiliate, as defined
in Rule 405 of the Act, of such Person.
"Agent Member": Members of, or participants in, the Depository.
"Agreement": This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
"Allocated Loan Amount": With respect to each Mortgaged Property, the
portion of the principal amount of the related Mortgage Loan allocated to such
Mortgaged Property in the applicable Mortgage or Loan Agreement.
"Annual Compliance Report": A report consisting of an annual
statement of compliance required be Section 3.14 hereof and an annual report of
an Independent accountant required pursuant to Section 3.15 hereof.
"Anticipated Repayment Date": With respect to any Mortgage Loan that
is indicated on the Mortgage Loan Schedule as having a Revised Mortgage Rate,
the date upon which such Mortgage Loan commences accruing interest at such
Revised Rate.
"Anticipated Termination Date": Any Distribution Date on which it is
anticipated that the Trust Fund will be terminated pursuant to Section 9.01(c).
"Applicable Monthly Payment": As defined in Section 4.06(a).
"Appraisal Reduction Amount": For any Distribution Date and for any
Mortgage Loan as to which an Appraisal Reduction Event has occurred, an amount
equal to the excess, if any, of (a) the Stated Principal Balance of such
Mortgage Loan over (b) the excess of (i) 90% of the sum of the
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<PAGE> 11
appraised values of the Mortgaged Properties as determined by Updated
Appraisals obtained by the Servicer of the Mortgaged Properties securing such
Mortgage Loan over (ii) the sum of (A) to the extent not previously advanced by
the Servicer, the Trustee or the Fiscal Agent, all unpaid interest on such
Mortgage Loan at a per annum rate equal to its Mortgage Rate, (B) all
unreimbursed Advances, with interest thereon at the Advance Rate, in respect of
such Mortgage Loan and (C) all due and unpaid real estate taxes, ground rents
and assessments and insurance premiums and all other amounts due and unpaid
with respect to such Mortgage Loan (which taxes, premiums and other amounts
have not been the subject of an Advance by the Servicer, the Trustee or the
Fiscal Agent, as applicable). If no Updated Appraisal has been obtained within
the last 12 months prior to the first Distribution Date on or after an
Appraisal Reduction Event has occurred, the Servicer shall estimate the value
of the related Mortgaged Properties (the "Servicer's Appraisal Estimate") and
such estimate shall be used for purposes of determining the Appraisal Reduction
Amount for such Distribution Date. Within 30 days after the Servicer receives
notice or is otherwise aware of the Appraisal Reduction Event, the Servicer
shall obtain an Updated Appraisal. On the first Distribution Date occurring on
or after the delivery of such appraisal, the Servicer shall adjust the
Appraisal Reduction Amount to take into account such appraisal (regardless of
whether the Updated Appraisal is higher or lower than the Servicer's Appraisal
Estimate). Each Appraisal Reduction Amount shall also be adjusted to take into
account any subsequent Updated Appraisal and annual letter updates, as of the
date of each such subsequent Updated Appraisal or letter update.
"Appraisal Reduction Event": With respect to any Mortgage Loan, the
earliest of (i) the third anniversary of the date on which an extension of the
Maturity Date of such Mortgage Loan becomes effective as a result of a
modification of such Mortgage Loan by the Special Servicer pursuant to the
terms hereof, which extension does not change the amount of Monthly Payments on
the Mortgage Loan, (ii) 90 days after an uncured Delinquency (without regard to
the application of any grace period) occurs in respect of such Mortgage Loan,
(iii) immediately after the date on which a reduction in the amount of Monthly
Payments on such Mortgage Loan, or a change in any other material economic term
of such Mortgage Loan (other than an extension of the Maturity Date), becomes
effective as a result of a modification of such Mortgage Loan by the Special
Servicer, (iv) immediately after a receiver has been appointed, (v) immediately
after a borrower declares bankruptcy, (vi) immediately after a Mortgage Loan
becomes an REO Mortgage Loan, (vii) upon a default in the payment of a Balloon
Payment and (viii) immediately upon the occurrence of an event for which a
Property Protection Advance would be required to be made by the Servicer or any
other event which, in the discretion of the Servicer and of which the Servicer
becomes aware in performing its obligations hereunder, in accordance with the
Servicing Standard, would materially and adversely impair the value of a
Mortgaged Property and security for the related Mortgage Loan. The Special
Servicer shall notify the Servicer promptly upon the occurrence of any of the
foregoing events.
"Assignment of Leases, Rents and Profits": With respect to any
Mortgaged Property, any assignment of leases, rents and profits or similar
agreement executed by the Borrower, assigning to the mortgagee all of the
income, rents and profits derived from the ownership, operation, leasing or
disposition of all or a portion of such Mortgaged Property, in the form which
was duly executed, acknowledged and delivered, as amended, modified, renewed or
extended through the date hereof and from time to time hereafter.
- 5 -
<PAGE> 12
"Assignment of Mortgage": An assignment of Mortgage without recourse,
notice of transfer or equivalent instrument, in recordable form, which is
sufficient under the laws of the jurisdiction in which the related Mortgaged
Property is located to reflect of record the sale of the Mortgage, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering Mortgages encumbering Mortgaged
Properties located in the same jurisdiction, if permitted by law and acceptable
for recording; provided, however, that none of the Trustee, the Custodian and
the Servicer shall be responsible for determining whether any assignment is
legally sufficient or in recordable form.
"Assumed Maturity Date": With respect to any Mortgage Loan that is
not a Balloon Loan, the maturity date of such Mortgage Loan. With respect to
any Balloon Loan, the date on which such Mortgage Loan would be deemed to
mature in accordance with its original amortization schedule absent its Balloon
Payment.
"Assumed Scheduled Payment": With respect to any Mortgage Loan that
is delinquent in respect of its Balloon Payment (including any REO Mortgage
Loan as to which the Balloon Payment would have been past due), an amount equal
to the sum of (a) the principal portion of the Monthly Payment that would have
been due on such Mortgage Loan on the related Due Date (or portion thereof not
received), based on the constant Monthly Payment that would have been due on
such Mortgage Loan on the related Due Date based on the constant payment
required by the related Note or the amortization or payment schedule thereof
(as calculated with interest at the related Mortgage Rate) (if any), assuming
such Balloon Payment had not become due, after giving effect to any prior
modification, and (b) interest at the applicable Mortgage Pass-Through Rate.
"Assumption Fees": Any fees collected by the Servicer or Special
Servicer in connection with an assumption or modification of a Mortgage Loan or
substitution of a Borrower thereunder permitted to be executed under the
provisions of this Agreement.
"Authenticating Agent": Any authenticating agent appointed by the
Trustee pursuant to Section 3.20.
"Available Funds": For a Distribution Date, the sum of (i) all
previously undistributed Monthly Payments, Minimum Defaulted Monthly Payments
or other receipts on account of principal and interest (including Unscheduled
Payments and any REO Proceeds transferred from an REO Account pursuant to
Section 3.17(b)) on or in respect of the Mortgage Loans, received by the
Servicer in the Collection Period relating to such Distribution Date, (ii) all
other amounts received by the Servicer in such Collection Period and required
to be placed in the Collection Account by the Servicer pursuant to Section 3.05
allocable to such Mortgage Loans, and including all P&I Advances made by the
Servicer, the Trustee or the Fiscal Agent in respect of such Distribution Date,
(iii) for the Distribution Date occurring in each March, the Withheld Amounts
remitted to the Distribution Account pursuant to Section 3.27(b), (iv) any late
payments of Monthly Payments received after the end of the Collection Period
relating to such Distribution Date but prior to the related Servicer Remittance
Date and (v) any amounts deposited into the Collection Account by the Servicer
pursuant to Section 3.05(a) attributable to Servicer Prepayment Interest
Shortfalls, but excluding the following:
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<PAGE> 13
(a) amounts permitted to be used to reimburse the Servicer, the
Special Servicer, the Trustee or the Fiscal Agent for previously unreimbursed
Advances (including Subordinate Class Advance Amounts applied in reimbursement
for the P&I Advance, if any, with respect to such Distribution Date in
accordance with Section 4.06(d) hereof) and interest thereon as described in
Section 3.06(ii) and (iii);
(b) those portions of each payment of interest which represent the
applicable Servicing Fee, Additional Servicing Fee and Trustee Fee and an
amount representing any applicable Special Servicing Compensation, including
interest thereon at the Advance Rate as provided in this Agreement;
(c) all amounts in the nature of late fees, loan modification
fees, extension fees, loan service transaction fees, demand fees, beneficiary
statement charges, Assumption Fees and similar fees, which the Servicer or
Special Servicer is entitled to retain as Servicing Compensation or Special
Servicing Compensation, respectively;
(d) all amounts representing scheduled Monthly Payments due after
the related Due Date;
(e) that portion of Net Liquidation Proceeds or Net Insurance
Proceeds with respect to a Mortgage Loan which represents any unpaid Servicing
Fee, Trustee Fee and Special Servicing Compensation, including interest thereon
at the Advance Rate as provided in this Agreement, to which the Servicer,
Trustee and the Special Servicer, respectively, are entitled;
(f) all amounts representing certain expenses reimbursable to the
Servicer, the Special Servicer, the Trustee or the Fiscal Agent and other
amounts permitted to be retained by the Servicer or withdrawn by the Servicer
from the Collection Account to the extent expressly set forth in this Agreement
(including, without limitation, as provided in Section 3.06), including
interest thereon as provided in this Agreement;
(g) any interest or investment income on funds on deposit in the
Collection Account, the Upper-Tier Distribution Account, the Distribution
Account, the Default Interest Distribution Account, the Excess Interest
Distribution Account, the Interest Reserve Account, any Cash Collateral
Account, any Lock-Box Account, any Reserve Account or any REO Account or in
Permitted Investments in which such funds may be invested;
(h) [with respect to the Interest Reserve Loan and any
Distribution Date relating to each Interest Accrual Period occurring in each
January or any December occurring in a year immediately preceding a year which
is not a leap year, an amount equal to one day of interest on the Stated
Principal Balance of such Mortgage Loan as of the Due Date in the month
preceding the month in which such Distribution Date occurs at the related
Mortgage Rate to the extent such amounts are to be deposited in the Interest
Reserve Account and held for future distribution pursuant to Section 3.27;]
(i) all amounts received with respect to each Mortgage Loan
previously purchased or repurchased pursuant to Sections 2.03(d), 2.03(e), 3.18
or 9.01(c) during the related Collection
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<PAGE> 14
Period and subsequent to the date as of which the amount required to effect
such purchase or repurchase was determined;
(j) the amount reasonably determined by the Trustee to be
necessary to pay any applicable federal, state or local taxes imposed on the
Upper-Tier REMIC or the Lower-Tier REMIC under the circumstances and to the
extent described in Section 4.05;
(k) Prepayment Premiums;
(l) Default Interest;
(m) Excess Interest;
(n) Any amounts distributed on any Special Distribution Date; and
(o) Any Subordinate Class Advance Recoveries.
"Balloon Loan": Any Mortgage Loan that requires a payment of
principal on the maturity date in excess of its constant Monthly Payment.
"Balloon Payment": With respect to each Mortgage Loan, the scheduled
payment of principal due on the Maturity Date (less principal included in the
applicable amortization schedule or scheduled Monthly Payment).
"Beneficial Owner": With respect to a Global Certificate, the Person
who is the beneficial owner of such Certificate as reflected on the books of
the Depository or on the books of a Person maintaining an account with such
Depository (directly as a Depository Participant or indirectly through a
Depository Participant, in accordance with the rules of such Depository). Each
of the Trustee and the Servicer shall have the right to require, as a condition
to acknowledging the status of any Person as a Beneficial Owner under this
Agreement, that such Person provide evidence at its expense of its status as a
Beneficial Owner hereunder.
"Book-Entry Certificate": Any Certificate registered in the name of
the Depository or its nominee.
"Borrower": With respect to any Mortgage Loan, any obligor or
obligors on any related Note or Notes.
"Borrower Account": As defined in Section 3.07(a).
"Business Day": Any day other than a Saturday, a Sunday or any day on
which banking institutions in the City of New York, New York, the City of
Chicago, Illinois, the State of Georgia or the State of Texas are authorized or
obligated by law, executive order or governmental decree to be closed.
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<PAGE> 15
"Cash Collateral Account": With respect to any Mortgage Loan that has
a Lock-Box Account, any account or accounts created pursuant to the related
Mortgage, Loan Agreement, Cash Collateral Account Agreement or other loan
document into which the Lock-Box Account monies are swept on a regular basis
for the benefit of the Trustee as successor to the Mortgage Loan Seller. Any
Cash Collateral Account shall be beneficially owned for federal income tax
purposes by the Person who is entitled to receive all reinvestment income or
gain thereon in accordance with the terms and provisions of the related
Mortgage Loan and Section 3.07, which Person shall be taxed on all reinvestment
income or gain thereon. The Servicer shall be permitted to make withdrawals
therefrom for deposit into the Collection Account. To the extent not
inconsistent with the terms of the related Mortgage Loan, each such Cash
Collateral Account shall be an Eligible Account.
"Cash Collateral Account Agreement": With respect to any Mortgage
Loan, the cash collateral account agreement, if any, between the Originator and
the related Borrower, pursuant to which the related Cash Collateral Account, if
any, may have been established.
"Cash Deposit": An amount equal to all cash payments of principal and
interest received by the Mortgage Loan Seller in respect of the Mortgage Loans
prior to or on the Closing Date that are due after the Cut-off Date.
"Certificate": Any Class [________________], Certificate issued,
authenticated and delivered hereunder.
"Certificate Balance": With respect to any Class of Certificates or
Lower-Tier Regular Interests (other than the Class _____, Class _____, Class
____, Class ____, Class ____ and Class _____ Certificates and the Related
Lower-Tier Regular Interests) (a) on or prior to the first Distribution Date,
an amount equal to the aggregate initial Certificate Balance of such Class, as
specified in the Preliminary Statement hereto, (b) as of any date of
determination after the first Distribution Date (other than following a Special
Distribution Date), the Certificate Balance of such Class of Certificates or
Lower-Tier Regular Interests on the Distribution Date immediately prior to such
date of determination after application of the distributions and Realized
Losses allocable to principal made thereon on such prior Distribution Date and
(c) as of any date of determination after a Special Distribution Date, the
Certificate Balance of such Class of Certificates or Lower-Tier Regular
Interests as of the last day of the Interest Accrual Period in which such
Special Distribution Date occurs, after application of the distributions and
Realized Losses allocable to principal made thereon on the prior Distribution
Date and such Special Distribution Date, as applicable. With respect to any
Class of Lower-Tier Regular Interests, an amount equal to the Certificate
Balance of the Related Certificates.
"Certificate Custodian": Initially, ____________, thereafter any
other Certificate Custodian acceptable to the Depository and selected by the
Trustee.
"Certificate Owner": With respect to a Book-Entry Certificate, the
Person who is the beneficial owner of such Certificate as reflected on the
books of an indirect participating brokerage firm for which a Depository
Participant acts as agent, if any, and otherwise on the books of a Depository
Participant, if any, and otherwise on the books of the Depository.
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<PAGE> 16
"Certificate Register" and "Certificate Registrar": The register
maintained and the registrar appointed pursuant to Section 5.02.
"Certificateholder": The Person whose name is registered in the
Certificate Register subject to the following:
(i) except as provided in clause (ii), for the purpose of giving
any consent or taking any action pursuant to this Agreement, any Certificate
beneficially owned by the Depositor, the Servicer, the Special Servicer, the
Trustee, a Manager or a Borrower or any Person known to a Responsible Officer
of the Certificate Registrar to be an Affiliate of any thereof shall be deemed
not to be outstanding and the Voting Rights to which it is entitled shall not
be taken into account in determining whether the requisite percentage of Voting
Rights necessary to effect any such consent or take any such action has been
obtained;
(ii) for purposes of obtaining the consent of Certificateholders to
an amendment of the Pooling and Servicing Agreement, any Certificates
beneficially owned by the Servicer or the Special Servicer or an Affiliate
thereof shall be deemed to be outstanding, unless such amendment relates to
compensation of the Servicer or the Special Servicer or benefits the Servicer
or the Special Servicer (in its capacity as such) or any Affiliate thereof
(other than solely in its capacity as Certificateholder) in any material
respect, in which case such Certificates shall be deemed not to be outstanding;
(iii) except as provided in clause (iv) below, for purposes of
obtaining the consent of Certificateholders to any action proposed to be taken
by the Special Servicer with respect to a Mortgage Loan, any Certificates
beneficially owned by the Special Servicer or an Affiliate thereof shall be
deemed not to be outstanding;
(iv) for purposes of Section 3.30 (for purposes of determining who
the Directing Holders are), Certificates owned by the Special Servicer or an
Affiliate shall be deemed to be outstanding; and
(v) for purposes of providing or distributing any reports,
statements or other information required or permitted to be provided to a
Certificateholder hereunder, a Certificateholder shall include any Beneficial
Owner, or any Person identified by a Beneficial Owner as a prospective
transferee of a Certificate beneficially owned by such Beneficial Owner, but
only if the Trustee or another party hereto furnishing such report, statement
or information has been provided with the name of the Beneficial Owner of the
related Certificate or the Person identified as a prospective transferee
thereof. For purposes of the foregoing, the Depositor, the Servicer, the
Special Servicer, the Trustee, the Paying Agent, the Fiscal Agent or other such
Person may rely, without limitation, on a participant listing from the
Depository or statements furnished by a Person that on their face appear to be
statements from a participant in the Depository to such Person indicating that
such Person beneficially owns Certificates.
"Class": With respect to the Certificates or Lower-Tier Regular
Interests, all of the Certificates or Lower-Tier Regular Interests bearing the
same alphabetical and numerical Class designation.
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<PAGE> 17
"Class _____Certificate": [List and describe each certificate class
and each certificate class Pass-Through Rate].
"Class Interest Distribution Amount": With respect to any
Distribution Date and the Class of Certificates other than the Class _____ and
Class _____ Certificates, an amount equal to the Interest Accrual Amount
thereof; with respect to any Distribution Date and the Class _____ and Class
_____ Certificates, an amount equal to the sum of the Interest Accrual Amounts
of the related Strip Components of each such Class.
"Class Interest Shortfall": On any Distribution Date for any Class
and/or Strip Component of such Class, as applicable, of Certificates, the
amount of interest (other than Net Default Interest, Excess Interest, Reduction
Interest Distribution Amounts or Reduction Interest Shortfalls) required to be
distributed to the Holders of such Class and/or in respect of such Strip
Component pursuant to Section 4.01(b) on such Distribution Date minus the
amount of interest (other than Net Default Interest, Excess Interest, Reduction
Interest Distribution Amounts or Reduction Interest Shortfalls) actually
distributed to such Holders pursuant to such Section, if any.
"Class LR Certificate": Any Certificate executed and authenticated by
the Trustee or the Authenticating Agent on behalf of the Depositor in
substantially the form set forth in Exhibit A-18 hereto. The Class LR
Certificates have no Pass-Through Rate, Certificate Balance or Notional
Balance.
"Class R Certificate": Any Certificate executed and authenticated by
the Trustee or the Authenticating Agent on behalf of the Depositor in
substantially the form set forth in Exhibit A-19 hereto. The Class R
Certificates have no Pass-Through Rate, Certificate Balance or Notional
Balance.
"Class V-1 Certificate": Any one of the Certificates executed and
authenticated by the Trustee or the Authenticating Agent on behalf of the
Depositor in substantially the form set forth in Exhibit A-16 hereto. The
Class V-1 Certificates have no Pass-Through Rate, Certificate Balance or
Notional Balance.
"Class V-2 Certificate": Any one of the Certificates executed and
authenticated by the Trustee or the Authenticating Agent on behalf of the
Depositor in substantially the form set forth in Exhibits A-17 hereto. The
Class V-2 Certificates have no Pass-Through Rate, Certificate Balance or
Notional Balance.
"Closing Date": _____________.
"Code": The Internal Revenue Code of 1986, as amended from time to
time, any successor statute thereto, and any temporary or final regulations of
the United States Department of the Treasury promulgated pursuant thereto.
"Collateral Account": As defined in Section 3.30(e) The Collateral
Account shall be maintained as an Eligible Account.
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<PAGE> 18
"Collection Account": The trust account or accounts created and
maintained by the Servicer pursuant to Section 3.05(a), which shall be entitled
"AMRESCO Management, Inc. in trust for LaSalle National Bank, as Trustee, in
trust for Holders of AMRESCO Commercial Mortgage Funding I Corporation,
Mortgage Pass-Through Certificates, Series 1997-1, Collection Account" and
which must be an Eligible Account.
"Collection Period": With respect to a Distribution Date, the period
beginning on the day after the Due Date, in the month preceding the month in
which such Distribution Date occurs (or, in the case of the Distribution Date
occurring in November 1996, on the day after the Cut-off Date) and ending at
the close of business on the Due Date, in the month in which such Distribution
Date occurs.
"Commission": The Securities and Exchange Commission.
"Component Balance": [Describe if applicable]
"Corporate Trust Office": The principal office of the Trustee located
at __________________________ or the principal trust office of any successor
trustee qualified and appointed pursuant to Section 8.08.
"Cross-over Date": means the Distribution Date on which the
Certificate Balance of each Class of Certificates other than the Class ____,
Class _____ and Class _____ Certificates have been reduced to zero.
"Custodial Agreement": The Custodial Agreement, if any, from time to
time in effect between the Custodian named therein and the Trustee,
substantially in the form of Exhibit H hereto, as the same may be amended or
modified from time to time in accordance with the terms thereof.
"Custodian": Any Custodian appointed pursuant to Section 3.21 and,
unless the Trustee is Custodian, named pursuant to any Custodial Agreement.
The Custodian may (but need not) be the Trustee or the Servicer or any
Affiliate of the Trustee or the Servicer, but may not be the Depositor or any
Affiliate thereof.
"Cut-off Date": ____________.
["DCR": Duff & Phelps Credit Rating Co., or its successor in
interest.]
"Default Interest": With respect to any Mortgage Loan, interest
accrued on such Mortgage Loan at the excess of the Default Rate over the
Mortgage Rate (plus the Excess Rate to the extent required by the applicable
Mortgage Loan). The Default Interest shall not be an asset of the Lower-Tier
REMIC or the Upper-Tier REMIC formed hereunder.
"Default Interest Distribution Account": The trust account or
accounts created and maintained as a separate trust account or accounts by the
Trustee pursuant to Section 3.05(d), which shall be entitled LaSalle National
Bank, as Trustee, in trust for Holders of AMRESCO Commercial Mortgage Funding I
Corporation, Commercial Mortgage Pass-Through Certificates, Series 1997-1,
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<PAGE> 19
Default Interest Distribution Account" and which must be an Eligible Account.
The Default Interest Distribution Account shall not be an asset of the Lower-
Tier REMIC or the Upper-Tier REMIC formed hereunder.
"Default Rate": With respect to each Mortgage Loan, the per annum
rate at which interest accrues on such Mortgage Loan following any event of
default on such Mortgage Loan, including a default in the payment of a Monthly
Payment or a Balloon Payment, as such rate is set forth on the Mortgage Loan
Schedule.
"Definitive Certificate": Any certificated, fully registered
certificate.
"Delinquency": Any failure of a Borrower to make a scheduled payment
on a Due Date.
"Delinquency Reduction Amount": In connection with a Delinquency, an
amount equal to the scheduled payment due on the related Due Date (adjusted to
the applicable Net Mortgage Pass-Through Rate with respect to the interest
portion) and not received from a Borrower under any Mortgage Loan.
"Denomination": As defined in Section 5.01(a).
"Depositor": _____________, a __________ corporation, and its
successors and assigns.
"Depository": ____________ or a successor appointed by the
Certificate Registrar (which appointment shall be at the direction of the
Depositor if the Depositor is legally able to do so).
"Depository Participant": A Person for whom, from time to time, the
Depository effects book-entry transfers and pledges of securities deposited
with the Depository.
"Directing Holders": As defined in Section 3.30(d).
"Directly Operate": With respect to any REO Property, the furnishing
or rendering of services to the tenants thereof that are not customarily
provided to tenants in connection with the rental of space for occupancy only
within the meaning of Treasury Regulations Section 1.512(h)-1(c)(5), the
management or operation of such REO Property, the holding of such REO Property
primarily for sale to customers in the ordinary course of a trade or business,
any use of such REO Property in a trade or business conducted by the Trust
Fund, or the performing of any construction work on the REO Property other than
through an Independent Contractor; provided, however, that the Special
Servicer, on behalf of the Trust Fund, shall not be considered to Directly
Operate an REO Property solely because the Special Servicer, on behalf of the
Trust Fund, establishes rental terms, chooses tenants, enters into or renews
leases, deals with taxes and insurance, makes decisions as to repairs or
capital expenditures with respect to such REO Property or takes other actions
consistent with Section 1.856-4(b)(5)(ii) of the regulations of the United
States Department of the Treasury.
"Discount Rate": With respect to any Class of Certificates, the rate
determined by the Trustee, in its good faith, to be the rate (interpolated and
rounded to the nearest one-thousandth of a percent, if necessary) in the
secondary market for United States Treasury securities with a maturity
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<PAGE> 20
equal to the then computed weighted average life (or in the case of the Class
_______ and Class _____ Certificates, the weighted average life of the interest
payments) of such Class (rounded to the nearest month), without taking into
account the related prepayment of principal.
"Disqualified Non-U.S. Person": With respect to a Class R or Class LR
Certificate, any Non-U.S. Person or agent thereof other than (i) a Non-U.S.
Person that holds the Class R or Class LR Certificate in connection with the
conduct of a trade or business within the United States and has furnished the
transferor and the Certificate Registrar with an effective IRS Form 4224 or
(ii) a Non-U.S. Person that has delivered to both the transferor and the
Certificate Registrar an opinion of a nationally recognized tax counsel to the
effect that the transfer of the Class R or Class LR Certificate to it is in
accordance with the requirements of the Code and the regulations promulgated
thereunder and that such transfer of the Class R or Class LR Certificate will
not be disregarded for federal income tax purposes.
"Disqualified Organization": Either (a) the United States, a State or
any political subdivision thereof, any possession of the United States, or any
agency or instrumentality of any of the foregoing (other than an
instrumentality that is a corporation if all of its activities are subject to
tax and a majority of its board of directors is not selected by any such
governmental unit), (b) a foreign government, International Organization or
agency or instrumentality of either of the foregoing, (c) an organization that
is exempt from tax imposed by Chapter 1 of the Code (including the tax imposed
by Code Section 511 on unrelated business taxable income) on any excess
inclusions (as defined in Code Section 860E(c)(1)) with respect to the Class R
or Class LR Certificates (except certain farmers' cooperatives described in
Code Section 521), (d) rural electric and telephone cooperatives described in
Code Section 1381(a)(2), or (e) any other Person so designated by the
Certificate Registrar based upon an Opinion of Counsel to the effect that any
Transfer to such Person may cause the Upper-Tier REMIC or Lower-Tier REMIC to
be subject to tax or to fail to qualify as a REMIC at any time that the
Certificates are outstanding. The terms "United States," "State" and
"International Organization" shall have the meanings set forth in Code Section
7701 or successor provisions.
"Distribution Account": The trust account or accounts created and
maintained as a separate trust account or accounts by the Trustee pursuant to
Section 3.05(b), which shall be entitled LaSalle National Bank, as Trustee, in
trust for Holders of AMRESCO Commercial Mortgage Funding I Corporation,
Mortgage Pass-Through Certificates, Series 1997-1, Distribution Account" and
which must be an Eligible Account.
"Distribution Date": The ____th day of each month, or if such ____th
day is not a Business Day, the Business Day immediately following such ___th
day, commencing in _________ 199__.
"Due Date": With respect to any Distribution Date and/or any Mortgage
Loan, as the case may be, the __th day of the month (or in the case of certain
of the Mortgage Loans, if the __th day is not a business day, as defined in the
related Loan Documents, either the next business day or the first preceding
business day) in which such Distribution Date occurs.
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<PAGE> 21
"Early Termination Notice Date": Any date as of which the aggregate
Stated Principal Balance of the Mortgage Loans is less than 1.0% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off
Date.
"Eligible Account": Either (i) (A) an account or accounts maintained
with a depository institution or trust company the long term unsecured debt
obligations or commercial paper of which are rated by any two of the Rating
Agencies in its highest rating category at all times (or, in the case of the
Collection Account, Interest Reserve Account and Escrow Accounts, the long term
unsecured debt obligations of which are rated at least "AA" by any two of the
Rating Agencies or, if the funds in such account are to be held in such account
for less than 30 days, the short term obligations of which are rated by any two
of the Rating Agencies in its highest rating category at all times, or (B) as
to which the Trustee has received written confirmation from each of the Rating
Agencies that holding funds in such account would not cause any Rating Agency
to requalify, withdraw or downgrade any of its ratings on the Certificates or
(ii) a segregated trust account or accounts maintained with a federal or state
chartered depository institution or trust company acting in its fiduciary
capacity which, in the case of a state chartered depository institution or
trust company is subject to regulations substantially similar to 12 C.F.R.
Section 9.10(b), having in either case a combined capital and surplus of at
least $50,000,000 and subject to supervision or examination by federal and
state authority, or otherwise acceptable (as evidenced by a written
confirmation from each Rating Agency that such account would not, in and of
itself, cause a downgrade, qualification or withdrawal of the then current
ratings assigned to the Certificates) to each Rating Agency, which may be an
account maintained with the Trustee or the Servicer. Eligible Accounts may
bear interest.
"Eligible Investor": Any of (i) a Qualified Institutional Buyer that
is purchasing for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the offer, sale or transfer is
being made in reliance on Rule 144A or (ii) an Institutional Accredited
Investor.
"Environmental Report": The environmental audit report or reports
with respect to each Mortgaged Property delivered to the Mortgage Loan Seller
in connection with the related Mortgage.
"ERISA": The Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
"Escrow Account": As defined in Section 3.04(b). Any Escrow Account
may be a sub-account of the related Cash Collateral Account.
"Escrow Payment": Any payment made by any Borrower to the Servicer
pursuant to the related Mortgage, Cash Collateral Agreement, Lock-Box Agreement
or Loan Agreement for the account of such Borrower for application toward the
payment of taxes, insurance premiums, assessments and similar items in respect
of the related Mortgaged Property.
["Euroclear": Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System, or its successor in such
capacity.]
"Event of Default": A Servicer Event of Default or Special Servicer
Event of Default, as applicable.
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<PAGE> 22
"Excess Interest": With respect to each of the Mortgage Loans
indicated on the Mortgage Loan Schedule as having a Revised Rate, interest
accrued on such Mortgage Loan allocable to the Excess Rate. The Excess
Interest shall not be an asset of the Lower-Tier REMIC or the Upper-Tier REMIC
formed hereunder.
"Excess Interest Distribution Account": The trust account or accounts
created and maintained as a separate trust account or accounts by the Trustee
pursuant to Section 3.05(e), which shall be entitled LaSalle National Bank, as
Trustee, in trust for Holders of AMRESCO Commercial Mortgage Funding I
Corporation, Mortgage Pass-Through Certificates, Series 1997-1, Excess Interest
Distribution Account" and which must be an Eligible Account. The Excess
Interest Distribution Account shall not be an asset of the Lower-Tier REMIC or
the Upper-Tier REMIC formed hereunder.
"Excess Rate": With respect to each of the Mortgage Loans indicated
on the Mortgage Loan Schedule as having a Revised Rate, the excess of (i) the
applicable Revised Rate over (ii) the applicable Mortgage Rate, each as set
forth in the Mortgage Loan Schedule.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Exchange Act Report": A Monthly Distribution Statement, Special
Event Report, Summary Report or Annual Compliance Report to be filed with the
Commission, under cover of the related form required by the Exchange Act.
"FDIC": The Federal Deposit Insurance Corporation, or any successor
thereto.
"FHA": The Federal Housing Administration.
"FHLMC": The Federal Home Loan Mortgage Corporation, or any successor
thereto.
"Final Recovery Determination": With respect to any Specially
Serviced Mortgage Loan or Mortgage Loan subject to repurchase by the Depositor
or the Mortgage Loan Seller pursuant to Sections 2.03(d) or 2.03(e), the
recovery of all Insurance Proceeds, Liquidation Proceeds, the related
Repurchase Price and other payments or recoveries (including proceeds of the
final sale of any REO Property) which the Servicer (or in the case of a
Specially Serviced Mortgage Loan, the Special Servicer), in its reasonable
judgment as evidenced by a certificate of a Servicing Officer delivered to the
Trustee and the Custodian (and the Servicer, if the Certificate is from the
Special Servicer), expects to be finally recoverable. The Servicer shall
maintain records, prepared by a Servicing Officer, of each Final Recovery
Determination until the earlier of (i) its termination as Servicer hereunder
and the transfer of such records to a successor servicer and (ii) five years
following the termination of the Trust Fund.
["Financial Market Publisher": Bloomberg Financial Service.]
["Fiscal Agent": ______________, in its capacity as fiscal agent of
the Trustee, or its successor in interest, or any successor fiscal agent
appointed as herein provided.]
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<PAGE> 23
["Fitch": Fitch Investors Service, L.P., or its successor in
interest.]x
"Form 8-K": A Current Report on Form 8-K under the Exchange Act, or
such successor form as the Commission may specify from time to time.
"FNMA": The Federal National Mortgage Association, or any successor
thereto.
"Global Certificates": The Class _____, Class ____, Class ____, Class
____, Class _____, Class _____, Class _____, Class _____, Class ____ and Class
____ Certificates.
"Hazardous Materials": Any dangerous, toxic or hazardous pollutants,
chemicals, wastes, or substances, including, without limitation, those so
identified pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq., or any other environmental
laws now existing, and specifically including, without limitation, asbestos and
asbestos-containing materials, polychlorinated biphenyls ("PCBs"), radon gas,
petroleum and petroleum products, urea formaldehyde and any substances
classified as being "in inventory", "usable work in process" or similar
classification which would, if classified as unusable, be included in the
foregoing definition.
"Holder": With respect to any Certificate, a Certificateholder; with
respect to any Lower-Tier Regular Interest, the Trustee.
"Indemnified Party": As defined in Section 8.05(c).
"Independent": When used with respect to any specified Person, any
such Person who (i) does not have any direct financial interest, or any
material indirect financial interest, in any of the Depositor, the Trustee, the
Servicer, the Special Servicer, any Borrower or Manager or any Affiliate
thereof, and (ii) is not connected with any such Person thereof as an officer,
employee, promoter, underwriter, trustee, partner, director or Person
performing similar functions.
"Independent Contractor": Either (i) any Person that would be an
"independent contractor" with respect to the Trust Fund within the meaning of
Section 856(d)(3) of the Code if the Trust Fund were a real estate investment
trust (except that the ownership tests set forth in that section shall be
considered to be met by any Person that owns, directly or indirectly, 35% or
more of any Class or 35% or more of the aggregate value of all Classes of
Certificates), provided that the Trust Fund does not receive or derive any
income from such Person and the relationship between such Person and the Trust
Fund is at arm's length, all within the meaning of Treasury Regulations Section
1.856-4(b)(5) (except neither the Servicer nor the Special Servicer shall be
considered to be an Independent Contractor under the definition in this clause
(i) unless an Opinion of Counsel (at the expense of the party seeking to be
deemed an Independent) addressed to the Servicer and the Trustee has been
delivered to the Trustee to that effect) or (ii) any other Person (including
the Servicer and the Special Servicer) if the Servicer, on behalf of itself and
the Trustee, has received an Opinion of Counsel (at the expense of the party
seeking to be deemed an Independent Contractor) to the effect that the taking
of any action in respect of any REO Property by such Person, subject to any
conditions therein specified, that is otherwise herein contemplated to be taken
by an Independent Contractor will not cause such REO Property to cease to
qualify as "foreclosure property" within the meaning
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<PAGE> 24
of Section 860G(a)(8) of the Code (determined without regard to the exception
applicable for purposes of Section 860D(a) of the Code) or cause any income
realized in respect of such REO Property to fail to qualify as Rents from Real
Property (provided that such income would otherwise so qualify).
"Individual Certificate": Any Certificate in definitive, fully
registered physical form without interest coupons.
"Institutional Accredited Investor": An entity meeting the
requirements of Rule 501(a)(1), (2), (3) or (7) of Regulation D, or an entity
in which all the equity owners meet such requirements.
"Instructions": As defined in Section 3.30(d).
"Insurance Proceeds": Proceeds of any fire and hazard insurance
policy, title policy or other insurance policy relating to a Mortgage Loan
(including any amounts paid by the Servicer pursuant to Section 3.08).
"Interest Accrual Amount": [Conform] With respect to any Distribution
Date and any Class of Certificates (other than the Class _____, Class ____,
Class V-1, Class V-2, Class R and Class LR Certificates), an amount equal to
interest for the related Interest Accrual Period at the Pass-Through Rate for
such Class on the related Certificate Balance (provided, that for interest
accrual purposes any distributions in reduction of Certificate Balance or
reductions in Certificate Balance as a result of allocations of Realized Losses
on the Distribution Date or Special Distribution Date occurring in an Interest
Accrual Period will be deemed to have been made on the first day of such
Interest Accrual Period). With respect to any Distribution Date and each of
the Class ____, Class _____ and the Class ____ Strip Components, an amount
equal to interest for the related Interest Accrual Period at the Pass-Through
Rate for such Strip Component on the Component Balance of such Strip Component
(provided, that any reductions in Component Balances of the Class ____ Strip
Component, Class _____ Strip Component and Class _____ Strip Component as a
result of distributions in reduction of the Certificate Balance of the Class
____, Class _____ and Class _____ Certificates or allocations of Realized
Losses to the Certificate Balance of the Class ______, Class ______ and Class
_____ Certificates on the Distribution Date or Special Distribution Date
occurring in an Interest Accrual Period, will be deemed to have occurred on the
first day of such Interest Accrual Period). With respect to any Distribution
Date and each of the Class _____ Class _____, Class ____, Class ____ and Class
____ Strip Components, an amount equal to interest for the related Interest
Accrual Period at the Pass-Through Rate for such Strip Component for such
Interest Accrual Period on the Component Balance of such Strip Component
(provided, that, (i) any reductions in Component Balance as a result of (A)
distributions of principal to the related Class of Certificates, (B)
allocations of Realized Losses to the Certificate Balance of the related Class
of Certificates or (C) allocations of Appraisal Reduction Amounts or
Delinquency Reduction Amounts to the Component Balance of the related Class of
Certificates and (ii) any increases in Component Balance as a result of
reversals of reductions resulting from Appraisal Reduction Events and
Delinquencies, in each case, on the Distribution Date or Special Distribution
Date occurring in such Interest Accrual Period will be deemed to have occurred
on the first day of such Interest Accrual Period). With respect to any Lower-
Tier Regular Interest and any Distribution Date, an amount equal to interest
for the related Interest Accrual Period at the Lower-Tier Pass-Through Rate for
such Interest Accrual
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<PAGE> 25
Period on the Certificate Balance of such Lower-Tier Regular Interest, provided
that, for such purpose, (i) any distributions in reduction of Certificate
Balance and (ii) reductions of Certificate Balance as a result of allocations
of Realized Losses on the Distribution Date or Special Distribution Date
occurring in such Interest Accrual Period shall be deemed to have been made as
of the first day of such Interest Accrual Period. With respect to a Special
Distribution Date and any Class of Certificates (other than the Class _____,
Class ______, Class V-1, Class V-2, Class R and Class LR Certificates), an
amount of interest for the period commencing on the first day of the related
Interest Accrual Period through the date on which the related prepayment on the
_____________ Loan occurs, at (i) with respect to any Class that bears interest
at a fixed rate, the Pass-Through Rate for such Class or (ii) with respect to
any Class that bears interest at a variable rate, a rate per annum equal to the
Mortgage Rate of the ______________ Loan minus the aggregate of the Servicing
Fee Rate, the Trustee Fee Rate, the Additional Servicing Fee Rate and, if
applicable, the pass-through rate of the related Strip Component on the amount
of _________ Principal distributed to such Class on such Special Distribution
Date. With respect to a Special Distribution Date and the Class ______ and
Class ______ Certificates, an amount of interest for the period commencing on
the first day the related Interest Accrual Period through the date on which the
related prepayment on the _________________ Loan occurs, at (i) with respect to
any Strip Component that bears interest at a fixed rate, the Pass-Through Rate
for such Strip Component or (ii) with respect to any Strip Component that bears
interest at a variable rate, a rate per annum equal to the Mortgage Rate of the
_________________ Loan minus the aggregate of the Servicing Fee Rate, the
Trustee Fee Rate, the Additional Servicing Fee Rate and, if applicable, the
Pass-Through Rate of the Related Certificates on the amount of ___________
Principal distributed to the Related Certificates on such Special Distribution
Date.
"Interest Accrual Period": With respect to any Distribution Date, the
period which commences on the [fifteenth] day of the month preceding the month
in which such Distribution Date occurs and ends on the [fourteenth] day of the
month in which such Distribution Date occurs, provided that the Interest
Accrual Period with respect to the Distribution Date occurring in _______ 199__
shall be assumed to consist of ________ days. Interest for each Interest
Accrual Period, other than the Interest Accrual Period with respect to the
Distribution Date occurring in ________ 199__, is calculated based on a 360-day
year consisting of twelve 30-day months.
"Interest Reserve Account": The trust account created and maintained
by the Servicer pursuant to Section 3.27, which shall be entitled "AMRESCO
Management, Inc., in trust for LaSalle National Bank, as Trustee, in trust for
Holders of AMRESCO Commercial Mortgage Funding I Corporation, Mortgage Pass-
Through Certificates, Series 1997-1, Interest Reserve Account" and which must
be an Eligible Account.
["Interest Reserve Loan": The Mortgage Loan identified as the
________ loan on the Mortgage Loan Schedule.]
"Interest Shortfall": On any Distribution Date for any Lower-Tier
Regular Interest, any shortfall in the amount of interest required to be
distributed to such Lower-Tier Regular Interest on the Certificate Balance or
Component Balance thereof, as the case may be, on such Distribution Date.
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<PAGE> 26
"Interested Person": As of any date of determination, the Depositor,
the Servicer, Special Servicer, the Trustee, the Fiscal Agent, any Borrower,
any manager of a Mortgaged Property, any Independent Contractor engaged by the
Special Servicer pursuant to Section 3.17, or any Person known to a Responsible
Officer of the Trustee to be an Affiliate of any of them.
"Investment Account": As defined in Section 3.07(a).
"IRS": The Internal Revenue Service.
"Liquidation Expenses": Expenses incurred by the Servicer, the
Special Servicer and the Trustee in connection with the liquidation of any
Mortgage Loan or property acquired in respect thereof (including, without
limitation, legal fees and expenses, committee or referee fees, and, if
applicable, brokerage commissions, and conveyance taxes) and any Property
Protection Expenses incurred with respect to such Mortgage Loan or such
property including interest thereon at the Advance Rate not previously
reimbursed from collections or other proceeds therefrom.
"Liquidation Proceeds": The amount (other than Insurance Proceeds)
received in connection with (i) the taking of a Mortgaged Property (or portion
thereof) by exercise of the power of eminent domain or condemnation, (ii) the
liquidation of a Specially Serviced Mortgage Loan through a trustee's sale,
foreclosure sale or otherwise or (iii) a sale of a Mortgage Loan or an REO
Property in accordance with Section 3.18 or Section 9.01.
"Loan Agreement": With respect to any Mortgage Loan, the loan
agreement, if any, between the Originator and the Borrower, pursuant to which
such Mortgage Loan was made.
"Loan Documents": With respect to any Mortgage Loan, the documents
executed or delivered in connection with the origination of such Mortgage Loan
or subsequently added to the related Mortgage File.
"Loan Number": With respect to any Mortgage Loan, the loan number by
which such Mortgage Loan was identified on the books and records of the
Depositor or any sub-servicer for the Depositor, as set forth in the Mortgage
Loan Schedule.
"Lock-Box Account": With respect to any Mortgaged Property, if
applicable, any account created pursuant to any documents relating to a
Mortgage Loan to receive income therefrom. Any Lock-Box Account shall be
beneficially owned for federal income tax purposes by the Person who is
entitled to receive the reinvestment income or gain thereon in accordance with
the terms and provisions of the related Mortgage Loan and Section 3.07, which
Person shall be taxed on all reinvestment income or gain thereon. The Servicer
shall be permitted to make withdrawals therefrom for deposit into the related
Cash Collateral Accounts.
"Lock-Box Agreement": With respect to any Mortgage Loan, the lock-box
agreement, if any, between the Originator or the Mortgage Loan Seller and the
Borrower, pursuant to which the related Lock-Box Account, if any, may have been
established.
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<PAGE> 27
"Lock-out Period" With respect to any Mortgage Loan, the period of
time specified in the related Loan Documents during which voluntary prepayments
by the related Borrower are prohibited.
"Lower Rate": As defined in the definition of Minimum Defaulted
Monthly Payment.
"Lower-Tier Pass-Through Rate": With respect to any Distribution Date
and any Class of Lower-Tier Regular Interests, a per annum rate equal to the
Weighted Average Net Mortgage Pass-Through Rate.
"Lower-Tier Regular Interests": The Class _____, Class _____, Class
_____, Class _____, Class _____, Class _____, Class _____, Class ____, Class
____, Class ____, Class ____, Class ______ and Class _____Interests.
"Lower-Tier REMIC": A segregated asset pool within the Trust Fund
consisting of the Mortgage Loans (exclusive of Default Interest and Excess
Interest), collections thereon, any REO Property acquired in respect thereof
and amounts held from time to time in the Collection Account and the
Distribution Account.
"LTV": With respect to any Mortgage Loan and any date of
determination, the outstanding principal balance of such Mortgage Loan as of
such date divided by the appraised value of the Mortgaged Properties securing
such Mortgage Loan as evidenced by an Updated Appraisal obtained by the
Servicer or an update thereto.
"MAI": Member of the Appraisal Institute.
"Management Agreement": With respect to any Mortgage Loan, the
Management Agreement, if any, by and between the Manager and the related
Borrower, or any successor Management Agreement between such parties.
"Manager": With respect to any Mortgage Loan, any property manager
for the related Mortgaged Properties.
"Maturity Date": With respect to each Mortgage Loan, the Maturity
Date as set forth on the Mortgage Loan Schedule.
"Minimum Defaulted Monthly Payment": With respect to any extension of
a Mortgage Loan that is delinquent in respect of its Balloon Payment, an amount
equal to (a) the principal portion of the Monthly Payment that would have been
due on such Mortgage Loan on the related Due Date based on the original
amortization schedule thereof, or, if there is no amortization schedule, the
principal portion of the constant Monthly Payment that would have been due (in
each case calculated with interest at the Mortgage Rate), assuming such Balloon
Payment had not become due, after giving effect to any modification, and (b)
interest at the applicable Default Rate; provided, however, that the Special
Servicer may, in its discretion, agree that the Minimum Defaulted Monthly
Payments may include interest at a rate lower than the related Default Rate
(but in no event lower than the related Mortgage Rate) (the "Lower Rate");
provided that if, after notice to all Certificateholders,
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<PAGE> 28
Holders of Certificates evidencing at least 66-2/3% of the Voting Rights of
each Class, (or, that in the event that the Special Servicer is not the
Servicer and the Servicer would not agree to the Lower Rate, Certificateholders
representing greater than (a) 50% of the aggregate Voting Rights of all
Certificateholders and (b) 66-2/3% of the aggregate Voting Rights of all
Certificateholders who respond to such notice within 30 Business Days of the
delivery of such notice), direct the Special Servicer not to agree to permit
payments to include interest at the Lower Rate, the Special Servicer shall not
agree to payments with interest at the Lower Rate, provided, further, that, if
the Minimum Defaulted Monthly Payment is to include interest at the Lower Rate,
the Special Servicer may agree that interest on such Mortgage Loan accrues at
the Lower Rate if, after notice to all Certificateholders, holders of
Certificates evidencing at least 66-2/3% of the Voting Rights of each Class
direct the Special Servicer that such Mortgage Loan shall accrue interest at
the related Default Rate, then such Mortgage Loan will continue to accrue
interest at the Default Rate thereof and the excess of interest accrued on such
Mortgage Loan over the amount included in the Minimum Defaulted Monthly
Payments (i.e., interest at the Lower Rate) shall be added to the outstanding
principal balance of such Mortgage Loan. Notwithstanding the foregoing, if the
Directing Holders have given Instructions to the Special Servicer to extend,
the Special Servicer shall be required to follow the Directing Holders'
Instructions with respect to interest so long as the Minimum Defaulted Monthly
Payment is at least equal to the Lower Rate.
"Monthly Distribution Statement": A monthly distribution statement
prepared by the Trustee pursuant to Section 4.02(a) hereof.
"Monthly Payment": With respect to any Mortgage Loan (other than any
REO Mortgage Loan) and any Due Date, the scheduled monthly payment of
principal, if any, and interest at the Mortgage Rate, excluding any Balloon
Payment (but not excluding any constant Monthly Payment), which is payable by
the related Borrower on such Due Date under the related Note. With respect to
an REO Mortgage Loan, the monthly payment that would otherwise have been
payable on the related Due Date had the related Note not been discharged,
determined as set forth in the preceding sentence and on the assumption that
all other amounts, if any, due thereunder are paid when due.
["Moody's": Moody's Investors Service, Inc., or its successor in
interest.]
"Mortgage": The mortgage, deed of trust or other instrument creating
a first lien on or first priority ownership interest in a Mortgaged Property
securing a Note.
"Mortgage File": With respect to any Mortgage Loan, the mortgage
documents listed in Section 2.01(i) through (xv) pertaining to such particular
Mortgage Loan and any additional documents required to be added to such
Mortgage File pursuant to the express provisions of this Agreement.
"Mortgage Loan": Each of the mortgage loans transferred and assigned
to the Trustee pursuant to Section 2.01 and from time to time held in the Trust
Fund, the mortgage loans originally so transferred, assigned and held being
identified on the Mortgage Loan Schedule as of the Cut-off Date. Such term
shall include (i) any REO Mortgage Loan, Specially Serviced Mortgage Loan or
any Mortgage Loan that has been defeased in whole or in part and (ii) with
respect to describing the rights and obligations of the parties hereto.
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<PAGE> 29
"Mortgage Loan Purchase and Sale Agreement": The Mortgage Loan
Purchase and Sale Agreement dated as of the Cut-off Date, by and between the
Depositor and the Mortgage Loan Seller, a copy of which is attached hereto as
Exhibit J.
"Mortgage Loan Schedule": The list of Mortgage Loans included in the
Trust Fund as of the Closing Date being attached hereto as Exhibit B, which
list shall set forth the following information with respect to each Mortgage
Loan:
(a) the Loan Number;
(b) the property name, city and state where each related Mortgaged
Property is located;
(c) the Monthly Payment in effect as of the Cut-off Date;
(d) the Mortgage Rate;
(e) the Maturity Date;
(f) the Stated Principal Balance as of the Cut-off Date and, as
applicable, the allocation of such balance to each related
Mortgaged Property;
(g) the Originator of such Mortgage Loan; and
(h) whether the Mortgage Loan is an Actual/360 Mortgage Loan.
The Mortgage Loan Schedule shall also set forth the total of the
amounts described under clause (c) and (f) above for all of the Mortgage Loans.
The Mortgage Loan Schedule may also set forth, for selected Mortgage Loans, the
net operating income or debt service coverage ratio. The Mortgage Loan
Schedule may be in the form of more than one list, collectively setting forth
all of the information required.
"Mortgage Loan Seller": ____________, a ________ corporation, and its
successors in interest.
"Mortgage Pass-Through Rate": [With respect to the Mortgage Loans
that provide for calculations of interest based on twelve months of 30 days
each, the Mortgage Pass-Through Rate for any Interest Accrual Period is equal
to the Mortgage Rate thereof. The Mortgage Pass-Through Rate with respect to
the Actual/360 Mortgage Loans for any Interest Accrual Period, is equal to the
Mortgage Rate thereof multiplied by a fraction the numerator of which is the
actual number of days in such Interest Accrual Period and the denominator of
which is 30.] [The Mortgage Pass-Through Rate with respect to the Interest
Reserve Loan for any Distribution Date (a) relating to any Interest Accrual
Period commencing in any January, February, April, June, September and November
and in any December occurring in a year immediately preceding any year which is
not a leap year, is the Mortgage Rate thereof, and (b) relating to any Interest
Accrual Period commencing in any March, May, July, August and October and in
any December occurring in a year immediately preceding a year which is a leap
year, is equal to the Mortgage Rate thereof multiplied by a fraction the
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<PAGE> 30
numerator of which is the actual number of days in such Interest Accrual Period
and the denominator of which is 30.]
"Mortgage Rate": With respect to each Mortgage Loan, the annual rate,
not including any Excess Rate, at which interest accrues on such Mortgage Loan
(in the absence of a default), as set forth on the Mortgage Loan Schedule. The
Mortgage Rate for purposes of calculating the Weighted Average Net Mortgage
Pass-Through Rate shall be the Mortgage Rate of such Mortgage Loan without
taking into account any reduction in the interest rate by a bankruptcy court
pursuant to a plan of reorganization or pursuant to any of its equitable powers
or a reduction in interest or principal due to a modification pursuant to
Section 3.30 hereof.
"Mortgaged Property": The underlying property securing a Mortgage
Loan, including any REO Property, consisting of a fee simple estate, and, with
respect to certain Mortgage Loans, a leasehold estate or both a leasehold
estate and fee estate, or a leasehold estate in a portion of the property and a
fee simple estate in the remainder, in a parcel of land improved by a
commercial property, together with any personal property, fixtures, leases and
other property or rights pertaining thereto.
"Net Default Interest": As defined in Section 3.05(d).
"Net Insurance Proceeds": Insurance Proceeds, to the extent such
proceeds are not to be applied to the restoration of the related Mortgaged
Property or released to the Borrower in accordance with the express
requirements of the Mortgage or Note or other documents included in the
Mortgage File or in accordance with prudent and customary servicing practices.
"Net Liquidation Proceeds": The Liquidation Proceeds received with
respect to any Mortgage Loan net of the amount of (i) Liquidation Expenses
incurred with respect thereto and, (ii) with respect to proceeds received in
connection with the taking of a Mortgaged Property (or portion thereof) by the
power of eminent domain in condemnation, amounts required to be applied to the
restoration or repair of the related Mortgaged Property.
"Net Mortgage Pass-Through Rate": With respect to any Mortgage Loan
and any Distribution Date, the per annum rate equal to the Mortgage Pass-
Through Rate for such Mortgage Loan, minus the aggregate of the applicable
Servicing Fee Rate, Additional Servicing Fee Rate and Trustee Fee Rate.
"Net REO Proceeds": With respect to each REO Property, REO Proceeds
with respect to such REO Property net of any insurance premiums, taxes,
assessments and other costs and expenses permitted to be paid therefrom
pursuant to Section 3.17(b) of this Agreement.
"New Lease": Any lease of REO Property entered into on behalf of the
Trust Fund, including any lease renewed or extended on behalf of the Trust Fund
if the Trust Fund has the right to renegotiate the terms of such lease.
"Nonrecoverable Advance": Any portion of an Advance proposed to be
made or previously made which has not been previously reimbursed to the
Servicer, the Special Servicer, the Trustee
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<PAGE> 31
or the Fiscal Agent, as applicable, and which, in the good faith business
judgment of the Servicer, the Special Servicer, the Trustee or the Fiscal
Agent, as applicable, will not or, in the case of a proposed Advance, would not
be ultimately recoverable from late payments, Insurance Proceeds, Liquidation
Proceeds and other collections on or in respect of the related Mortgage Loan.
The judgment or determination by the Servicer, the Special Servicer, the
Trustee or the Fiscal Agent that it has made a Nonrecoverable Advance or that
any proposed Advance, if made, would constitute a Nonrecoverable Advance shall
be evidenced in the case of the Servicer or Special Servicer, by a certificate
of a Servicing Officer delivered to the Trustee, the Fiscal Agent, the
Depositor and, in the case of the Special Servicer, to the Servicer, and in the
case of the Trustee or the Fiscal Agent, by a certificate of a Responsible
Officer of the Trustee or Fiscal Agent, as applicable, delivered to the
Depositor (and the Trustee if the Certificate is from the Fiscal Agent), which
in each case sets forth such judgment or determination and the procedures and
considerations of the Servicer, Special Servicer, the Trustee or Fiscal Agent,
as applicable, forming the basis of such determination (including, but not
limited to, information selected by the Person making such judgment or
determination in its good faith discretion, such as related income and expense
statements, rent rolls, occupancy status, property inspections, Servicer,
Special Servicer, Trustee or Fiscal Agent inquiries, third party engineering
and environmental reports, and an appraisal or any Updated Appraisal thereof
conducted within the past 12 months). Any determination of non-recoverability
made by the Servicer may be made without regard to any value determination made
by the Special Servicer. Notwithstanding the above, the Trustee and the Fiscal
Agent shall be entitled to rely upon any determination by the Servicer that any
Advance previously made is a Nonrecoverable Advance or that any proposed
Advance would, if made, constitute a Nonrecoverable Advance (and with respect
to a proposed P&I Advance, the Trustee and the Fiscal Agent, as applicable,
shall rely on the Servicer's determination that the Advance would be a
Nonrecoverable Advance if the Trustee or Fiscal Agent, as applicable,
determines that it does not have sufficient time to make such a determination).
"Non-U.S. Person": A person that is not a citizen or resident of the
United States, a corporation, partnership, or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
an estate whose income is subject to United States federal income tax
regardless of its source, or a trust if (A) for taxable years beginning after
December 31, 1996 (or for taxable years ending after August 20, 1996, if the
trustee has made an applicable election) a court within the United States is
able to exercise primary supervision over the administration of such trust, and
one or more United States fiduciaries have the authority to control all
substantial decisions of such trust, or (B) for all other taxable years, such
trust is subject to United States federal income tax regardless of the source
of its income.
"Note": With respect to any Mortgage Loan as of any date of
determination, the note or other evidence of indebtedness and/or agreements
evidencing the indebtedness of a Borrower under such Mortgage Loan, including
any amendments or modifications, or any renewal or substitution notes, as of
such date.
"Notice of Termination": Any of the notices given to the Trustee by
the Servicer or any Holder of a Class LR Certificate pursuant to Section
9.01(c).
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<PAGE> 32
"Notional Amount" or "Notional Balance": [With respect to each of the
Class ______ and Class ____ Certificates, (a) on or prior to the Distribution
Date occurring in _________ 199__, an amount equal to the aggregate initial
Notional Balance of such Class, as specified in the Preliminary Statement
hereto, and (b) as of any date of determination after the Distribution Date
occurring in __________ 199__, the Notional Balance of the Class _____
Certificates will equal the Component Balance of the Class ______ Strip
Component and the Notional Balance of the Class ______ Certificates will equal
the sum of the Component Balances of the Class _____ Strip Component, Class
_____ Strip Component, Class _____ Component, Class _____ Strip Component,
Class ____ Strip Component, Class ____ Strip Component and Class _____ Strip
Component.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a Vice President
(however denominated) and by the Treasurer, the Secretary, one of the Assistant
Treasurers or Assistant Secretaries, any Trust Officer or other officer of the
Servicer customarily performing functions similar to those performed by any of
the above designated officers and also with respect to a particular matter, any
other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject, or an authorized
officer of the Depositor, and delivered to the Depositor, the Trustee or the
Servicer, as the case may be.
"Opinion of Counsel": A written opinion of counsel, who may, without
limitation, be counsel for the Depositor, the Special Servicer or the Servicer,
as the case may be, acceptable to the Trustee, except that any opinion of
counsel relating to (a) qualification of the Upper-Tier REMIC or Lower-Tier
REMIC as a REMIC or the imposition of tax under the REMIC Provisions on any
income or property of either REMIC, (b) compliance with the REMIC Provisions
(including application of the definition of "Independent Contractor") or (c) a
resignation of the Servicer pursuant to Section 6.04, must be an opinion of
counsel who is Independent of the Depositor and the Servicer.
"Original Purchase Agreement": With respect to any Mortgage Loan not
originated by the Mortgage Loan Seller, the agreement between the Mortgage Loan
Seller and the related Originator pursuant to which the Mortgage Loan Seller
acquired such Mortgage Loan.
"Originator": ____________________.
"Ownership Interest": As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether
direct or indirect, legal or beneficial, as owner or as pledgee.
"P&I Advance": As to any Mortgage Loan, any advance made by the
Servicer, the Trustee, or the Fiscal Agent pursuant to Section 4.06. Each
reference to the payment or reimbursement of a P&I Advance shall be deemed to
include, whether or not specifically referred to, payment or reimbursement of
interest thereon at the Advance Rate from and including the date of the making
of such P&I Advance through and including the date of payment or reimbursement.
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<PAGE> 33
"Pass-Through Rate": With respect to each Class of Certificates
(other than the Class V-1, Class V-2, Class R and Class LR Certificates) or
Strip Component of a Class of Certificates, the Pass-Through Rate for such
Class or Strip Component are set forth below:
<TABLE>
<CAPTION>
Class/Strip Component Pass-Through Rate
--------------------- -----------------
<S> <C>
[List]
</TABLE>
"Paying Agent": The paying agent appointed pursuant to Section 5.04.
"Percentage Interest": As to any Certificate, the percentage interest
evidenced thereby in distributions required to be made with respect to the
related Class. With respect to any Certificate (except the Class V-1, Class V-
2, Class R and Class LR Certificates), the percentage interest is equal to the
initial denomination of such Certificate divided by the initial Certificate
Balance or Notional Balance, as applicable, of such Class of Certificates.
With respect to any Class V-1, Class V-2, Class R or Class LR Certificate, the
percentage interest is set forth on the face thereof.
"Permitted Investments": Any one or more of the following obligations
or securities payable on demand or having a scheduled maturity on or before the
Business Day preceding the date upon which such funds are required to be drawn,
regardless of whether issued by the Depositor, the Servicer, the Trustee or any
of their respective Affiliates and having at all times the required ratings, if
any, provided for in this definition, unless each Rating Agency shall have
confirmed in writing to the Servicer that a lower rating would not, in and of
itself, result in a downgrade, qualification or withdrawal of the then current
ratings assigned to the Certificates:
(i) obligations of, or obligations fully guaranteed as to
payment of principal and interest by, the United States or any agency or
instrumentality thereof provided such obligations are backed by the full faith
and credit of the United States of America including, without limitation,
obligations of: the U.S. Treasury (all direct or fully guaranteed obligations),
the Farmers Home Administration (certificates of beneficial ownership), the
General Services Administration (participation certificates), the U.S. Maritime
Administration (guaranteed Title XI financing), the Small Business
Administration (guaranteed participation certificates and guaranteed pool
certificates), the U.S. Department of Housing and Urban Development (local
authority bonds) and the Washington Metropolitan Area Transit Authority
(guaranteed transit bonds);
(ii) Federal Housing Administration debentures;
(iii) obligations of the following United States government
sponsored agencies: Federal Home Loan Mortgage Corp. (debt obligations), the
Farm Credit System (consolidated systemwide bonds and notes), the Federal Home
Loan Banks (consolidated debt obligations), the Federal National Mortgage
Association (debt obligations), the Student Loan Marketing Association (debt
obligations), the Financing Corp. (debt obligations), and the Resolution
Funding Corp. (debt obligations);
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<PAGE> 34
(iv) federal funds, unsecured certificates of deposit,
time or similar deposits, bankers' acceptances and repurchase agreements, with
maturities of not more than 365 days, of any bank, the short term obligations
of which are rated in the highest short term rating category by any two Rating
Agencies;
(v) fully Federal Deposit Insurance Corporation-insured
demand and time deposits in, or certificates of deposit of, or bankers'
acceptances issued by, any bank or trust company, savings and loan association
or savings bank, the short term obligations of which are rated in the highest
short term rating category by any two Rating Agencies (or, if not rated by
______, ______ or ______, otherwise acceptable to ____, _____ or ______, as
applicable, as confirmed in writing by any two of them that such investment
would not, in and of itself, result in a downgrade, qualification or withdrawal
of the then current ratings assigned to the Certificates);
(vi) debt obligations, with maturities of not more than
365 days, rated by any two Rating Agencies (or, if not rated by ______, _______
or _______, otherwise acceptance to ______, _______ or _____, as applicable, as
confirmed in writing by any two of them that such investment would not, in and
of itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to the Certificates) in its highest long-term
unsecured rating category;
(vii) commercial paper (including both non-interest-bearing
discount obligations and interest-bearing obligations payable on demand or on a
specified date not more than one year after the date of issuance thereof), with
maturities of not more than 365 days and that is rated by any two Rating
Agencies (or, if not rated by ______, ______ or _____, otherwise acceptable to
DCR, Moody's or Fitch, as applicable, as confirmed in writing by any two of
them that such investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned to the
Certificates) in its highest short-term unsecured debt rating;
(viii) the Federated Prime Obligation Money Market Fund (the
"Fund") so long as the Fund is rated by any two Rating Agencies in its highest
short-term unsecured debt rating (or, if not rated by ____, _____ or _____,
otherwise acceptable to ______, ______ or _____, as applicable, as confirmed in
writing by any two of them that such investment would not, in and of itself,
result in a downgrade, qualification or withdrawal of the then current ratings
assigned to the Certificates); and
(ix) any other demand, money market or time deposit,
demand obligation or any other obligation, security or investment, provided
that any two Rating Agencies have confirmed in writing to the Servicer, Special
Servicer or Trustee, as applicable, that such investment would not, in and of
itself, result in a downgrade, qualification or withdrawal of the then current
ratings assigned to the Certificates;
provided, however, that, in the judgment of the Servicer, such instrument
continues to qualify as a "cash flow investment" pursuant to Code Section
860G(a)(6) earning a passive return in the nature of interest and that no
instrument or security shall be a Permitted Investment if (i) such instrument
or security evidences a right to receive only interest payments or (ii) the
right to receive principal
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<PAGE> 35
and interest payments derived from the underlying investment provides a yield
to maturity in excess of 120% of the yield to maturity at par of such
underlying investment.
"Permitted Transferee": With respect to a Class R or Class LR
Certificate, any Person or agent thereof that is a Qualified Institutional
Buyer, an Affiliated Person or, prior to the Residual Trigger Date, an
Institutional Accredited Investor, other than (a) a Disqualified Organization,
(b) any other Person so designated by the Certificate Registrar based upon an
Opinion of Counsel (provided at the expense of such Person or the Person
requesting the Transfer) to the effect that the Transfer of an Ownership
Interest in any Class R or Class LR Certificate to such Person may cause the
Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify as a REMIC at any time
that the Certificates are outstanding, (c) a Person that is a Disqualified Non-
U.S. Person and (d) a Plan or any Person investing the assets of a Plan.
"Person": Any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan": As defined in Section 5.02(c).
"Prepayment Assumption": The assumption that each Mortgage Loan with
an Anticipated Repayment Date prepays on such date and that each other Mortgage
Loan does not prepay prior to its respective Maturity Date.
"Prepayment Interest Shortfall": With respect to any Distribution
Date, the amount of any shortfall in collections of interest (adjusted to the
applicable Net Mortgage Pass-Through Rate) resulting from a Principal
Prepayment on such Mortgage Loan during the related Collection Period and prior
to the related Due Date other than Prepayment Interest Shortfalls relating to
(a) a Special Distribution Date or (b) any Specially Serviced Mortgage Loan.
"Prepayment Premium": Payments received on a Mortgage Loan as the
result of a Principal Prepayment thereon, not otherwise due thereon in respect
of principal or interest, other than an amount paid in connection with the
release of the related Mortgaged Property through defeasance, which are
intended to compensate the holder of the related Note for prepayment.
"Principal Distribution Amount": For any Distribution Date will be
equal to the sum of:
(i) the principal component of all scheduled Monthly Payments
(other than Balloon Payments) which become due (if received or advanced,
including any Subordinate Class Advance Amounts allocable to principal payments
on any Class other than the most subordinate Class) on the Mortgage Loans on
the related Due Date;
(ii) the principal component of all Assumed Scheduled Payments or
Minimum Defaulted Monthly Payments, as applicable, deemed to become due (if
received or advanced, including, without duplication, any Subordinate Class
Advance Amounts allocable to principal payments on any Class other than the
most subordinate Class) on the related Due Date with respect to any Mortgage
Loan that is delinquent in respect of its Balloon Payment;
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<PAGE> 36
(iii) the Stated Principal Balance of each Mortgage Loan that was,
during the related Collection Period, repurchased from the Trust Fund in
connection with the breach of a representation or warranty pursuant to Section
2.03 or purchased from the Trust Fund pursuant to Section 9.01;
(iv) the portion of Unscheduled Payments allocable to principal of
any Mortgage Loan that was liquidated during the related Collection Period;
(v) the principal component of all Balloon Payments and, to the
extent not included in the preceding clauses, any other principal payment on
any Mortgage Loan received on or after the Maturity Date thereof, to the extent
received during the related Collection Period;
(vi) to the extent not included in the preceding clauses (iii) or
(iv), all other Principal Prepayments received in the related Collection
Period; and
(vii) to the extent not included in the preceding clauses, any other
full or partial recoveries in respect of principal, including Insurance
Proceeds, Liquidation Proceeds and Net REO Proceeds;
less (i) any amounts received on a Mortgage Loan which represent Subordinate
Class Advance Recoveries allocable to principal and (ii) any amounts
distributed to Certificateholders on any Special Distribution Date.
"Principal Prepayment": Any payment of principal made by the Borrower
on a Mortgage Loan which is received in advance of its scheduled Due Date and
which is not accompanied by an amount of interest representing the full amount
of scheduled interest due on any date or dates in any month or months
subsequent to the month of prepayment other than any amount paid in connection
with the release of the related Mortgaged Property through defeasance.
"Principal Recovery Fee": An amount equal to 1.00% of all amounts
received in respect of a Specially Serviced Mortgage Loan and allocable as a
recovery of principal which shall be payable when the Mortgage Loan or REO
Property is sold or liquidated or when the Specially Serviced Mortgage Loan
ceases to be a Specially Serviced Mortgage Loan pursuant to the definition of
Specially Serviced Mortgage Loan.
"Property Advance": As to any Mortgage Loan, any advance made by the
Servicer, Special Servicer, the Trustee or the Fiscal Agent in respect of
Property Protection Expenses or any expenses incurred to protect and preserve
the security for a Mortgage Loan or taxes and assessments or insurance
premiums, pursuant to Section 3.04 or Section 3.24, as applicable. Each
reference to the payment or reimbursement of a Property Advance shall be deemed
to include, whether or not specifically referred to, payment or reimbursement
of interest thereon at the Advance Rate from and including the date of the
making of such Advance through and including the date of payment or
reimbursement.
"Property Protection Expenses": Any costs and expenses incurred by
the Servicer or the Special Servicer pursuant to Sections 3.04, 3.08, 3.10(b),
3.10(e), 3.10(f), 3.10(g), 3.10(h), 3.10(k), 3.17(b) and 3.18 or indicated
herein as being a cost or expense of the Trust Fund or the Lower-Tier REMIC or
Upper-Tier REMIC to be advanced by the Servicer or the Special Servicer, as
applicable.
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<PAGE> 37
["Public Global Certificate": Each of the Class A-1A, Class A-1B,
Class A-1C, Class A-1D, Class A-CS1, Class A-2, Class A-3, Class A-4 and Class
A-5 Certificates so long as any such Class of Certificates is registered in the
name of a nominee of the Depository.]
"Qualified Institutional Buyer": A qualified institutional buyer
within the meaning of Rule 144A.
"Qualified Insurer": As used in Section 3.08, (i) an insurance
company or security or bonding company qualified to write the related insurance
policy in the relevant jurisdiction which shall have a claims paying ability of
"AA" or better by Fitch (or, if such company is not rated by Fitch, is rated at
least A-1X by A.M. Best's Key Rating Guide) and "Baa3" or better by Moody's and
"A" or better by DCR (or, if such company is not rated by DCR, is rated at
least in an equivalent category by at least two nationally recognized
statistical ratings organizations), (ii) in the case of public liability
insurance policies required to be maintained with respect to REO Properties in
accordance with Section 3.08(a), shall have a claims paying ability of "A" or
better by Fitch (or, if such company is not rated by Fitch, is rated at least
A-1X by A.M. Best's Key Rating Guide) and DCR (or, if such company is not rated
by DCR, is rated at least in an equivalent category by at least two nationally
recognized statistical ratings organizations) and "Baa3" or better by Moody's
and (iii) in the case of the fidelity bond and the errors and omissions
insurance required to be maintained pursuant to Section 3.08(c), shall have a
claims paying ability rated by each Rating Agency no lower than two ratings
categories (without regard to pluses or minuses or numeric qualifications)
lower than the highest rating of any outstanding Class of Certificates from
time to time (or if such company is not rated by DCR, is rated at least in an
equivalent category by at least two nationally recognized statistical ratings
organizations and, if such company is not rated by Fitch, is rated at least A-
VIII by A.M. Best's Key Rating Guide), but in no event lower than "BBB" by
Fitch and DCR and "Baa3" by Moody's, unless in any such case each of the Rating
Agencies has confirmed in writing that obtaining the related insurance from an
insurance company that is not rated by each of the Rating Agencies (subject to
the foregoing exceptions) or that has a lower claims-paying ability than such
requirements shall not result, in and of itself, in a downgrade, qualification
or withdrawal of the then current ratings by such Rating Agency to any Class of
Certificates.
"Qualified Mortgage": A Mortgage Loan that is a "qualified mortgage"
within the meaning of Code Section 860G(a)(3) of the Code (but without regard
to the rule in Treasury Regulations 1.860G-2(f)(2) that treats a defective
obligation as a qualified mortgage, or any substantially similar successor
provision).
"Rated Final Distribution Date": _________________, the next
Distribution Date occurring after the latest Assumed Maturity Date of any of
the Mortgage Loans.
"Rating Agency": Any of ________________________.,
_______________________ or _________________________. References herein to the
highest long-term unsecured debt rating category of a Rating Agency shall mean
_____ with respect to _____ and ______ and ______ with respect to ___________
and in the case of any other rating agency shall mean such highest rating
category or better without regard to any plus or minus or numerical
qualification.
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<PAGE> 38
"Real Property": Land or improvements thereon such as buildings or
other inherently permanent structures thereon (including items that are
structural components of the buildings or structures), in each such case as
such terms are used in the REMIC Provisions.
"Realized Loss": With respect to any Distribution Date shall mean the
amount, if any, by which the aggregate Certificate Balance of the Certificates
after giving effect to distributions made on such Distribution Date exceeds the
aggregate Stated Principal Balance of the Mortgage Loans in the month in which
such Distribution Date occurs
"Reassignment of Assignment of Leases, Rents and Profits": As defined
in Section 2.01(viii).
"Record Date": With respect to each Distribution Date, the close of
business on the [tenth] day of the month in which such Distribution Date occurs
or, if such day is not a Business Day, the preceding Business Day; provided,
however, that with respect to the first Distribution Date, for all purposes
other than receipt of the distribution pursuant to Section 4.01 on such
Distribution Date, the Record Date shall be the Closing Date.
"Reduction Interest Distribution Amount": With respect to any
Distribution Date for any Strip Component (other than the Class A-1A, Class A-
1B and Class A-1C Strip Components), the amount of interest accrued for the
Interest Accrual Period at the Pass-Through Rate on such Strip Component for
such Interest Accrual Period on the aggregate amount of Appraisal Reduction
Amounts and Delinquency Reduction Amounts allocated thereto as of such
Distribution Date as set forth in Section 4.01(i).
"Reduction Interest Shortfalls": With respect to any Distribution
Date, for any Strip Component (other than the Class _____ Strip Component,
Class _____ Strip Component, and Class _____ Strip Component) any shortfall in
the amount of Reduction Interest Distribution Amounts required to be
distributed to the Class _____ Certificates with respect to such Strip
Component on such Distribution Date.
"Regular Certificates": [List] Certificates.
"Regular Servicing Period": Any Interest Accrual Period other than a
Special Servicing Period.
"Regulation D": Regulation D under the Act.
"Related Certificate" and "Related Lower-Tier Regular Interest": For
any Class or Classes of Lower-Tier Regular Interests, the related Class of
Certificates set forth below and for any Class of Certificates, the related
Class or Classes of Lower-Tier Regular Interest set forth below:
<TABLE>
<CAPTION>
Related Certificate
Related Lower-Tier Regular Interest
<S> <C>
[List] [List]
</TABLE>
- 32 -
<PAGE> 39
"REMIC": A "real estate mortgage investment conduit" within the
meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Section 860A
through 860G of Subchapter M of Chapter 1 of the Code, and related provisions,
and regulations (including any applicable proposed regulations) and rulings
promulgated thereunder, as the foregoing may be in effect from time to time.
"Rents from Real Property": With respect to any REO Property, gross
income of the character described in Section 856(d) of the Code, which income,
subject to the terms and conditions of that Section of the Code in its present
form, does not include:
(i) except as provided in Section 856(d)(4) or (6) of the
Code, any amount received or accrued, directly or indirectly, with respect to
such REO Property, if the determination of such amount depends in whole or in
part on the income or profits derived by any Person from such property (unless
such amount is a fixed percentage or percentages of receipts or sales and
otherwise constitutes Rents from Real Property);
(ii) any amount received or accrued, directly or
indirectly, from any Person if the Trust Fund owns directly or indirectly
(including by attribution) a ten percent or greater interest in such Person
determined in accordance with Sections 856(d)(2)(B) and (d)(5) of the Code;
(iii) any amount received or accrued, directly or
indirectly, with respect to such REO Property if any Person Directly Operates
such REO Property;
(iv) any amount charged for services that are not
customarily furnished in connection with the rental of property to tenants in
buildings of a similar class in the same geographic market as such REO Property
within the meaning of Treasury Regulations Section 1.856-4(b)(1) (whether or
not such charges are separately stated); and
(v) rent attributable to personal property unless such
personal property is leased under, or in connection with, the lease of such REO
Property and, for any taxable year of the Trust Fund, such rent is no greater
than 15 percent of the total rent received or accrued under, or in connection
with, the lease.
"REO Account": As defined in Section 3.17(b).
"REO Mortgage Loan": Any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
"REO Proceeds": With respect to any REO Property and the related REO
Mortgage Loan, all revenues received by the Special Servicer with respect to
such REO Property or REO Mortgage Loan which do not constitute Liquidation
Proceeds.
"REO Property": A Mortgaged Property title to which has been acquired
by the Special Servicer on behalf of the Trust Fund through foreclosure, deed
in lieu of foreclosure or otherwise.
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<PAGE> 40
"Repurchase Price": With respect to any Mortgage Loan to be
repurchased pursuant to Section 2.03(d), 2.03(e) or 9.01, or any Specially
Serviced Mortgage Loan or any REO Mortgage Loan to be sold or repurchased
pursuant to Section 3.18, an amount, calculated by the Servicer, equal to:
(i) the unpaid principal balance of such Mortgage Loan as
of the Due Date as to which a payment was last made by the Borrower (less any
Advances previously made on account of principal); plus
(ii) unpaid accrued interest from the Due Date as to which
interest was last paid by the Borrower up to the Due Date in the month
following the month in which the purchase or repurchase occurred at a rate
equal to the Mortgage Rate on the unpaid principal balance of such Mortgage
Loan (less any Advances previously made on account of interest); plus
(iii) any unreimbursed Advances and unpaid Servicing Fees,
Trustee Fees and Special Servicing Compensation allocable to such Mortgage Loan
together with interest thereon at the Advance Rate; plus
(iv) in the event that the Mortgage Loan is required to be
repurchased pursuant to Sections 2.03(d) or 2.03(e), expenses reasonably
incurred or to be incurred by the Servicer, the Special Servicer or the Trustee
in respect of the breach or defect giving rise to the repurchase obligation,
including any expenses arising out of the enforcement of the repurchase
obligation.
"Request for Release": A request for a release signed by a Servicing
Officer, substantially in the form of Exhibit G hereto.
"Reserve Accounts": With respect to any Mortgage Loan, reserve
accounts, if any, established pursuant to the Mortgage or the Loan Agreement
and any Escrow Account. Any Reserve Account may be a sub-account of a related
Cash Collateral Account. Any Reserve Account shall be beneficially owned for
federal income tax purposes by the Person who is entitled to receive the
reinvestment income or gain thereon in accordance with the terms and provisions
of the related Mortgage Loan and Section 3.07, which Person shall be taxed on
all reinvestment income or gain thereon. The Servicer shall be permitted to
make withdrawals therefrom for deposit into the related Cash Collateral
Account, if applicable, or the Collection Account or for the purposes set forth
under the related Mortgage Loan.
"Residual Certificate": Any of the Class R or Class LR Certificates.
"Residual Transfer Opinion": An opinion of counsel to the Depositor
acceptable to the Trustee and the Certificate Registrar to the effect that the
continued ownership after the Residual Trigger Date of an Ownership Interest by
an Institutional Accredited Investor shall not cause the Trust Fund to be
required to be registered as an investment company under the Investment Company
Act of 1940, as amended.
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<PAGE> 41
"Residual Trigger Date": The date on which more than 20% of the
aggregate then outstanding principal balance of the Mortgage Loans is secured
by U.S. government obligations pursuant to the release of Mortgaged Properties
through defeasance.
"Responsible Officer": Any officer of the _________________ Department
of the Trustee [or the Fiscal Agent] (and, in the event that the Trustee is
the Certificate Registrar or the Paying Agent, of the Certificate Registrar or
the Paying Agent, as applicable) assigned to the Corporate Trust Office with
direct responsibility for the administration of this Agreement and also, with
respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject, and, in the case of any certification required to be signed
by a Responsible Officer, such an officer whose name and specimen signature
appears on a list of corporate trust officers furnished to the Servicer by the
Trustee [and the Fiscal Agent], as such list may from time to time be amended.
"Revised Rate": With respect to the Mortgage Loans, the increased
interest rate after the Anticipated Repayment Date (in the absence of a
default) for each applicable Mortgage Loan, as calculated and as set forth in
the related Mortgage Loan.
"Rule 144A": Rule 144A under the Act.
"Scheduled Final Distribution Date": As to each Class of
Certificates, _________, 20__, the next Distribution Date occurring after the
latest maturity date of any Mortgage Loan.
"Securities Legend": With respect to each Residual Certificate or any
Individual Certificate the legend set forth in, and substantially in the form
of, Exhibit I hereto.
"Servicer": AMRESCO Management, Inc., a Texas corporation, or its
successor in interest, or any successor Servicer appointed as herein provided.
"Servicer Event of Default": As defined in Section 7.01(a).
"Servicer Prepayment Interest Shortfall": With respect to any
Prepayment Interest Shortfall occurring on any Distribution Date, the amount
equal to (i) the sum of the Servicing Fee payable on such Distribution Date and
the investment income payable to the Servicer in accordance with Section 3.07
with respect to all Principal Prepayments during the related Collection Period,
less (ii) the aggregate of all Prepayment Interest Shortfalls for such
Distribution Date, provided, that, if the result of the foregoing is less than
zero then the amount of the Servicer Prepayment Interest Shortfall for such
Distribution Date shall be zero.
"Servicer Remittance Date": With respect to any Distribution Date,
the Business Day preceding such Distribution Date.
"Servicer Remittance Report": A report prepared by the Servicer
and/or the Special Servicer in such media as may be agreed upon by the
Servicer, the Special Servicer and the Trustee containing such information
regarding the Mortgage Loans as will permit the Trustee to calculate the
amounts to be distributed pursuant to Section 4.01 and to furnish statements to
Certificateholders
- 35 -
<PAGE> 42
pursuant to Section 4.02, including information on the outstanding principal
balances of each Mortgage Loan specified therein, and containing such
additional information as the Servicer, the Special Servicer and the Trustee
may from time to time agree.
"Servicer's Appraisal Estimate": As defined in the definition of
Appraisal Reduction Amount.
"Servicing Compensation": With respect to any Distribution Date, the
related Servicing Fee and any other fees, charges or other amounts payable to
the Servicer on such Distribution Date.
"Servicing Fee": With respect to each Mortgage Loan for any
Distribution Date, an amount per Interest Accrual Period equal to the product
of (i) one-twelfth of the Servicing Fee Rate and (ii) the Stated Principal
Balance of such Mortgage Loan as of the Due Date (after giving effect to all
payments of principal on such Mortgage Loan on such Due Date) in the month
preceding the month in which such Distribution Date occurs.
"Servicing Fee Rate": A rate equal to 0.05% per annum.
"Servicing Officer": Any officer or employee of the Servicer or the
Special Servicer, as applicable, involved in, or responsible for, the
administration and servicing of the Mortgage Loans or this Agreement and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's or employee's knowledge of and familiarity
with the particular subject, and, in the case of any certification required to
be signed by a Servicing Officer, such an officer or employee whose name and
specimen signature appears on a list of servicing officers furnished to the
Trustee by the Servicer or the Special Servicer, as applicable, as such list
may from time to time be amended.
"Servicing Standard": With respect to the Servicer or Special Servicer
shall mean the servicing of the Mortgage Loans by the Servicer or Special
Servicer solely in the best interests of and for the benefit of all of the
Certificateholders (as determined by the Servicer or Special Servicer as the
case may be, in its reasonable judgment) and in accordance with applicable law,
the specific terms of the respective Mortgage Loans and this Agreement and to
the extent not inconsistent with the foregoing, in the same manner in which,
and with the same care, skill, prudence and diligence with which, it (i)
services and administers similar mortgage loans for other third-party
portfolios or (ii) administers mortgage loans for its own account, whichever
standard is higher, but in any case without regard to:
(i) any known relationship that the Servicer, the Special
Servicer, any subservicer or any Affiliate of the Servicer, the Special
Servicer or any subservicer may have with any Borrower;
(ii) the ownership of any Certificate by the Servicer, the
Special Servicer or any Affiliate;
(iii) the Servicer's or Special Servicer's obligation to
make P&I Advances, Property Advances or to incur servicing expenses with
respect to the Mortgage Loans;
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<PAGE> 43
(iv) the Servicer's, Special Servicer's or any sub-
servicer's right to receive compensation for its services hereunder or with
respect to any particular transaction; or
(v) the ownership, or servicing or management for others,
by the Servicer, Special Servicer or any sub-servicer, of any other mortgage
loans or property.
"Special Distribution Date": The Business Day that is two Business
Days after any date, other than a Due Date, on which a prepayment is made on
the _____________ Loan after the expiration of the related Lock-out Period for
such loan.
"Special Event Report": As defined in Section 3.22(b) hereof.
"Special Servicer": AMRESCO Management, Inc., a Texas corporation, or
any successor Special Servicer appointed as provided in Section 3.25. In the
event that at any time the Servicer is the Special Servicer and the Servicer is
terminated or resigns as the Servicer hereunder, the Servicer shall be
terminated as the Special Servicer hereunder.
"Special Servicer Event of Default": As defined in Section 7.01(b).
"Special Servicing Compensation": With respect to any Mortgage Loan,
any of the Additional Servicing Fee, Special Servicing Fee and Principal
Recovery Fee which shall be due to the Special Servicer.
"Special Servicing Fee": With respect to each Specially Serviced
Mortgage Loan and any Distribution Date, an amount per Special Servicing
Period equal to the product of (i) one-twelfth of the Special Servicing Fee
Rate and (ii) the Stated Principal Balance of such Specially Serviced Mortgage
Loan as of the Due Date (after giving effect to all payments of principal on
such Specially Serviced Mortgage Loan on such Due Date) in the month preceding
the month in which such Distribution Date occurs.
"Special Servicing Fee Rate": A rate equal to 0.___% per annum.
"Special Servicing Period": Any Interest Accrual Period during which
a Mortgage Loan is at any time a Specially Serviced Mortgage Loan.
"Specially Serviced Mortgage Loan": Subject to Section 3.26, any
Mortgage Loan with respect to which:
(i) the related Borrower has not made two consecutive
Monthly Payments;
(ii) the Servicer, the Trustee or the Fiscal Agent,
individually or collectively, have made four consecutive P&I Advances
(regardless of whether such P&I Advances have been reimbursed);
(iii) the related Borrower has expressed to the Servicer an
inability to pay or a hardship in paying the Mortgage Loan in accordance with
its terms;
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<PAGE> 44
(iv) the Servicer has received notice that the Borrower
has become the subject of any bankruptcy, insolvency or similar proceeding,
admitted in writing the inability to pay its debts as they come due or made an
assignment for the benefit of creditors;
(v) the Servicer has received notice of a foreclosure or
threatened foreclosure of any lien on the Mortgage Property securing the
Mortgage Loan;
(vi) a default of which (A) the Servicer has notice (other
than a failure by the Borrower to pay principal or interest) and (B) which
materially and adversely affects the interests of the Certificateholders has
occurred and remained unremedied for the applicable grace period specified in
the Mortgage Loan (or, if no grace period is specified, 60 days); provided,
that a default requiring a Property Advance shall be deemed to materially and
adversely affect the interests of the Certificateholders;
(vii) the Special Servicer proposes to commence foreclosure
or other workout arrangements;
(viii) the related Borrower has failed to make a Balloon
Payment as and when due; or
(ix) in the opinion of the Servicer (consistent with the
Servicing Standard) a default under a Mortgage Loan is imminent and such
Mortgage Loan deserves the attention of the Special Servicer.
provided, however, that a Mortgage Loan will cease to be a Specially Serviced
Mortgage Loan:
(a) with respect to the circumstances described in clause
(i) above, if the earlier of such Monthly Payments is received prior to the
next due date under such Mortgage Loan;
(b) with respect to the circumstances described in clause
(i) or (ii) or (viii) above, when the Borrower thereunder has brought the
Mortgage Loan current (or, with respect to the circumstances described in
clause (viii), pursuant to any work-out implemented by the Special Servicer)
and thereafter made three consecutive full and timely Monthly Payments
(including pursuant to any workout of the Mortgage Loan);
(c) with respect to the circumstances described in clause
(iii), (iv), (v) and (vii) above, when such circumstances cease to exist in the
good faith judgment of the Servicer; or
(d) with respect to the circumstances described in clause
(vi) above, when such default is cured;
provided, further, that at that time no circumstance identified in clauses (i)
through (vii) above exists that would cause the Mortgage Loan to continue to be
characterized as a Specially Serviced Mortgage Loan.
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<PAGE> 45
"Spread Rate": The Spread Rate for each Class of Certificates is as
set forth below:
<TABLE>
<CAPTION>
Class Spread Rate
-----------
<S> <C>
[List] . . . . . . . . . . . . . . . . . . [List]
</TABLE>
"Startup Day": The day designated as such pursuant to Section 2.06(a)
hereof.
"Stated Principal Balance": With respect to any Mortgage Loan, at any
date of determination, an amount equal to (a) the principal balance as of the
Cut-off Date of such Mortgage Loan, minus (b) the sum of (i) the principal
portion of each Monthly Payment due on such Mortgage Loan after the Cut-off
Date up to such date of determination, if received from the Borrower or
advanced by the Servicer, Trustee, Fiscal Agent or the most subordinate Class
of Certificates (with respect to any Subordinate Class Advance Amount), (ii)
all voluntary and involuntary principal prepayments and other unscheduled
collections of principal received with respect to such Mortgage Loan and (iii)
any principal forgiven by the Special Servicer or Interest Shortfalls resulting
from reductions or deferrals of interest resulting from modifications made
pursuant to Section 3.30 hereof. The Stated Principal Balance of a Mortgage
Loan with respect to which title to the related Mortgaged Property has been
acquired is equal to the principal balance thereof outstanding on the date on
which such title is acquired less any Net REO Proceeds allocated to principal
on such Mortgage Loan. The Stated Principal Balance of a Specially Serviced
Mortgage Loan with respect to which the Servicer or Special Servicer has made a
Final Recovery Determination is zero.
"Strip Component": With respect to the Class _____ Certificates, the
Class _____ Strip Component. With respect to the Class _____ Certificates, the
Class _____ Strip Component, Class _____ Strip Component, Class _____ Strip
Component, Class ____ Strip Component, Class _____ Strip Component, Class _____
Strip Component and the Class _____ Strip Component.
"Subordinate Class Advance Amount": As defined in Section 4.06(d).
"Subordinate Class Advance Recovery": With respect to any Mortgage
Loan for which a Subordinate Class Advance Amount has been advanced, an amount
equal to all Subordinate Class Advance Amounts relating to such Mortgage Loan
minus the sum of all Delinquencies on such Mortgage Loan that have not been
cured. In no event shall a Subordinate Class Advance Recovery include any Net
Liquidation Proceeds, Net Insurance Proceeds or proceeds from any condemnation
with respect to a related Mortgaged Property.
"Successor Manager": As defined in Section 3.19(b) below.
"Summary Report": A quarterly report or annual summary of quarterly
reports setting forth the information with respect to the Borrowers and
Mortgaged Properties, substantially in the form of Exhibit K hereto.
"Tax Returns": The federal income tax return on IRS Form 1066, U.S.
Real Estate Mortgage Investment Conduit Income Tax Return, including Schedule Q
thereto, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income
or Net Loss Allocation, or any successor forms, to be
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<PAGE> 46
filed on behalf of each of the Upper-Tier REMIC or Lower-Tier REMIC under the
REMIC Provisions, together with any and all other information, reports or
returns that may be required to be furnished to the Certificateholders or filed
with the IRS or any other governmental taxing authority under any applicable
provisions of federal, state or local tax laws.
"Terminated Party": As defined in Section 7.01(c).
"Terminating Party": As defined in Section 7.01(c).
"Termination Date": The Distribution Date on which the Trust Fund is
terminated pursuant to Section 9.01.
"Transfer": Any direct or indirect transfer or other form of
assignment of any Ownership Interest in a Class R or Class LR Certificate.
"Trust Fund": The corpus of the trust created hereby and to be
administered hereunder, consisting of: (i) such Mortgage Loans as from time to
time are subject to this Agreement, together with the Mortgage Files relating
thereto; (ii) all scheduled or unscheduled payments on or collections in
respect of the Mortgage Loans due after the Cut-off Date; (iii) any REO
Property; (iv) all revenues received in respect of any REO Property; (v) the
Servicer's, the Special Servicer's and the Trustee's rights under the insurance
policies with respect to the Mortgage Loans required to be maintained pursuant
to this Agreement and any proceeds thereof; (vi) any Assignments of Leases,
Rents and Profits and any security agreements; (vii) any indemnities or
guaranties given as additional security for any Mortgage Loans; (viii) all
assets deposited in the Lock-Box Accounts, Cash Collateral Accounts, Escrow
Accounts and Reserve Accounts (to the extent such assets in such accounts are
not assets of the respective Borrowers), the Collection Account, the
Distribution Account, the Upper-Tier Distribution Account, the Excess Interest
Distribution Account, Interest Reserve Account and the Default Interest
Distribution Account, including reinvestment income; (ix) any environmental
indemnity agreements relating to the Mortgaged Properties; (x) the rights and
remedies under the Mortgage Loan Purchase and Sale Agreement and Original
Purchase Agreements; and (xi) the proceeds of any of the foregoing (other than
any interest earned on deposits in the Lock-Box Accounts, Cash Collateral
Accounts, Escrow Accounts and any Reserve Accounts, to the extent such interest
belongs to the related Borrower).
"Trust REMICs": The Lower-Tier REMIC and the Upper-Tier REMIC.
"Trustee": LaSalle National Bank, in its capacity as trustee, or its
successor in interest, or any successor trustee appointed as herein provided.
"Trustee Fee": With respect to each Mortgage Loan and for any
Distribution Date, an amount per Interest Accrual Period equal to the product
of (i) one-twelfth of the Trustee Fee Rate multiplied by (ii) the Stated
Principal Balance of such Mortgage Loan as of the Due Date (after giving effect
to all payments of principal on such Mortgage Loan on such Due Date) in the
month preceding the month in which such Distribution Date occurs.
"Trustee Fee Rate": A rate equal to 0.00__% per annum.
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"Underwriter":_____________________________.
"Unrestricted Date": The day immediately following the last day of
the Restricted Period.
"Unscheduled Payments": With respect to a Mortgage Loan and a
Collection Period, all Net Liquidation Proceeds and Net Insurance Proceeds
payable under such Mortgage Loan, the Repurchase Price of any Mortgage Loan
that is repurchased or purchased pursuant to Sections 2.03(d), 2.03(e) or 9.01,
and any other payments under or with respect to such Mortgage Loan not
scheduled to be made, including Principal Prepayments received by the Servicer,
but excluding Prepayment Premiums, during such Collection Period.
"Updated Appraisal": An appraisal of a Mortgaged Property or REO
Property, as the case may be, conducted subsequent to any appraisal performed
on or prior to the Cut-off Date and in accordance with MAI standards, the costs
of which shall be paid as a Property Advance by the Servicer. Updated
Appraisals shall be conducted by an MAI appraiser selected by the Servicer
after consultation with the Special Servicer.
"Upper-Tier Distribution Account": The trust account or accounts
created and maintained as a separate trust account or accounts by the Trustee
pursuant to Section 3.05(c), which shall be entitled "LaSalle National Bank, as
Trustee, in trust for Holders of AMRESCO Commercial Mortgage Funding I
Corporation, Mortgage Pass-Through Certificates, Series 1997-1, Upper-Tier
Distribution Account" and which must be an Eligible Account.
"Upper-Tier REMIC": A segregated asset pool within the Trust Fund
consisting of the Lower-Tier Regular Interests and amounts held from time to
time in the Upper-Tier Distribution Account.
"Voting Rights": The portion of the voting rights of all of the
Certificates that is allocated to any Certificate or Class of Certificates. At
all times during the term of this Agreement, the percentage of the Voting
Rights assigned to each Class shall be (a) 0%, in the case of the Class V-1,
Class V-2, Class R and Class LR Certificates, (b) 0.4% in the case of the Class
______ Certificates, __% in the case of the Class ______Certificates (the sum
of such percentages for each such Class outstanding is the "Fixed Voting Rights
Percentage"), (c) in the case of any of the Class _____, Class_____, [etc.]
Certificates, a percentage equal to the product of (i) 100% minus the Fixed
Voting Rights Percentage multiplied by (ii) a fraction, the numerator of which
is equal to the aggregate outstanding Certificate Balance of any such Class and
the denominator of which is equal to the aggregate outstanding Certificate
Balances of all Classes of Certificates. The Class _____ and Class _____
Certificates shall not be entitled to vote with respect to proposed extensions
of a Specially Serviced Mortgage Loan. The Voting Rights of any Class of
Certificates shall be allocated among Holders of Certificates of such Class in
proportion to their respective Percentage Interests. The aggregate Voting
Rights of Holders of more than one Class of Certificates shall be equal to the
sum of the products of each such Holder's Voting Rights and the percentage of
Voting Rights allocated to the related Class of Certificates. Any
Certificateholder may transfer its Voting Rights without transferring its
ownership interest in the related Certificates provided that such
Certificateholder provides notice of such transfer to the Trustee prior to the
effectiveness of such transfer. The Fixed Voting Right Percentage of the Class
_____ and Class _____ Certificates will be proportionally
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reduced upon the allocation of Appraisal Reduction Amounts with respect to any
component of such Classes based on the amount of such reduction.
"Weighted Average Net Mortgage Pass-Through Rate": With respect to
any Distribution Date, a per annum rate equal to a fraction (expressed as a
percentage) the numerator of which is the sum of the products of (i) the Net
Mortgage Pass-Through Rate and (ii) the Stated Principal Balance of each
Mortgage Loan and the denominator of which is the sum of the Stated Principal
Balances of each Mortgage Loan as of the Due Date occurring in the month
preceding the month in which such Distribution Date occurs or, with respect to
any Distribution Date occurring after a Special Distribution Date and any Class
that received a distribution on such Special Distribution Date, as of the last
day of the related Interest Accrual Period.
"Withheld Amounts": As defined in Section 3.27(a).
SECTION 1.02. Certain Calculations.
Unless otherwise specified herein, the following provisions shall
apply:
(a) All calculations of interest with respect to the Mortgage
Loans (other than the Actual/360 Mortgage Loans) and of Advances provided for
herein shall be made on the basis of a 360-day year consisting of twelve 30-day
months. All calculations of interest with respect to the Actual/360 Mortgage
Loans and of Advances provided for herein shall be made as set forth in such
Mortgage Loans with respect to the calculation of the related Mortgage Rate.
(b) Any Mortgage Loan payment is deemed to be received on the date
such payment is actually received by the Servicer, Special Servicer or the
Trustee; provided, however, that for purposes of calculating distributions on
the Certificates, Principal Prepayments with respect to any Mortgage Loan are
deemed to be received on the date they are applied in accordance with Section
3.01(b) to reduce the outstanding principal balance of such Mortgage Loan on
which interest accrues.
(c) Any amounts received in respect of a Mortgage Loan as to which
a default has occurred and is continuing in excess of Monthly Payments shall be
applied to Default Interest and other amounts due on such Mortgage Loan prior
to the application to late fees.
SECTION 1.03. Certain Constructions.
For purposes of the definitions of "Minimum Defaulted Monthly
Payment", "Special Servicing Fee", Section 3.19, Section 3.12, Section 3.25,
Section 3.30 and Section 4.06(d), references to the most or next most
subordinate Class of Certificates (or Lower-Tier Regular Interests) outstanding
at any time shall mean the most or next most subordinate Class of Certificates
(or Lower-Tier Regular Interests) then outstanding as among the [Class_____,
Class_____, Class_____, Class_____, [Etc.] Certificates (and the Classes of
Related Lower- Tier Regular Interests). For such purposes, the Class _____ and
Class _____ Certificates (and the Classes of Related Lower-Tier Regular
Interests) together shall be considered to be one Class and the Class _____,
Class_____, Class_____, Class _____ and Class _____ Certificates (and the
Classes of Related Lower-Tier Regular Interests) collectively shall be
considered to be one Class. For purposes
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of this Agreement, each Class of Certificates other than the Class V-1, Class
V-2, Class LR and Class R Certificates shall be deemed to be outstanding only
to the extent its respective Certificate Balance has not been reduced to zero.
For purposes of this Agreement, the Class V-1 Certificates shall be deemed to
be outstanding so long as there are any Notes outstanding, the Class V-2
Certificates shall be deemed outstanding so long as there are any Notes
outstanding that provide for the payment of Excess Interest, the Class
_____Certificates and the Class _____ Interest shall be deemed to be
outstanding so long as there are any Notes outstanding that provide for
payments of Prepayment Premiums in connection with voluntary or involuntary
prepayments and the Class R and Class LR Certificates shall be deemed to be
outstanding so long as the Trust Fund has not been terminated pursuant to
Section 9.01. For purposes of this Agreement, the Class _____and Class _____
Certificates shall be deemed to be outstanding until their respective Notional
Balances have been reduced to zero.
ARTICLE II.
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans; Assignment of Mortgage
Loan Purchase and Sale Agreement.
The Depositor, concurrently with the execution and delivery hereof,
does hereby sell, transfer, assign, set over and otherwise convey to the
Trustee without recourse (except to the extent herein provided) all the right,
title and interest of the Depositor in and to the Mortgage Loans, including all
rights to payment in respect thereof, except as set forth below, and any
security interest thereunder (whether in real or personal property and whether
tangible or intangible) in favor of the Depositor, and all Reserve Accounts,
Lock-Box Accounts, Cash Collateral Accounts and all other assets included or to
be included in the Trust Fund for the benefit of the Certificateholders. Such
transfer and assignment includes all interest and principal due on or with
respect to the Mortgage Loans after the Cut-off Date. In connection with such
transfer and assignment, the Depositor shall make a cash deposit to the
Collection Account in an amount equal to the Cash Deposit. The Depositor,
concurrently with execution and delivery hereof, does also hereby transfer,
assign, set over and otherwise convey to the Trustee without recourse (except
to the extent provided herein) all the right, title and interest of the
Depositor in, to and under the Mortgage Loan Purchase and Sale Agreement and,
in, to and under each Original Purchase Agreement as assignee of the Mortgage
Loan Seller's rights thereunder to the extent related to any Mortgage Loan.
The Servicer, Special Servicer or the Trustee shall notify the Mortgage Loan
Seller and the Depositor upon such party's becoming aware of any breach of the
representations and warranties contained in this Agreement or the Mortgage Loan
Purchase and Sale Agreement that gives rise to a cure or repurchase obligation;
provided, that the failure of the Servicer, Special Servicer or Trustee to give
such notification shall not constitute a waiver of any cure or repurchase
obligation. The Depositor shall cause the Reserve Accounts, Cash Collateral
Accounts and Lock-Box Accounts to be transferred to and held in the name of the
Servicer on behalf of the Trustee as successor to the Mortgage Loan Seller and
the Originators.
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In connection with such transfer and assignment, the Depositor does
hereby deliver to, and deposit with, the Custodian (on behalf of the Trustee),
with copies to the Servicer and the Special Servicer, the following documents
or instruments with respect to each Mortgage Loan so assigned (provided,
however, the documents specified in item (ix) shall be delivered only to the
Servicer):
(i) the original of the Note, endorsed without recourse
to the order of the Trustee in the following form: "Pay to the order of
LaSalle National Bank, as Trustee, without recourse" which Note and all
endorsements thereon shall, unless the Mortgage Loan was originated by the
Mortgage Loan Seller (as indicated on the Mortgage Loan Schedule), show a
complete chain of endorsement from the Originator to the Trustee;
(ii) the original recorded Mortgage or counterpart thereof
showing the Originator as mortgagee or, if any such original Mortgage has not
been returned from the applicable public recording office, a copy thereof
certified to be a true and complete copy of the original thereof submitted for
recording;
(iii) an executed Assignment of Mortgage in suitable form
for recordation in the jurisdiction in which the Mortgaged Property is located
in the following form: "LaSalle National Bank, as Trustee for AMRESCO
Commercial Funding I Corporation Mortgage Pass-Through Certificate Series 1997-
1, without recourse";
(iv) if the related security agreement is separate from
the Mortgage, the original executed version or counterpart thereof of such
security agreement and the assignment thereof to Trustee;
(v) a copy of the UCC-1 financing statement, together
with an original executed UCC-2 or UCC-3 financing statement, in a form
suitable for filing, disclosing the assignment to the Trustee of the security
interest in the personal property (if any) constituting security for repayment
of the Mortgage Loan;
(vi) the original of the Loan Agreement or counterpart
thereof relating to such Mortgage Loan, if any;
(vii) the original lender's title insurance policy (or the
original pro forma title insurance policy), together with any endorsements
thereto;
(viii) if any related Assignment of Leases, Rents and
Profits is separate from the Mortgage, the original executed version or
counterpart thereof, together with an executed reassignment of such instrument
to the Trustee (a "Reassignment of Assignment of Leases, Rents and Profits") in
suitable form for recordation in the jurisdiction in which the Mortgaged
Property is located (which reassignment, however, may be included in the
Assignment of Mortgage and need not be a separate instrument);
(ix) copies of the original Environmental Reports of the
Mortgaged Properties made in connection with origination of the Mortgage Loans,
if any;
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(x) a copy of the related ground lease, as amended, for
the Mortgaged Property, if any;
(xi) if the related assignment of contracts is separate
from the Mortgage, the original executed version of such assignment of
contracts and the assignment thereof to the Trustee;
(xii) if any related Lock-Box Agreement or Cash Collateral
Agreement is separate from the Mortgage or Loan Agreement, a copy thereof; with
respect to the Reserve Accounts, Cash Collateral Accounts and Lock-Box
Accounts, if any, a copy of the UCC-1 financing statements, if any, submitted
for filing with respect to the Mortgage Loan Seller's security interest in the
Reserve Accounts, Cash Collateral Accounts and Lock-Box Accounts and all funds
contained therein (and UCC-3 financing statements assigning such security
interest to the Trustee on behalf of the Certificateholders);
(xiii) any and all amendments, modifications and supplements
to, and waivers related to, any of the foregoing; and
(xiv) any other written agreements related to the Mortgage
Loan.
On or promptly following the Closing Date, the Servicer shall, to the
extent possession thereof has been delivered to it, at the expense of the
Depositor, (1) record, (a) each Assignment of Mortgage referred to in Section
2.01(iii) which has not yet been submitted for recording and (b) each
Reassignment of Assignment of Leases, Rents and Profits referred to in Section
2.01(viii) (if not otherwise included in the related Assignment of Mortgage)
which has not yet been submitted for recordation; and (2) file, each UCC-2 or
UCC-3 financing statement referred to in Section 2.01(v) or (xii) which has not
yet been submitted for filing. The Servicer shall upon delivery promptly
submit (and in no event later than five Business Days following the receipt of
the related documents in the case of clause 1(a) above and 60 days following
the Closing Date in the case of clauses 1(b) and 2 above) for recording or
filing, as the case may be, in the appropriate public recording office, each
such document. In the event that any such document is lost or returned
unrecorded because of a defect therein, the Servicer, at the expense of the
Depositor, shall use its best efforts to promptly prepare a substitute document
for signature by the Depositor, and thereafter the Servicer shall cause each
such document to be duly recorded. The Servicer shall, promptly upon receipt
of the original recorded copy (and in no event later than five Business Days
following such receipt) deliver such original to the Custodian.
Notwithstanding anything to the contrary contained in this Section 2.01, in
those instances where the public recording office retains the original
Mortgage, Assignment of Mortgage or Reassignment of Assignment of Leases, Rents
and Profits, if applicable, after any has been recorded, the obligations
hereunder of the Depositor shall be deemed to have been satisfied upon delivery
to the Custodian of a copy of such Mortgage, Assignment of Mortgage or
Reassignment of Assignment of Leases, Rents and Profits, if applicable,
certified by the public recording office to be a true and complete copy of the
recorded original thereof. If a pro forma title insurance policy has been
delivered to the Custodian in lieu of an original title insurance policy, the
Depositor will promptly deliver to the Custodian the related original title
insurance policy upon receipt thereof. The Depositor shall promptly cause the
UCC-1's referred to in Section 2.01(v) to be filed in the applicable public
recording office and upon filing will promptly deliver to the Custodian the
related UCC-1, with evidence of filing thereon. The Depositor shall reimburse
the
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Servicer for all out-of-pocket expenses incurred and filing fees paid by the
Servicer in connection with its obligations under this paragraph. Copies of
recorded or filed Assignments, Reassignments, UCC-1's and UCC-3's shall be
delivered to the Trustee by the Depositor or Servicer, as applicable.
All original documents relating to the Mortgage Loans which are not
delivered to the Custodian are and shall be held by the Depositor, the Trustee
or the Servicer, as the case may be, in trust for the benefit of the
Certificateholders. In the event that any such original document is required
pursuant to the terms of this Section to be a part of a Mortgage File, such
document shall be delivered promptly to the Custodian.
SECTION 2.02. Acceptance by Custodian and the Trustee.
If the Depositor cannot deliver any original or certified recorded
document described in Section 2.01 on the Closing Date, the Depositor shall use
its best efforts, promptly upon receipt thereof and in any case not later than
45 days from the Closing Date, to deliver such original or certified recorded
documents to the Custodian (unless the Depositor is delayed in making such
delivery by reason of the fact that such documents shall not have been returned
by the appropriate recording office in which case it shall notify the Custodian
and the Trustee in writing of such delay and shall deliver such documents to
the Custodian promptly upon the Depositor's receipt thereof). By its execution
and delivery of this Agreement, the Trustee acknowledges the assignment to it
of the Mortgage Loans in good faith without notice of adverse claims and
declares that the Custodian holds and will hold such documents and all others
delivered to it constituting the Mortgage File (to the extent the documents
constituting the Mortgage File are actually delivered to the Custodian) for any
Mortgage Loan assigned to the Trustee hereunder in trust, upon the conditions
herein set forth, for the use and benefit of all present and future
Certificateholders. With the exception of any Notes listed by the Trustee on
an exception report and delivered to the Depositor on the Closing Date, the
Trustee hereby acknowledges the receipt of the Notes. The Trustee agrees to
review each Mortgage File within 45 days after the later of (a) the Trustee's
receipt of such Mortgage File or (b) execution and delivery of this Agreement,
to ascertain that all documents (other than documents referred to in clause
(ix) of Section 2.01 which shall be delivered to the Servicer) referred to in
Section 2.01 above (in the case of the documents referred to in Section
2.01(iv), (v), (vi), (vii) (in the case of any endorsement thereto), (viii) and
(x) through (xv), as identified to it in writing by the Depositor) and any
original recorded documents referred to in the first sentence of this Section
included in the delivery of a Mortgage File have been received, have been
executed, appear to be what they purport to be, purport to be recorded or filed
(as applicable) and have not been torn, mutilated or otherwise defaced, and
that such documents relate to the Mortgage Loans identified in the Mortgage
Loan Schedule. In so doing, the Trustee may rely on the purported due
execution and genuineness of any such document and on the purported genuineness
of any signature thereon. If at the conclusion of such review any document or
documents constituting a part of a Mortgage File have not been executed or
received, have not been recorded or filed (if required), are unrelated to the
Mortgage Loans identified in the Mortgage Loan Schedule, appear not to be what
they purport to be or have been torn, mutilated or otherwise defaced, the
Trustee shall promptly so notify the Depositor and the Mortgage Loan Seller by
providing a written report, setting forth for each affected Mortgage Loan, with
particularity, the nature of the defective or missing document. The Depositor
shall, or shall cause the Mortgage Loan Seller to, deliver an executed,
recorded or undamaged document, as applicable, or, if the failure to deliver
such document in such form has a material adverse effect on
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the security provided by the related Mortgaged Property, the Depositor shall,
or shall cause the Mortgage Loan Seller to, repurchase the related Mortgage
Loan in the manner provided in Section 2.03. None of the Servicer, the Special
Servicer and Trustee shall be responsible for any loss, cost, damage or expense
to the Trust Fund resulting from any failure to receive any document
constituting a portion of a Mortgage File noted on such a report or for any
failure by the Depositor to use its best efforts to deliver any such document.
In reviewing any Mortgage File pursuant to the preceding paragraph or
Section 2.01, the Servicer shall have no responsibility to cause the Trustee
to, and the Trustee will have no responsibility to, determine whether any
document or opinion is legal, valid, binding or enforceable, whether the text
of any assignment or endorsement is in proper or recordable form (except, if
applicable, to determine if the Trustee is the assignee or endorsee), whether
any document has been recorded in accordance with the requirements of any
applicable jurisdiction, whether a blanket assignment is permitted in any
applicable jurisdiction, or whether any Person executing any document or
rendering any opinion is authorized to do so or whether any signature thereon
is genuine.
The Trustee shall hold that portion of the Trust Fund delivered to the
Trustee consisting of "instruments" (as such term is defined in Section 9-
105(i) of the Uniform Commercial Code as in effect in Illinois on the date
hereof) in ____________ and, except as otherwise specifically provided in this
Agreement, shall not remove such instruments from __________________, as
applicable, unless it receives an Opinion of Counsel (obtained and delivered at
the expense of the Person requesting the removal of such instruments from
__________________) that in the event the transfer of the Mortgage Loans to the
Trustee is deemed not to be a sale, after such removal, the Trustee will
possess a first priority perfected security interest in such instruments.
SECTION 2.03. Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants that:
(i) The Depositor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(ii) The Depositor has taken all necessary action to
authorize the execution, delivery and performance of this Agreement by it, and
has the power and authority to execute, deliver and perform this Agreement and
all the transactions contemplated hereby, including, but not limited to, the
power and authority to sell, assign and transfer the Mortgage Loans in
accordance with this Agreement;
(iii) This Agreement has been duly and validly authorized,
executed and delivered by the Depositor and assuming the due authorization,
execution and delivery of this Agreement by each other party hereto, this
Agreement and all of the obligations of the Depositor hereunder are the legal,
valid and binding obligations of the Depositor, enforceable in accordance with
the terms of this Agreement, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, liquidation, receivership, moratorium
or other laws relating to or affecting creditors'
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rights generally, or by general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law);
(iv) The execution and delivery of this Agreement and the
performance of its obligations hereunder by the Depositor will not conflict
with any provision of its certificate of incorporation or bylaws, or any law or
regulation to which the Depositor is subject, or conflict with, result in a
breach of or constitute a default under (or an event which with notice or lapse
of time or both would constitute a default under) any of the terms, conditions
or provisions of any agreement or instrument to which the Depositor is a party
or by which it is bound, or any order or decree applicable to the Depositor, or
result in the creation or imposition of any lien on any of the Depositor's
assets or property, which would materially and adversely affect the ability of
the Depositor to carry out the transactions contemplated by this Agreement.
The Depositor has obtained any consent, approval, authorization or order of any
court or governmental agency or body required for the execution, delivery and
performance by the Depositor of this Agreement;
(v) The certificate of incorporation of the Depositor
provides that the Depositor is permitted to engage in only the following
activities:
(A) to acquire, own, hold, sell, transfer, assign,
pledge, finance, refinance and otherwise deal with 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 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;
(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 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
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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 instruments listed under (E) above 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.
Capitalized terms defined in this clause (v) shall apply only to such
clause.
(vi) There is no action, suit or proceeding pending
against the Depositor in any court or by or before any other governmental
agency or instrumentality which would materially and adversely affect the
ability of the Depositor to carry out its obligations under this Agreement; and
(vii) The Trustee, if not the owner of the related Mortgage
Loan, will have a valid and perfected security interest of first priority in
each of the Mortgage Loans and any proceeds thereof.
(b) The Depositor hereby represents and warrants with respect to
each Mortgage Loan that:
(i) Immediately prior to the transfer and assignment to
the Trustee, the Note and the Mortgage were not subject to an assignment or
pledge, and the Depositor had good title to, and was the sole owner of, the
Mortgage Loan and had full right to transfer and sell the Mortgage Loan to the
Trustee free and clear of any encumbrance, equity, lien, pledge, charge, claim
or security interest;
(ii) The Depositor is transferring such Mortgage Loan free
and clear of any and all liens, pledges, charges or security interests of any
nature encumbering such Mortgage Loan;
(iii) The related Assignment of Mortgage constitutes the
legal, valid and binding assignment of such Mortgage from the Depositor to the
Trustee, and any related Reassignment of Assignment of Leases, Rents and
Profits constitutes the legal, valid and binding assignment from the Depositor
to the Trustee;
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(iv) No claims have been made by the Depositor under the
lender's title insurance policy, and the Depositor has not done, by act or
omission, anything which would impair the coverage of such lender's title
insurance policy;
(v) All of the representations and warranties of the
Mortgage Loan Seller contained in the Mortgage Loan Purchase and Sale Agreement
are true and correct as of the Cut-off Date;
(vi) (1) Such Mortgage Loan is directly secured by a
Mortgage on a commercial property or multifamily residential property, and (2)
either (i) 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 (in the case of a
Mortgage Loan that has not been modified in a manner that constituted a deemed
exchange under Section 1001 of the Code at a time when the Mortgage Loan was
not in default or default with respect thereto was not reasonably foreseeable)
or (ii) the fair market value of such real property was at least equal to 80%
of the principal amount of the Mortgage Loan (a) at origination (or, if the
Mortgage Loan has been modified in a manner that constituted a deemed exchange
under Section 1001 of the Code at a time when the Mortgage Loan was not in
default or default with respect thereto was not reasonably foreseeable, the
date of the last such modification) or (b) at the Closing Date; provided that
for purposes of this clause (ii) the fair market value of the real property
interest must first be reduced by (A) the amount of any lien on the real
property interest that is senior to the Mortgage Loan (unless such senior lien
also secures a Mortgage Loan, in which event the computation described in (a)
and (b) of this clause (ii) shall be made on an aggregate basis) and (B) a
proportionate amount of any lien that is in parity with the Mortgage Loan
(unless such other lien secures a Mortgage Loan that is cross-collateralized
with such Mortgage Loan, in which event the computation described in (a) and
(b) of this clause (ii) shall be made on an aggregate basis); and
(vii) The information set forth with respect to such
Mortgage Loan on the Mortgage Loan Schedule is true and correct in all material
respects as of the dates respecting which such information is given, or if no
date is specified, as of the Cut-off Date.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 2.03 shall survive delivery of the
respective Mortgage Files to the Trustee until the termination of this
Agreement, and shall inure to the benefit of the Certificateholders and the
Servicer.
(d) Upon discovery by the Custodian, the Servicer, the Special
Servicer or the Trustee of a breach of the representation and warranty set
forth in Section 2.03(b)(vi) or that any Mortgage Loan otherwise fails to
constitute a Qualified Mortgage, such Person shall give prompt notice thereof
to the Depositor and the Depositor shall correct such condition or repurchase
or cause the Mortgage Loan Seller to repurchase such Mortgage Loan at the
Repurchase Price within 90 days of discovery of such failure; it being
understood and agreed that none of such Persons has an obligation to conduct
any investigation with respect to such matters. It is understood and agreed
that the obligations of the Depositor set forth in this Section 2.03(d) to cure
or repurchase a Mortgage Loan which fails to constitute a Qualified Mortgage
shall be the sole remedies available to the Trustee
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respecting, in the case of a Mortgage Loan, a breach of a representation or
warranty set forth in Section 2.03(b)(vi).
(e) Upon discovery by the Custodian, the Servicer, the Special
Servicer or the Trustee of a breach of any representation or warranty of the
Mortgage Loan Seller in the Mortgage Loan Purchase and Sale Agreement with
respect to any Mortgage Loan, or that any document required to be included in
the Mortgage File does not conform to the requirements of Section 2.01, such
Person shall give prompt notice thereof to the Mortgage Loan Seller and the
Mortgage Loan Seller shall, to the extent the Mortgage Loan Seller is obligated
to cure or repurchase the related Mortgage Loan under the terms of the Mortgage
Loan Purchase and Sale Agreement, either cure such breach or repurchase said
Mortgage Loan at the Repurchase Price within 90 days of the receipt of notice
of the breach as provided in the Mortgage Loan Purchase and Sale Agreement; it
being understood and agreed that none of the Custodian, the Servicer and the
Trustee has an obligation to conduct any investigation with respect to such
matters (except, in the case of the Mortgage Files, to the extent provided in
Section 2.01); provided, however, that in the event that such breach is capable
of being cured as determined by the Servicer or the Special Servicer, as
applicable, but not within such 90 day period and the Mortgage Loan Seller has
commenced and is diligently proceeding with the cure of such breach within such
90 day period (other than a breach that is also a breach of Section 2.03(b)(vi)
or 2.03(d)), the Mortgage Loan Seller shall have an additional 90 days to
complete such cure; provided, further, that with respect to such additional 90
day period the Mortgage Loan Seller shall have delivered an officer's
certificate to the Trustee and the Servicer setting forth the reason such
breach is not capable of being cured within the initial 90 day period and what
actions the Mortgage Loan Seller is pursuing in connection with the cure
thereof and stating that the Mortgage Loan Seller anticipates that such breach
will be cured within the additional 90 day period; and, provided, further, that
in the event the Mortgage Loan Seller fails to cure such breach within such
additional 90-day period, the Repurchase Price shall include interest on any
Advances made in respect of the related Mortgage Loan during such period.
(f) Upon receipt by the Servicer from the Depositor or Mortgage
Loan Seller of the Repurchase Price for the repurchased Mortgage Loan, the
Servicer shall deposit such amount in the Collection Account, and the Trustee,
pursuant to Section 3.11, shall, upon receipt of a certificate of a Servicing
Officer certifying as to the receipt by the Servicer of the Repurchase Price
and the deposit of the Repurchase Price into the Collection Account pursuant to
this Section 2.03(f), release or cause to be released to the Depositor or the
Mortgage Loan Seller the related Mortgage File and shall execute and deliver
such instruments of transfer or assignment, in each case without recourse,
representation or warranty, as shall be prepared by the Servicer to vest in the
Depositor or the Mortgage Loan Seller any Mortgage Loan released pursuant
hereto, and any rights of the Depositor in, to and under the Mortgage Loan
Purchase and Sale Agreement as it related to such Mortgage Loan that were
initially transferred to the Trust Fund under Section 2.01, and if applicable
any rights of the Mortgage Loan Seller or Depositor in, to and under the
related Original Purchase Agreement as it related to such Mortgage Loan that
were initially transferred to the Trust Fund under Section 2.01, and the
Trustee and the Servicer shall have no further responsibility with regard to
such Mortgage File.
(g) In the event that the Mortgage Loan Seller incurs any expense
in connection with curing a breach of a representation or warranty pursuant to
Section 2.03(e) which also constitutes
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a default under the related Mortgage Loan, the Mortgage Loan Seller shall have
a right, subrogated to that of the Trustee, as successor to the mortgagee, to
recover the amount of such expenses from the related Borrower. The Servicer
shall use reasonable efforts in recovering, or assisting the Mortgage Loan
Seller in recovering, from the related Borrower the amount of any such
expenses.
(h) In the event that any litigation is commenced which alleges
facts which, in the judgment of the Depositor, could constitute a breach of any
of the Depositor's representations and warranties relating to the Mortgage
Loans, the Depositor hereby reserves the right to conduct the defense of such
litigation at its expense.
(i) If for any reason the Mortgage Loan Seller or the Depositor
fails to fulfill its obligations under this Section 2.03 with respect to any
Mortgage Loan, the Servicer shall use reasonable efforts in enforcing any
obligation of the Originator to cure or repurchase such Mortgage Loan under the
terms of the related Original Purchase Agreement.
SECTION 2.04. Representations, Warranties and Covenants of the
Servicer and Special Servicer.
(a) The Servicer, as Servicer, and if it is also the Special
Servicer, as the Special Servicer, hereby represents, warrants and covenants
that as of the Closing Date or as of such date specifically provided herein:
(i) The Servicer is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Texas and
has all licenses necessary to carry on its business as now being conducted or
is in compliance with the laws of each state in which any Mortgaged Property is
located to the extent necessary to comply with its duties and responsibilities
hereunder with respect to each Mortgage Loan in accordance with the terms of
this Agreement;
(ii) The Servicer has the full corporate power, authority
and legal right to execute and deliver this Agreement and to perform in
accordance herewith; the execution and delivery of this Agreement by the
Servicer and its performance and compliance with the terms of this Agreement
will not violate the Servicer's charter or by-laws or constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach of, any material contract, agreement or
other instrument to which the Servicer is a party or which may be applicable to
the Servicer or any of its assets;
(iii) This Agreement has been duly and validly authorized,
executed and delivered by the Servicer and, assuming due authorization,
execution and delivery by the other parties hereto, constitutes a legal, valid
and binding obligation of the Servicer, enforceable against it in accordance
with the terms of this Agreement, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, liquidation, receivership, moratorium
or other laws relating to or affecting creditors' rights generally, or by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law), and all requisite corporate
action has been taken by the Servicer to make this Agreement and all agreements
contemplated hereby valid and binding upon the Servicer in accordance with
their terms;
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(iv) The Servicer is not in violation of, and the
execution and delivery of this Agreement by the Servicer and its performance
and compliance with the terms of this Agreement will not constitute a violation
with respect to, any order or decree of any court binding on the Servicer or
any order or regulation of any federal, state, municipal or governmental agency
having jurisdiction, or result in the creation or imposition of any lien,
charge or encumbrance which, in any such event, would have consequences that
would materially and adversely affect the condition (financial or otherwise) or
operation of the Servicer or its properties or impair the ability of the Trust
Fund to realize on the Mortgage Loans;
(v) There is no action, suit, proceeding or investigation
pending or threatened against the Servicer which, either in any one instance or
in the aggregate, would result in any material adverse change in the business,
operations, financial condition, properties or assets of the Servicer, or in
any material impairment of the right, or would, if adversely determined,
materially impair the ability of the Servicer, to carry on its business
substantially as now conducted, or in any material liability on the part of the
Servicer, or which would draw into question the validity of this Agreement or
the Mortgage Loans or of any action taken or to be taken in connection with the
obligations of the Servicer contemplated herein, or which would be likely to
impair materially the ability of the Servicer to perform under the terms of
this Agreement; and
(vi) No consent, approval, authorization or order of, or
registration or filing with, or notice to any court or governmental agency or
body, is required for the execution, delivery and performance by the Servicer
of or compliance by the Servicer with this Agreement, or if required, such
approval has been obtained prior to the Cut-off Date.
(b) The Special Servicer, as Special Servicer, hereby represents,
warrants and covenants that as of the Closing Date or as of such date
specifically provided herein:
(i) The Special Servicer is corporation, duly organized,
validly existing and in good standing under the laws of the State of Texas and
has all licenses necessary to carry on its business as now being conducted or
will be in compliance with the laws of each state in which any Mortgaged
Property is located to the extent necessary to comply with its duties and
responsibilities hereunder with respect to each Mortgage Loan in accordance
with the terms of this Agreement, provided, that the breach of such
representation, warranty and covenant shall have no effect unless such breach
has a material adverse effect on the ability of the Special Servicer to fulfill
its obligations hereunder;
(ii) The Special Servicer has the full power, authority
and legal right to execute and deliver this Agreement and to perform in
accordance herewith; the execution and delivery of this Agreement by the
Special Servicer and its performance and compliance with the terms of this
Agreement will not violate the Special Servicer's charter or by-laws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any material
contract, agreement or other instrument to which the Special Servicer is a
party or which may be applicable to the Special Servicer or any of its assets;
(iii) This Agreement has been duly and validly authorized,
executed and delivered by the Special Servicer and, assuming due authorization,
execution and delivery by the other parties
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<PAGE> 60
hereto, constitutes a legal, valid and binding obligation of the Special
Servicer, enforceable against it in accordance with the terms of this
Agreement, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, liquidation, receivership, moratorium or other laws relating to
or affecting creditors' rights generally, or by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), and all requisite corporate action has been taken by the
Special Servicer to make this Agreement and all agreements contemplated hereby
valid and binding upon the Special Servicer in accordance with their terms;
(iv) The Special Servicer is not in violation of, and the
execution and delivery of this Agreement by the Special Servicer and its
performance and compliance with the terms of this Agreement will not constitute
a violation with respect to, any order or decree of any court binding on the
Special Servicer or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, or result in the creation or
imposition of any lien, charge or encumbrance which, in any such event, would
have consequences that would materially and adversely affect the condition
(financial or otherwise) or operation of the Special Servicer or its properties
or impair the ability of the Trust Fund to realize on the Mortgage Loans;
(v) There is no action, suit, proceeding or investigation
pending or threatened against the Special Servicer which, either in any one
instance or in the aggregate, would result in any material adverse change in
the business, operations, financial condition, properties or assets of the
Special Servicer, or in any material impairment of the right, or would, if
adversely determined, materially impair the ability of the Special Servicer, to
carry on its business substantially as now conducted, or in any material
liability on the part of the Special Servicer, or which would draw into
question the validity of this Agreement or the Mortgage Loans or of any action
taken or to be taken in connection with the obligations of the Special Servicer
contemplated herein, or which would be likely to impair materially the ability
of the Special Servicer to perform under the terms of this Agreement; and
(vi) No consent, approval, authorization or order of, or
registration or filing with, or notice to any court or governmental agency or
body, is required for the execution, delivery and performance by the Special
Servicer of or compliance by the Special Servicer with this Agreement, or if
required, such approval has been obtained prior to the Cut-off Date.
(c) It is understood and agreed that the representations and
warranties set forth in this Section shall survive delivery of the respective
Mortgage Files to the Trustee or the Custodian on behalf of the Trustee until
the termination of this Agreement, and shall inure to the benefit of the
Trustee, the Depositor and the Servicer or Special Servicer, as the case may
be. Upon discovery by the Depositor, the Servicer, Special Servicer or a
Responsible Officer of the Trustee (or upon written notice thereof from any
Certificateholder) of a breach of any of the representations and warranties set
forth in this Section which materially and adversely affects the interests of
the Certificateholders, the Servicer, Special Servicer or the Trustee in any
Mortgage Loan, the party discovering such breach shall give prompt written
notice to the other parties hereto and the Mortgage Loan Seller.
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SECTION 2.05. Execution and Delivery of Certificates; Issuance of
Lower-Tier Regular Interests.
The Trustee acknowledges the assignment to it of the Mortgage Loans
and the Anchorage Participation and the delivery of the Mortgage Files to the
Custodian (to the extent the documents constituting the Mortgage Files are
actually delivered to the Custodian), subject to the provisions of Section 2.01
and Section 2.02 and, concurrently with such delivery, (i) acknowledges the
issuance of and hereby declares that it holds the Lower-Tier Regular Interests
on behalf of the Upper-Tier REMIC and the Holders of the Regular Certificates
and the Class R Certificates and (ii) has caused to be executed and caused to
be authenticated and delivered to or upon the order of the Depositor, or as
directed by the terms of this Agreement, Class A-1A, Class A-1B, Class A- 1C,
Class A-CS1, Class A-CS2, Class A-1D, Class A-2, Class A-3, Class A-4, Class A-
5, Class B-1, Class B-2, Class B-3, Class B-4 , Class B-4H, Class V-1, Class V-
2, Class R and Class LR Certificates in authorized denominations, in each case
registered in the names set forth in such order or so directed in this
Agreement and duly authenticated by the Authenticating Agent, which
Certificates (described in the preceding clause (ii)) and Lower Tier Regular
Interests evidence ownership of the entire Trust Fund.
SECTION 2.06. Miscellaneous REMIC and Grantor Trust Provisions.
(a) The Class _____, Class ______, Class _____, Class _____, Class
_____, Class ______, Class _____, Class ______, Class _____, Class _____, Class
_____, Class _____ and Class _____ Interests are hereby designated as "regular
interests" in the Lower-Tier REMIC within the meaning of Section 860G(a)(1) of
the Code, and the Class LR Certificates are hereby designated as the sole Class
of "residual interests" in the Lower-Tier REMIC within the meaning of Section
860G(a)(2) of the Code. The Class _____, Class _____, Class _____, Class
_____, Class _____, Class _____, Class _____, Class _____, Class _____, Class
_____, Class _____, Class _____, Class _____, Class _____ and Class _____
Certificates are hereby designated as "regular interests" in the Upper-Tier
REMIC within the meaning of Section 860G(a)(1) of the Code and the Class R
Certificates are hereby designated as the sole Class of "residual interests" in
the Upper-Tier REMIC within the meaning of Section 860G(a)(2) of the Code. The
Closing Date is hereby designated as the "Startup Day" of the Lower-Tier REMIC
and the Upper-Tier REMIC within the meaning of Section 860G(a)(9) of the Code.
The "latest possible maturity date" of the Lower-Tier Regular Interests and the
Regular Certificates for purposes of Section 860G(a)(1) of the Code is the
Scheduled Final Distribution Date.
(b) The Class V-1 Certificates represent pro rata undivided
beneficial interests in the Default Interest subject to the liability of the
Trust Fund to pay interest on Advances at the Advance Rate. The Class V-2
Certificates represent beneficial pro rata undivided interests in the Excess
Interest. The Class V-1 and Class V-2 Certificates do not represent regular or
residual interests in either the Upper-Tier REMIC or the Lower-Tier REMIC.
(c) None of the Depositor, the Trustee, the Servicer, the Fiscal
Agent or the Special Servicer shall enter into any arrangement by which the
Trust Fund will receive a fee or other compensation for services other than as
specifically contemplated herein.
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ARTICLE III.
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.01. Servicer to Act as Servicer; Administration of the
Mortgage Loans.
(a) The Servicer and the Special Servicer, each as an independent
contractor servicer, shall service and administer the Mortgage Loans on behalf
of the Trust Fund and the Trustee (as trustee for Certificateholders) in
accordance with the Servicing Standard.
The Servicer's or Special Servicer's liability for actions and
omissions in its capacity as Servicer or Special Servicer, as the case may be,
hereunder is limited as provided herein (including, without limitation,
pursuant to Section 6.03 hereof). To the extent consistent with the foregoing
and subject to any express limitations set forth in this Agreement, the
Servicer and Special Servicer shall seek to maximize the timely and complete
recovery of principal and interest on the Notes; provided, however, that
nothing herein contained shall be construed as an express or implied guarantee
by the Servicer or Special Servicer of the collectability of the Mortgage
Loans. Subject only to the Servicing Standard, the Servicer and Special
Servicer shall have full power and authority, acting alone or through sub-
servicers (subject to paragraph (c) of this Section 3.01 and to Section 3.02),
to do or cause to be done any and all things in connection with such servicing
and administration which it may deem consistent with the Servicing Standard
and, in its reasonable judgment, in the best interests of the
Certificateholders, including, without limitation, with respect to each
Mortgage Loan, to prepare, execute and deliver, on behalf of the
Certificateholders and the Trustee or any of them: (i) any and all financing
statements, continuation statements and other documents or instruments
necessary to maintain the lien on each Mortgaged Property and related
collateral; (ii) any modifications, waivers, consents or amendments to or with
respect to any documents contained in the related Mortgage File; and (iii) any
and all instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with respect to the
Mortgage Loans and the Mortgaged Properties. Subject to Section 3.11, the
Trustee shall, upon the receipt of a written request of a Servicing Officer,
execute and deliver to the Servicer and Special Servicer any powers of attorney
and other documents prepared by the Servicer and Special Servicer and necessary
or appropriate (as certified in such written request) to enable the Servicer
and Special Servicer to carry out their servicing and administrative duties
hereunder.
(b) Unless otherwise provided in the related Note, the Servicer
shall apply any partial Principal Prepayment received on a Mortgage Loan on a
date other than a Due Date to the principal balance of such Mortgage Loan as of
the Due Date immediately following the date of receipt of such partial
Principal Prepayment. Unless otherwise provided in the related Note, the
Servicer shall apply any amounts received on U.S. Treasury obligations (which
shall not be redeemed by the Servicer prior to the maturity thereof) in respect
of a Mortgage Loan being defeased pursuant to its terms to the principal
balance of and interest on such Mortgage Loan as of the Due Date immediately
following the receipt of such amounts.
(c) Each of the Servicer and the Special Servicer may enter into
sub-servicing agreements with third parties with respect to any of its
respective obligations hereunder, including, with respect
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to the Special Servicer, those obligations for which it is paid the Additional
Servicing Fee, as provided herein, provided, that (i) any such agreement shall
be consistent with the provisions of this Agreement and (ii) no sub-servicer
retained by the Servicer or the Special Servicer, as applicable, shall grant
any modification, waiver or amendment to any Mortgage Loan without the approval
of the Servicer or the Special Servicer, as applicable, which approval shall be
given or withheld in accordance with the procedures set forth in Section 3.30
(or the definition of Minimum Defaulted Monthly Payment), and (iii) such
agreement shall be consistent with the Servicing Standard. Any such sub-
servicing agreement may permit the sub-servicer to delegate its duties to
agents or subcontractors so long as the related agreements or arrangements with
such agents or subcontractors are consistent with the provisions of this
Section 3.01(c).
Any sub-servicing agreement entered into by the Servicer or the
Special Servicer, as applicable, shall provide that it may be assumed or
terminated by the Trustee or the Servicer, respectively, if the Trustee or the
Servicer, respectively, has assumed the duties of the Servicer or the Special
Servicer, respectively, or any successor Servicer or Special Servicer, as
applicable, without cost or obligation to the assuming or terminating party or
the Trust Fund, upon the assumption by such party of the obligations of the
Servicer or the Special Servicer, as applicable, pursuant to Section 7.02.
Any sub-servicing agreement, and any other transactions or services
relating to the Mortgage Loans involving a sub-servicer, shall be deemed to be
between the Servicer or the Special Servicer, as applicable, and such sub-
servicer alone, and the Trustee and the Certificateholders shall not be deemed
parties thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to the sub-servicer, except as set forth in Section
3.01(d).
(d) If the Trustee or any successor Servicer assumes the
obligations of the Servicer, or if the Servicer or any successor Special
Servicer assumes the obligations of the Special Servicer, in each case in
accordance with Section 7.02, the Trustee, the Servicer or such successor, as
applicable, to the extent necessary to permit the Trustee, the Servicer or such
successor, as applicable, to carry out the provisions of Section 7.02, shall,
without act or deed on the part of the Trustee, the Servicer or such successor,
as applicable, succeed to all of the rights and obligations of the Servicer or
the Special Servicer, as applicable, under any sub-servicing agreement entered
into by the Servicer or the Special Servicer, as applicable, pursuant to
Section 3.01(c), subject to the right of termination by the Trustee set forth
in Section 3.01(c). In such event, the Trustee, the Servicer or the successor
Servicer or the Special Servicer, as applicable, shall be deemed to have
assumed all of the Servicer's or the Special Servicer's interest, as
applicable, therein (but not any liabilities or obligations in respect of acts
or omissions of the Servicer or the Special Servicer, as applicable, prior to
such deemed assumption) and to have replaced the Servicer or the Special
Servicer, as applicable, as a party to such sub-servicing agreement to the same
extent as if such sub-servicing agreement had been assigned to the Trustee, the
Servicer or such successor Servicer or successor Special Servicer, as
applicable, except that the Servicer or the Special Servicer, as applicable,
shall not thereby be relieved of any liability or obligations under such sub-
servicing agreement that accrued prior to the succession of the Trustee, the
Servicer or the successor Servicer or successor Special Servicer, as
applicable.
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In the event that the Trustee, the Servicer or any successor Servicer
or Special Servicer, as applicable, assumes the servicing obligations of the
Servicer or the Special Servicer, as applicable, upon request of the Trustee,
the Servicer or such successor Servicer or Special Servicer, as applicable, the
Servicer or Special Servicer shall at its own expense (except in the event that
the Servicer is terminated pursuant to Section 6.04(c), in which event, at the
expense of the Certificateholders effecting such termination) deliver to the
Trustee, the Servicer or such successor Servicer or Special Servicer, as
applicable, all documents and records relating to any sub-servicing agreement
and the Mortgage Loans then being serviced thereunder and an accounting of
amounts collected and held by it, if any, and will otherwise use its best
efforts to effect the orderly and efficient transfer of any sub-servicing
agreement to the Trustee, the Servicer or the successor Servicer or Special
Servicer, as applicable.
SECTION 3.02. Liability of the Servicer.
Notwithstanding any sub-servicing agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer or
Special Servicer and any Person acting as sub-servicer (or its agents or
subcontractors) or any reference to actions taken through any Person acting as
sub-servicer or otherwise, the Servicer or Special Servicer, as applicable,
shall remain obligated and primarily liable to the Trustee and
Certificateholders for the servicing and administering of the Mortgage Loans in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such sub-servicing agreements or
arrangements or by virtue of indemnification from the Depositor or any other
Person acting as sub-servicer (or its agents or subcontractors) to the same
extent and under the same terms and conditions as if the Servicer or Special
Servicer, as applicable, alone were servicing and administering the Mortgage
Loans. Each of the Servicer and the Special Servicer shall be entitled to
enter into an agreement with any sub-servicer providing for indemnification of
the Servicer or Special Servicer, as applicable, by such sub-servicer, and
nothing contained in this Agreement shall be deemed to limit or modify such
indemnification, but no such agreement for indemnification shall be deemed to
limit or modify this Agreement.
SECTION 3.03. Collection of Certain Mortgage Loan Payments.
(a) The Servicer or the Special Servicer, as applicable, shall use
reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans it is obligated to service hereunder, and
shall follow the Servicing Standard with respect to such collection procedures.
The Special Servicer shall use its reasonable efforts to collect income
statements and rent rolls from Borrowers as required by the Loan Documents and
the terms hereof and shall provide copies thereof to the Servicer as provided
herein. The Servicer shall provide reasonable advance notice to the Special
Servicer and Borrowers of Balloon Payments coming due. Consistent with the
foregoing, the Servicer or Special Servicer, as applicable, may in its
discretion waive any late payment charge in connection with any delinquent
Monthly Payment or Balloon Payment with respect to any Mortgage Loan. In
addition, the Servicer shall be entitled to take such actions with respect to
the collection of payments on the Mortgage Loans as are permitted or required
under Section 3.28 hereof.
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(b) In the event that the Servicer receives, or receives notice
from the related Borrower that it will be receiving, Excess Interest in any
Collection Period, the Servicer or Special Servicer, as applicable, will
promptly notify the Trustee.
SECTION 3.04. Collection of Taxes, Assessments and Similar Items;
Escrow Accounts.
(a) With respect to each Mortgage Loan (other than any REO
Mortgage Loan), the Servicer shall maintain accurate records with respect to
each related Mortgaged Property reflecting the status of taxes, assessments and
other similar items that are or may become a lien on the related Mortgaged
Property and the status of insurance premiums payable with respect thereto.
From time to time, the Servicer shall (i) obtain all bills for the payment of
such items (including renewal premiums), and (ii) effect payment of all such
bills with respect to such Mortgaged Properties prior to the applicable penalty
or termination date, in each case employing for such purpose Escrow Payments as
allowed under the terms of the related Mortgage Loan. If a Borrower fails to
make any such payment on a timely basis or collections from the Borrower are
insufficient to pay any such item before the applicable penalty or termination
date, the Servicer shall advance the amount of any shortfall as a Property
Advance unless the Servicer determines in its good faith business judgment that
such Advance would be a Nonrecoverable Advance. The Servicer shall be entitled
to reimbursement of Advances, with interest thereon at the Advance Rate, that
it makes pursuant to the preceding sentence from amounts received on or in
respect of the related Mortgage Loan respecting which such Advance was made or
if such Advance has become a Nonrecoverable Advance, to the extent permitted by
Section 3.06 of this Agreement. No costs incurred by the Servicer in effecting
the payment of taxes and assessments on the Mortgaged Properties shall, for the
purpose of calculating distributions to Certificateholders, be added to the
amount owing under the related Mortgage Loans, notwithstanding that the terms
of such Mortgage Loans so permit.
(b) The Servicer shall segregate and hold all funds collected and
received pursuant to any Mortgage Loan constituting Escrow Payments separate
and apart from any of its own funds and general assets and shall establish and
maintain one or more segregated custodial accounts (each, an "Escrow Account")
into which all Escrow Payments shall be deposited within one (1) Business Day
after receipt. The Servicer shall also deposit into each Escrow Account any
amounts representing losses on Permitted Investments pursuant to Section
3.07(b) and any Insurance Proceeds or Liquidation Proceeds which are required
to be applied to the restoration or repair of any Mortgaged Property pursuant
to the related Mortgage Loan. Escrow Accounts shall be Eligible Accounts
(except to the extent the related Mortgage Loan requires it to be held in an
account that is not an Eligible Account) and shall be entitled "AMRESCO
Management, Inc., as Servicer, in trust for LaSalle National Bank, as Trustee
in trust for Holders of AMRESCO Commercial Mortgage Funding I Corporation,
Mortgage Pass-Through Certificates, Series 1997-1, and Various Borrowers".
Withdrawals from an Escrow Account may be made by the Servicer only:
(i) to effect timely payments of items constituting
Escrow Payments for the related Mortgage;
(ii) to transfer funds to the Collection Account to
reimburse the Servicer, the Trustee or the Fiscal Agent, as applicable, for any
Advance relating to Escrow Payments, but only
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from amounts received with respect to the related Mortgage Loan which represent
late collections of Escrow Payments thereunder;
(iii) for application to the restoration or repair of the
related Mortgaged Property in accordance with the related Mortgage Loan and the
Servicing Standard;
(iv) to clear and terminate such Escrow Account upon the
termination of this Agreement;
(v) to pay from time to time to the related Borrower any
interest or investment income earned on funds deposited in the Escrow Account
if such income is required to be paid to the related Borrower under law or by
the terms of the Mortgage Loan, or otherwise to the Servicer; and
(vi) to remove any funds deposited in an Escrow Account
that were not required to be deposited therein.
SECTION 3.05. Collection Account; Distribution Account; Upper-Tier
Distribution Account; Default Interest Distribution
Account; and Excess Interest Distribution Account.
(a) The Servicer shall establish and maintain the Collection
Account in the Trustee's name, for the benefit of the Certificateholders and
the Trustee as the Holder of the Lower-Tier Regular Interests. The Collection
Account shall be established and maintained as an Eligible Account. The
Servicer shall deposit or cause to be deposited in the Collection Account
within one Business Day following receipt the following payments and
collections received or made by it on or with respect to the Mortgage Loans:
(i) all payments on account of principal on the Mortgage
Loans, including the principal component of Unscheduled Payments;
(ii) all payments on account of interest on the Mortgage
Loans and the interest portion of all Unscheduled Payments and all Prepayment
Premiums;
(iii) any amounts required to be deposited pursuant to
Section 3.07(b), in connection with net losses realized on Permitted
Investments with respect to funds held in the Collection Account;
(iv) all Net REO Proceeds withdrawn from an REO Account
pursuant to Section 3.17(b) and all Net Insurance Proceeds and Net Liquidation
Proceeds;
(v) any amounts received from Borrowers which represent
recoveries of Property Protection Expenses, to the extent not permitted to be
retained by the Servicer or Special Servicer as provided herein;
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(vi) any other amounts required by the provisions of this
Agreement to be deposited into the Collection Account by the Servicer or
Special Servicer, including, without limitation, proceeds of any repurchase of
a Mortgage Loan pursuant to Sections 2.03(d) and (e) hereof; and
(vii) any Servicer Prepayment Interest Shortfalls for the
next Distribution Date into the Collection Account on the Servicer Remittance
Date.
The foregoing requirements for deposits in the Collection Account
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of late payment charges
(subject to Section 3.12 hereof), Assumption Fees, loan modification fees, loan
service transaction fees, extension fees, demand fees, beneficiary statement
charges and similar fees need not be deposited in the Collection Account by the
Servicer and, to the extent permitted by applicable law, the Servicer or the
Special Servicer, as applicable in accordance with Section 3.12 hereof, shall
be entitled to retain any such charges and fees received with respect to the
Mortgage Loans. In the event that the Servicer deposits in the Collection
Account any amount not required to be deposited therein, it may at any time
withdraw such amount from the Collection Account, any provision herein to the
contrary notwithstanding.
(b) The Trustee shall establish and maintain the Distribution
Account in the name of the Trustee, in trust for the benefit of the
Certificateholders and the Trustee as the Holder of the Lower-Tier Regular
Interests. The Distribution Account shall be established and maintained as an
Eligible Account.
(c) The Trustee shall establish and maintain the Upper-Tier
Distribution Account in the name of the Trustee, in trust for the benefit of
the Certificateholders. The Upper-Tier Distribution Account shall be
established and maintained as an Eligible Account. With respect to each
Distribution Date, the Trustee shall withdraw from the Distribution Account and
deposit in the Upper-Tier Distribution Account on or before such date the
amount of Available Funds (including P&I Advances) and Prepayment Premiums to
be distributed in respect of the Lower-Tier Regular Interests pursuant to
Section 4.01 hereof on such date.
(d) Prior to the Servicer Remittance Date relating to the
Collection Period, if any, in which Default Interest is received, the Trustee
shall establish and maintain the Default Interest Distribution Account in the
name of the Trustee in trust for the benefit of the Holders of the Class V-1
Certificates. The Default Interest Distribution Account shall be established
and maintained as an Eligible Account. On or before the Servicer Remittance
Date related to each Distribution Date, the Servicer shall remit to the Trustee
for deposit in the Default Interest Distribution Account an amount equal to (i)
the amount of the aggregate Default Interest received during the preceding
Collection Period, minus (ii) any portions thereof withdrawn from the
Collection Account pursuant to clause (iii) of Section 3.06 (such amount, if
any, the "Net Default Interest" for such Distribution Date).
(e) Prior to the Servicer Remittance Date relating to the
Collection Period, if any, in which Excess Interest is received, the Trustee
shall establish and maintain the Excess Interest Distribution Account in the
name of the Trustee in trust for the benefit of the Holders of the Class
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V-2 Certificates. The Excess Interest Distribution Account shall be
established and maintained as an Eligible Account. On or before the Servicer
Remittance Date related to the applicable Distribution Date, the Servicer shall
remit to the Trustee for deposit in the Excess Interest Distribution Account an
amount equal to the Excess Interest received during the applicable Collection
Period. Following the distribution of Excess Interest to Certificateholders on
the first Distribution Date after which there are no longer any Mortgage Loans
outstanding which pursuant to their terms could pay Excess Interest, the
Trustee shall terminate the Excess Interest Distribution Account.
(f) Funds in the Collection Account, the Distribution Account, the
Upper-Tier Distribution Account, the Default Interest Distribution Account and
the Excess Interest Distribution Account may be invested in Permitted
Investments in accordance with the provisions of Section 3.07. The Servicer
shall give written notice to the Trustee of the location and account number of
the Collection Account and shall notify the Trustee in writing prior to any
subsequent change thereof.
SECTION 3.06. Permitted Withdrawals from the Collection Account.
The Servicer may make withdrawals from the Collection Account only as
described below (the order set forth below not constituting an order of
priority for such withdrawals):
(i) to remit to the Trustee for deposit in the
Distribution Account, the Default Interest Distribution Account, the Interest
Reserve Account, and the Excess Interest Distribution Account, the amounts
required to be deposited in the Distribution Account, the Default Interest
Distribution Account, the Interest Reserve Account, and the Excess Interest
Distribution Account pursuant to Sections 4.06, 3.05(c), 3.05(d), 3.27(a) and
3.05(e);
(ii) to pay or reimburse the Trustee, the Fiscal Agent,
the Servicer and the Special Servicer for Advances (provided, that the Trustee
and Fiscal Agent shall have priority with respect to such payment or
reimbursement), the Servicer's right to reimburse any such Person pursuant to
this clause (ii) being limited to either (x) any collections on or in respect
of the particular Mortgage Loan or REO Property with respect to which such
Advance was made, (y) with respect to P&I Advances, any Subordinate Class
Advance Amounts with respect to the related Distribution Date as provided in
Section 4.06(d), or (z) any other amounts in the Collection Account in the
event that such Advances have been deemed to be Nonrecoverable Advances or are
not reimbursed from recoveries in respect of the related Mortgage Loan or REO
Property after a Final Recovery Determination;
(iii) (A) to pay to the Servicer, the Trustee or the Fiscal
Agent the Advance Interest Amount relating to P&I Advances (to the extent not
reimbursed from Default Interest), and (B) to pay to the Servicer, Special
Servicer, Trustee or Fiscal Agent any Advance Interest Amounts not relating to
any P&I Advances (provided that in the case of both (A) and (B), the Trustee
and the Fiscal Agent shall have priority with respect to such payments);
(iv) to pay on or before each Servicer Remittance Date to
the Servicer and the Special Servicer, as applicable, as compensation, the
aggregate unpaid Servicing Compensation and Special Servicing Compensation,
respectively, in respect of the immediately preceding month, to
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be paid, in the case of the Servicing Fee and Additional Servicing Fee, from
interest received on the related Mortgage Loan, and to pay from time to time to
the Servicer in accordance with Section 3.07(b) any interest or investment
income earned on funds deposited in the Collection Account (The Servicer may
rely on a certification of the Special Servicer as to amounts of Special
Servicing Compensation to be withdrawn pursuant to this clause (iv));
(v) to remit to the Distribution Account, an amount equal
to the Trustee Fee in respect of the immediately preceding month to be paid
from interest received on the related Mortgage Loan;
(vi) to pay on or before each Distribution Date to the
Depositor, the Mortgage Loan Seller or other Originator, as the case may be,
with respect to each Mortgage Loan or REO Property that has previously been
purchased or repurchased by it pursuant to Section 2.03(d), Section 2.03(e),
Section 3.18 or Section 9.01, all amounts received thereon during the related
Collection Period and subsequent to the date as of which the amount required to
effect such purchase or repurchase was determined;
(vii) to the extent not reimbursed or paid pursuant to any
other clause of this Section 3.06, to reimburse or pay the Servicer, the
Trustee, the Special Servicer, the Depositor or the Fiscal Agent, as
applicable, for unpaid Servicing Fees, Special Servicing Compensation and other
unpaid items incurred by such Person pursuant to the second sentence of Section
3.07(c), Section 3.08(a) and (b), Section 3.10, Section 3.12(e), Section
3.17(a), (b) and (c), Section 3.18(a), the fourth paragraph of Section 3.22,
Section 6.03, Section 7.04, Section 8.01(c)(v), Section 8.05(d) or Section
10.07, or any other provision of this Agreement pursuant to which such Person
is entitled to reimbursement or payment from the Trust Fund, in each case only
to the extent reimbursable under such Section, it being acknowledged that this
clause (vii) shall not be deemed to modify the substance of any such Section,
including the provisions of such Section that set forth the extent to which one
of the foregoing Persons is or is not entitled to payment or reimbursement;
(viii) to transfer to the Trustee for deposit in one or more
separate, non-interest bearing accounts any amount reasonably determined by the
Trustee to be necessary to pay any applicable federal, state or local taxes
imposed on the Upper-Tier REMIC or the Lower-Tier REMIC under the circumstances
and to the extent described in Section 4.05;
(ix) to pay to the participant or participants (the "Other
Participant") in the Anchorage Participation, other than the Trustee as
assignee of the Depositor (as "Lead Lender" under the Anchorage Participation
Agreement), the amount of the Monthly Payment to which the Other Participant is
entitled under the Anchorage Participation Agreement;
(x) to withdraw any amount deposited into the Collection
Account that was not required to be deposited therein; and
(xi) to clear and terminate the Collection Account
pursuant to Section 9.01.
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The Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account pursuant to subclauses (ii)-(vii) above.
The Servicer shall pay to the Trustee, the Fiscal Agent or the Special
Servicer from the Collection Account (to the extent permitted by clauses (i)-
(vii) above) amounts permitted to be paid to the Trustee, the Fiscal Agent or
the Special Servicer therefrom, promptly upon receipt of a certificate of a
Responsible Officer of the Trustee or the Fiscal Agent or a certificate of a
Servicing Officer, as applicable, describing the item and amount to which such
Person is entitled. The Servicer may rely conclusively on any such certificate
and shall have no duty to recalculate the amounts stated therein.
The Trustee, the Fiscal Agent, the Special Servicer and the Servicer
shall in all cases have a right prior to the Certificateholders to any funds on
deposit in the Collection Account from time to time for the reimbursement or
payment of the Servicing Compensation (including investment income), or Trustee
Fees, Special Servicing Compensation, Advances, Advance Interest Amounts, their
respective expenses hereunder to the extent such fees and expenses are to be
reimbursed or paid from amounts on deposit in the Collection Account pursuant
to this Agreement (and to have such amounts paid directly to third party
contractors for any invoices approved by the Trustee, the Servicer or the
Special Servicer, as applicable) and any federal, state or local taxes imposed
on either the Upper-Tier REMIC or Lower-Tier REMIC.
SECTION 3.07. Investment of Funds in the Collection Account, the
REO Account, the Lock-Box Accounts, the Cash
Collateral Accounts, the Interest Reserve Account and
the Reserve Accounts.
(a) The Servicer (or with respect to any REO Account, the Special
Servicer), may direct any depository institution maintaining the Collection
Account, any Borrower Accounts (subject to the second succeeding sentence), the
Interest Reserve Account and any REO Account (each, for purposes of this
Section 3.07, an "Investment Account"), to invest the funds in such Investment
Account in one or more Permitted Investments that bear interest or are sold at
a discount, and that mature, unless payable on demand, no later than the
Business Day preceding the date on which such funds are required to be
withdrawn from such Investment Account pursuant to this Agreement. Any
direction by the Servicer, the Special Servicer, to invest funds on deposit in
an Investment Account shall be in writing and shall certify that the requested
investment is a Permitted Investment which matures at or prior to the time
required hereby or is payable on demand. In the case of any Escrow Account,
Lock-Box Account, Cash Collateral Account or Reserve Account (the "Borrower
Accounts"), the Servicer shall act upon the written request of the related
Borrower or Manager to the extent the Servicer is required to do so under the
terms of the respective Mortgage Loan or related documents, provided that in
the absence of appropriate written instructions from the related Borrower or
Manager meeting the requirements of this Section 3.07, the Servicer shall have
no obligation to, but will be entitled to, direct the investment of funds in
such accounts in Permitted Investments. All such Permitted Investments shall
be held to maturity, unless payable on demand. Any investment of funds in an
Investment Account shall be made in the name of the Trustee (in its capacity as
such) or in the name of a nominee of the Trustee. The Trustee shall have sole
control (except with respect to investment direction which shall be in the
control of the Servicer (or the
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Special Servicer, with respect to any REO Accounts), as an independent
contractor to the Trust Fund) over each such investment and any certificate or
other instrument evidencing any such investment shall be delivered directly to
the Trustee or its agent (which shall initially be the Servicer), together with
any document of transfer, if any, necessary to transfer title to such
investment to the Trustee or its nominee. The Trustee shall have no
responsibility or liability with respect to the investment directions of the
Servicer or the Special Servicer or any losses resulting therefrom, whether
from Permitted Investments or otherwise. The Servicer shall have no
responsibility or liability with respect to the investment directions of or the
Special Servicer, any Borrower or Manager or any losses resulting therefrom,
whether from Permitted Investments or otherwise. In the event amounts on
deposit in an Investment Account are at any time invested in a Permitted
Investment payable on demand, the Servicer (or the Special Servicer, as
applicable) shall:
(x) consistent with any notice required to be given
thereunder, demand that payment thereon be made on the last day such
Permitted Investment may otherwise mature hereunder in an amount equal
to the lesser of (1) all amounts then payable thereunder and (2) the
amount required to be withdrawn on such date; and
(y) demand payment of all amounts due thereunder promptly
upon determination by the Servicer (or the Special Servicer as
applicable) that such Permitted Investment would not constitute a
Permitted Investment in respect of funds thereafter on deposit in the
related Investment Account.
(b) All income and gain realized from investment of funds
deposited in any Investment Account shall be for the benefit of the Servicer
(except with respect to the investment of funds deposited in (i) any Borrower
Account, which shall be for the benefit of the related Borrower to the extent
required under the Mortgage Loan or applicable law, (ii) any REO Account, which
shall be for the benefit of the Special Servicer or (iii) the Interest Reserve
Account, which shall be for the benefit of ______________________________.)
and, if held in the Collection Account or REO Account shall be subject to
withdrawal by the Servicer or the Special Servicer, as applicable, in
accordance with Section 3.06 or Section 3.17(b), as applicable, and if held in
the Interest Reserve Account, shall be subject to withdrawal by
_____________________________. pursuant to written instructions. The Servicer
(or with respect to any REO Account, the Special Servicer or with respect to
the Interest Reserve Account, ______________________________.) shall deposit
from its own funds into the Collection Account, any REO Account or the Interest
Reserve Account, as applicable, the amount of any loss incurred in respect of
any such Permitted Investment immediately upon realization of such loss;
provided, however, that the Servicer, Special Servicer, or
________________________________, as applicable, may reduce the amount of such
payment to the extent it forgoes any investment income in such Investment
Account otherwise payable to it. The Servicer shall also deposit from its own
funds in any Borrower Account the amount of any loss incurred in respect of
Permitted Investments, except to the extent that amounts are invested for the
benefit of the Borrower under the terms of the Mortgage Loan or applicable law.
(c) Except as otherwise expressly provided in this Agreement, if
any default occurs in the making of a payment due under any Permitted
Investment, or if a default occurs in any other performance required under any
Permitted Investment, the Trustee may, and upon the request of Holders of
Certificates representing greater than 50% of the Percentage Interests of any
Class shall,
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take such action as may be appropriate to enforce such payment or performance,
including the institution and prosecution of appropriate proceedings. In the
event the Trustee takes any such action, the Trust Fund shall pay or reimburse
the Trustee for all reasonable out-of-pocket expenses, disbursements and
advances incurred or made by the Trustee in connection therewith. In the event
that the Trustee does not take any such action, the Servicer may take such
action at its own cost and expense.
SECTION 3.08. Maintenance of Insurance Policies and Errors and
Omissions and Fidelity Coverage.
(a) The Servicer on behalf of the Trustee, as mortgagee, shall
cause the related Borrower to maintain, to the extent required by each Mortgage
Loan (other than REO Mortgage Loans), and if the Borrower does not so maintain,
shall itself maintain (subject to the provisions of this Agreement concerning
Nonrecoverable Advances) to the extent the Trustee as mortgagee has an
insurable interest and to the extent available at commercially reasonable
rates, (i) fire and hazard insurance with extended coverage on the related
Mortgaged Property in an amount which is at least equal to the lesser of (A)
one hundred percent (100%) of the then "full replacement cost" of the
improvements and equipment, (excluding foundations, footings and excavation
costs), without deduction for physical depreciation, and (B) the outstanding
principal balance of the related Mortgage Loan or such greater amount as is
necessary to prevent any reduction in such policy by reason of the application
of co-insurance and to prevent the Trustee thereunder from being deemed to be a
co-insurer and provided such policy shall include a "replacement cost" rider,
(ii) insurance providing coverage against 12 months (or such longer period as
provided in the related Mortgage or other loan document) of rent interruptions
and (iii) such other insurance as is required in the related Mortgage Loan.
The Special Servicer shall maintain fire and hazard insurance with extended
coverage on each REO Property (subject to the provisions of this Agreement
concerning Nonrecoverable Advances) in an amount which is at least equal to one
hundred percent (100%) of the then "full replacement cost" of the improvements
and equipment (excluding foundations, footings and excavation costs), without
deduction for physical depreciation. If the Special Servicer does not maintain
the insurance described in the preceding sentence or the required flood
insurance described below, the Servicer shall, as soon as practicable after
receipt of notice of such failure, maintain such insurance, and if the Servicer
does not maintain such insurance, the insurance required in the first sentence
of this Section 3.08(a) or the required flood insurance described below (if the
related Borrower fails to maintain such insurance), the Trustee shall, as soon
as practicable after receipt of notice of such failure, maintain such insurance
and if the Trustee does not maintain such insurance, the Fiscal Agent shall do
so, provided that, in each such case, such obligation will be subject to the
provisions of this Agreement concerning Nonrecoverable Advances. The Special
Servicer shall maintain, with respect to each REO Property (i) public liability
insurance providing such coverage against such risks as the Special Servicer
determines, consistent with the related Mortgage and the Servicing Standard, to
be in the best interests of the Trust Fund, (ii) insurance providing coverage
against 24 months of rent interruptions and (iii) such other insurance as was
required pursuant to the terms of the related Mortgage Loan. All insurance for
an REO Property shall be from a Qualified Insurer. Any amounts collected by
the Servicer or the Special Servicer under any such policies (other than
amounts required to be applied to the restoration or repair of the related
Mortgaged Property or amounts to be released to the Borrower in accordance with
the terms of the related Mortgage) shall be deposited into the Collection
Account pursuant to Section 3.05,
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subject to withdrawal pursuant to Section 3.06. Any cost incurred by the
Servicer or the Special Servicer in maintaining any such insurance shall not,
for the purpose of calculating distributions to Certificateholders, be added to
the unpaid principal balance of the related Mortgage Loan, notwithstanding that
the terms of such Mortgage Loan so permit. It is understood and agreed that no
other additional insurance other than flood insurance or earthquake insurance
subject to the conditions set forth below is to be required of any Borrower or
to be maintained by the Servicer other than pursuant to the terms of the
related Mortgage and pursuant to such applicable laws and regulations as shall
at any time be in force and as shall require such additional insurance. If the
Mortgaged Property (other than an REO Property) is located in a federally
designated special flood hazard area, the Servicer will use its best efforts to
cause the related Borrower to maintain, to the extent required by each Mortgage
Loan, and if the related Borrower does not so maintain, will itself obtain
(subject to the provisions of this Agreement concerning Nonrecoverable
Advances) flood insurance in respect thereof. Such flood insurance shall be in
an amount equal to the lesser of (i) the unpaid principal balance of the
related Mortgage Loan and (ii) the maximum amount of such insurance required by
the terms of the related Mortgage and as is available for the related property
under the national flood insurance program (assuming that the area in which
such property is located is participating in such program). If an REO Property
(i) is located in a federally designated special flood hazard area or (ii) is
related to a Mortgage Loan pursuant to which earthquake insurance was in place
at the time of origination and continues to be available at commercially
reasonable rates, the Special Servicer will obtain (subject to the provisions
of this Agreement concerning Nonrecoverable Advances) flood insurance and/or
earthquake insurance in respect thereof providing substantially the same
coverage as described in the preceding sentences or, with respect to earthquake
insurance, in the amount required by the Mortgage Loan or, if not specified,
in-place at origination. If at any time during the term of this Agreement a
recovery under a flood or fire and hazard insurance policy in respect of an REO
Property is not available but would have been available if such insurance were
maintained thereon in accordance with the standards applied to Mortgaged
Properties described herein, the Special Servicer shall (subject to the
provisions of this Agreement concerning Nonrecoverable Advances) either (i)
immediately deposit into the Collection Account from its own funds the amount
that would have been recovered or (ii) apply to the restoration and repair of
the property from its own funds the amount that would have been recovered, if
such application would be consistent with the Servicing Standard; provided,
however, that the Special Servicer shall not be responsible for any shortfall
in insurance proceeds resulting from an insurer's refusal or inability to pay a
claim. In the case of any insurance otherwise required to be maintained
pursuant to this Section that is not being so maintained because the Servicer
or the Special Servicer, as applicable, has determined that it is not available
at commercially reasonable rates, the Servicer or the Special Servicer, as
applicable, shall deliver an Officer's Certificate to the Trustee and each
Rating Agency which details the steps that were taken in seeking such insurance
and the factors which led to the determination that such insurance was not so
available. Costs to the Servicer or Special Servicer of maintaining insurance
policies pursuant to this Section 3.08 shall be paid by the Servicer or Special
Servicer as a Property Advance and shall be reimbursable to the Servicer or
Special Servicer with interest at the Advance Rate, which reimbursement may be
effected under Section 3.06(ii) or (vii).
The Servicer (or the Special Servicer, with respect to the Specially
Serviced Mortgage Loans) agrees to prepare and present, on behalf of itself,
the Trustee and the Certificateholders, claims under each related insurance
policy maintained pursuant to this Section 3.08(a) in a timely fashion in
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accordance with the terms of such policy and to take such reasonable steps as
are necessary to receive payment or to permit recovery thereunder.
All insurance policies required hereunder shall name the Trustee or
the Servicer or the Special Servicer, on behalf of the Trustee as the
mortgagee, as loss payee.
(b) (I) If the Servicer or the Special Servicer, as
applicable, obtains and maintains a blanket insurance policy insuring against
fire and hazard losses on all of the Mortgaged Properties (other than REO
Properties) as to which the related Borrower has not maintained insurance
required by the related Mortgage Loan or on all of the REO Properties, as the
case may be, it shall conclusively be deemed to have satisfied its respective
obligations concerning the maintenance of insurance coverage set forth in
Section 3.08(a). Any such blanket insurance policy shall be maintained with a
Qualified Insurer. A blanket insurance policy may contain a deductible clause,
in which case the Servicer or the Special Servicer, as applicable, shall, in
the event that (i) there shall not have been maintained on the related
Mortgaged Property a policy otherwise complying with the provisions of Section
3.08(a), and (ii) there shall have been one or more losses which would have
been covered by such a policy had it been maintained, immediately deposit into
the Collection Account from its own funds the amount not otherwise payable
under the blanket policy because of such deductible clause to the extent that
any such deductible exceeds the deductible limitation that pertained to the
related Mortgage Loan, or, in the absence of any such deductible limitation,
the deductible limitation which is consistent with the Servicing Standard. In
connection with its activities as Servicer or the Special Servicer hereunder,
as applicable, the Servicer or the Special Servicer, respectively, agrees to
prepare and present, on behalf of itself, the Trustee and Certificateholders,
claims under any such blanket policy which it maintains in a timely fashion in
accordance with the terms of such policy and to take such reasonable steps as
are necessary to receive payment or permit recovery thereunder.
(II) If the Servicer or the Special Servicer, as
applicable, causes any Mortgaged Property or REO Property to be covered by a
master force placed insurance policy, such policy shall be issued by a
Qualified Insurer and provide no less coverage in scope and amount for such
Mortgaged Property or REO Property than the insurance required to be maintained
pursuant to Section 3.08(a) in which case the Servicer or Special Servicer
shall conclusively be deemed to have satisfied its respective obligations to
maintain insurance pursuant to Section 3.08(a). Such policy may contain a
deductible clause, in which case the Servicer or the Special Servicer, as
applicable, shall, in the event that (i) there shall not have been maintained
on the related Mortgaged Property or REO Property a policy otherwise complying
with the provisions of Section 3.08(a), and (ii) there shall have been one or
more losses which would have been covered by such a policy had it been
maintained, immediately deposit into the Collection Account from its own funds
the amount not otherwise payable under such policy because of such deductible
to the extent that any such deductible exceeds the deductible limitation that
pertained to the related Mortgage Loan, or, in the absence of any such
deductible limitation, the deductible limitation which is consistent with the
Servicing Standard.
(c) The Servicer and the Special Servicer shall maintain a
fidelity bond in the form and amount that would meet the servicing requirements
of prudent institutional commercial mortgage lenders and loan servicers. The
Servicer and the Special Servicer each shall be deemed to have
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complied with this provision if one of its respective Affiliates has such
fidelity bond coverage and, by the terms of such fidelity bond, the coverage
afforded thereunder extends to the Servicer and the Special Servicer, as
applicable. In addition, the Servicer and the Special Servicer shall keep in
force during the term of this Agreement a policy or policies of insurance
covering loss occasioned by the errors and omissions of its officers and
employees in connection with its obligations to service the Mortgage Loans
hereunder in the form and amount that would meet the servicing requirements of
prudent institutional commercial mortgage lenders and loan servicers. The
Servicer shall cause each and every sub-servicer for it to maintain, or cause
to be maintained by any agent or contractor servicing any Mortgage Loan on
behalf of such sub-servicer, a fidelity bond and an errors and omissions
insurance policy which satisfy the requirements for the fidelity bond and the
errors and omissions policy to be maintained by the Servicer pursuant to this
Section 3.08(c). All fidelity bonds and policies of errors and omissions
insurance obtained under this Section 3.08(c) shall be issued by a Qualified
Insurer.
SECTION 3.09. Enforcement of Due-On-Sale Clauses; Assumption
Agreements; Defeasance Provisions.
(a) If any Mortgage Loan contains a provision in the nature of a
"due-on-sale" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the
mortgagee's option) become due and payable upon the sale or other transfer of
an interest in the related Mortgaged Property, or
(ii) provides that such Mortgage Loan may not be assumed
without the consent of the related mortgagee in connection with any such sale
or other transfer,
then, for so long as such Mortgage Loan is included in the Trust Fund,
the Servicer or Special Servicer, as applicable, on behalf of the Trust Fund
shall enforce such due-on-sale clause and in connection therewith shall (x)
accelerate payments thereon or (y) withhold its consent to such an assumption
to the extent permitted under the terms of the related Mortgage Loan only if
(x) such provision is exercisable under applicable law or such exercise is not
reasonably likely to result in meritorious legal action by the Borrower and (y)
the Servicer or Special Servicer, as applicable, determines, in accordance with
the Servicing Standard, that such enforcement or the withholding of such
consent would be likely to result in a greater recovery, on a present value
basis (discounting at the related Mortgage Rate) than would a waiver of such
clause. If the Servicer or Special Servicer, as applicable, determines that
such enforcement or the withholding of such consent would not be likely to
result in a greater recovery, the Servicer or Special Servicer, as applicable,
is authorized to take or enter into an assumption agreement from or with the
Person to whom the related Mortgaged Property has been or is about to be
conveyed, and to release the original Borrower from liability upon the Mortgage
Loan and substitute the new Borrower as obligor thereon provided that (y) the
credit status of the prospective new Borrower is in compliance with the
Servicer or Special Servicer's regular commercial mortgage origination or
servicing standards and criteria (as evidenced in writing by the Servicer or
Special Servicer) and the terms of the related Mortgage and (z) for Mortgage
Loans with an unpaid principal balance in excess of $__________, the Servicer
or the Special Servicer, as applicable, has received written confirmation from
at least one Rating Agency
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that such assumption or substitution would not, in and of itself, cause a
downgrade, qualification or withdrawal of the then current ratings assigned to
the Certificates. The Servicer or Special Servicer shall notify the Trustee
that any such assumption or substitution agreement has been completed by
forwarding to the Trustee the original copy of such agreement, which copies
shall be added to the related Mortgage File and shall, for all purposes, be
considered a part of such Mortgage File to the same extent as all other
documents and instruments constituting a part thereof.
(b) If any Mortgage Loan contains a provision in the nature of a
"due-on-encumbrance" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the
mortgagee's option) become due and payable upon the creation of any lien or
other encumbrance on the related Mortgaged Property, or
(ii) requires the consent of the related mortgagee to the
creation of any such lien or other encumbrance on the related Mortgaged
Property,
then the Special Servicer, as applicable, on behalf of the Trust Fund,
shall (x) enforce such due-on-encumbrance and accelerate the payments thereon
unless (1) the Servicer determines, in accordance with the Servicing Standard,
that such or (y) consent to the creation of any such lien or other encumbrance
only if the Servicer or Special Servicer, as applicable, (1) determines, in
accordance with the Servicing Standard, that such consent would be in the best
interests of the Trust Fund and (2) receives prior written confirmation from at
least one Rating Agency granting such consent would not, in and of itself,
cause a downgrade, qualification or withdrawal of any of the then current
ratings assigned to the Certificates.
(c) Nothing in this Section 3.09 shall constitute a waiver of the
Trustee's right, as the mortgagee of record, to receive notice of any
assumption of a Mortgage Loan, any sale or other transfer of the related
Mortgaged Property or the creation of any lien or other encumbrance with
respect to such Mortgaged Property.
(d) In connection with the taking of, or the failure to take, any
action pursuant to this Section 3.09, neither the Servicer nor the Special
Servicer shall agree to modify, waive or amend, and no assumption or
substitution agreement entered into pursuant to Section 3.09(a) shall contain
any terms that are different from, any term of any Mortgage Loan or the related
Note, other than pursuant to Section 3.30.
(e) With respect to any Mortgage Loan which permits release of
Mortgaged Properties through defeasance:
(i) In the event such Mortgage Loan requires that the
Servicer on behalf of the Trustee purchase the required U.S.
government obligations, the Servicer shall purchase such obligations
in accordance with the terms of such Mortgage Loan; provided, that the
Servicer shall not accept the amounts paid by the related Borrower to
effect defeasance until acceptable U.S. government obligations have
been identified.
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(ii) In the event that such Mortgage Loan permits the
assumption of the obligations of the related Borrower by a successor
mortgagor, prior to permitting such assumption and to the extent not
inconsistent with such Mortgage Loan, the Servicer shall obtain
written confirmation from at least one Rating Agency that such
assumption would not, in and of itself, cause a downgrade,
qualification or withdrawal of the then current ratings assigned to
the Certificates.
(iii) To the extent not inconsistent with such Mortgage
Loan, the Servicer shall require an Opinion of Counsel to the related
Borrower (which shall be an expense of the related Borrower) to the
effect that the Trustee has a first priority security interest in the
defeasance deposit and the U.S. government obligations and the
assignment thereof is valid and enforceable; such opinion, together
with any other certificates or documents to be required in connection
with such defeasance shall be in form and substance acceptable to each
Rating Agency.
(iv) To the extent not inconsistent with the Mortgage
Loan, the Servicer shall require a certificate at the related
Borrower's expense from an Independent certified public accountant
certifying that the U.S. government obligations comply with the
requirements of the related Loan Agreement or Mortgage.
(v) Prior to permitting release of any Mortgaged
Properties through defeasance, to the extent not inconsistent with the
related Mortgage Loan, the Servicer shall obtain written confirmation
from each Rating Agency that such defeasance would not, in and of
itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to the Certificates.
(vi) Prior to permitting release of any Mortgaged Property
through defeasance, if the related Mortgage Loan so requires and
provides for the related Borrower to pay the cost thereof, the
Servicer shall require an Opinion of Counsel of the related Borrower
to the effect that such release will not cause either the Upper-Tier
REMIC or Lower-Tier REMIC to fail to qualify as a REMIC at any time
that any Certificates are outstanding or cause a tax to be imposed on
the Trust Fund under the REMIC Provisions.
SECTION 3.10. Appraisals; Realization Upon Defaulted Mortgage
Loans.
(a) Contemporaneously with the earliest of (i) the effective date
of any (A) modification of a Mortgage Rate, principal balance or amortization
terms of any Mortgage Loan, or any other term of a Mortgage Loan, (B) extension
of the Maturity Date of a Mortgage Loan as described below in Section 3.30(c),
or (C) consent to the release of any Mortgaged Property from the lien of the
related Mortgage other than pursuant to the terms of the related Mortgage Loan,
(ii) the occurrence of any Appraisal Reduction Event, (iii) a default in the
payment of a Balloon Payment, or (iv) the date on which the Special Servicer,
consistent with the Servicing Standard, requests that an Updated Appraisal be
obtained, the Servicer (after consultation with the Special Servicer) shall
obtain an Updated Appraisal; provided, however, that the Servicer shall not be
required to obtain an Updated Appraisal pursuant to clauses (i) through (iii)
above with respect to any Mortgaged Property for which there exists an
appraisal which is less than twelve months old provided, further, that if the
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Servicer is the Special Servicer and either it or an Affiliate thereof owns
more than 51% of the most subordinate Class of Certificates then outstanding,
then the Trustee shall obtain such Updated Appraisal. The Servicer shall
obtain letter updates to each Updated Appraisal annually and prior to the
Special Servicer granting extensions beyond one year or any subsequent
extension after granting a one year extension with respect to the same Mortgage
Loan; For so long as any Mortgage Loan for which an Updated Appraisal has been
obtained is included in the Trust Fund, the Servicer shall obtain a new Updated
Appraisal with respect to an Updated Appraisal which is more than three years
old.
(b) Upon the occurrence of a material default under a Specially
Serviced Mortgage Loan, except as otherwise specifically provided in Section
3.09(a) and (b), the Special Servicer may, consistent with the Servicing
Standard, accelerate such Specially Serviced Mortgage Loan and commence a
foreclosure or other acquisition with respect to the related Mortgaged Property
or Properties, provided, that, that Special Servicer determines that such
acceleration and foreclosure are more likely to produce a greater recovery to
Certificateholders on a present value basis (discounting at the related
Mortgage Rate) than would a waiver of such default or an extension or
modification in accordance with the provisions of Section 3.30 hereof. In
connection with any foreclosure or other acquisition as to which the Special
Servicer is not required to act under Instructions from the Directing Holders,
the Servicer shall pay the costs and expenses in any such proceedings as an
Advance unless the Servicer determines, in its good faith judgment, that such
Advance would constitute a Nonrecoverable Advance. The Servicer shall be
entitled to reimbursement of Advances (with interest at the Advance Rate) made
pursuant to the preceding sentence to the extent permitted by Section
3.06(a)(ii), (iii) and (vii). If the Special Servicer is acting pursuant to
Instructions, the cost and expenses in any such proceeding shall be paid by the
Directing Certificateholders or the Special Servicer, without reimbursement
therefor by the Trust Fund.
(c) If the Special Servicer elects to proceed with a non-judicial
foreclosure in accordance with the laws of the state where the Mortgaged
Property is located, the Special Servicer shall not be required to pursue a
deficiency judgment against the related Borrower or any other liable party if
the laws of the state do not permit such a deficiency judgment after a non-
judicial foreclosure or if the Special Servicer determines, in its best
judgment, that the likely recovery if a deficiency judgment is obtained will
not be sufficient to warrant the cost, time, expense and/or exposure of
pursuing the deficiency judgment and such determination is evidenced by an
Officers' Certificate delivered to the Trustee.
(d) In the event that title to any Mortgaged Property is acquired
in foreclosure or by deed in lieu of foreclosure, the deed or certificate of
sale shall be issued to the Trustee, or to its nominee (which shall not include
the Special Servicer) or a separate trustee or co-trustee on behalf of the
Trustee as holder of the Lower-Tier Regular Interests and Certificateholders.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgage Loan shall (except for purposes of Section 9.01)
be considered to be an REO Loan held in the Trust Fund until such time as the
related REO Property shall be sold by the Trust Fund and shall be reduced only
by collections net of expenses. Consistent with the foregoing, for purposes of
all calculations hereunder, so long as such Mortgage Loan shall be considered
to be an outstanding Mortgage Loan:
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(i) it shall be assumed that, notwithstanding that the
indebtedness evidenced by the related Note shall have been discharged, such
Note and, for purposes of determining the Stated Principal Balance thereof, the
related amortization schedule in effect at the time of any such acquisition of
title remain in effect; and
(ii) Subject to Section 1.02(b), Net REO Proceeds received
in any month shall be applied to amounts that would have been payable under the
related Note in accordance with the terms of such Note. In the absence of such
terms, Net REO Proceeds shall be deemed to have been received first in payment
of the accrued interest (not including Excess Interest) that remained unpaid on
the date that the related REO Property was acquired by the Trust Fund; second
in respect of the delinquent principal installments that remained unpaid on
such date; and thereafter, Net REO Proceeds received in any month shall be
applied to the payment of installments of principal and accrued interest on
such Mortgage Loan deemed to be due and payable in accordance with the terms of
such Note and such amortization schedule until such principal has been paid in
full and then to Excess Interest and other amounts due under such Mortgage
Loan. If such Net REO Proceeds exceed the Monthly Payment then payable, the
excess shall be treated as a Principal Prepayment received in respect of such
Mortgage Loan.
(e) Notwithstanding any provision herein to the contrary, the
Special Servicer shall not acquire for the benefit of the Trust Fund any
personal property pursuant to this Section 3.10 unless either:
(i) such personal property is incident to real property
(within the meaning of Section 856(e)(1) of the Code) so acquired by the
Special Servicer for the benefit of the Trust Fund; or
(ii) the Special Servicer shall have requested and
received an Opinion of Counsel (which opinion shall be an expense of the
Lower-Tier REMIC) to the effect that the holding of such personal property by
the Lower-Tier REMIC will not cause the imposition of a tax on the Lower-Tier
REMIC or Upper-Tier REMIC under the REMIC Provisions or cause the Lower-Tier
REMIC or Upper-Tier REMIC to fail to qualify as a REMIC at any time that any
Certificate is outstanding.
(f) Notwithstanding any provision to the contrary in this
Agreement, the Special Servicer shall not, on behalf of the Trust Fund, obtain
title to any direct or indirect partnership interest or other equity interest
in any Borrower pledged pursuant to any pledge agreement unless the Special
Servicer shall have requested and received an Opinion of Counsel (which opinion
shall be an expense of the Trust Fund) to the effect that the holding of such
partnership interest or other equity interest by the Trust Fund will not cause
the imposition of a tax on the Lower-Tier REMIC or Upper-Tier REMIC under the
REMIC Provisions or cause the Lower-Tier REMIC or Upper-Tier REMIC to fail to
qualify as a REMIC at any time that any Certificate is outstanding.
(g) Notwithstanding any provision to the contrary contained in
this Agreement, the Special Servicer shall not, on behalf of the Trust Fund,
obtain title to a Mortgaged Property as a result of or in lieu of foreclosure
or otherwise, obtain title to any direct or indirect partnership interest in
any Borrower pledged pursuant to a pledge agreement and thereby be the
beneficial owner of a Mortgaged Property, and shall not otherwise acquire
possession of, or take any other action with
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respect to, any Mortgaged Property if, as a result of any such action, the
Trustee, for the Trust Fund or the Certificateholders, would be considered to
hold title to, to be a "mortgagee-in-possession" of, or to be an "owner" or
"operator" of such Mortgaged Property within the meaning of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended from
time to time, or any comparable law, unless the Special Servicer has previously
determined in accordance with the Servicing Standard, based on an updated
environmental assessment report prepared by an Independent Person who regularly
conducts environmental audits, that:
(h) such Mortgaged Property is in compliance with applicable
environmental laws or, if not, after consultation with an environmental
consultant, that it would be in the best economic interest of the Trust Fund to
take such actions as are necessary to bring such Mortgaged Property in
compliance therewith, and
(i) there are no circumstances present at such Mortgaged Property
relating to the use, management or disposal of any Hazardous Materials for
which investigation, testing, monitoring, containment, clean-up or remediation
could be required under any currently effective federal, state or local law or
regulation, or that, if any such Hazardous Materials are present for which such
action could be required, after consultation with an environmental consultant,
it would be in the best economic interest of the Trust Fund to take such
actions with respect to the affected Mortgaged Property.
In the event that the environmental assessment first obtained by the
Special Servicer with respect to a Mortgaged Property indicates that such
Mortgaged Property may not be in compliance with applicable environmental laws
or that Hazardous Materials may be present but does not definitively establish
such fact, the Special Servicer shall cause such further environmental tests to
be conducted by an Independent Person who regularly conducts such tests as the
Special Servicer shall deem prudent to protect the interests of
Certificateholders. Any such tests shall be deemed part of the environmental
assessment obtained by the Special Servicer for purposes of this Section 3.10.
(j) The environmental assessment contemplated by Section 3.10(g)
shall be prepared within three months of the determination that such assessment
is required by any Independent Person who regularly conducts environmental
audits for purchasers of commercial property where the Mortgaged Property is
located, as determined by the Special Servicer in a manner consistent with the
Servicing Standard. The Servicer shall advance the cost of preparation of such
environmental assessments unless the Servicer determines, in its good faith
judgment, that such Advance would be a Nonrecoverable Advance. The Servicer
shall be entitled to reimbursement of Advances (with interest at the Advance
Rate) made pursuant to the preceding sentence in the manner set forth in
Section 3.06.
(k) If the Special Servicer determines pursuant to Section
3.10(g)(i) that a Mortgaged Property is not in compliance with applicable
environmental laws but that it is in the best economic interest of the Trust
Fund to take such actions as are necessary to bring such Mortgaged Property in
compliance therewith, or if the Special Servicer determines pursuant to Section
3.10(g)(ii) that the circumstances referred to therein relating to Hazardous
Materials are present but that it is in the best economic interest of the Trust
Fund to take such action with respect to the containment, clean-up or
remediation of Hazardous Materials affecting such Mortgaged Property as is
required by law or
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regulation, the Special Servicer shall take such action as it deems to be in
the best economic interest of the Trust Fund, but only if the Trustee has
mailed notice to the Holders of the Regular Certificates of such proposed
action, which notice shall be prepared by the Special Servicer, and only if the
Trustee does not receive, within 30 days of such notification, instructions
from the Holders of greater than 50% of the aggregate Voting Rights of such
Classes directing the Special Servicer not to take such action.
Notwithstanding the foregoing, if the Special Servicer reasonably determines
that it is likely that within such 30-day period irreparable environmental harm
to such Mortgage Property would result from the presence of such Hazardous
Materials and provides a prior written statement to the Trustee setting forth
the basis for such determination, then the Special Servicer may take such
action to remedy such condition as may be consistent with the Servicing
Standard. None of the Trustee, the Servicer or the Special Servicer shall be
obligated to take any action or not take any action pursuant to this Section
3.10(i) at the direction of the Certificateholders unless the
Certificateholders agree to indemnify the Trustee, the Servicer and the Special
Servicer with respect to such action or inaction. The Special Servicer shall
advance the cost of any such compliance, containment, clean-up or remediation
unless the Special Servicer determines, in its good faith judgment, that such
Advance would constitute a Nonrecoverable Advance.
(l) The Special Servicer shall report to the IRS and to the
related Borrower, in the manner required by applicable law, the information
required to be reported regarding any Mortgaged Property which is abandoned or
foreclosed or regarding any cancellation of indebtedness with respect to any
Mortgage Loan. The Special Servicer shall deliver a copy of any such report to
the Trustee.
(m) The costs of any Updated Appraisal obtained pursuant to this
Section 3.10 shall be paid by the Servicer as an Advance and shall be
reimbursable from the Collection Account (or from the Collateral Account to the
extent Advances are otherwise reimbursable therefrom pursuant to this Section
3.10).
SECTION 3.11. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the
Servicer of a notification that payment in full has been escrowed in a manner
customary for such purposes, the Servicer shall immediately notify the Trustee
or the Custodian by a certification (which certification shall include a
statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the
Collection Account pursuant to Section 3.05 have been or will be so deposited)
of a Servicing Officer and shall request delivery to it of the Mortgage File.
No expenses incurred in connection with any instrument of satisfaction or deed
of reconveyance shall be chargeable to the Trust Fund.
From time to time upon request of the Servicer or Special Servicer and
delivery to the Trustee and the Custodian of a Request for Release, the Trustee
shall promptly cause the Custodian to release the Mortgage File (or any portion
thereof) designated in such Request for Release to the Servicer or Special
Servicer, as applicable. Upon return of the foregoing to the Custodian, or in
the event of a liquidation or conversion of the Mortgage Loan into an REO
Property, receipt by the Trustee of a certificate of a Servicing Officer
stating that such Mortgage Loan was liquidated and that all amounts received or
to be received in connection with such liquidation which are required
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to be deposited into the Collection Account or Distribution Account have been
so deposited, or that such Mortgage Loan has become an REO Property, the
Custodian shall deliver a copy of the Request for Release to the Servicer or
Special Servicer, as applicable.
Upon written certification of a Servicing Officer, the Trustee shall
execute and deliver to the Special Servicer any court pleadings, requests for
trustee's sale or other documents prepared by the Special Servicer, its agents
or attorneys, necessary to the foreclosure or trustee's sale in respect of a
Mortgaged Property or to any legal action brought to obtain judgment against
any Borrower on the Note or Mortgage or to obtain a deficiency judgment, or to
enforce any other remedies or rights provided by the Note or Mortgage or
otherwise available at law or in equity. Each such certification shall include
a request that such pleadings or documents be executed by the Trustee and a
statement as to the reason such documents or pleadings are required, and that
the execution and delivery thereof by the Trustee will not invalidate or
otherwise affect the lien of the Mortgage, except for the termination of such a
lien upon completion of the foreclosure or trustee's sale.
SECTION 3.12. Servicing Fees, Trustee Fees and Special Servicing
Compensation.
(a) As compensation for its activities hereunder, the Servicer
shall be entitled with respect to each Mortgage Loan to the Servicing Fee,
which shall be payable from amounts on deposit in the Collection Account as set
forth in Section 3.06(iv). The Servicer's rights to the Servicing Fee may not
be transferred in whole or in part except in connection with the transfer of
all of the Servicer's responsibilities and obligations under this Agreement.
In addition, the Servicer shall be entitled to receive, as additional Servicing
Compensation, to the extent permitted by applicable law and the related
Mortgage Loans, any late payment charges, Assumption Fees, loan service
transaction fees, loan modification fees, extension fees, beneficiary statement
charges or similar items (but not including any Prepayment Premiums) in each
case to the extent received and not required to be deposited or retained in the
Collection Account pursuant to Section 3.05; the Servicer shall also be
entitled pursuant to, and to the extent provided in, Sections 3.06(iv) and
3.07(b) to withdraw from the Collection Account and to receive from any
Borrower Accounts (to the extent not payable to the related Borrower under the
Mortgage Loan or applicable law), the Distribution Account, Upper-Tier
Distribution Account, Default Interest Distribution Account, and the Excess
Interest Distribution Account, any interest or other income earned on deposits
therein.
As compensation for its activities hereunder on each Distribution
Date, the Trustee shall be entitled with respect to each Mortgage Loan to the
Trustee Fee, which shall be payable from amounts on deposit in the Collection
Account as set forth in Section 3.06(v). The Trustee shall pay the routine
fees and expenses of the Certificate Registrar, the Paying Agent, the Custodian
and the Authenticating Agent. The Trustee's rights to the Trustee Fee may not
be transferred in whole or in part except in connection with the transfer of
all of the Trustee's responsibilities and obligations under this Agreement.
Except as otherwise provided herein, the Servicer shall pay all
expenses incurred by it in connection with its servicing activities hereunder,
including all fees of any sub-servicers retained by it. Except as otherwise
provided herein, the Trustee shall pay all expenses incurred by it in
connection with its activities hereunder.
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(b) As compensation for its activities hereunder, the Special
Servicer shall be entitled with respect to each Specially Serviced Mortgage
Loan to the Special Servicing Fee, which shall be payable from amounts on
deposit in the Collection Account as set forth in Section 3.06(iv). In
addition, the Special Servicer shall be entitled to, with respect to each
Mortgage Loan, the Additional Servicing Fee for performing the duties set forth
in Section 3.19(c), which fee shall be payable from amounts on deposit in the
Collection Account pursuant to Section 3.06(iv). The Special Servicer's rights
to the Special Servicing Fee and Additional Servicing Fee may not be
transferred in whole or in part except in connection with the transfer of all
of the Special Servicer's responsibilities and obligations under this
Agreement. In addition, the Special Servicer shall be entitled to receive, as
additional servicing compensation, (i) to the extent permitted by applicable
law and the related Loan Documents, any Assumption Fees, loan service
transaction fees, demand fees, statement charges and other fees relating to any
Specially Serviced Mortgage Loan or with respect to servicing activities
performed by the Special Servicer and, for any modification, extension or other
action by the Special Servicer payable by the related Borrower in connection
therewith.
Except as otherwise provided herein, the Special Servicer shall pay
all expenses incurred by it in connection with its servicing activities
hereunder.
(c) Reserved.
(d) Reserved.
(e) The Servicer, Special Servicer and Trustee shall be entitled
to reimbursement from the Trust Fund for the costs and expenses incurred by
them in the performance of their duties under this Agreement which are
"unanticipated expenses incurred by the REMIC" within the meaning of Treasury
Regulations Section 1.860G-1(b)(3)(iii). Such expenses shall include, by way
of example and not by way of limitation, environmental assessments, Updated
Appraisals and appraisals in connection with foreclosure, the fees and expenses
of any administrative or judicial proceeding and expenses expressly identified
as reimbursable in Section 3.06(vii).
(f) No provision of this Agreement or of the Certificates shall
require the Servicer, the Special Servicer, the Trustee or the Fiscal Agent to
expend or risk their own funds or otherwise incur any financial liability in
the performance of any of their duties hereunder or thereunder, or in the
exercise of any of their rights or powers, if, in the good faith business
judgment of the Servicer, Special Servicer, Trustee or Fiscal Agent, as the
case may be, repayment of such funds would not be ultimately recoverable from
late payments, Net Insurance Proceeds, Net Liquidation Proceeds and other
collections on or in respect of the Mortgage Loans, or from adequate indemnity
from other assets comprising the Trust Fund against such risk or liability.
If the Servicer, the Special Servicer or the Trustee receives a
request or inquiry from a Borrower, any Certificateholder or any other Person
the response to which would, in the Servicer's or the Trustee's good faith
business judgment require the assistance of Independent legal counsel or other
consultant to the Servicer, the Special Servicer or the Trustee, the cost of
which would not be an expense of the Trust Fund hereunder, then the Servicer,
the Special Servicer or the Trustee, as the case may be, shall not be required
to take any action in response to such request or inquiry unless the Borrower
or such Certificateholder or such other Person, as applicable, makes
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arrangements for the payment of the Servicer's, the Special Servicer's or the
Trustee's expenses associated with such counsel (including, without limitation,
posting an advance payment for such expenses) satisfactory to the Servicer, the
Special Servicer or the Trustee, as the case may be, in its sole discretion.
Unless such arrangements have been made, the Servicer, the Special Servicer or
the Trustee, as the case may be, shall have no liability to any Person for the
failure to respond to such request or inquiry.
SECTION 3.13. Reports to the Trustee; Collection Account
Statements.
(a) The Servicer shall deliver to the Trustee and the Special
Servicer, no later than 2:00 p.m. Central time on the Servicer Remittance Date
prior to each Distribution Date, the Servicer Remittance Report with respect to
the related Distribution Date (which shall include, without limitation, the
amount of Available Funds for such related Collection Period) including a
written statement of anticipated P&I Advances for the related Distribution
Date. The Servicer's responsibilities under this Section 3.13(a) with respect
to REO Loans shall be subject to the satisfaction of the Special Servicer's
obligations under Section 3.26.
(b) For so long as the Servicer makes deposits into and
withdrawals from the Collection Account, not later than fifteen days after each
Distribution Date, the Servicer shall forward to the Trustee a statement
prepared by the Servicer setting forth the status of the Collection Account as
of the close of business on the last Business Day of the related Collection
Period and showing the aggregate amount of deposits into and withdrawals from
the Collection Account of each category of deposit specified in Section 3.05
and each category of withdrawal specified in Section 3.06 for the related
Collection Period. The Trustee and its agents and attorneys may at any time
during normal business hours, upon reasonable notice, inspect and copy the
books, records and accounts of the Servicer solely relating to the Mortgage
Loans and the performance of its duties hereunder.
(c) The Trustee shall be entitled to rely conclusively on and
shall not be responsible for the content or accuracy of any information
provided to it by the Servicer or the Special Servicer pursuant to this
Agreement.
SECTION 3.14. Annual Statement as to Compliance.
The Servicer and the Special Servicer (the "reporting person") each
shall deliver to the Trustee, the Depositor and to the Rating Agencies on or
before March 15 of each year, beginning with March 15, 199__, an Officer's
Certificate stating, as to each signatory thereof, (i) that a review of the
activities of the reporting person during the preceding calendar year (or such
shorter period from the Closing Date to the end of the related calendar year)
and of its performance under this Agreement has been made under such officer's
supervision, (ii) that, to the best of such officer's knowledge, based on such
review, the reporting person has fulfilled all of its obligations under this
Agreement throughout such year (or such shorter period), or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officer, the nature and status thereof and what action it
proposes to take with respect thereto, (iii) that, to the best of such
officer's knowledge, each related sub-servicer has fulfilled its obligations
under its sub-servicing agreement in all material respects, or, if there has
been a material default in the fulfillment of such obligations, specifying each
such default known to such officer and the nature and status thereof, and
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(iv) whether it has received any notice regarding qualification, or challenging
the status, of the Upper-Tier REMIC or Lower-Tier REMIC as a REMIC from the IRS
or any other governmental agency or body.
SECTION 3.15. Annual Independent Public Accountants' Servicing
Report.
On or before March 15 of each year, beginning with March 15, 199__,
the Servicer and the Special Servicer (the "reporting person") each at the
reporting person's expense shall cause a firm of nationally recognized
Independent public accountants (who may also render other services to the
reporting person) which is a member of the American Institute of Certified
Public Accountants to furnish a statement (an "Accountant's Statement") to the
Trustee, the Depositor and to the Rating Agencies, to the effect that such firm
has examined certain documents and records relating to the servicing of the
similar mortgage loans under similar agreements and that, on the basis of such
examination conducted substantially in compliance with generally accepted
auditing standards and the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for FHLMC, such servicing
has been conducted in compliance with similar agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
generally accepted auditing standards and the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC require it to report, in which case such exceptions and errors shall be
so reported. Each reporting person shall obtain from the related accountants,
or shall prepare, an electronic version of each Accountant's Statement and
provide such electronic version to the Trustee for filing in accordance with
the procedures set forth in Section 3.22 hereof. With respect to any
electronic version of an Accountant's Statement prepared by the reporting
person, the reporting person shall receive written confirmation from the
related accountants
SECTION 3.16. Access to Certain Documentation.
The Servicer and Special Servicer shall provide to any
Certificateholders that are federally insured financial institutions, the
Federal Reserve Board, the FDIC and the OTS and the supervisory agents and
examiners of such boards and such corporations, and any other governmental or
regulatory body to the jurisdiction of which any Certificateholder is subject,
access to the documentation regarding the Mortgage Loans required by applicable
regulations of the Federal Reserve Board, FDIC, OTS or any such governmental or
regulatory body, such access being afforded without charge but only upon
reasonable request and during normal business hours at the offices of the
Servicer and Special Servicer. Nothing in this Section 3.16 shall detract from
the obligation of the Servicer and Special Servicer to observe any applicable
law prohibiting disclosure of information with respect to the Borrowers, and
the failure of the Servicer and Special Servicer to provide access as provided
in this Section 3.16 as a result of such obligation shall not constitute a
breach of this Section 3.16.
SECTION 3.17. Title and Management of REO Properties and REO
Account Properties.
(a) In the event that title to any Mortgaged Property is acquired
for the benefit of Certificateholders in foreclosure, by deed in lieu of
foreclosure or upon abandonment or reclamation from bankruptcy, the deed or
certificate of sale shall be taken in the name of the Trustee, or its nominee
(which shall not include the Servicer), or a separate trustee or co-trustee, on
behalf of the
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Trust Fund. The Special Servicer, on behalf of the Trust Fund, shall dispose
of any REO Property within two years after the Trust Fund acquires ownership of
such REO Property for purposes of Section 860G(a)(8) of the Code, unless (i)
the Special Servicer on behalf of the Lower-Tier REMIC has applied for an
extension of such two-year period pursuant to Sections 856(e)(3) and
860G(a)(8)(A) of the Code, in which case the Special Servicer shall sell such
REO Property within the applicable extension period or (ii) the Special
Servicer seeks and subsequently receives an Opinion of Counsel (which opinion
shall be an expense of the Trust Fund), addressed to the Special Servicer and
Trustee, to the effect that the holding by the Trust Fund of such REO Property
for an additional specified period will not cause such REO Property to fail to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code (determined without regard to the exception applicable for purposes of
Section 860D(a) of the Code) at any time that any Certificate is outstanding,
in which event such two-year period shall be extended by such additional
specified period subject to any conditions set forth in such Opinion of
Counsel. The Special Servicer, on behalf of the Trust Fund, shall dispose of
any REO Property held by the Trust Fund prior to the last day of such period
(taking into account extensions) by which such REO Property is required to be
disposed of pursuant to the provisions of the immediately preceding sentence in
a manner provided under Section 3.18 hereof. The Special Servicer shall
manage, conserve, protect and operate each REO Property for the
Certificateholders solely for the purpose of its prompt disposition and sale in
a manner which does not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a)).
(b) The Special Servicer shall have full power and authority,
subject only to the specific requirements and prohibitions of this Agreement,
to do any and all things in connection with any REO Property as are consistent
with the manner in which the Special Servicer manages and operates similar
property owned or managed by the Special Servicer or any of its Affiliates, all
on such terms and for such period as the Special Servicer deems to be in the
best interests of Certificateholders, and, in connection therewith, the Special
Servicer shall agree to the payment of management fees that are consistent with
general market standards. The Special Servicer shall segregate and hold all
revenues received by it with respect to any REO Property separate and apart
from its own funds and general assets and shall establish and maintain with
respect to any REO Property a segregated custodial account (each, an "REO
Account"), each of which shall be an Eligible Account and shall be entitled
___________________, as Trustee, in trust for Holders of Asset
_____________________ Corporation, Commercial Mortgage Pass-Through
Certificates, Series 1997-1, REO Account." The Special Servicer shall be
entitled to withdraw for its account any interest or investment income earned
on funds deposited in an REO Account to the extent provided in Section 3.07(b).
The Special Servicer shall deposit or cause to be deposited in the REO Account
within one Business Day after receipt all revenues received by it with respect
to any REO Property (other than Liquidation Proceeds), and shall withdraw
therefrom funds necessary for the proper operation, management and maintenance
of such REO Property and for other Property Protection Expenses with respect to
such REO Property, including:
(i) all insurance premiums due and payable in respect of
any REO Property;
(ii) all real estate taxes and assessments in respect of
any REO Property that may result in the imposition of a lien thereon;
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(iii) all costs and expenses reasonable and necessary to
protect, maintain, manage, operate, repair and restore any REO Property; and
(iv) any taxes imposed on the Upper Tier REMIC or Lower-
Tier REMIC in respect of net income from foreclosure property in accordance
with Section 4.05.
To the extent that such REO Proceeds are insufficient for the purposes
set forth in clauses (i) through (iii) above and the Special Servicer has
provided written notice of such shortfall to the Servicer at least five
Business Days prior to the date that such amounts are due, the Servicer shall
advance the amount of such shortfall unless the Servicer determines, in its
good faith judgment, that such Advance would be a Nonrecoverable Advance. If
the Servicer does not make any such Advance in violation of the immediately
preceding sentence, the Trustee shall make such Advance; and if the Trustee
fails to make any such Advance, the Fiscal Agent shall make such Advance,
unless in either case, the Trustee or the Fiscal Agent determines that such
Advance would be a Nonrecoverable Advance. The Trustee and the Fiscal Agent
shall be entitled to rely, conclusively, on any determination by the Servicer
that an Advance, if made, would be a Nonrecoverable Advance. The Trustee and
the Fiscal Agent, in determining whether or not a proposed Advance would be a
Nonrecoverable Advance, shall be subject to the standards applicable to the
Servicer hereunder. The Servicer, the Trustee or the Fiscal Agent, as
applicable, shall be entitled to reimbursement of such Advances (with interest
at the Advance Rate) made pursuant to the preceding sentence, to the extent set
forth in Section 3.06. The Special Servicer shall withdraw from each REO
Account and remit to the Servicer for deposit into the Collection Account on a
monthly basis prior to the related Servicer Remittance Date the Net REO
Proceeds received or collected from each REO Property, except that in
determining the amount of such Net REO Proceeds, the Special Servicer may
retain in each REO Account reasonable reserves for repairs, replacements and
necessary capital improvements and other related expenses.
Notwithstanding the foregoing, the Special Servicer shall not:
(i) permit the Trust Fund to enter into, renew or extend
any New Lease, if the New Lease by its terms will give rise to any income that
does not constitute Rents from Real Property;
(ii) permit any amount to be received or accrued under any
New Lease, other than amounts that will constitute Rents from Real Property;
(iii) authorize or permit any construction on any REO
Property, other than the repair or maintenance thereof or the completion of a
building or other improvement thereon, and then only if more than ten percent
of the construction of such building or other improvement was completed before
default on the related Mortgage Loan became imminent, all within the meaning of
Section 856(e)(4)(B) of the Code; or
(iv) Directly Operate or allow any Person to Directly
Operate any REO Property on any date more than 90 days after its date of
acquisition by the Trust Fund, unless such Person is an Independent Contractor;
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unless, in any such case, the Special Servicer has requested and
received an Opinion of Counsel addressed to the Special Servicer and the
Trustee (which opinion shall be an expense of the Trust Fund) to the effect
that such action will not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a) of the Code) at any time that it is held by the Trust Fund, in which
case the Special Servicer may take such actions as are specified in such
Opinion of Counsel.
The Special Servicer shall be required to contract with an Independent
Contractor (acceptable to each Rating Agency as evidenced by written
confirmation that contracting with such Independent Contractor would not, in
and of itself cause a downgrade, qualification or withdrawal of the then
current ratings assigned to any Class of Certificates), the fees and expenses
of which shall be an expense of the Trust Fund and payable out of REO Proceeds,
for the operation and management of any REO Property, within 90 days of the
Trust Fund's acquisition thereof (unless the Special Servicer shall have
provided the Trustee with an Opinion of Counsel that the operation and
management of any REO Property other than through an Independent Contractor
shall not cause such REO Property to fail to qualify as "foreclosure property"
within the meaning of Code Section 860G(a)(8)) (which opinion shall be an
expense of the Trust Fund), provided that:
(i) the terms and conditions of any such contract shall
be reasonable and customary for the area and type of property and shall not be
inconsistent herewith;
(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor pay all costs and
expenses incurred in connection with the operation and management of such REO
Property, including those listed above, and remit all related revenues (net of
such costs and expenses) to the Special Servicer as soon as practicable, but in
no event later than thirty days following the receipt thereof by such
Independent Contractor;
(iii) none of the provisions of this Section 3.17(b)
relating to any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Special Servicer of any of its duties
and obligations to the Trust Fund or the Trustee on behalf of the
Certificateholders with respect to the operation and management of any such REO
Property; and
(iv) the Special Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all duties and
obligations in connection with the operation and management of such REO
Property.
The Special Servicer shall be entitled to enter into any agreement
with any Independent Contractor performing services for it related to its
duties and obligations hereunder for indemnification of the Special Servicer by
such Independent Contractor, and nothing in this Agreement shall be deemed to
limit or modify such indemnification.
(c) Promptly following any acquisition by the Trust Fund of an REO
Property, the Servicer shall obtain an Updated Appraisal thereof, but only in
the event that any Updated Appraisal with respect thereto is more than 12
months old, in order to determine the fair market value of such
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REO Property and shall notify the Depositor, the Special Servicer and the
Trustee hereto of the results of such appraisal. Any such appraisal shall be
conducted in accordance with MAI standards and the cost thereof shall be an
expense of the Trust Fund.
(d) When and as necessary, the Special Servicer shall send to the
Trustee a statement prepared by the Special Servicer setting forth the amount
of net income or net loss, as determined for federal income tax purposes,
resulting from the operation and management of a trade or business on, the
furnishing or rendering of a non-customary service to the tenants of, or the
receipt of any other amount not constituting Rents from Real Property in
respect of, any REO Property in accordance with Sections 3.17(a) and 3.17(b).
SECTION 3.18. Sale of Specially Serviced Mortgage Loans and REO
Properties.
(a) With respect to any Specially Serviced Mortgage Loan or REO
Property which the Special Servicer has determined to sell in accordance with
Section 3.10, the Special Servicer shall deliver to the Trustee an Officers'
Certificate to the effect that pursuant to Section 3.10, the Special Servicer
has determined to sell such Specially Serviced Mortgage Loan or REO Property in
accordance with this Section 3.18. The Special Servicer may then offer to sell
to any Person any Specially Serviced Mortgage Loan or any REO Property or,
subject to the following sentence, purchase any such Specially Serviced
Mortgage Loan or REO Property (in each case at the Repurchase Price therefor),
but shall, in any event, so offer to sell any REO Property no later than the
time determined by the Special Servicer to be sufficient to result in the sale
of such REO Property within the period specified in Section 3.17(a). The
Special Servicer shall deliver such Officers' Certificate and give the Trustee
not less than ten Business Days prior written notice of its intention to sell
any Specially Serviced Mortgage Loan or REO Property, in which case the Special
Servicer shall accept the highest offer (of at least three offers) received
from any Person for any Specially Serviced Mortgage Loan or any REO Property in
an amount at least equal to the Repurchase Price therefor or, at its option, if
it has received no offer at least equal to the Repurchase Price therefor,
purchase the Specially Serviced Mortgage Loan or REO Property at the Repurchase
Price.
In the absence of any such offer or purchase by the Special Servicer,
the Special Servicer shall accept the highest offer received from any Person
that is determined by the Special Servicer to be a fair price, as determined in
accordance with Section 3.18(b), for such Specially Serviced Mortgage Loan or
REO Property, if the highest offeror is a Person other than an Interested
Person, or is determined to be a fair price by the Trustee in accordance with
Section 3.18(b), if the highest offeror is an Interested Person; provided, that
the Trustee shall be entitled to engage, at the expense of the Trust Fund, an
Independent appraiser to determine whether the highest offer is a fair price
and, further provided, that if the highest offeror is an Interested Person such
offer shall not be accepted if it is less than the Repurchase Price, unless the
Rating Agencies have confirmed, in writing, that such acceptance will not, in
itself, result in the qualification, downgrade or withdrawal of the then-
current ratings assigned to the Certificates. Notwithstanding anything to the
contrary herein, neither the Trustee, in its individual capacity, nor any of
its Affiliates may make an offer or purchase any Specially Serviced Mortgage
Loan or any REO Property pursuant hereto.
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The Special Servicer shall not be obligated by either of the foregoing
paragraphs or otherwise to accept the highest offer if the Special Servicer
determines, in accordance with the Servicing Standard, that rejection of such
offer would be in the best interests of the Certificateholders. In addition,
the Special Servicer may accept a lower offer if it determines, in accordance
with the Servicing Standard, that acceptance of such offer would be in the best
interests of the Certificateholders (for example, if the prospective buyer
making the lower offer is more likely to perform its obligations, or the terms
offered by the prospective buyer making the lower offer are more favorable),
provided that the offeror is not an Affiliate of the Special Servicer. In the
event that the Special Servicer determines with respect to any REO Property
that the offers being made with respect thereto are not in the best interests
of the Certificateholders and that the end of the two-year period referred to
in Section 3.17(a) with respect to such REO Property is approaching, the
Special Servicer shall seek an extension of such two-year period in the manner
described in Section 3.17(a); provided, however, that the Special Servicer
shall use its best efforts, consistent with the Servicing Standard, to sell any
REO Property prior to the Rated Final Distribution Date.
(b) In determining whether any offer received from an Interested
Person represents a fair price for any Specially Serviced Mortgage Loan or any
REO Property, the Trustee may conclusively rely on the opinion of an
Independent appraiser or other expert in real estate matters retained by the
Trustee at the expense of the Trust Fund. In determining whether any offer
constitutes a fair price for any Specially Serviced Mortgage Loan or any REO
Property, the Special Servicer (if the highest offeror is not an Interested
Person) or the Trustee (or, if applicable, such appraiser) shall take into
account, and any appraiser or other expert in real estate matters shall be
instructed to take into account, as applicable, among other factors, any
Updated Appraisal previously obtained, the period and amount of any delinquency
on the affected Specially Serviced Mortgage Loan, the physical (including
environmental) condition of the related Mortgaged Property or such REO
Property, the state of the local economy and the Trust Fund's obligation to
dispose of any REO Property within the time period specified in Section
3.17(a).
(c) Subject to the provisions of Section 3.17, the Special
Servicer shall act on behalf of the Trust Fund in negotiating and taking any
other action necessary or appropriate in connection with the sale of any
Specially Serviced Mortgage Loan or REO Property, including the collection of
all amounts payable in connection therewith. Any sale of a Specially Serviced
Mortgage Loan or any REO Property shall be without recourse to, or
representation or warranty by, the Trustee, the Fiscal Agent, the Depositor,
the Servicer, the Special Servicer or the Trust Fund (except that any contract
of sale and assignment and conveyance documents may contain customary
warranties of title, so long as the only recourse for breach thereof is to the
Trust Fund), and, if such sale is consummated in accordance with the duties of
the Special Servicer, the Servicer, the Depositor, the Fiscal Agent and the
Trustee pursuant to the terms of this Agreement, no such Person who so
performed shall have any liability to the Trust Fund or any Certificateholder
with respect to the purchase price therefor accepted by the Special Servicer
or, if the offeror is an Interested Person, the Servicer (or the Trustee, if
the Servicer is an offeror).
(d) The Special Servicer shall file information returns regarding
the abandonment or foreclosure of Mortgaged Properties with IRS at the time and
in the manner required by the Code.
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(e) The proceeds of any sale after deduction of the expenses of
such sale incurred in connection therewith shall be promptly, and in any event
within one Business Day following receipt thereof, deposited in the Collection
Account in accordance with Section 3.05(a)(iv).
SECTION 3.19. Additional Obligations of the Servicer and Special
Servicer; Inspections.
The Special Servicer shall inspect or cause to be inspected (at its
own expense) each Mortgaged Property at such times and in such manner as are
consistent with the Servicing Standard, but in any event shall inspect each
Mortgaged Property securing a Note with a Stated Principal Balance (or in the
case of a Note secured by more than one Mortgaged Property, having an Allocated
Loan Amount) of (A) $2,000,000 or more at least once every 12 months and (B)
less than $2,000,000 at least once every 24 months, in each case commencing in
_____________ 199___ (or at such lesser frequency as each Rating Agency shall
have confirmed in writing to the Servicer or the Special Servicer, will not
result a downgrade, qualification or withdrawal of the then current ratings
assigned to any Class of the Certificates), provided, that if any Mortgage Loan
(a) becomes a Specially Serviced Mortgaged Loan, (b) is delinquent for 60 days
or (c) has a debt service coverage ratio of less than 1.0, each related
Mortgaged Property shall be inspected by the Special Servicer as soon as
practicable and thereafter at least every 12 months for so long as any Monthly
Payment with respect to such Mortgage Loan remains delinquent.
SECTION 3.20. Authenticating Agent.
The Trustee may appoint an Authenticating Agent to execute and to
authenticate Certificates. The Authenticating Agent must be acceptable to the
Depositor and the Servicer and must be a corporation organized and doing
business under the laws of the United States of America or any state, having a
principal office and place of business in a state and city acceptable to the
Depositor and the Servicer, having a combined capital and surplus of at least
$15,000,000, authorized under such laws to do a trust business and subject to
supervision or examination by federal or state authorities. The Trustee shall
serve as the initial Authenticating Agent and the Trustee hereby accepts such
appointment.
Any corporation into which the Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Authenticating Agent
shall be party, or any corporation succeeding to the corporate agency business
of the Authenticating Agent, shall be the Authenticating Agent without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
The Authenticating Agent may at any time resign by giving at least 30
days' advance written notice of resignation to the Trustee, the Depositor and
the Servicer. The Trustee may at any time terminate the agency of the
Authenticating Agent by giving written notice of termination to the
Authenticating Agent, the Depositor and the Servicer. Upon receiving a notice
of resignation or upon such a termination, or in case at any time the
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 3.20, the Trustee promptly shall appoint a successor
Authenticating Agent, which shall be acceptable to the Servicer and the
Depositor, and shall mail
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notice of such appointment to all Certificateholders. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers, duties and responsibilities of its
predecessor hereunder, with like effect as if originally named as
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section 3.20.
The Authenticating Agent shall have no responsibility or liability for
any action taken by it as such at the direction of the Trustee. Any reasonable
compensation paid to the Authenticating Agent shall be an unreimbursable
expense of the Trustee.
SECTION 3.21. Appointment of Custodians.
The Trustee may appoint one or more Custodians to hold all or a
portion of the Mortgage Files as agent for the Trustee, by entering into a
Custodial Agreement. The Trustee agrees to comply with the terms of each
Custodial Agreement and to enforce the terms and provisions thereof against the
Custodian for the benefit of the Certificateholders. Each Custodian shall be a
depository institution subject to supervision by federal or state authority,
shall have a combined capital and surplus of at least $10,000,000, shall have a
long-term debt rating of at least "BBB" from Fitch and DCR and "Baa2" from
Moody's , unless the Trustee shall have received prior written confirmation
from each Rating Agency that the appointment of such Rating Agency would not
cause such Rating Agency to withdraw, qualify or downgrade any of its then-
current ratings on the Certificates, and shall be qualified to do business in
the jurisdiction in which it holds any Mortgage File. Each Custodial Agreement
may be amended only as provided in Section 10.07. Any reasonable compensation
paid to the Custodian shall be an unreimbursable expense of the Trustee. The
Trustee shall serve as the initial Custodian.
SECTION 3.22. Reports to the Securities and Exchange Commission;
Available Information.
(a) The Servicer shall prepare and sign, on behalf of the
Depositor, any and all Exchange Act Reports; provided, however, that (i) the
Depositor shall prepare, sign and file with the Commission the initial Form 8-K
relating to the Trust Fund and (ii) the Special Servicer shall prepare and sign
on behalf of the Depositor any Exchange Act Report which includes an Annual
Compliance Report relating to the Special Servicer. Each Exchange Act Report
consisting of a Monthly Distribution Statement, Special Event Report or Summary
Report shall be prepared as an exhibit or exhibits to a Form 8-K. Each
Exchange Act Report consisting of an Annual Compliance Report shall be prepared
as exhibits to an Annual Report on Form 10-K and shall identify the aggregate
number of Holders of Public Certificates and Direct Participants holding
positions in Public Certificates as of December 31 (or the nearest Business Day
if such date is note a Business Day) of the related year. For each Exchange
Act Report, the Servicer or the Special Servicer, as applicable, shall prepare
(i) a manually-signed paper version of such report and (ii) an electronic
version of such report, which version shall be prepared as a Microsoft Word for
Windows file (or in such other format as the Trustee and the Servicer or the
Special Servicer may agree), provided, that, with respect to the electronic
version of each Exchange Act Report consisting of a Monthly Distribution
Statement, the Servicer need only deliver an electronic version of the related
Form 8-K and the Trustee shall attach an electronic version of the related
Monthly Distribution Statement
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thereto as an exhibit. Exchange Act Reports consisting of (i) a Monthly
Distribution Statement shall be delivered within ten days after the related
Distribution Date; (ii) a Special Event Report shall be delivered within ten
days after the occurrence of event being reported or the date on which the
Servicer has knowledge of the occurrence of such event, whichever is later;
(iii) a Summary Report shall be delivered within ten days after the last
Business Day of the related calendar quarter or year, as applicable; and (iv)
an Annual Compliance Report shall be delivered on or prior to March 15 of each
calendar year. Electronic versions of each Exchange Act Report shall be
delivered to the Trustee on a computer diskette (delivered by courier in
packaging designed to shield such diskette from damage in transmission) or by
means of electronic data transfer system mutually agreed upon by the Trustee
and the Servicer or Special Servicer. Manually-signed copies of each Exchange
Act Report shall be delivered to the Depositor to the attention of William
Kramer (or such other Persons as are designated in writing by the Depositor),
with a copy to the Trustee. The Trustee shall file each Exchange Act Report
with the Commission by means of the EDGAR system no later than two Business
Days after receipt thereof from the Servicer or Special Servicer, as
applicable. Each Exchange Act Report shall be filed by the Trustee using the
following information relating to the Trust Fund:
CIK Number: [To be determined]
CCC Number: [To be provided]
Exchange Act
Number: [To be determined]
The Trustee shall (i) cause the submission header for each EDGAR
filing to send a copy of each filing confirmation by electronic mail to the
electronic mail address specified by the Depositor in writing or (ii) fax a
copy of such confirmation to the Depositor, to the attention of William Kramer
upon receipt.
The Depositor shall (i) pay or reimburse the Trustee for any expenses
(including attorney's fees and filing fees) incurred in connection with the
preparation of any Exchange Act Report for filing by means of the EDGAR system
and (ii) pay the Trustee a fee for processing each filing of an Exchange Act
Report; the amount of such fee to be separately agreed by the Trustee and the
Depositor.
If information for any Exchange Act Report is incomplete by the date
on which such report is required to be delivered to the Trustee hereunder, the
Servicer or, with respect to any Annual Compliance Report relating to the
Special Servicer, the Special Servicer shall prepare and execute a Form 12b-25
under the Exchange Act and shall deliver an electronic version of such form to
the Trustee for filing electronically. The Trustee shall file such electronic
version no later than the date on which the related Exchange Act Report was
required to be filed under the Exchange Act. The Servicer or the Special
Servicer, as applicable, shall deliver the related report in electronic form to
the Trustee when such information is available and such completed report shall
be filed electronically by the Trustee in the manner provided above. If the
Trustee experiences unanticipated technical difficulties preventing the timely
preparation and submission of any electronic filing of an Exchange Act Report,
the Trustee shall file such Exchange Act Report, under cover of Form TH, in
paper format no later than one Business Day after the date on which such
Exchange Act Report was
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required to be filed under the Exchange Act and shall file the related Exchange
Act Report as soon as reasonably practicable thereafter.
None of the Servicer, the Special Servicer and the Trustee shall (i)
file a Form ID with respect to the Depositor or (ii) cause the Trust Fund to
stop filing reports, statements and information with the Commission pursuant to
this Section unless directed to do so by the Depositor or the continued
reporting is prohibited under the Exchange Act or any regulations thereunder.
Upon the written request of the Depositor, the Servicer shall file a Form 15
with the Commission and send a copy thereof to the Trustee.
The Trustee shall solicit any and all proxies of the
Certificateholders whenever such proxies are required to be solicited pursuant
to the Exchange Act.
(b) The Servicer shall promptly prepare a report (each, a "Special
Event Report") reporting (i) any notice from a Borrower or insurance company,
or any knowledge otherwise obtained, regarding an upcoming voluntary or
involuntary prepayment (including that resulting from a casualty or
condemnation) or defeasance of all or part of the related Mortgage Loan
(provided that a request by a Borrower or other Person for a quotation of the
amount necessary to satisfy all obligations with respect to a Mortgage Loan
shall not, in and of itself, be deemed to be such notice); (ii) any imminent or
actual default on a Mortgage Loan that results or which the Servicer, after
consultation with the Special Servicer, reasonably believes is likely to result
in the acceleration of the indebtedness due under such Mortgage Loan; (iii) the
results of any property inspection which has revealed any material damage or
deterioration or the presence of any environmental condition with respect to
any Mortgaged Property; (iv) any notice from a Borrower, or any knowledge
otherwise obtained, regarding any litigation involving such Borrower or any
related Mortgaged Property which the Servicer reasonably believes is likely to
have an adverse effect on the Mortgaged Property or the ability of such
Borrower to pay the amounts due under the related Mortgage Loan; (v) any notice
received from a Borrower, Manager or tenant of a Mortgaged Property, or any
knowledge otherwise obtained, regarding the material default of such tenant
under the terms of its lease or early termination by either the tenant or the
Borrower of such lease, the bankruptcy of such tenant or its direct or indirect
parent, or the loss of a license or permit relating to the Mortgaged Property;
(vi) any amendment, modification or waiver of a material provision of a
Mortgage Loan; (vii) any event of which the Servicer has actual knowledge
(other than an event covered by clause (i)) which would result in the release
of any part of the Mortgaged Property; provided, however, that in the event
that the Servicer after consulting with the Depositor and the Special Servicer
determines in its good faith judgment that any of the preceding items will not
materially affect the interests of the Certificateholders, the Servicer shall
omit such item from the reporting obligation described above.
The Special Servicer shall report to the Servicer any of the foregoing
events within one Business Day of the Special Servicer having knowledge of such
event. In addition, in connection with their servicing of the Mortgage Loans,
the Servicer and the Special Servicer shall provide to each other and to the
Trustee written notice of any other known event with respect to a Mortgage Loan
or REO Property that the Servicer or the Special Servicer, respectively,
determines would have a material adverse effect on such Mortgage Loan or REO
Property, which notice shall include an explanation as to the reason for such
material adverse effect.
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(c) The Special Servicer shall collect all information available
pursuant to the Mortgage Loans and shall furnish such information, without
modification, interpretation or analysis (except that the Special Servicer will
use its best efforts to isolate management fees and funded reserves from
Borrower reported expenses, if necessary), to the Servicer on or prior to the
fifteenth day of each month with respect to information relating to the prior
month and in a form sufficient to permit the Servicer to fulfill its
obligations in this Section. Once per applicable period, the Servicer shall
prepare a Summary Report based on information provided to the Servicer by the
Special Servicer. To the extent not inconsistent with the related Borrower's
rights under the Mortgage Loan or applicable law, the Servicer shall deliver a
copy of each Summary Report to each Rating Agency and the Trustee. None of the
Servicer, the Special Servicer and the Trustee shall be responsible for the
completeness or accuracy of such information provided by the Borrowers.
(d) The Servicer shall, in accordance with such reasonable rules
and procedures as it may adopt (which may include the requirement that an
agreement that provides that such information shall be used solely for purposes
of evaluating the investment characteristics of the Certificates be executed to
the extent the Servicer deems such action to be necessary or appropriate), also
make available any additional information relating to the Mortgage Loans, the
Mortgaged Properties or the Borrowers, for review by the Depositor, the Rating
Agencies and any other Persons to whom the Servicer believes such disclosure is
appropriate, in each case except to the extent doing so is prohibited by
applicable law or by any related Loan Documents related to a Mortgage Loan.
(e) The Trustee shall deliver a copy of each Summary Report and
Annual Compliance Statement to each Rating Agency and, upon request, to each
Certificateholder and Beneficial Owner (provided that each Certificateholder
and Beneficial Owner may only make one request per month and will be required
to pay any expenses incurred by the Trustee in connection with the provision of
such information).= The Trustee shall also deliver a copy of each Special Event
Report to each Rating Agency, Certificateholder and, if known, Beneficial Owner
within one Business Day of receipt. The Trustee shall deliver the foregoing
information and reports regardless of whether the Trust Fund is still filing
Exchange Act Reports. The Trustee shall also make available at its offices
primarily responsible for administration of the Trust Fund, during normal
business hours, or send to the requesting party at the expense of each such
requesting party (other than the Rating Agencies) for review by the Depositor,
the Rating Agencies, any Certificateholder, any Person identified to the
Trustee by a Certificateholder as a prospective transferee of a Certificate and
any other Persons to whom the Trustee believes such disclosure is appropriate,
the following items: (i) this Agreement, (ii) all Monthly Distribution
Statements, (iii) all Annual Compliance Reports, (iv) all Summary Reports and
(v) all Special Event Reports.
The Servicer and the Special Servicer shall make available at its
offices during normal business hours, or send to the requesting party at the
expense of each such requesting party (other than the Rating Agencies) for
review by the Depositor, the Trustee, the Rating Agencies, any
Certificateholder, any Person identified to the Servicer or the Special
Servicer, as applicable, by a Certificateholder as a prospective transferee of
a Certificate and any other Persons to whom the Servicer or the Special
Servicer, as applicable, believes such disclosure to be appropriate the
following items: (i) all financial statements, occupancy information, rent
rolls, average daily room rates and similar information received by the
Servicer or the Special Servicer, as applicable, from each Borrower, (ii) the
inspection reports prepared by or on behalf of the Servicer or the Special
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Servicer, as applicable, in connection with the property inspections pursuant
to Section 3.19, (iii) any and all modifications, waivers and amendments of the
terms of a Mortgage Loan entered into by the Servicer or the Special Servicer,
as applicable and (iv) any and all officer's certificates and other evidence
delivered to the Trustee and the Depositor to support the Servicer's
determination that any Advance was, or if made would be, a Nonrecoverable
Advance. Copies of any and all of the foregoing items shall be available from
the Servicer or the Special Servicer, as applicable, or the Trustee, as
applicable, upon request.
(f) Notwithstanding the obligations of the Servicer set forth in
the preceding provisions of this Section 3.22, the Servicer may withhold any
information not yet included in a Form 8-K filed with the Commission or
otherwise made publicly available with respect to which the Trustee or the
Servicer has determined that such withholding is appropriate.
(g) Notwithstanding any provisions in this Agreement to the
contrary, the Trustee shall not be required to review the content of any
Exchange Act Report for compliance with applicable securities laws or
regulations, completeness, accuracy or otherwise, and the Trustee shall have no
liability with respect to any Exchange Act Report filed with the Commission or
delivered to Certificateholders. None of the Servicer, the Special Servicer
and the Trustee shall be responsible for the accuracy or completeness of any
information supplied by a Borrower or a third party for inclusion in any Form
8-K, and each of the Servicer, the Special Servicer and the Trustee shall be
indemnified and held harmless by the Trust Fund against any loss, liability or
expense incurred in connection with any legal action relating to any statement
or omission or alleged statement or omission therein. None of the Trustee, the
Special Servicer and the Servicer shall have any responsibility or liability
with respect to any Exchange Act Report filed by the Depositor, and each of the
Servicer, the Special Servicer and the Trustee shall be indemnified and held
harmless by the Trust Fund against any loss, liability or expense incurred in
connection with any legal action relating to any statement or omission or
alleged statement or omission therein.
SECTION 3.23. Lock-Box Accounts, Cash Collateral Accounts, Escrow
Accounts and Reserve Accounts.
The Servicer shall administer each Lock-Box Account, Cash Collateral
Account, Escrow Account and Reserve Account in accordance with the related
Mortgage or Loan Agreement, Cash Collateral Account Agreement or Lock-Box
Agreement, if any.
SECTION 3.24. Property Advances.
(a) The Servicer (or, to the extent provided in Section 3.24(b),
the Trustee or the Fiscal Agent or to the extent specifically provided for in
this Agreement, the Special Servicer) shall make any Property Advances as and
to the extent otherwise required pursuant to the terms hereof. For purposes of
distributions to Certificateholders and compensation to the Servicer, Special
Servicer or Trustee, Property Advances shall not be considered to increase the
principal balance of any Mortgage Loan, notwithstanding that the terms of such
Mortgage Loan so provide.
(b) The Servicer shall notify the Trustee and the Fiscal Agent,
and the Special Servicer shall notify the Servicer, the Trustee and the Fiscal
Agent, in writing promptly upon, and in any
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event within one Business Day after, becoming aware that it will be unable to
make any Property Advance required to be made pursuant to the terms hereof, and
in connection therewith, shall set forth in such notice the amount of such
Property Advance, the Person to whom it will be paid, and the circumstances and
purpose of such Property Advance, and shall set forth therein information and
instructions for the payment of such Property Advance, and, on the date
specified in such notice for the payment of such Property Advance, or, if the
date for payment has passed or if no such date is specified, then within five
Business Days following such notice, the Trustee (or with respect to a Property
Advance required to be made by the Special Servicer, the Servicer, and if the
Servicer so fails, the Trustee), subject to the provisions of Section 3.24(c),
shall pay the amount of such Property Advance in accordance with such
information and instructions. If the Trustee fails to make any Property
Advance required to be made under this Section 3.24, the Fiscal Agent, subject
to the provisions of Section 3.24(c), shall make such Advance on the same day
the Trustee was required to make such Property Advance and, thereby, the
Trustee shall not be in default under this Agreement.
(c) None of the Servicer, the Trustee, the Fiscal Agent or the
Special Servicer shall be obligated to make a Property Advance as to any
Mortgage Loan or REO Property if the Servicer, the Trustee, the Fiscal Agent or
the Special Servicer, as applicable, determines that such Advance will be a
Nonrecoverable Advance. The Trustee and the Fiscal Agent (or the Servicer with
respect to a Property Advance required to be made by the Special Servicer)
shall be entitled to rely, conclusively, on any determination by the Servicer
or Special Servicer, as applicable, that a Property Advance, if made, would be
a Nonrecoverable Advance. The Trustee and the Fiscal Agent, in determining
whether or not a Property Advance previously made is, or a proposed Property
Advance, if made, would be, a Nonrecoverable Advance shall be subject to the
standards applicable to the Servicer hereunder.
(d) The Servicer, the Special Servicer, the Trustee and/or the
Fiscal Agent, as applicable, shall be entitled to the reimbursement of Property
Advances made by any of them to the extent permitted pursuant to Section
3.06(ii) of this Agreement, together with any related Advance Interest Amount
in respect of such Property Advances, and the Servicer and Special Servicer
hereby covenant and agree to promptly seek and effect the reimbursement of such
Property Advances from the related Borrowers to the extent permitted by
applicable law and the related Loan Documents.
SECTION 3.25. Appointment of Special Servicer.
(a) AMRESCO Management, Inc. will act as the initial Special
Servicer to service each Specially Serviced Mortgage Loan and perform the other
obligations of the Special Servicer hereunder.
(b) Certificateholders representing 51% of the Percentage
Interests of the most subordinate Class of Certificates outstanding at any time
shall be entitled to remove the Special Servicer with or without cause and to
appoint a successor Special Servicer, provided that each Rating Agency confirms
to the Trustee in writing that such appointment, in and of itself, would not
have caused a downgrade, qualification or withdrawal of the then current
ratings assigned to any Class of Certificates. If there is a Special Servicer
Event of Default the Special Servicer shall be removed and replaced pursuant to
Sections 7.01(c) and 7.02.
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(c) The appointment of any such successor Special Servicer, shall
not relieve the Servicer, the Trustee or the Fiscal Agent of their respective
obligations to make Advances as set forth herein; provided, however, the
Servicer shall not be liable for any actions or any inaction of such successor
Special Servicer. Any termination fee payable to the terminated Special
Servicer (and it is acknowledged that there is no such fee payable in the event
of a termination of the Servicer as Special Servicer or in the event of a
termination for breach of this Agreement) shall be paid by the
Certificateholders so terminating the Special Servicer and shall not in any
event be an expense of the Trust Fund.
(d) No termination of the Special Servicer and appointment of a
successor Special Servicer shall be effective until the successor Special
Servicer has assumed all of its responsibilities, duties and liabilities
hereunder pursuant to a writing satisfactory to the Servicer and Trustee, as
evidenced in writing, and the Trustee has received written confirmation from
each Rating Agency that such appointment would not cause any Rating Agency to
qualify, withdraw or downgrade any of its then current ratings on any
Certificates. Any successor Special Servicer shall make the representations
and warranties provided for in Section 2.04(a), with the necessary changes in
points of detail as are necessary, as to names, offices and the like.
SECTION 3.26. Transfer of Servicing Between Servicer and Special
Servicer; Record Keeping.
(a) Upon determining that any Mortgage Loan has become a Specially
Serviced Mortgage Loan, the Servicer shall immediately give notice thereof, to
the Special Servicer and shall use its best efforts to provide the Special
Servicer with all information, documents (but excluding the original documents
constituting the Mortgage File) and records (including records stored
electronically on computer tapes, magnetic discs and the like) relating to the
Mortgage Loan and reasonably requested by the Special Servicer to enable it to
assume its duties hereunder with respect thereto without acting through a sub-
servicer. The Servicer shall use its best efforts to comply with the preceding
sentence within five Business Days of the date such Mortgage Loan became a
Specially Serviced Mortgage Loan and in any event shall continue to act as
Servicer and administrator of such Mortgage Loan until the Special Servicer has
commenced the servicing of such Mortgage Loan, which shall occur upon the
receipt by the Special Servicer of the information, documents and records
referred to in the preceding sentence. With respect to each Mortgage Loan that
becomes a Specially Serviced Mortgage Loan, the Servicer shall instruct the
related Borrower to continue to remit all payments in respect of such Mortgage
Loan to the Servicer. The Servicer and Special Servicer may agree that,
notwithstanding the preceding sentence, with respect to each Mortgage Loan that
became a Specially Serviced Mortgage Loan, the Servicer shall instruct the
related Borrower to remit all payments in respect of such Mortgage Loan to the
Special Servicer, provided that the payee in respect of such payments shall
remain the Servicer. The Special Servicer shall remit to the Servicer any such
payments received by it pursuant to the preceding sentence within one Business
Day of receipt. The Servicer shall forward any notices it would otherwise send
to the Borrower of a Specially Serviced Mortgage Loan to the Special Servicer
who shall send such notice to the related Borrower.
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Upon determining that no event has occurred and is continuing with
respect to a Mortgage Loan that causes such Mortgage Loan to be a Specially
Serviced Mortgage Loan, the Special Servicer shall immediately give notice
thereof to the Servicer, and upon giving such notice, such Mortgage Loan shall
cease to be a Specially Serviced Mortgage Loan in accordance with the first
proviso of the definition of Specially Serviced Mortgage Loan, the Special
Servicer's obligation to service such Mortgage Loan shall terminate and the
obligations of the Servicer to service and administer such Mortgage Loan as a
Mortgage Loan that is not a Specially Serviced Mortgage Loan shall resume. In
addition, if the related Borrower has been instructed, pursuant to the last
sentence of the preceding paragraph, to make payments to the Special Servicer,
upon such determination, the Special Servicer shall instruct the related
Borrower to remit all payments in respect of such Mortgage Loan directly to the
Servicer.
(b) In servicing any Specially Serviced Mortgage Loan, the Special
Servicer shall provide to the Trustee originals of documents included within
the definition of "Mortgage File" for inclusion in the related Mortgage File
(to the extent such documents are in the possession of the Special Servicer)
and copies of any additional related Mortgage Loan information, including
correspondence with the related Borrower, and the Special Servicer shall
promptly provide copies of all of the foregoing to the Servicer as well as
copies of any analysis or internal review prepared by or for the benefit of the
Special Servicer.
(c) Not later than the Business Day preceding each date on which
the Servicer is required to furnish a report under Section 3.13(a) to the
Trustee, the Special Servicer shall deliver to the Trustee, with a copy to the
Servicer, a written statement describing, on a Mortgage Loan by Mortgage Loan
basis, (i) the amount of all payments on account of interest received on each
Specially Serviced Mortgage Loan, the amount of all payments on account of
principal, including Principal Prepayments, on each Specially Serviced Mortgage
Loan, the amount of Net Insurance Proceeds and Net Liquidation Proceeds
received with respect to each Specially Serviced Mortgage Loan, and the amount
of net income or net loss, as determined from management of a trade or business
on, the furnishing or rendering of a non-customary service to the tenants of,
or the receipt of any rental income that does not constitute Rents from Real
Property with respect to the REO Property relating to each applicable Specially
Serviced Mortgage Loan, in each case in accordance with Section 3.17 and (ii)
such additional information relating to the Specially Serviced Mortgage Loans
as the Servicer or Trustee reasonably requests to enable it to perform its
duties under this Agreement.
(d) Notwithstanding the provisions of the preceding subsection
(c), the Servicer shall maintain ongoing payment records with respect to each
of the Specially Serviced Mortgage Loans and shall provide the Special Servicer
with any information reasonably required by the Special Servicer to perform its
duties under this Agreement. The Special Servicer shall provide the Servicer
with any information reasonably required by the Servicer to perform its duties
under this Agreement.
(e) The Servicer shall furnish to the Special Servicer a current
copy of any "watch list" that it maintains with respect to the Mortgage Loans.
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SECTION 3.27. Interest Reserve Account.
(a) On each Servicer Remittance Date relating to any Interest
Accrual Period commencing in any January and on any Servicer Remittance Date
relating to any Interest Accrual Period commencing in any December which occurs
in a year immediately preceding a year which is not a leap year, the Servicer
shall remit to the Trustee, in respect of the Interest Reserve Loan, for
deposit into the Interest Reserve Account, an amount equal to one day's
interest on the Stated Principal Balance of the Interest Reserve Loan as of the
Due Date occurring in the month preceding the month in which such Servicer
Remittance Date occurs at the related Mortgage Rate, to the extent a full
Monthly Payment or P&I Advance is made in respect thereof (all amounts so
deposited in any consecutive January and February, "Withheld Amounts").
(b) On each Servicer Remittance Date occurring in March (other
than March, 1996), the Servicer shall withdraw from the Interest Reserve
Account an amount equal to the Withheld Amounts from the preceding January and
December, if any, and deposit such amount into the Distribution Account.
SECTION 3.28. Limitations on and Authorizations of the Servicer and
Special Servicer with Respect to Certain Mortgage
Loans.
(a) Prior to taking any action with respect to a Mortgage Loan
secured by Mortgaged Properties located in a "one-action" state, the Servicer
or Special Servicer, as applicable, shall consult with legal counsel, the fees
and expenses of which shall be an expense of the Trust Fund.
(b) With respect to any Mortgage Loan which permits the related
Borrower, with the consent or grant of a waiver by mortgagee, to incur
additional indebtedness or to amend or modify the related Borrower's
organizational documents, then the Special Servicer may only consent to either
such action, or grant a waiver with respect thereto, if the Special Servicer
determines that such consent or waiver is likely to result in a greater
recovery on a present value basis (discounted at the related Mortgage Rate)
than would not consenting to such action and the Special Servicer first obtains
written confirmation from at least one Rating Agency that such consent or grant
of a waiver would not, in and of itself, result in a downgrade, qualification
or withdrawal of any of the then current ratings assigned to the Certificates.
The Servicer shall not be entitled or required to consent to, or grant a waiver
with respect to, either action.
(c) With respect to the Mortgage Loans that require the related
Borrower to pay Rating Agency monitoring or review fees, the Servicer shall
enforce the obligation of the related Borrowers to pay Rating Agency monitoring
or review fees and shall remit such fees from the related Cash Collateral
Account for payment of such fees to the applicable Rating Agencies. The
Servicer shall receive bills from the Rating Agencies for monitoring, review
and surveillance of the Certificates and the Mortgage on behalf of
______________________ and shall promptly notify and send such bills to
__________________________, Attention ______________________________________
will notify each Rating Agency to bill ___________________________ for such
services and to send such bills to the Servicer ____________________________
will pay such portion of the bill not paid from funds provided by the
applicable Borrowers (as described in this section (c)) and the
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Servicer shall notify ___________________________, of the portion of the bill
that it has paid from funds collected from such Borrowers.
(d) With respect to each Mortgage Loan listed on Exhibit L, the
Servicer shall require the related Borrower to fund the related Escrow Account
for replacement reserves in the amounts specified on Exhibit L.
(e) With respect to all Mortgage Loans that provide that the
holder of the related Note may apply the monthly payment against principal,
interest and any other sums due in the order as the holder shall determine, the
Servicer shall apply such Monthly Payment to interest (other than Excess
Interest or Default Interest) under the related Mortgage Loan prior to
application to principal or any other sums due.
(f) With respect to the Mortgage Loans that have Anticipated
Repayment Dates, the Servicer (including the Servicer in its capacity as a
Certificateholder, if applicable), shall not take any enforcement action with
respect to the payment of Excess Interest or principal in excess of the
principal component of the constant Monthly Payment, other than requests for
collection, until the maturity date of the related Mortgage Loan.
(g) To the extent not inconsistent with the related Mortgage Loan,
the Servicer shall not consent to a change of franchise affiliation with
respect to a Mortgaged Property unless it obtains written confirmation from
Fitch and Moody's that such consent would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
the Certificates.
(h) With respect to any Mortgage Loan secured by a senior
housing/healthcare facility, the Special Servicer shall hire a consultant which
is experienced in the operation of such facilities in the event that such
Mortgage Loan becomes a Specially Serviced Mortgaged Loan.
(i) With respect to the Mortgage Loans that have Anticipated
Repayment Dates, the Servicer shall be permitted, in its discretion, to waive
all or any accrued Excess Interest if, prior to the related maturity date, the
related Borrower has requested the right to prepay the Mortgage Loan in full
together with all payments required by the Mortgage Loan in connection with
such prepayment except for all or a portion of accrued Excess Interest,
provided that the Servicer's determination to waive the right to such accrued
Excess Interest is reasonably likely to produce a greater payment to
Certificateholders on a present value basis than a refusal to waive the right
to such Excess Interest. Any such waiver shall not be effective until such
prepayment is tendered. The Servicer will have no liability to the Trust Fund,
the Certificateholders or any other person so long as such determination is
based on such criteria. Other than pursuant to Section 3.30, the Special
Servicer shall have no right to waive the payment of Excess Interest under the
circumstances described in this Section 3.28(i).
(j) With respect to the Mortgage Loans that (i) require earthquake
insurance, or (ii) (A) at the date of origination were secured by Mortgaged
Properties on which the related Borrower maintained earthquake insurance and
(B) have provisions which enable the Servicer to continue to require the
related Borrower to maintain earthquake insurance, the Servicer shall require
the related Borrower to maintain such insurance in the amount, in the case of
clause (i), required by the
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Mortgage Loan and in the amount, in the case of clause (ii), maintained at
origination, in each case, to the extent such amounts are available at
commercially reasonably rates.
(k) The Servicer shall send written notice to each Borrower and
the related Manager and clearing bank that, if applicable, the Servicer and/or
the Trustee has been appointed as the "Designee" of the "Lender" under any
related Lock-Box Agreement.
(l) Reserved.
(m) Reserved.
(n) For any Specially Serviced Mortgage Loan and with respect to
which, under the terms of the related Loan Documents, the mortgagee may, in its
discretion, apply Insurance Proceeds, condemnation awards or escrowed funds to
the prepayment of such loan prior to the expiration of the related Lock-out
Period, the Special Servicer may only make such a prepayment if the Special
Servicer has first received (i) the prior written consent of the Servicer
(which consent will be given or withheld in accordance with the Servicing
Standard) or (ii) the affirmative vote in favor of such prepayment from 66 2/3%
of the Voting Rights of all Certificateholders or 66 2/3% of the Voting Rights
of all Certificateholders responding within 20 Business Days of being given
notice by the Trustee of such proposed action. Upon the written request of the
Special Servicer, the Trustee shall forward Certificateholders any request of
the Special Servicer for the vote of the Certificateholders pursuant to this
Section.
(o) If any Mortgage Loan provides that the "Lender" with respect
thereto is required to purchase U.S. government obligations on behalf of the
related Borrower in connection with any defeasance of the related Note, the
Servicer shall purchase such obligations and effectuate such defeasance, at the
Borrower's expense, in accordance with the provisions of the related Loan
Documents, consistent with the Servicing Standard.
(p) Reserved.
(q) Reserved.
SECTION 3.29. Residual Trigger Date.
The Servicer shall give prompt written notice to __________________
of each release of a Mortgaged Property pursuant to defeasance with U.S.
government obligations pursuant to the terms of the related Mortgage Loan and
the percentage of the aggregate then outstanding principal balance of the
Mortgage Loans that is secured by U.S. government obligations after giving
effect to such release. Upon the occurrence of the Residual Trigger Date, the
Servicer shall give prompt written notice thereof to the Trustee, the Depositor
and ___________________________. Notice to __________________________ shall be
sent to:
--------------------------
--------------------------
--------------------------
--------------------------
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SECTION 3.30. Modification, Waiver, Amendment and Consents.
(a) The Special Servicer may, consistent with the Servicing
Standard, agree to any modification, waiver or amendment of any term of any
Mortgage Loan, subject, however, to each of the following limitations,
conditions and restrictions:
(i) the Special Servicer shall not agree to any
modification, waiver or amendment of any term of, or take any action with
respect to, any Mortgage Loan, if such modification, waiver or amendment
relates to any payment term thereof, the release of the related Borrower from
any material term thereunder or the release or substitution of collateral
therefor except in accordance with clause (b) or (c) of this Section 3.30; and
(ii) the Special Servicer shall not consent to the
modification of any term of a Mortgage Loan pursuant to this clause (a), or
otherwise alter, delete or add, in whole or in part, any legal right or
obligation of the related Borrower or the Trustee, as holder of the related
Mortgage Loan, unless such modification would not be a "significant
modification" as such term is defined in Code Section 1001 and applicable
Treasury Regulations thereunder or Treasury Regulations Section 1.860G-2(b)(3).
(b) The Special Servicer may, consistent with the Servicing
Standard, agree to any modification, waiver or amendment of any term of,
forgive or defer interest on and principal of, and/or add collateral for, any
Mortgage Loan with the consent of Certificateholders representing 100% of the
Percentage Interests of the most subordinate Class of Certificates then
outstanding determined as provided below, subject, however, to each of the
following limitations, conditions and restrictions:
(i) a material default on such Mortgage Loan has occurred
or, in the Special Servicer's reasonable and good faith judgment, a default in
respect of payment on such Mortgage Loan is reasonably foreseeable, and such
modification, waiver, amendment or other action is reasonably likely to produce
a greater recovery to Certificateholders on a present value basis (the relevant
discounting of anticipated collections that will be distributable to
Certificateholders will be done at the related Mortgage Rate), than would
liquidation;
(ii) the Special Servicer shall not extend the date on
which any Balloon Payment is scheduled to be due on any Specially Serviced
Mortgage Loan except as provided for below;
(iii) no reduction of any scheduled monthly payment of
principal and/or interest on any Specially Serviced Mortgage Loan may result in
a debt service coverage ratio for such Mortgage Loan of greater than 1.10 to 1,
and the Special Servicer may only agree to reductions
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lasting a period of no more than twelve consecutive months and, in the
aggregate, no more than three consecutive reductions of twelve-months or less
each;
(iv) the Special Servicer shall not release or substitute
collateral or release mortgagors or guarantors except as provided in clause (v)
below;
(v) the Special Servicer may only allow a substitution of
collateral and the assumption of a Borrower's obligations with respect to a
Mortgage Loan in accordance with the terms thereof and the provisions of
Section 3.09 hereof;
(vi) the Special Servicer may not forgive an aggregate
amount of principal of the Mortgage Loans in excess of the Certificate
Principal Balance of the most subordinate Class of Certificates then
outstanding (as determined as provided below) minus the aggregate of the
greater of (A) any Appraisal Reduction Amounts and (B) Delinquency Reduction
Amounts of each Mortgage Loan that, in each case, have not resulted in a
Realized Loss;
(vii) the Special Servicer shall not permit any Borrower to
add any collateral unless (A) the Special Servicer has first determined in
accordance with the Servicing Standard, based upon an environmental assessment
prepared by an Independent Person who regularly conducts environmental
assessments, at the expense of the Borrower, that such additional collateral is
in compliance with applicable environmental laws and regulations and that there
are no circumstances or conditions present with respect to such new collateral
relating to the use, management or disposal of any hazardous materials for
which investigation, testing, monitoring, containment, clean-up or remediation
would be required under any then applicable environmental laws and/or
regulations and (B) the Special Servicer has received an Opinion of Counsel at
the expense of the Special Servicer or the Borrower (unless the Special
Servicer owns the most subordinate Class of Certificates in which case, at the
expense of the Trust Fund), to the effect that the addition of such collateral
will not cause either the Upper-Tier REMIC or the Lower-Tier REMIC to fail to
qualify as a REMIC or cause a tax to be imposed on the Trust Fund under the
REMIC Provisions; and
(viii) the Special Servicer may waive or reduce a Lock-out
Period or any Prepayment Premiums only if the commencement of a foreclosure
proceeding with respect to the related Mortgage Loan is imminent and the
Special Servicer first receives written notification from the Servicer that
such action in the opinion of the Servicer, consistent with the Servicing
Standard and based solely upon information furnished by the Special Servicer
without independent investigation of the Servicer thereof, is more likely to
result in a greater recovery, on a present value basis, than would a
foreclosure.
Notwithstanding the foregoing, the Special Servicer shall not be
required to oppose the confirmation of a plan in any bankruptcy or similar
proceeding involving a Borrower if in its reasonable and good faith judgment
such opposition would not (i) ultimately prevent the confirmation of such plan
or one substantially similar and (ii) produce a greater recovery to
Certificateholders on a present value basis.
For purposes of determining the amount of principal which the Special
Servicer may forgive pursuant to clause (vi) above, the most subordinate Class
shall include the next subordinate Class
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(determined as provided in the preceding sentence) provided that
Certificateholders evidencing 100% of the Percentage Interests of such Class
consent to such forgiveness.
(c) Following a default by a Borrower in the payment of a Balloon
Payment on the related Maturity Date, or if the Special Servicer reasonably
determines that a default with respect to such Balloon Loan is imminent the
Special Servicer may elect to grant a one-year extension of such Balloon Loan;
provided that the Special Servicer may only extend such Balloon Loan if (i)
immediately prior to the default on the Balloon Payment the related Borrower
had made twelve consecutive Monthly Payments on or prior to their Due Dates,
(ii) the Special Servicer determines in its reasonable judgment that such
Borrower has attempted in good faith to refinance such Balloon Loan or
Mortgaged Property, (iii) the Special Servicer determines that (A) extension of
such Balloon Loan is consistent with the Servicing Standard and (B) extension
of such Mortgage Loan is likely to result in a recovery which on a net present
value basis would be greater than the recovery that would result from a
foreclosure, (iv) such extension requires that all cash flow on all related
Mortgaged Property or Properties in excess of amounts required to operate and
maintain such Mortgaged Property or Properties be applied to payments of
principal and interest on such Balloon Loan and (v) the Special Servicer
terminates the related Manager unless the Special Servicer determines that
retaining such Manager is conducive to maintaining the value of the Mortgaged
Properties.
The Special Servicer may, consistent with the Servicing Standard,
grant subsequent one-year extensions of such Balloon Loan if (i) the related
Borrower has made twelve consecutive Monthly Payments in an amount equal to or
greater than the Minimum Defaulted Monthly Payments, (ii) the requirements set
forth in clauses (ii) - (iv) of the preceding paragraph are satisfied. If the
related Borrower fails to make a timely Minimum Defaulted Monthly Payment more
than once during any two year period after an extension of a Balloon Loan, no
further extensions will be granted.
Any extension of a Balloon Loan pursuant to this Section will require
monthly payments in an amount equal to or greater than the Minimum Defaulted
Monthly Payment.
(d) The Special Servicer may be given revocable instructions
("Instructions") (with a copy to the Servicer) to extend a Specially Serviced
Mortgage Loan that has defaulted on a Balloon Payment (which extension shall be
conditioned on the requirements of clauses (ii)-(iv) of Section 3.30(c) above
except that such Instructions shall not be subject to the rejection of the
other Certificateholders and the related Borrower will not be required to have
made twelve consecutive Monthly Payments on or prior to the Due Date) by the
Holders of Certificates representing greater than 50% of the Voting Rights of
the most subordinate Class or Classes of Certificates then outstanding
representing a minimum of 2.5% of the aggregate initial Certificate Balances of
all Classes of Certificates (or if the Certificate Balance of such Class or
Classes has been reduced to less than 40% of its initial Certificate Balance,
the holders of such Class together with the Holders of the next most
subordinate Class) (the "Directing Holders") under the following circumstance:
(i) If the Special Servicer has determined to commence
foreclosure or acquisition proceedings, the Special Servicer shall notify the
Trustee (and the Trustee hereby agrees to notify Directing Holders ), the
Depositor and the Servicer of its proposed action;
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(ii) If the Special Servicer receives contrary
Instructions from the Directing Holders within seven days after notice was
given to the Directing Holders (and the Trustee hereby agrees to forward to the
Special Servicer promptly any Instructions provided by the Directing Holders),
the Special Servicer will delay such proceedings, and the procedures described
below shall apply to the servicing of such Mortgage Loan; and
(iii) In the event that the Special Servicer does not
receive such Instructions within such seven-day period, the Special Servicer
may proceed in connection with the foreclosure or acquisition in a manner
consistent with the Servicing Standard.
If the Directing Holders revoke their Instructions to extend the
Mortgage Loan, the Special Servicer shall service the Mortgage Loan without
regard to such original Instructions; provided, however, that the Directing
Holders shall be required to maintain the Collateral Account in accordance with
this Section 3.30 unless and until the Mortgage Loan is no longer a Specially
Serviced Mortgage Loan for nine consecutive months or has been liquidated; and
provided, further, that any such foreclosure shall be subject to the provisions
of Section 3.10.
(e) If the Special Servicer receives Instructions and the Servicer
has not otherwise been required to obtain an Updated Appraisal as described in
Section 3.10 above within the preceding twelve month period, the Special
Servicer shall as soon as reasonably practicable obtain an Updated Appraisal of
the Mortgaged Property (the cost of which shall be a Property Advance), in
order to determine the fair market value of such Mortgaged Property, after
accounting for the estimated liquidation and carrying costs (the "Fair Market
Value" of such Mortgaged Property). Within two Business Days after the Special
Servicer's receipt of Instructions, the Servicer shall establish a segregated
account (the "Collateral Account") and the Directing Holders shall deposit
therein (at the Servicer's request), in proportion to their respective
Percentage Interests, an amount equal to the lesser of (i) 125% of the Fair
Market Value of the related Mortgaged Property and (ii) the outstanding
principal balance of the Mortgage Loan plus unreimbursed Advances (with
interest thereon at the Advance Rate) and unpaid accrued interest (the
"Deposit"). If no Updated Appraisal has yet been obtained, the amount of the
Deposit will be determined based on the Servicer's estimate of the Fair Market
Value of the Mortgaged Property, in which case, upon the Servicer's receipt of
such Updated Appraisal, the Servicer shall remit any excess deposit to the
Directing Holders, or the Directing Holders will deposit in the Collateral
Account any shortfall, as the case may be. In the event that the Directing
Holders do not make the required deposit within two Business Days following the
Special Servicer's receipt of Instructions, the Special Servicer shall act in
accordance with the Servicing Standard without regard to such Instructions.
The Directing Holders shall be deemed to have granted to the Servicer for the
benefit of Certificateholders a first priority security interest in the
Collateral Account, as security for the obligations of the Directing Holders.
If the Special Servicer is acting pursuant to Instructions, the
Servicer shall withdraw from the Collateral Account and deposit into the
Collection Account on or prior to the Business Day preceding each Servicer
Remittance Date an amount equal to the sum of (i) the Minimum Defaulted Monthly
Payment on the related Balloon Loan and (ii) any Property Protection Expenses
or any expenses incurred to protect and preserve the security for a Mortgage
Loan or taxes and assessments or insurance premiums (without regard to a non-
recoverability determination), and the Directing Holders shall, upon request
therefor by the Servicer, deposit from their own funds into the Collateral
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Account the amount of such P&I Advance or Property Advance. Such withdrawals
shall be reimbursed, with interest, at the Advance Rate (but in no event
greater than the Default Rate on the related Mortgage Loan), and shall be
recoverable only from funds recovered from the related Mortgage Loan (whether
pursuant to liquidation or the Mortgage Loan being brought current) but only
after such funds have been applied to the purposes set forth in Section
3.06(i)-(x). If the Directing Holders fail to make such deposit within one (1)
Business Day after receipt of the Servicer's request, the Special Servicer
shall no longer be required to follow such Instructions and shall specially
service such Mortgage Loan as though no Instructions had been given; provided,
however, that the Directing Holders shall be required to maintain the
Collateral Account in accordance with the requirements of this Section 3.30
unless and until the related Mortgage Loan is no longer a Specially Serviced
Mortgage Loan for nine consecutive months or has been liquidated. The Servicer
shall invest amounts on deposit in the Collateral Account in Permitted
Investments upon direction by the Directing Holders. Directing Holders shall
be entitled to reinvestment income as received, and will reimburse the
Collateral Account for any losses incurred. Any Collateral Account established
hereunder will be an "outside reserve fund" beneficially owned by the related
Directing Holders for federal income tax purposes, and any amounts paid or
reimbursed from the Upper-Tier REMIC or Lower-Tier REMIC to the Collateral
Account will be treated as paid to the Directing Holders as beneficial owners.
(f) If a Balloon Loan or the related Mortgaged Property which is
subject to Instructions is liquidated or disposed of all Net Liquidation
Proceeds shall be deposited in the Collection Account and the Servicer shall
withdraw from the Collateral Account, and deposit into the Collection Account
as additional Liquidation Proceeds for distribution to Certificateholders the
lesser of (a) the amount by which 125% of the Fair Market Value (determined at
the time of the Deposit) (plus accrued and unpaid interest, accumulated
carrying costs and conveyance expenses) exceeds the net sales proceeds, and (b)
the amount by which the outstanding principal balance of the related Mortgage
Loan plus unreimbursed Advances (with interest thereon) and unpaid accrued
interest exceeds the net sales proceeds, provided that in no event shall such
additional Liquidation Proceeds exceed the unpaid principal balance, accrued
and unpaid interest (including Default Interest), unpaid Advances made by the
Servicer, Special Servicer, Trustee or Fiscal Agent and interest thereon, and
any expenses paid by the Trust Fund with respect to such Mortgage Loan.
If the amount realized upon disposition of the Mortgage Loan or
Mortgaged Property exceeds 125% of the Fair Market Value, the Servicer shall
deposit the excess in the Collection Account to the extent not required by
applicable law to be paid to the related Borrower. If the Mortgage Loan has
not been sold, liquidated or disposed of on or before the third anniversary of
the Instructions (or such earlier date so that the Trust Fund owns the
Mortgaged Property for no longer than the period permitted by Section 3.17(a)),
the Directing Holders shall immediately purchase the Mortgage Loan for a
purchase price equal to Fair Market Value (determined at the time of the
Deposit) plus accrued and unpaid interest, accumulated carrying costs and
conveyance expenses and, in connection therewith, amounts then on deposit in
the Collateral Account shall be applied first in payment of such purchase
price. For purposes of this paragraph, if the Updated Appraisal is dated more
than twelve months prior to the date on which such purchase is to occur, then
the Servicer shall obtain an Updated Appraisal upon which the calculation of
Fair Market Value shall be based and the term "Fair Market Value" for purposes
of the purchase price and the first paragraph of this section (d) shall be the
greater of (i) the Fair Market Value calculated at the time the Instructions
were first
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given and (ii) the Fair Market Value calculated in connection with the
referenced Updated Appraisal, provided that in no event shall such price exceed
the unpaid principal balance, accrued interest (including Default Interest),
unpaid Advances made by the Servicer, Special Servicer, Trustee or Fiscal
Agent, and interest thereon and expenses paid by the Trust Fund with respect to
such Mortgage Loan.
If at any time following the establishment of a Collateral Account and
prior to the disposition of the Specially Serviced Mortgage Loan or Mortgaged
Property, the Mortgaged Property suffers a hazard loss that results in the
Mortgaged Property not being rebuilt and payments to the Trustee are made under
the related hazard insurance policy, the Servicer shall pay all amounts on
deposit in the Collateral Account to the Directing Holders. In addition, after
amounts required to be deposited in the Collection Account as set forth above
have been withdrawn from the Collateral Account following foreclosure,
liquidation, disposition, purchase by Directing Holders, or if the related
Mortgage Loan is no longer a Specially Serviced Mortgage Loan for nine
consecutive months, any remaining amounts in the Collateral Account shall be
released to the Directing Holders.
(g) Until the disposition of the Specially Serviced Mortgage Loan
or Mortgaged Property as to which Directing Holders have provided Instructions
or the cure of such default, no P&I Advances shall be made in respect of
amounts otherwise distributable to the Class of the Directing Holders in
respect of such Mortgage Loan. The Trustee shall notify the Servicer at least
five Business Days prior to the Servicer Remittance Date of the amount of
distributions to be made to the Directing Holders on the related Distribution
Date.
(h) The Special Servicer shall provide copies of any modifications
or extensions to each Rating Agency. All modifications, waivers, amendments
and other actions entered into or taken in respect of the Mortgage Loans
pursuant to this Section 3.30 shall be in writing. The Special Servicer shall
notify the Servicer and the Trustee, in writing, of any modification, waiver,
amendment or other action entered into or taken in respect of any Mortgage Loan
pursuant to this Section 3.30, prior to the effective date thereof and the date
as of which the related modification, waiver or amendment is to take effect,
and shall deliver to the Trustee or the related Custodian for deposit in the
related Mortgage File (with a copy to the Servicer) an original counterpart of
the agreement relating to such modification, waiver, amendment or other action,
promptly (and in any event within 10 Business Days) following the execution
thereof. Following the execution of any modification, waiver or amendment
agreed to by the Special Servicer pursuant to the clause (a) or (b)(i) above,
the Special Servicer shall deliver to the Trustee (with a copy to the Servicer)
an Officer's Certificate setting forth in reasonable detail the basis of the
determination made by it pursuant to clause (a) or (b)(i) above.
(i) If a modification, waiver or amendment results, in and of
itself, in the withdrawal, downgrade or qualification of any of the then-
current ratings assigned to any Class of Certificates (not including the Class
of Certificates, if any, that consented to such actions), then the Special
Servicer shall be terminated and shall be replaced pursuant to Section 7.02.
(j) Any payment of interest which is deferred as described herein
shall not, for purposes, including, without limitation, of calculating monthly
distributions to Certificateholders, be added to the unpaid principal balance
of the related Mortgage Loan, notwithstanding that the terms of such Mortgage
Loan so permit or that such interest may actually be capitalized.
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(k) Except as otherwise specifically provided for herein, (i) the
Special Servicer shall not modify any payment term of any Mortgage Loan,
consent to the release or substitution of any collateral for such Mortgage Loan
or otherwise alter, delete or add, in whole or in part, any legal right or
obligation of the Borrower or the Trustee as holder of such Mortgage Loan,
unless such modification would not be a "significant modification" as such term
is defined in Code Section 1001 and applicable Treasury Regulations thereunder
or Treasury Regulations Section 1.860G-2(b)(3) and (ii) the Servicer shall not
be entitled or required to modify, amend or extend any provision of any
Mortgage Loan.
ARTICLE IV.
DISTRIBUTIONS TO CERTIFICATEHOLDERS
SECTION 4.01. Distributions.
(a) On each Distribution Date, to the extent of Available Funds,
amounts held in the Distribution Account shall be withdrawn and paid in the
following amounts:
(i) First, pro rata, from Available Funds in respect of
interest:
(A) to the Class _______ Interest, up to an
amount equal to interest for the related Interest Accrual Period at
the Class _____A Pass-Through Rate on the Certificate Balance of the
Class ______L Interest;
(B) [Describe remaining distributions]
(ii) Second, pro rata, from Available Funds in respect of
interest:
(A) to the Class ______ Interest, up to an amount
equal to the aggregate unpaid Interest Shortfalls in respect of clause
(i)(A) previously allocated thereto in respect of the Certificate
Balance of the Class _______ Interest;
(B) [Described remaining distributions]
(iii) Third, prior to the Cross-over Date, to the Class
_____ Interest, in reduction of the Certificate Balance thereof, an amount up
to the Principal Distribution Amount until the Certificate Balance thereof is
reduced to zero;
(iv) Fourth, prior to the Cross-over Date and after the
Certificate Balance of the Class ______ Interest has been reduced to zero, to
the Class _____ Interest, in reduction of the Certificate Balance thereof, the
Principal Distribution Amount less the portion thereof distributed on such
Distribution Date pursuant to any preceding clause, until the Certificate
Balance thereof is reduced to zero;
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(v) Fifth, [describe additional distributions] to the
Class LR Certificates, but only to the extent of Available Funds remaining in
the Distribution Account.
All references to "pro rata" in each of the preceding clauses in
respect of interest or Interest Shortfalls shall mean pro rata based on the
amount distributable pursuant to such clause. All references to "pro rata" in
the preceding clauses in respect of distribution of principal other than for
unreimbursed Realized Losses shall mean pro rata based upon the respective
Certificate Balances of the Lower-Tier Regular Interests receiving
distributions pursuant to such clause. All references to "pro rata" of the
preceding clauses in respect of unreimbursed Realized Losses shall mean pro
rata based on the amount of unreimbursed Realized Losses in respect of such
clauses.
(b) On each Distribution Date, amounts distributed to the Lower-
Tier Regular Interests pursuant to Section 4.01(a) shall be deposited in the
Upper-Tier Distribution Account.
On each Distribution Date, Holders of each Class of Certificates
(other than the Class LR Certificates) shall receive distributions from amounts
on deposit in the Upper-Tier Distribution Account in respect of interest and
principal in the amounts and in the order of priority set forth below, to the
extent corresponding amounts of interest and principal were distributed
pursuant to Section 4.01(a):
(i) [Describe]
(ii) _____________, to the Class R Certificates, but only
to the extent of funds, if any, remaining in the Upper-Tier Distribution
Account.
On each Distribution Date, amounts received on a Mortgage Loan that
represent Subordinate Class Advance Recoveries shall be allocated by the
Trustee to the Class of Certificates and the Related Lower-Tier Regular
Interest that advanced the related Subordinate Class Advance Amount in respect
of the distributions to which such Class of Certificates and Related Lower-Tier
Regular Interest were entitled on the Distribution Date on which such
distributions were reduced by such Subordinate Class Advance Amount. Amounts
allocated with respect to interest shall be applied, first, to any related
unpaid Interest Shortfalls or Class Interest Shortfalls. On each Distribution
Date, the Paying Agent shall distribute Subordinate Class Advance Recoveries
allocated to the related Class of Certificates and Related Lower-Tier Regular
Interest pursuant to this paragraph to such Class and Related Lower-Tier
Regular Interest.
All references to pro rata in the preceding clauses with respect to
interest and Interest Shortfalls shall mean pro rata based on the amount
distributable pursuant to such clauses, with respect to distribution of
principal other than for unreimbursed Realized Losses shall mean pro rata based
on Certificate Balance and with respect to distributions with respect to
unreimbursed Realizes Losses shall mean pro rata based on the amount of
unreimbursed Realized Losses previously allocated to the applicable Classes.
(c) (i) On each Distribution Date, following the distribution
from the Distribution Account in respect of the Lower-Tier Regular Interests
pursuant to Section 4.01(c)(ii), the Paying Agent shall make distributions of
Prepayment Premiums with respect to any Principal Prepayments
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received in the related Collection Period from amounts deposited in the Upper-
Tier Distribution Account pursuant to Section 3.05(c) in the following amounts
and order of priority, with respect to the Certificates of each Class in each
case to the extent remaining amounts of Prepayment Premiums are available
therefor:
(I) [List and describe]
In all clauses above, Prepayment Premiums will only be distributed on
a Distribution Date (i) if the respective Certificate Balance or Notional
Balance of the related Class or Classes is greater than zero on the last
business day of the Interest Accrual Period preceding such Distribution Date
and (ii) if the amount computed pursuant to the related clause above is greater
than zero. Any Prepayment Premiums remaining following the distributions
described in the preceding clauses (I) through (V) shall be distributed to
holders of the Class _____ Certificates regardless of whether the Certificate
Balance thereof has been reduced to zero.
Notwithstanding the foregoing, Prepayment Premiums shall be
distributed on any Distribution Date only to the extent they are received in
respect of the Mortgage Loans in the related Collection Period.
(ii) [Reserved.]
(d) (i) On each Distribution Date, Net Default Interest for such
Distribution Date shall be distributed to the Class V-1 Certificates.
(ii) On any applicable Distribution Date, Excess Interest for
such Distribution Date shall be distributed to the Class V-2 Certificates.
(e) The Certificate Balances of the Lower-Tier Regular Interests
will be reduced without distribution on any Distribution Date as a write-off to
the extent of any Realized Losses with respect to such date. Any such write-
offs will be applied to the Lower-Tier Regular Interests: first, to the Class
_____ and Class _____ Interests, pro rata, based on their respective
Certificate Balances; second to the Class _____ Interest; third, to the Class
_____ Interest; fourth, to the Class _____ Interest, fifth, to the _____
Interest; sixth, to the Class _____ Interest; seventh, to the Class _____
Interest; eighth, to the Class _____ Interest; ninth, to the Class _____
Interest; and tenth, to the Class _____, Class _____ and Class _____ Interests,
pro rata, based on their respective Balances.
Realized Losses applied to each Class of Lower-Tier Regular Interests
will be allocated to reduce the Certificate Balance of the Related Certificates
(and correspondingly, to reduce the Component Balances of the related
components).
(f) All amounts distributable to a Class of Certificates pursuant
to this Section 4.01 on each Distribution Date shall be allocated pro rata
among the outstanding Certificates in each such Class based on their respective
Percentage Interests. Such distributions shall be made on each Distribution
Date other than the Termination Date to each Certificateholder of record on the
related Record Date by check mailed by first Class mail to the address set
forth therefor in the Certificate Register or, provided that such
Certificateholder holds Certificates with an aggregate initial
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Certificate Balance in excess of $5,000,000, and shall have provided the Paying
Agent with wire instructions in writing at least five Business Days prior to
the related Record Date, by wire transfer of immediately available funds to the
account of such Certificateholder at a bank or other entity located in the
United States and having appropriate facilities therefor. The final
distribution on each Certificate shall be made in like manner, but only upon
presentment and surrender of such Certificate at the office of the Trustee or
its agent (which may be the Paying Agent or the Certificate Registrar acting as
such agent) maintained in the ______________________ that is specified in the
notice to Certificateholders of such final distribution.
(g) Except as otherwise provided in Section 9.01 with respect to
an Anticipated Termination Date, the Trustee shall, no later than the fifteenth
day of the month in the month preceding the month in which the final
distribution with respect to any Class of Certificates is expected to be made,
mail to each Holder of such Class of Certificates, on such date a notice to the
effect that:
(A) the Trustee reasonably expects based upon information
previously provided to it that the final distribution with respect to such
Class of Certificates will be made on such Distribution Date, but only upon
presentation and surrender of such Certificates at the office of the Trustee
therein specified, and
(B) if such final distribution is made on such
Distribution Date, no interest shall accrue on such Certificates from and after
such Distribution Date;
provided, however, that the Class V-1, Class V-2, Class R and Class LR
Certificates shall remain outstanding until there is no other Class of
Certificates or Lower-Tier Regular Interests outstanding.
Any funds not distributed to any Holder or Holders of Certificates of
such Class on such Distribution Date because of the failure of such Holder or
Holders to tender their Certificates shall, on such date, be set aside and held
in trust for the benefit of the appropriate non-tendering Holder or Holders.
If any Certificates as to which notice has been given pursuant to this Section
4.01(g) shall not have been surrendered for cancellation within six months
after the time specified in such notice, the Trustee shall mail a second notice
to the remaining non-tendering Certificateholders to surrender their
Certificates for cancellation to receive the final distribution with respect
thereto. If within one year after the second notice not all of such
Certificates shall have been surrendered for cancellation, the Trustee may,
directly or through an agent, take appropriate steps to contact the remaining
non-tendering Certificateholders concerning surrender of their Certificates.
The costs and expenses of holding such funds in trust and of contacting such
Certificateholders shall be paid out of such funds. If within two years after
the second notice any such Certificates shall not have been surrendered for
cancellation, the Paying Agent shall pay to the Trustee all amounts
distributable to the Holders thereof, and the Trustee shall thereafter hold
such amounts for the benefit of such Holders until the earlier of (i) its
termination as Trustee hereunder and the transfer of such amounts to a
successor Trustee and (ii) the termination of the Trust Fund and distribution
of such amounts to the Class R Certificateholders. No interest shall accrue or
be payable to any Certificateholder on any amount held in trust hereunder or by
the Trustee as a result of such Certificateholder's failure to surrender its
Certificate(s) for final payment thereof in accordance with this Section
4.01(g). Any
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such amounts transferred to the Trustee may be invested in Permitted
Investments and all income and gain realized from investment of such funds
shall be for the benefit of the Trustee.
(h) Notwithstanding any provision in this Agreement to the
contrary, the aggregate amount distributable to each Class pursuant to this
Section 4.01 shall be reduced by the aggregate amount paid to any Person
pursuant to Section 6.03 or Section 8.05(b) and (d), such reduction to be
allocated among such Classes pro rata, based upon the respective amounts so
distributable without taking into account the provision of this Section
4.01(h). Such reduction of amounts otherwise distributable to a Class shall be
allocated first in respect of interest and second in respect of principal. For
purposes of determining Interest Shortfalls and Certificate Balances, the
amount of any such reduction so allocated to a Class shall be deemed to have
been distributed to such Class.
(i) The Component Balance of the Strip Components (other than the
Class _____ Strip Component, the Class _____ Strip Component and the Class
_____ Strip Component) shall be reduced on any Distribution Date after the
Certificate Balances of the Class _____, Class _____, Class _____, Class _____
and Class _____ Certificates have been reduced to zero to the extent of any
Delinquency Reduction Amounts or Appraisal Reduction Amounts with respect to
such Distribution Date; provided that (I) if a Delinquency and an Appraisal
Reduction Event occur on the same Distribution Date with respect to the same
Mortgage Loan, the reduction will equal the greater of the related Delinquency
Reduction Amount and the Appraisal Reduction Amount, (ii) for any Distribution
Date, the aggregate of the Delinquency Reduction Amounts may not exceed the
Component Balance of the most junior Strip Component then outstanding and (iii)
except as described in clause (i), on any Distribution Date, Appraisal
Reduction Amounts will be allocated to the applicable Component Balances prior
to Delinquency Reduction Amounts. On any Distribution Date after the
respective Certificate Balances of the Class _____, Class _____, Class _____,
Class _____ and Class _____ Certificates have been reduced to zero, any such
reductions shall be applied to the Strip Components in the following order,
until each is reduced to zero: first, to the Class _____ Strip Component,
second, to the Class _____ Strip Component, third, to the Class _____ Strip
Component, fourth, to the Class _____ Strip Component, and fifth, to the Class
_____D Strip Component. The Notional Balance of the Class _____Certificates
shall be reduced to reflect reductions in the Component Balances of the Class
_____ Strip Component, Class _____ Strip Component, Class _____ Strip
Component, Class _____ Strip Component and Class _____ Strip Component
resulting from Delinquency Reduction Amounts and Appraisal Reduction Amounts.
Any reduction of the Component Balance of a Strip Component as a result of any
Delinquency or Appraisal Reduction Event shall be reversed to the extent there
is a recovery of any or all of the Delinquency Amounts or a Realized Loss
(which results in the reduction of the Certificate Balance of the related Class
and therefore the reduction of the Component Balance of such Strip Component).
Additionally, a reversal or additional reduction shall occur to the extent that
the Servicer's Appraisal Estimate is less than or greater than the Appraisal
Reduction as adjusted to take into account a subsequent independent MAI
Appraisal. For purposes of calculating Interest Accrual Amounts, any such
reversal or additional reductions made on the Distribution Date occurring in an
Interest Accrual Period shall be deemed to have been made on the first day of
such Interest Accrual Period.
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SECTION 4.02. Statements to Certificateholders; Available
Information; Information Furnished to Financial
Market Publisher.
(a) On each Distribution Date, the Trustee shall, based on
information provided by the Servicer or provided by the Special Servicer to the
Servicer (with respect to a Specially Serviced Mortgage Loan or the servicing
responsibilities of the Special Servicer set forth herein) and subject to
receipt thereof, prepare and forward by mail to each Holder of a Certificate,
with copies to the Depositor, the Paying Agent, the Special Servicer, the
Servicer, the Rating Agencies and up to three market reporting services
designated by the Depositor, a statement as to such distribution setting forth
for each Class, as applicable:
(i) The Principal Distribution Amount and the amount of
Available Funds allocable to principal included therein;
(ii) The Class Interest Distribution Amount distributable
on such Class and any related Strip Component and the amount of Available Funds
allocable thereto, together with any Class Interest Shortfall allocable to such
Class and any related Strip Component;
(iii) The amount of any P&I Advances by the Servicer, the
Trustee or the Fiscal Agent included in the amounts distributed to
Certificateholders not reimbursed since the last Distribution Date;
(iv) The Certificate Balance or Notional Balance, as
applicable, of each Class or Strip Component after giving effect to the
distribution of amounts in respect of the Principal Distribution Amount on such
Distribution Date;
(v) Realized Losses (for such month and on a cumulative
basis) and their allocation to the Certificate Balance of any Class of
Certificates;
(vi) The Stated Principal Balance of the Mortgage Loans as
of the Due Date preceding such Distribution Date;
(vii) The number and aggregate principal balance of
Mortgage Loans (and the identity of each related Borrower) (A) delinquent one
month, (B) delinquent two months, (C) delinquent three or more months, (D) as
to which foreclosure proceedings have been commenced and (E) that otherwise
constitute Specially Serviced Mortgage Loans, and, with respect to each
Specially Serviced Mortgage Loan, the amount of Property Advances made during
the related Collection Period, the amount of the P&I Advance made on such
Distribution Date, the aggregate amount of Property Advances theretofore made
that remain unreimbursed and the aggregate amount of P&I Advances theretofore
made that remain unreimbursed;
(viii) With respect to any Mortgage Loan that became an REO
Property during the preceding calendar month, the principal balance and
appraised value (based on the most recent Updated Appraisal) of such Mortgage
Loan as of the date it became an REO Mortgage Loan;
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(ix) As of the Due Date preceding such Distribution Date
(A) for any REO Property sold during the related Collection Period, the date on
which the Special Servicer determined that a Final Recovery Determination was
made and the amount of the proceeds of such sale deposited into the Collection
Account and (B) the aggregate amount of other revenues collected by the Special
Servicer with respect to each REO Property during the related Collection Period
and credited to the Collection Account, in each case identifying such REO
Property by name;
(x) The appraised value as determined by the most recent
Updated Appraisal (or annual letter update thereof) of any REO Property;
(xi) The amount of the Servicing Fee, Trustee Fee and
Special Servicing Compensation paid with respect to such Distribution Date, and
the amount of the additional servicing compensation described in Section
3.12(a) that was received during the related Collection Period;
(xii) (A) The amount of Prepayment Premiums, if any,
received during the related Collection Period, (B) the amount of Default
Interest received during the related Collection Period and the Net Default
Interest for such Distribution Date and (C) the amount of Excess Interest, if
any, received during the related Collection Period;
(xiii) The outstanding principal balance and repurchase
price of any Mortgage Loan purchased or repurchased pursuant to Sections
2.03(d), 2.03(e), 3.18 or 9.01(c);
(xiv) The amount of Prepayment Interest Shortfalls with
respect to such Distribution Date; and
(xv) The account balance contained in the Reserve Accounts
as of the related Due Date relating to the preceding Distribution Date for each
Mortgage Loan.
In the case of information furnished pursuant to subclauses (i), (ii),
(iii), (iv), (v) and (xiii) above, the amounts shall be expressed as a dollar
amount in the aggregate for all Certificates of each applicable Class and for
each Class of Certificates with a denomination of $1,000 initial Certificate
Balance.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Holder of a Certificate (except for a Class R or Class LR
Certificate) a statement containing the information set forth in subclauses (i)
and (ii) above, aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder. Such obligation of the
Trustee shall be deemed to have been satisfied to the extent that it provided
substantially comparable information pursuant to any requirements of the Code
as from time to time in force.
On each Distribution Date, the Trustee shall forward to each Holder of
a Class R or Class LR Certificate a copy of the reports forwarded to the other
Certificateholders on such Distribution Date and a statement setting forth the
amounts, if any, actually distributed with respect to the Class R or Class LR
Certificates on such Distribution Date. Such obligation of the Trustee shall
be deemed to
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have been satisfied to the extent that it provided substantially comparable
information pursuant to any requirements of the Code as from time to time in
force.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Holder of a Class R or Class LR Certificate a statement
containing the information provided pursuant to the previous paragraph
aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the Trustee shall be
deemed to have been satisfied to the extent that it provided substantially
comparable information pursuant to any requirements of the Code as from time to
time in force.
(b) On or within two Business Days following each Distribution
Date, the Trustee shall prepare and furnish to the Financial Market Publisher
and the Underwriter, using the format and media mutually agreed upon by the
Trustee, the Financial Market Publisher and the Underwriter, the following
information regarding each Mortgage Loan and any other information reasonably
requested by the Underwriter and available to the Trustee:
(i) the Loan Number;
(ii) each related Mortgage Rate; and
(iii) the principal balance as of such Distribution Date.
The Trustee shall only be obligated to deliver the statements, reports
and information contemplated by Section 4.02(a) and 4.02(b) to the extent it
receives the necessary underlying information from the Servicer or the Special
Servicer and shall not be liable for any failure to deliver any thereof on the
prescribed due dates, to the extent caused by failure to receive timely such
underlying information. Nothing herein shall obligate the Trustee, the
Servicer or the Special Servicer to violate any applicable law prohibiting
disclosure of information with respect to any Borrower and the failure of the
Trustee, the Servicer or the Special Servicer to disseminate information for
such reason shall not be a breach hereof.
SECTION 4.03. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the Paying
Agent shall comply with all federal withholding requirements with respect to
payments to Certificateholders of interest or original issue discount that the
Paying Agent reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for any such withholding. The Paying
Agent agrees that it will not withhold with respect to payments of interest or
original issue discount in the case of a Certificateholder that is non-U.S.
Person that has furnished or caused to be furnished (i) an effective Form W-8
or Form W-9 or an acceptable substitute form or a successor form and who is not
a "10-percent shareholder" within the meaning of Code Section 871(h)(3)(B) or a
"controlled foreign corporation" described in Code Section 881(c)(3)(C) with
respect to the Trust Fund or the Depositor, or (ii) an effective Form 4224 or
an acceptable substitute form or a successor form. In the event the Paying
Agent or its agent withholds any amount from interest or original issue
discount payments or advances thereof to any Certificateholder pursuant to
federal withholding requirements,
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the Paying Agent shall indicate the amount withheld to such Certificateholder.
Any amount so withheld shall be treated as having been distributed to such
Certificateholder for all purposes of this Agreement.
SECTION 4.04. REMIC Compliance.
(a) The parties intend that each of the Upper-Tier REMIC and the
Lower-Tier REMIC shall constitute, and that the affairs of each of the Upper-
Tier REMIC and the Lower-Tier REMIC shall be conducted so as to qualify it as,
a "real estate mortgage investment conduit" as defined in, and in accordance
with, the REMIC Provisions, and the provisions hereof shall be interpreted
consistently with this intention. In furtherance of such intention, the
Trustee shall, to the extent permitted by applicable law, act as agent, and is
hereby appointed to act as agent, of each of the Upper-Tier REMIC and the
Lower-Tier REMIC and shall on behalf of each of the Upper-Tier REMIC and the
Lower-Tier REMIC: (i) prepare, sign and file, or cause to be prepared and
filed, all required Tax Returns for each of the Upper-Tier REMIC and the Lower-
Tier REMIC, using a calendar year as the taxable year for each of the Upper-
Tier REMIC and the Lower-Tier REMIC when and as required by the REMIC
Provisions and other applicable federal, state or local income tax laws; (ii)
make an election, on behalf of each of the Upper-Tier REMIC and the Lower-Tier
REMIC, to be treated as a REMIC on Form 1066 for its first taxable year, in
accordance with the REMIC Provisions; (iii) prepare and forward, or cause to be
prepared and forwarded, to the Certificateholders and the Internal Revenue
Service and applicable state and local tax authorities all information reports
as and when required to be provided to them in accordance with the REMIC
Provisions of the Code; (iv) if the filing or distribution of any documents of
an administrative nature not addressed in clauses (i) through (iii) of this
Section 4.05(a) is then required by the REMIC Provisions in order to maintain
the status of the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC or is
otherwise required by the Code, prepare, sign and file or distribute, or cause
to be prepared and signed and filed or distributed, such documents with or to
such Persons when and as required by the REMIC Provisions or the Code or
comparable provisions of state and local law; (v) within thirty days of the
Closing Date, furnish or cause to be furnished to the Internal Revenue Service,
on Form 8811 or as otherwise may be required by the Code, the name, title and
address of the Person that the holders of the Certificates may contact for tax
information relating thereto (and the Trustee shall act as the representative
of each of the Upper-Tier REMIC and the Lower-Tier REMIC for this purpose),
together with such additional information as may be required by such Form, and
shall update such information at the time or times and in the manner required
by the Code (and the Depositor agrees within 10 Business Days of the Closing
Date to provide any information reasonably requested by the Servicer, the
Special Servicer or the Trustee and necessary to make such filing); and (vi)
maintain such records relating to each of the Upper-Tier REMIC and the Lower-
Tier REMIC as may be necessary to prepare the foregoing returns, schedules,
statements or information, such records, for federal income tax purposes, to be
maintained on a calendar year and on an accrual basis. The Holder of the
largest Percentage Interest in the Class R or Class LR Certificates shall be
the tax matters person of the Upper-Tier REMIC or the Lower-Tier REMIC,
respectively, pursuant to Treasury Regulations Section 1.860F-4(d). If more
than one Holder should hold an equal Percentage Interest in the Class R or
Class LR Certificates larger than that held by any other Holder, the first such
Holder to have acquired such Class R or Class LR Certificates shall be such tax
matters person. The Trustee shall act as attorney-in-fact and agent for the
tax matters person of each of the Upper-Tier REMIC and Lower-Tier REMIC, and
each Holder of a Percentage Interest in the Class
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R or Class LR Certificates, by acceptance hereof, is deemed to have consented
to the Trustee's appointment in such capacity and agrees to execute any
documents required to give effect thereto, and any fees and expenses incurred
by the Trustee in connection with any audit or administrative or judicial
proceeding shall be paid by the Trust Fund. The Trustee shall not
intentionally take any action or intentionally omit to take any action if, in
taking or omitting to take such action, the Trustee knows that such action or
omission (as the case may be) would cause the termination of the REMIC status
of the Upper-Tier REMIC or the Lower-Tier REMIC or the imposition of tax on the
Upper-Tier REMIC or the Lower-Tier REMIC (other than a tax on income expressly
permitted or contemplated to be received by the terms of this Agreement).
Notwithstanding any provision of this paragraph to the contrary, the Trustee
shall not be required to take any action that the Trustee in good faith
believes to be inconsistent with any other provision of this Agreement, nor
shall the Trustee be deemed in violation of this paragraph if it takes any
action expressly required or authorized by any other provision of this
Agreement, and the Trustee shall have no responsibility or liability with
respect to any act or omission of the Depositor, the Servicer or the Special
Servicer which does not enable the Trustee to comply with any of clauses (i)
through (vi) of the fifth preceding sentence or which results in any action
contemplated by clauses (i) or (ii) of the next succeeding sentence. In this
regard the Trustee shall (i) exercise reasonable care not to allow the
occurrence of any "prohibited transactions" within the meaning of Code Section
860F(a), unless the party seeking such action shall have delivered to the
Trustee an Opinion of Counsel (at such party's expense) that such occurrence
would not (A) result in a taxable gain, (B) otherwise subject the Upper-Tier
REMIC or Lower-Tier REMIC to tax (other than a tax at the highest marginal
corporate tax rate on net income from foreclosure property), or (C) cause
either the Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify as a REMIC;
and (ii) exercise reasonable care not to allow the Trust Fund to receive income
from the performance of services or from assets not permitted under the REMIC
Provisions to be held by a REMIC (provided, however, that the receipt of any
income expressly permitted or contemplated by the terms of this Agreement shall
not be deemed to violate this clause). None of the Servicer, the Special
Servicer and the Depositor shall be responsible or liable (except in connection
with any act or omission referred to in the two preceding sentences) for any
failure by the Trustee to comply with the provisions of this Section 4.04. The
Depositor, the Servicer and the Special Servicer shall cooperate in a timely
manner with the Trustee in supplying any information within the Depositor's,
the Servicer's or the Special Servicer's control (other than any confidential
information) that is reasonably necessary to enable the Trustee to perform its
duties under this Section 4.04.
(b) The following assumptions are to be used for purposes of
determining the anticipated payments of principal and interest for calculating
the original yield to maturity and original issue discount with respect to the
Regular Certificates: (i) each Mortgage Loan will pay principal and interest
in accordance with its terms and scheduled payments will be timely received on
their Due Dates, provided that the Mortgage Loans in the aggregate will prepay
in accordance with the Prepayment Assumption; (ii) none of the Servicer, the
Depositor and the Class LR Certificateholders will exercise the right described
in Section 9.01 of this Agreement to cause early termination of the Trust Fund;
and (iii) no Mortgage Loan is repurchased by the Mortgage Loan Seller, the
Depositor or an Mortgage Loan Seller pursuant to Article II hereof.
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SECTION 4.05. Imposition of Tax on the Trust Fund.
In the event that any tax, including interest, penalties or
assessments, additional amounts or additions to tax, is imposed on the Upper-
Tier REMIC or Lower-Tier REMIC, such tax shall be charged against amounts
otherwise distributable to the Holders of the Certificates; provided, that any
taxes imposed on any net income from foreclosure property pursuant to Code
Section 860G(d) or any similar tax imposed by a state or local jurisdiction
shall instead be treated as an expense of the related REO Property in
determining Net REO Proceeds with respect to the REO Property (and until such
taxes are paid, the Special Servicer from time to time shall withdraw from the
REO Account and transfer to the Trustee amounts reasonably determined by the
Trustee to be necessary to pay such taxes, which the Trustee shall maintain in
a separate, non-interest-bearing account, and the Trustee shall deposit in the
Collection Account the excess determined by the Trustee from time to time of
the amount in such account over the amount necessary to pay such taxes) and
shall be paid therefrom; provided that any such tax imposed on net income from
foreclosure property that exceeds the amount in any such reserve shall be
retained from Available Funds as provided in Section 3.06(viii) and the next
sentence. Except as provided in the preceding sentence, the Trustee is hereby
authorized to and shall retain or cause to be retained from Available Funds
sufficient funds to pay or provide for the payment of, and to actually pay,
such tax as is legally owed by the Upper-Tier REMIC or Lower-Tier REMIC (but
such authorization shall not prevent the Trustee from contesting, at the
expense of the Trust Fund, any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings). The Trustee is hereby authorized to and shall segregate or
cause to be segregated, into a separate non-interest bearing account, (i) the
net income from any "prohibited transaction" under Code Section 860F(a) or (ii)
the amount of any contribution to the Upper-Tier REMIC or Lower-Tier REMIC
after the Startup Day that is subject to tax under Code Section 860G(d) and use
such income or amount, to the extent necessary, to pay such tax (and return the
balance thereof, if any, to the Collection Account or the Upper-Tier
Distribution Account, as the case may be). To the extent that any such tax is
paid to the Internal Revenue Service, the Trustee shall retain an equal amount
from future amounts otherwise distributable to the Holders of the Class R or
the Class LR Certificates as the case may be, and shall distribute such
retained amounts to the Holders of Regular Certificates or Lower-Tier Regular
Interests, as applicable, until they are fully reimbursed and then to the
Holders of the Class R Certificates or the Class LR Certificates, as
applicable. Neither the Servicer, the Special Servicer nor the Trustee shall
be responsible for any taxes imposed on the Upper-Tier REMIC or Lower-Tier
REMIC except to the extent such tax is attributable to a breach of a
representation or warranty of the Servicer, the Special Servicer or the
Trustee or an act or omission of the Servicer, the Special Servicer or the
Trustee in contravention of this Agreement in both cases, provided, further,
that such breach, act or omission could result in liability under Section 6.03,
in the case of the Servicer or Section 4.04 or 8.01, in the case of the
Trustee. Notwithstanding anything in this Agreement to the contrary, in each
such case, the Servicer or the Special Servicer shall not be responsible for
Trustee's breaches, acts or omissions, and the Trustee shall not be responsible
for the breaches, acts or omissions of the Servicer or the Special Servicer.
SECTION 4.06. Remittances; P&I Advances.
(a) "Applicable Monthly Payment" shall mean, for any Mortgage Loan
with respect to any month, (A) if such Mortgage Loan is delinquent as to its
Balloon Payment (including any such
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Mortgage Loan as to which the related Mortgaged Property has become an REO
Property), the related Assumed Scheduled Payment, (B) if such Mortgage Loan has
been extended in accordance with the terms and conditions otherwise set forth
in this Agreement, the Minimum Defaulted Monthly Payment and (C) if such
Mortgage Loan is not described by the preceding two sentences (including any
such Mortgage Loan as to which the related Mortgaged Property has become an REO
Property), the Monthly Payment (after giving effect to any modification other
than as described in (A) or (B) above); provided, however, that for purposes of
calculating the amount of any P&I Advance required to be made by the Servicer,
the Trustee or the Fiscal Agent, notwithstanding the amount of such Applicable
Monthly Payment, interest shall be calculated at the Mortgage Pass-Through
Rate. The Applicable Monthly Payment shall be reduced, for purposes of P&I
Advances, by any modifications pursuant to Section 3.30 or otherwise and by any
reductions by a bankruptcy court pursuant to a plan of reorganization or
pursuant to any of its equitable powers.
(b) On the Servicer Remittance Date immediately preceding each
Distribution Date, the Servicer shall:
(i) remit to the Trustee for deposit in the Distribution
Account an amount equal to the Prepayment Premiums received by the Servicer or
Special Servicer in the Collection Period preceding such Distribution Date;
(ii) remit to the Trustee for deposit in the Distribution
Account an amount equal to the aggregate of the Available Funds (other than P&I
Advances) and Subordinate Class Advance Recoveries for such Distribution Date;
(iii) make a P&I Advance, by deposit into the Distribution
Account, in an amount equal to the sum of the Applicable Monthly Payments for
each Mortgage Loan to the extent such amounts were not received on such
Mortgage Loan as of the close of business on the day preceding the Servicer
Remittance Date (and therefore are not included in the remittance described in
the preceding clause (ii)).
(c) Notwithstanding the provisions of Section 4.06(b)(iii), the
Servicer may reduce the aggregate amount of P&I Advances to be deposited by the
Servicer on the related Servicer Remittance Date by the amount the Servicer is
not required to advance pursuant to clauses (d) and (e) below. The Trustee
shall provide to the Servicer written statements prior to the Servicer
Remittance Date listing (i) the aggregate Reduction Interest Distribution
Amounts and Reduction Interest Shortfalls for such Distribution Date and (ii)
distribution due to the Holders of the most subordinate Class of Certificates
and the Related Lower-Tier and Regular Interests.
(d) Unless the related Delinquency is cured prior to the following
Due Date, the Servicer shall make only one P&I Advance in respect of a
Delinquency on any Mortgage Loan for the benefit of the most subordinate Class
of Certificates and the Related Lower-Tier Regular Interests then outstanding
and, accordingly, the Servicer may reduce the aggregate amount of the P&I
Advance to be deposited by the Servicer on the related Servicer Remittance Date
by the amount that the Servicer is not required to advance. On the Servicer
Remittance Date on which the Servicer is not required to make a P&I Advance for
the benefit of the most subordinate Class and the Related Lower-Tier Regular
Interests as described above, for each Mortgage Loan for which a Delinquency
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has occurred the amount of the P&I Advance with respect to such Servicer
Remittance Date that the Servicer will not advance will be equal to (i) the
amount that would be distributable to the most subordinate Class if the Monthly
Payment or Minimum Defaulted Monthly Payment for every Mortgage Loan had been
received less (ii) the amount that would be distributable to the most
subordinate Class if the Monthly Payment or Minimum Defaulted Monthly Payment
for every Mortgage Loan other than such Mortgage Loan had been received. In
addition, on any Servicer Remittance Date on which the Servicer is not required
to make a P&I Advance for the benefit of the most subordinate Class and the
Related Lower-Tier Regular Interests as described above, if the Servicer does
make a P&I Advance that includes amounts payable to the most subordinate Class
and the Related Lower-Tier Regular Interests, the Servicer shall, immediately
subsequent to the making of the P&I Advance on such Servicer Remittance Date,
reimburse itself (without interest) for the portion of such P&I Advance
allocable to the most subordinate Class from amounts otherwise distributable to
such most subordinate Class on the related Distribution Date (such amount of
reimbursement, the "Subordinate Class Advance Amount"). For the purposes of
determining amounts to which the most subordinate Class and the Related Lower-
Tier Regular Interests are entitled as reimbursements from Subordinate Class
Advance Recoveries with respect to a Mortgage Loan, each Subordinate Class
Advance Amount with respect to a Distribution Date shall be related to each
Mortgage Loan for which a Delinquency has occurred on the prior Due Date pro
rata based on the amount by which the related P&I Advance could be reduced with
respect to such Mortgage Loan in accordance with the second preceding sentence.
No interest shall accrue on, or be payable with respect to, any outstanding
Subordinate Class Advance Amount.
(e) The Servicer shall not be required or permitted to make an
advance for Excess Interest or Default Interest or in respect of Reduction
Interest Distribution Amounts and Reduction Interest Shortfalls. The amount
required to be advanced by the Servicer in respect of Applicable Monthly
Payments on Mortgage Loans that have been subject to an Appraisal Reduction
Event will equal the product of (i) the amount required to be advanced by the
Servicer without giving effect to such Appraisal Reduction Amounts and (ii) a
fraction, the numerator of which is the Stated Principal Balance of the
Mortgage Loan less any Appraisal Reduction Amounts thereof and the denominator
of which is the Stated Principal Balance.
(f) Any amount advanced by the Servicer pursuant to Section
4.06(b)(iii) shall constitute a P&I Advance for all purposes of this Agreement
and the Servicer shall be entitled to reimbursement thereof to the full extent
as otherwise set forth in this Agreement.
(g) If as of 11:00 a.m., New York City time, on any Distribution
Date the Servicer shall not have made the P&I Advance required to have been
made on the related Servicer Remittance Date pursuant to Section 4.06(b)(iii),
the Trustee shall immediately notify the Fiscal Agent by telephone promptly
confirmed in writing, and the Trustee shall no later than 12:00 noon, New York
City time, on such Business Day deposit into the Distribution Account in
immediately available funds an amount equal to the P&I Advances otherwise
required to have been made by the Servicer. If the Trustee fails to make any
P&I Advance required to be made under this Section 4.06, the Fiscal Agent shall
make such P&I Advance not later than 2:00 p.m., New York City time, on such
Business Day and, thereby, the Trustee shall not be in default under this
Agreement.
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(h) None of the Servicer, the Trustee or the Fiscal Agent shall be
obligated to make a P&I Advance as to any Monthly Payment or Assumed Scheduled
Payment or Minimum Defaulted Monthly Payment on any date on which a P&I Advance
is otherwise required to be made by this Section 4.06 if the Servicer, the
Trustee or Fiscal Agent, as applicable, determines that such advance will be a
Nonrecoverable Advance. The Servicer shall be required to provide notice to
the Trustee and the Fiscal Agent on or prior to the Servicer Remittance Date of
any such non-recoverability determination made on or prior to such date. The
Trustee and the Fiscal Agent shall be entitled to rely, conclusively, on any
determination by the Servicer that a P&I Advance, if made, would be a
Nonrecoverable Advance (and with respect to a P&I Advance, the Trustee or the
Fiscal Agent, as applicable, shall rely on the Servicer's determination that
the Advance would be a Nonrecoverable Advance if the Trustee or Fiscal Agent,
as applicable, determines that it does not have sufficient time to make such
determination); provided, however, that if the Servicer has failed to make a
P&I Advance for reasons other than a determination by the Servicer that such
Advance would be a Nonrecoverable Advance, the Trustee or Fiscal Agent, as
applicable, shall make such advance within the time periods required by Section
4.06(g) unless the Trustee or the Fiscal Agent, in good faith, makes a
determination prior to the times specified in Section 4.06(g) that such advance
would be a Nonrecoverable Advance. The Trustee and the Fiscal Agent, in
determining whether or not an Advance previously made is, or a proposed
Advance, if made, would be, a Nonrecoverable Advance shall be subject to the
standards applicable to the Servicer hereunder.
(i) The Servicer, the Trustee or the Fiscal Agent, as applicable,
shall be entitled to the reimbursement of P&I Advances it makes to the extent
permitted pursuant to Section 3.06(ii) of this Agreement together with any
related Advance Interest Amount in respect of such P&I Advances to the extent
permitted pursuant to Section 3.06(iii) and the Servicer and Special Servicer
hereby covenant and agree to promptly seek and effect the reimbursement of such
Advances from the related Borrowers to the extent permitted by applicable law
and the related Mortgage Loan.
SECTION 4.07. Grantor Trust Reporting.
The parties intend that the portions of the Trust Fund consisting of
(i) the Default Interest and the Default Interest Distribution Account and (ii)
the Excess Interest and the Excess Interest Distribution Account shall
constitute, and that the affairs of the Trust Fund (exclusive of the Trust
REMICs) shall be conducted so as to qualify such portion as a "grantor trust"
under the Code, and the provisions hereof shall be interpreted consistently
with this intention. In furtherance of such intention, the Trustee shall
furnish or cause to be furnished to Class V-1 and Class V-2 Certificateholders
and shall file or cause to be filed with the Internal Revenue Service together
with Form 1041 or such other form as may be applicable, income with respect to
their applicable share of Default Interest and the amount of any interest on
unreimbursed Advances payable to the Servicer, the Trustee and the Fiscal
Agent, as applicable, therefrom pursuant to Section 3.06(iii) in the case of
the Class V-1 Certificates, and Excess Interest in the case of the Class V-2
Certificates, at the time or times and in the manner required by the Code.
SECTION 4.08. Special Distribution Date.
(a) Upon a prepayment with respect to the _____________ Loan after
the expiration of the related Lock-out Period, the Servicer shall remit on the
Business Day preceding the related
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Special Distribution Date, the amount of the related ________ Principal, and
interest thereon, to the Trustee for deposit in the Lower-Tier Distribution
Account. The Trustee shall deposit such amount in the Lower-Tier Distribution
Account and apply such amount on the related Special Distribution Date as set
forth in clause (b) below.
ARTICLE V.
THE CERTIFICATES
SECTION 5.01. The Certificates.
(a) The Certificates will be substantially in the respective forms
annexed hereto as Exhibits. The Class ___, Class ____, Class ___, Class ___,
Class ___, Class ___, Class ___, Class ___, Class ___, Class ___, Class ___ and
Class ___ Certificates will be issuable only in minimum denominations (based on
the respective Certificate Balance each Class on the first Distribution Date or
Notional Amounts) corresponding to initial Certificate Balances or Notional
Amounts on the first Distribution Date of not less than $100,000, and integral
multiples of $1 in excess thereof. Only one Class ____, one Class ____ and one
Class _____ Certificate may be issued.
(b) The Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee in its capacity as trustee hereunder by an
authorized officer under its seal imprinted thereon. Certificates bearing the
manual or facsimile signatures of individuals who were at any time the proper
officers of the Trustee shall bind the Trustee, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Certificates or did not hold such offices
at the date of such Certificates. No Certificate shall be entitled to any
benefit under this Agreement, or be valid for any purpose, unless there appears
on such Certificate a certificate of authentication substantially in the form
provided for herein executed by the Authenticating Agent by manual signature,
and such certificate upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
(c) The Class ___, Class ___, Class ___, Class ___, Class ___,
Class ___, Class ___, Class ___ and Class ___ Certificates, Class ___, Class
___ and Class ___ Certificates shall initially be issued as one or more
Certificates registered in the name of the Depository or its nominee and,
except as provided below, registration of such Certificates may not be
transferred by the Trustee except to another Depository that agrees to hold
such Certificates for the respective Certificate Owners with Ownership
Interests therein. The Certificate Owners shall hold their respective
Ownership Interests in and to each of the referenced herein Certificates
(except for such remainders) through the book-entry facilities of the
Depository and, except as provided below, shall not be entitled to Definitive
Certificates in respect of such Ownership Interests. All transfers by
Certificate Owners of their respective Ownership Interests in the Book-Entry
Certificates shall be made in accordance with the procedures established by the
Depository Participant or brokerage firm representing such Certificate Owner.
Each Depository Participant shall transfer the Ownership Interests only in the
Book-Entry Certificates of Certificate Owners it represents or of brokerage
firms for which it acts as agent in accordance with the Depository's normal
procedures.
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The Trustee, the Servicer and the Depositor may for all purposes
(including the making of payments due on the respective Classes of Book-Entry
Certificates) deal with the Depository as the authorized representative of the
Certificate Owners with respect to the respective Classes of Book-Entry
Certificates for the purposes of exercising the rights of Certificateholders
hereunder. The rights of Certificate Owners with respect to the respective
Classes of Book-Entry Certificates shall be limited to those established by law
and agreements between such Certificate Owners and the Depository Participants
and brokerage firms representing such Certificate Owners. Multiple requests
and directions from, and votes of, the Depository as Holder of any Class of
Book-Entry Certificates with respect to any particular matter shall not be
deemed inconsistent if they are made with respect to different Certificate
Owners. The Trustee may establish a reasonable record date in connection with
solicitations of consents from or voting by Certificateholders and shall give
notice to the Depository of such record date.
If (i)(A) the Depositor advises the Trustee in writing that the
Depository is no longer willing or able to properly discharge its
responsibilities as Depository and (B) the Depositor is unable to locate a
qualified successor or (ii) the Depositor at its option advises the Trustee in
writing that it elects to terminate the book-entry system through the
Depository, the Trustee shall notify all Certificate Owners, through the
Depository, of the occurrence of any such event and of the availability of
Definitive Certificates to Certificate Owners representing the same. In
addition, upon request, the Trustee will issue Definitive Certificates in
exchange for Ownership Interests in like Certificate Balances of the Book-Entry
Certificates for the Class ___, Class ___ or Class ___ Certificates in
connection with a transfer permitted pursuant to Section 5.02(b)(ii). Upon
surrender to the Trustee of the Book-Entry Certificates by the Depository,
accompanied by registration instructions from the Depository for registration
of transfer, the Trustee shall issue the Definitive Certificates. Neither the
Depositor, the Servicer nor the Trustee shall be liable for any actions taken
by the Depository or its nominee, including, without limitation, any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Certificates all references herein to obligations imposed upon or to be
performed by the Depositor in connection with the issuance of the Definitive
Certificates pursuant to this Section 5.01 shall be deemed to be imposed upon
and performed by the Trustee, and the Trustee and the Servicer shall recognize
the Holders of the Definitive Certificates as Certificateholders hereunder.
SECTION 5.02. Registration of Transfer and Exchange of
Certificates.
(a) At all times during the term of this Agreement, there shall be
maintained at the office of the Certificate Registrar a Certificate Register in
which, subject to such reasonable regulations as the Certificate Registrar may
prescribe, the Certificate Registrar shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
The Trustee is hereby initially appointed (and hereby agrees to act) as
Certificate Registrar for the purpose of registering Certificates and transfers
and exchanges of Certificates as herein provided. The Certificate Registrar
may appoint, by a written instrument delivered to the Trustee, any other bank
or trust company to act as Certificate Registrar under such conditions as the
predecessor Certificate Registrar may prescribe, provided that the predecessor
Certificate Registrar shall not be relieved of any of its duties or
responsibilities hereunder by reason of such appointment. The Master Servicer
shall have the right to inspect the Certificate Register or to obtain a copy
thereof at all reasonable
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times, and to rely conclusively upon a certificate of the Certificate Registrar
as to the information set forth in the Certificate Register.
(b) No transfer of any Class ___, Class ___, Class ___, Class ___,
Class ___ and Class ___ Certificate shall be made unless that transfer is made
pursuant to an effective registration statement under the Act, and effective
registration or qualification under applicable state securities laws, or is
made in a transaction which does not require such registration or
qualification. If such a transfer is to be made without registration or
qualification and is to be made in connection with the issuance or transfer of
a Definitive Certificate, then the Certificate Registrar shall require, in
order to assure compliance with such laws, receipt of: (i) if such transfer is
purportedly being made in reliance upon Rule 144A under the Act, a certificate
from the prospective transferee substantially in the form attached as Exhibit D
hereto, and (ii) in all other cases, (A) except where the Depositor or an
Affiliate thereof is the transferor or transferee, an Opinion of Counsel
satisfactory to the Certificate Registrar to the effect that such transfer may
be made without such registration or qualification (which Opinion of Counsel
shall not be an expense of the Trust Fund or of the Depositor, the Servicer,
the Trustee or the Certificate Registrar in their respective capacities as
such), (B) a certificate from the Certificateholder desiring to effect such
transfer substantially in the form attached as Exhibit C hereto and (C) a
certificate from such Certificateholder's prospective transferee substantially
in the form attached as Exhibit E hereto. None of the Depositor, the Trustee
or the Certificate Registrar is obligated to register or qualify the Class ___,
Class ___, Class ___, Class ___, Class ___ and Class ___ Certificates under the
Act or any other securities law or to take any action not otherwise required
under this Agreement to permit the transfer of any Class ___, Class ___, Class
___, Class ___, Class ___ and Class ___ Certificate without registration or
qualification. Any Class ___, Class ___, Class ___, Class ___, Class ___ or
Class ___ Certificateholder desiring to effect such a transfer shall, and does
hereby agree to, indemnify the Trustee, the Certificate Registrar and the
Depositor against any liability that may result if the transfer is not so
exempt or is not made in accordance with such federal and state laws.
(c) None of the Certificates except for the Class ___, Class ___,
Class ___, Class ___, or any interest therein shall be transferred to (A) any
employee benefit plan or other retirement arrangement, 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 ERISA, or the Code (each, a "Plan") or (B) any
Person who is directly or indirectly purchasing any such Class or interest
therein on behalf of, as named fiduciary of, as trustee of, or with assets of a
Plan, unless the prospective transferee provides the Certificate Registrar with
a certification of facts and an Opinion of Counsel which establish to the
satisfaction of the Certificate Registrar that such transfer will not result in
a violation of Section 406 of ERISA or Section 4975 of the Code or cause the
Servicer or the Trustee to be deemed a fiduciary of such Plan or result in the
imposition of an excise tax under Section 4975 of the Code. In the absence of
its having received the certification and Opinion of Counsel contemplated by
the preceding sentence, the Certificate Registrar shall require the prospective
transferee of any Class ___, Class ___, Class ___, Class ___, Class ___ or
Class ___ Certificate to certify, and each prospective transferee of any Class
___, Class ___, Class ___, Class ___ or Class ___ Certificate shall be deemed
to have represented by its acquisition of such Certificate, that it is neither
(A) a Plan nor (B) a Person who is directly or indirectly purchasing any such
Class Certificates on behalf of, as named fiduciary of, as trustee of, or with
assets of a Plan.
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(d) No transfer of any Residual Certificate shall be made to a
Non-U.S. Person. Notwithstanding anything to the contrary contained herein,
prior to registration of any transfer, sale or other disposition of a Residual
Certificate, the Certificate Registrar shall have received (i) an affidavit
from the proposed transferee substantially in the form attached as Exhibit F-1
hereto, to the effect that, among other things, (A) such transferee is not a
Disqualified Organization or an agent (including a broker, nominee or
middleman) of a Disqualified Organization, (B) such transferee is not a Non-
U.S. Person, (C) such transferee has no present knowledge or expectation that
it will become insolvent or subject to a bankruptcy proceeding for so long as
the Residual Certificate remains outstanding, and (D) no purpose of such
proposed transfer, sale or other disposition of the Residual Certificate is or
will be to impede the assessment or collection of any tax, and (ii) a
certificate from the transferor substantially in the form attached as Exhibit
F-2 hereto, to the effect that, among other things, no purpose of such proposed
transfer, sale or other disposition of the Residual Certificate is or will be
to impede the assessment or collection of any tax. Notwithstanding the
registration in the Certificate Register of any transfer, sale or other
disposition of a Residual Certificate to a Disqualified Organization or an
agent (including a broker, nominee or middleman) of a Disqualified Organization
or to a Non-U.S. Person, such registration shall be deemed to be of no legal
force or effect whatsoever and such Person shall not be deemed to be a
Certificateholder for any purpose hereunder, including, but not limited to, the
receipt of distributions in respect of such Residual Certificate. If any
purported transfer of a Residual Certificate shall be in violation of the
provisions of this Section 5.02(d), then the prior Holder of the Residual
Certificate purportedly transferred shall, upon discovery, that the transfer of
such Residual Certificate was not in fact permitted by this Section 5.02(d), be
restored to all rights as Holder thereof retroactive to the date of the
purported transfer. The Trustee shall be under no liability to any Person for
any registration of transfer of a Residual Certificate that is not permitted by
this Section 5.02(d) or for making payments due on such Residual Certificate to
the purported Holder thereof or taking any other action with respect to such
purported Holder under the provisions of this Agreement. The prior Holder
shall be entitled to recover from any purported Holder of a Residual
Certificate that was in fact not a permitted transferee under this Section
5.02(d) at the time it became a Holder all payments made on such Residual
Certificate. The Holder of Residual Certificates, by its acceptance thereof,
shall be deemed for all purposes to have consented to the provisions of this
Section 5.02 and to any amendment of this Agreement deemed necessary by counsel
of the Depositor to ensure that the transfer of a Residual Certificate to a
Disqualified Organization or any other Person will not cause the Trust Fund to
cease to qualify as a REMIC or cause the imposition of a tax upon the Trust
Fund.
(e) Subject to the preceding subsections, upon surrender for
registration of transfer of any Certificate at the office of the Certificate
Registrar, the Trustee or the Authenticating Agent shall execute and
authenticate and the Certificate Registrar shall deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class of a like aggregate Percentage Interest.
(f) At the option of any Holder, its Certificates may be exchanged
for other Certificates of authorized denominations of the same Class of a like
aggregate Percentage Interest, upon surrender of the Certificates to be
exchanged at the office of the Certificate Registrar. Whenever any
Certificates are so surrendered for exchange the Trustee or the Authenticating
Agent shall execute
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and authenticate and the Certificate Registrar shall deliver the Certificates
which the Certificateholder making the exchange is entitled to receive.
(g) Every Certificate presented or surrendered for transfer or
exchange shall (if so required by the Certificate Registrar) be duly endorsed
by, or be accompanied by a written instrument of transfer in the form
satisfactory to the Certificate Registrar duly executed by, the Holder thereof
or his attorney duly authorized in writing.
(h) No service charge shall be imposed for any transfer or
exchange of Certificates, but the Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any transfer or exchange of
Certificates.
(i) All Certificates surrendered for transfer and exchange shall
be physically canceled by the Certificate Registrar and a certificate of such
cancellation shall be delivered to the Trustee by the Certificate Registrar.
The Certificate Registrar shall hold such canceled Certificates in accordance
with its standard procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Certificate Registrar receives evidence to its satisfaction
of the destruction, loss or theft of any Certificate, and (ii) there is
delivered to the Trustee and the Certificate Registrar such security or
indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Trustee or the Certificate Registrar that such
Certificate has been acquired by a bona fide purchaser, the Trustee or the
Authenticating Agent shall execute and authenticate and the Certificate
Registrar shall deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of the same Class and
like Percentage Interest. Upon the issuance of any new Certificate under this
Section, the Trustee and the Certificate Registrar may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee and the Certificate Registrar) connected therewith.
Any replacement Certificate issued pursuant to this Section shall constitute
complete and indefeasible evidence of ownership in the Trust Fund, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Depositor, the Servicer, the Special Servicer, the Trustee, the
Certificate Registrar and any agent of any of them may treat the person in
whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions pursuant to Section 4.01 and for all
other purposes whatsoever, and neither the Depositor, the Servicer, the Special
Servicer, the Trustee, the Certificate Registrar nor any agent of any of them
shall be affected by notice to the contrary.
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ARTICLE VI.
THE DEPOSITOR, THE SERVICER AND THE SPECIAL SERVICER
SECTION 6.01. Liability of the Depositor, the Servicer and the
Special Servicer.
The Depositor, the Servicer and the Special Servicer each shall be
liable in accordance herewith only to the extent of the obligations
specifically imposed by this Agreement.
SECTION 6.02. Merger or Consolidation of the Servicer.
Subject to the following paragraph, the Servicer will keep in full
effect its existence, rights and good standing as a corporation under the laws
of the State of Texas and will not jeopardize its ability to do business in
each jurisdiction in which the Mortgaged Properties are located or to protect
the validity and enforceability of this Agreement, the Certificates or any of
the Mortgage Loans and to perform its respective duties under this Agreement.
The Servicer may be merged or consolidated with or into any Person, or
transfer all or substantially all of its assets to any Person, in which case
any Person resulting from any merger or consolidation to which it shall be a
party, or any Person succeeding to its business, shall be the successor of the
Servicer hereunder, and shall be deemed to have assumed all of the liabilities
of the Servicer hereunder, if each of the Rating Agencies has confirmed in
writing that such merger or consolidation or transfer of assets and succession,
in and of itself, will not cause a downgrade, qualification or withdrawal of
the then current ratings assigned by such Rating Agency to any Class of
Certificates.
SECTION 6.03. Limitation on Liability of the Depositor, the
Servicer and Others.
Neither the Depositor, the Servicer, the Special Servicer nor any of
the directors, officers, employees or agents of the Depositor or the Servicer
or the Special Servicer shall be under any liability to the Trust Fund or the
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the
Depositor or the Servicer or the Special Servicer or any such Person against
any breach of warranties or representations made herein, or against any
liability which would otherwise be imposed by reason of willful misconduct, bad
faith, fraud or negligence in the performance of duties or by reason of
reckless disregard of obligations or duties hereunder. The Depositor, the
Servicer, the Special Servicer and any director, officer, employee or agent of
the Depositor, the Servicer or the Special Servicer may rely in good faith on
any document of any kind which, prima facie, is properly executed and submitted
by any appropriate Person respecting any matters arising hereunder. The
Depositor, the Servicer, the Special Servicer and any director, officer,
employee or agent of the Depositor or the Servicer or the Special Servicer
shall be indemnified and held harmless by the Trust Fund against any loss,
liability or expense (including legal fees and expenses) (i) incurred in
connection with any legal action relating to this Agreement or the
Certificates, other than any loss, liability or expense incurred by reason of
willful misconduct, bad faith, fraud or negligence (or in the case of the
Servicer, by reason of any specific liability imposed for a breach of the
Servicing Standard) in the performance of duties hereunder or by reason
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of reckless disregard of obligations or duties hereunder, in each case by the
Person being indemnified or (ii) imposed by any taxing authority if such loss,
liability or expense is not specifically reimbursable pursuant to the terms of
this Agreement. Neither the Depositor nor the Servicer nor the Special
Servicer shall be under any obligation to appear in, prosecute or defend any
legal action unless such action is related to its respective duties under this
Agreement and in its opinion does not expose it to any expense or liability;
provided, however, that the Depositor or the Servicer or the Special Servicer
may in its discretion undertake any action related to its obligations hereunder
which it may deem necessary or desirable with respect to this Agreement and the
rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund, and the Depositor, the Servicer and the Special
Servicer shall be entitled to be reimbursed therefor from the Collection
Account as provided in Section 3.06 of this Agreement.
SECTION 6.04. Limitation on Resignation of the Servicer and the
Special Servicer; Termination of the Servicer and the
Special Servicer.
(a) The Servicer and the Special Servicer may assign their
respective rights and delegate their respective duties and obligations under
this Agreement in connection with the sale or transfer of a substantial portion
of their mortgage servicing or asset management portfolio, provided that: (i)
the purchaser or transferee accepting such assignment and delegation (A) shall
be satisfactory to the Trustee and to the Depositor, (B) shall be an
established mortgage finance institution, bank or mortgage servicing
institution, organized and doing business under the laws of any state of the
United States or the District of Columbia, authorized under such laws to
perform the duties of a servicer of mortgage loans or a Person resulting from a
merger, consolidation or succession that is permitted under Section 6.02, (C)
shall be acceptable to each Rating Agency as confirmed by a letter from each
Rating Agency delivered to the Trustee that such assignment or delegation will
not cause a downgrade, withdrawal or qualification of the then current ratings
of the Certificates, and (D) shall execute and deliver to the Trustee an
agreement, in form and substance reasonably satisfactory to the Trustee, which
contains an assumption by such Person of the due and punctual performance and
observance of each covenant and condition to be performed or observed by the
Servicer under this Agreement from and after the date of such agreement; (ii)
as confirmed by a letter from each Rating Agency delivered to the Trustee, each
Rating Agency's rating or ratings of the Regular Certificates in effect
immediately prior to such assignment, sale or transfer will not be qualified,
downgraded or withdrawn as a result of such assignment, sale or transfer; (iii)
the Servicer or the Special Servicer shall not be released from its obligations
under this Agreement that arose prior to the effective date of such assignment
and delegation under this Section 6.04; and (iv) the rate at which the Servicer
Compensation or Special Servicer Compensation, as applicable (or any component
thereof) is calculated shall not exceed the rate then in effect. Upon
acceptance of such assignment and delegation, the purchaser or transferee shall
be the successor Servicer or Special Servicer, as applicable, hereunder.
(b) Except as provided in this Section 6.04, the Servicer and the
Special Servicer shall not resign from their respective obligations and duties
hereby imposed on them except upon determination that such duties hereunder are
no longer permissible under applicable law. Any such determination permitting
the resignation of the Servicer or the Special Servicer, as applicable, shall
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be evidenced by an Opinion of Counsel (obtained at the resigning Servicer's or
Special Servicer's expense) to such effect delivered to the Trustee.
(c) Certificateholders representing in the aggregate at least 51%
of the Voting Rights of all Certificateholders may remove the Servicer and the
Special Servicer upon the occurrence of an Event of Default under this
Agreement, upon written notice to the Servicer, the Special Servicer, the
Depositor and the Trustee, provided that each Rating Agency has confirmed in
writing that such removal will not result in a downgrade, qualification or
withdrawal of the then current ratings by such Rating Agency to any Class of
Certificates. Without limiting the generality of the succeeding paragraph, no
such removal shall be effective unless and until (i) the Servicer or the
Special Servicer has been paid any unpaid Servicer Compensation or Special
Servicer Compensation, as applicable, unreimbursed Advances (including Advance
Interest Amounts thereon to which it is entitled) and all other amounts to
which the Servicer or the Special Servicer is entitled hereunder to the extent
such amounts accrue prior to such effective date and (ii) with respect to a
resignation by the Servicer, the successor Servicer has deposited into the
Investment Accounts from which amounts were withdrawn to reimburse the
terminated Servicer, an amount equal to the amounts so withdrawn, to the extent
such amounts would not have been permitted to be withdrawn except pursuant to
this paragraph, in which case the successor Servicer shall, immediately upon
deposit, have the same right of reimbursement or payment as the terminated
Servicer had immediately prior to its termination without regard to the
operation of this paragraph.
No resignation or removal of the Servicer or the Special Servicer as
contemplated by the preceding paragraphs shall become effective until the
Trustee or a successor Servicer or Special Servicer shall have assumed the
Servicer's or the Special Servicer's responsibilities, duties, liabilities and
obligations hereunder. If no successor Servicer or Special Servicer can be
obtained to perform such obligations for the same compensation to which the
terminated Servicer or Special Servicer would have been entitled, additional
amounts payable to such successor Servicer or Special Servicer shall be treated
as Realized Losses.
SECTION 6.05. Rights of the Depositor and the Trustee in Respect of
the Servicer and the Special Servicer.
The Servicer and the Special Servicer shall afford the Depositor, the
Trustee and the Rating Agencies, upon reasonable notice, during normal business
hours access to all records maintained by it in respect of its rights and
obligations hereunder and access to its officers responsible for such
obligations. Upon request, the Servicer and the Special Servicer shall furnish
to the Depositor, Servicer, Special Servicer and the Trustee its most recent
financial statements (or in the case of the Servicer or Special Servicer, the
financial statements of AMRESCO INC. if no separate financial statements have
been prepared for the Servicer or Special Servicer) and such other information
in its possession regarding its business, affairs, property and condition,
financial or otherwise as the party requesting such information, in its
reasonable judgment, determines to be relevant to the performance of the
obligations hereunder of the Servicer and the Special Servicer. The Depositor
may, but is not obligated to, enforce the obligations of the Servicer or the
Special Servicer hereunder which are in default and may, but is not obligated
to, perform, or cause a designee to perform, any defaulted obligation of such
Person hereunder or exercise its rights hereunder, provided that the Servicer
and the Special Servicer shall not be relieved of any of its obligations
hereunder by virtue
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of such performance by the Depositor or its designee. In the event the
Depositor or its designee undertakes any such action it will be reimbursed by
the Trust Fund from the Collection Account as provided in Section 3.06 and
Section 6.03(a) hereof to the extent not recoverable from the Servicer or
Special Servicer, as applicable. Neither the Depositor nor the Trustee and
neither the Servicer, with respect to the Special Servicer, nor the Special
Servicer, with respect to the Servicer, shall have any responsibility or
liability for any action or failure to act by the Servicer or the Special
Servicer and neither such Person is obligated to monitor or supervise the
performance of the Servicer or the Special Servicer under this Agreement or
otherwise. Neither the Servicer nor the Special Servicer shall be under any
obligation to disclose confidential or proprietary information pursuant to this
Section.
SECTION 6.06. Servicer or Special Servicer as Owner of a
Certificate.
The Servicer or an Affiliate of the Servicer or the Special Servicer
or an Affiliate of the Special Servicer may become the Holder (or with respect
to a Global Certificate, Beneficial Owner) of any Certificate with the same
rights it would have if it were not the Servicer or the Special Servicer or an
Affiliate thereof. If, at any time during which the Servicer or the Special
Servicer or an Affiliate of the Servicer or the Special Servicer is the Holder
or Beneficial Owner of any Certificate, the Servicer or the Special Servicer
proposes to take action (including for this purpose, omitting to take action)
that (i) is not expressly prohibited by the terms hereof and would not, in the
Servicer's or the Special Servicer's good faith judgment, violate the Servicing
Standard, and (ii) if taken, might nonetheless, in the Servicer's or the
Special Servicer's good faith judgment, be considered by other Persons to
violate the Servicing Standard, the Servicer or the Special Servicer may seek
the approval of the Certificateholders to such action by delivering to the
Trustee a written notice that (i) states that it is delivered pursuant to this
Section 6.06, (ii) identifies the Percentage Interest in each Class of
Certificates beneficially owned by the Servicer or the Special Servicer or an
Affiliate of the Servicer or the Special Servicer, and (iii) describes in
reasonable detail the action that the Servicer or the Special Servicer proposes
to take. The Trustee, upon receipt of such notice, shall forward it to the
Certificateholders (other than the Servicer and its Affiliates or the Special
Servicer and its Affiliates, as appropriate) together with such instructions
for response as the Trustee shall reasonably determine. If at any time
Certificateholders holding greater than 50% of the Voting Rights of all
Certificateholders (calculated without regard to the Certificates beneficially
owned by the Servicer or its Affiliates or the Special Servicer or its
Affiliates) shall have consented in writing to the proposal described in the
written notice, and if the Servicer or the Special Servicer shall act as
proposed in the written notice, such action shall be deemed to comply with the
Servicing Standard. The Trustee shall be entitled to reimbursement from the
Servicer or the Special Servicer, as applicable, of the reasonable expenses of
the Trustee incurred pursuant to this paragraph. It is not the intent of the
foregoing provision that the Servicer or the Special Servicer be permitted to
invoke the procedure set forth herein with respect to routine servicing matters
arising hereunder, except in the case of unusual circumstances.
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ARTICLE VII.
DEFAULT
SECTION 7.01. Events of Default.
(a) "Servicer Event of Default", wherever used herein, means any
one of the following events:
(i) any failure by the Servicer to remit to the
Collection Account or any failure by the Servicer to remit to the Trustee for
deposit into the Distribution Account, Upper-Tier Distribution Account, Excess
Interest Distribution Account, Interest Reserve Account or Default Interest
Distribution Account, any amount required to be so deposited by the Servicer
(including a P&I Advance) pursuant to, and at the time specified by the terms
of this Agreement; or
(ii) any failure on the part of the Servicer duly to
observe or perform in any material respect any other of the covenants or
agreements or the breach of any representations or warranties on the part of
the Servicer contained in this Agreement which continues unremedied for a
period of 30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by the
Depositor or the Trustee, or to the Servicer, the Depositor and the Trustee by
the Holders of Certificates evidencing Percentage Interests of at least 25% of
any Class affected thereby; or
(iii) confirmation in writing by any Rating Agency that
failure to remove the Servicer will, in and of itself, cause a downgrade,
qualification or withdrawal of the then current ratings assigned to any Class
of Certificates; or
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case under any
present or future federal or state bankruptcy, insolvency or similar law for
the appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against the Servicer and such decree or order shall have remained
in force undischarged or unstayed for a period of 60 days; or
(v) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or relating to
the Servicer, or of or relating to all or substantially all of its property; or
(vi) the Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors, or voluntarily suspend payment of its
obligations; or
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(vii) the Servicer shall fail to make any Property Advance
required to be made by the Servicer hereunder (whether or not the Trustee or
the Fiscal Agent makes such Advance), which failure continues unremedied for a
period of fifteen (15) days after the date on which such Property Advance was
first due (or for any shorter period as may be required, if applicable, to
avoid any lapse in insurance coverage required under any Mortgage or this
Agreement with respect to any Mortgaged Property or to avoid any foreclosure or
similar action with respect to any Mortgaged Property by reason of a failure to
pay real estate taxes and assessments and if the Trustee makes a required
Property Advance pursuant to Section 3.08(a) due to the Servicer's failure to
make a required Advance, such Event of Default shall occur immediately upon
such Advance);
then, and in each and every such case, so long as a Servicer Event of
Default shall not have been remedied, the Trustee may, and at the written
direction of the Holders of at least 25% of the aggregate Voting Rights of all
Certificates shall, terminate the Servicer.
In the event that the Servicer is also the Special Servicer and the
Servicer is terminated as provided in this Section 7.01, the Servicer shall
also be terminated as Special Servicer.
(b) "Special Servicer Event of Default", wherever used herein,
means any one of the following events:
(i) any failure by the Special Servicer to remit to the
Collection Account any amount required to be so deposited by the Special
Servicer pursuant to and in accordance with the terms of this Agreement; or
(ii) any failure on the part of the Special Servicer duly
to observe or perform in any material respect any other of the covenants or
agreements or the breach of any representations or warranties on the part of
the Special Servicer contained in this Agreement which continues unremedied for
a period of 30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Special
Servicer by the Servicer, the Depositor or the Trustee, or to the Special
Servicer, the Servicer, the Depositor and the Trustee by the Holders of
Certificates evidencing Percentage Interests of at least 25% of any Class
affected thereby; or
(iii) confirmation in writing by any Rating Agency that
failure to remove the Special Servicer would, in and of itself, cause a
downgrade, qualification or withdrawal of the then current ratings assigned to
any Class of Certificates; or
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case under any
present or future federal or state bankruptcy, insolvency or similar law for
the appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against the Special Servicer and such decree or order shall have
remained in force undischarged or unstayed for a period of 60 days; or
(v) the Special Servicer shall consent to the appointment
of a conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshaling of assets and liabilities or
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similar proceedings of or relating to the Special Servicer, or of or relating
to all or substantially all of its property; or
(vi) the Special Servicer shall admit in writing its
inability to pay its debts generally as they become due, file a petition to
take advantage of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or voluntarily suspend payment of
its obligations;
(vii) the Special Servicer shall fail to make any Property
Advance required to be made by the Special Servicer hereunder (whether or not
the Servicer, Trustee or Fiscal Agent makes such Advance), which failure
continues unremedied for a period of fifteen (15) days after the date on which
such Property Advance was first due (or for any shorter period as may be
required, if applicable, to avoid any lapse in insurance coverage required
under any Mortgage or this Agreement with respect to any Mortgaged Property or
to avoid any foreclosure or similar action with respect to any Mortgaged
Property by reason of a failure to pay real estate taxes and assessments;
then, and in each and every such case, so long as a Special Servicer
Event of Default shall not have been remedied, the Trustee may, and at the
written direction of the Holders of at least 25% of the aggregate Voting Rights
of all Certificates shall, terminate the Special Servicer.
(c) In the event that the Servicer or the Special Servicer is
terminated pursuant to this Section 7.01, the Trustee (the "Terminating Party")
shall, by notice in writing to the Servicer or the Special Servicer, as the
case may be (the "Terminated Party"), terminate all of its rights and
obligations under this Agreement and in and to the Mortgage Loans and the
proceeds thereof, other than any rights it may have hereunder as a
Certificateholder and any rights or obligations that accrued prior to the date
of such termination (including the right to receive all amounts accrued or
owing to it under this Agreement, plus, in the case of the Servicer, interest
at the Advance Rate on such amounts until received to the extent such amounts
bear interest as provided in this Agreement, with respect to periods prior to
the date of such termination and the right to the benefits of Section 6.03
notwithstanding any such termination). On or after the receipt by the
Terminated Party, of such written notice, all of its authority and power under
this Agreement, whether with respect to the Certificates (except that the
Terminated Party shall retain its rights as a Certificateholder in the event
and to the extent that it is a Certificateholder) or the Mortgage Loans or
otherwise, shall pass to and be vested in the Terminating Party pursuant to and
under this Section and, without limitation, the Terminating Party is hereby
authorized and empowered to execute and deliver, on behalf of and at the
expense of the Terminated Party, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents, or otherwise. The Servicer and the
Special Servicer each agree in the event it is terminated pursuant to this
Section 7.01 to promptly (and in any event no later than ten Business Days
subsequent to such notice) provide, at its own expense, the Terminating Party
with all documents and records requested by the Terminating Party to enable the
Terminating Party to assume its functions hereunder, and to cooperate with the
Terminating Party and the successor to its responsibilities hereunder in
effecting the termination of its responsibilities and rights hereunder,
including, without limitation, the transfer to the successor Servicer or
Special Servicer or the Terminating Party, as applicable, for administration by
it of all
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cash amounts which shall at the time be or should have been credited by the
Servicer or the Special Servicer to the Collection Account, and any REO
Account, Lock-Box Account or Cash Collateral Account thereafter be received
with respect to the Mortgage Loans, and shall promptly provide the Terminating
Party or such successor Servicer or Special Servicer (which may include the
Trustee), as applicable, all documents and records reasonably requested by it,
such documents and records to be provided in such form as the Terminating Party
or such successor Servicer or Special Servicer shall reasonably request
(including electromagnetic form), to enable it to assume the Servicer's or
Special Servicer's function hereunder. All reasonable costs and expenses of
the Terminating Party or the successor Servicer or successor Special Servicer
incurred in connection with transferring the Mortgage Files to the successor
Servicer or Special Servicer and amending this Agreement to reflect such
succession as successor Servicer or successor Special Servicer pursuant to this
Section 7.01 shall be paid by the predecessor Servicer or the Special Servicer,
as applicable, upon presentation of reasonable documentation of such costs and
expenses. If the predecessor Servicer or Special Servicer (as the case may be)
has not reimbursed the Terminating Party or the successor Servicer or Special
Servicer for such expenses within 90 days after the presentation of reasonable
documentation, such expense shall be reimbursed by the Trust Fund; provided
that the Terminated Party shall not thereby be relieved of its liability for
such expenses.
SECTION 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Servicer or the Special Servicer receives a
notice of termination pursuant to Section 7.01, the Terminating Party shall be
its successor in all respects in its capacity as Servicer or Special Servicer
under this Agreement and the transactions set forth or provided for herein and,
except as provided herein, shall be subject to all the responsibilities,
duties, limitations on liability and liabilities relating thereto and arising
thereafter placed on the Servicer or Special Servicer by the terms and
provisions hereof; provided, however, that (i) the Terminating Party shall have
no responsibilities, duties, liabilities or obligations with respect to any act
or omission of the Servicer or Special Servicer and (ii) any failure to
perform, or delay in performing, such duties or responsibilities caused by the
Terminated Party's failure to provide, or delay in providing, records, tapes,
disks, information or monies shall not be considered a default by such
successor hereunder. The Trustee, as successor Servicer or successor Special
Servicer, shall be indemnified to the full extent provided the Servicer or
Special Servicer, as applicable, under this Agreement prior to the Servicer's
or the Special Servicer's termination. The appointment of a successor Servicer
or successor Special Servicer shall not affect any liability of the predecessor
Servicer or Special Servicer which may have arisen prior to its termination as
Servicer or Special Servicer. The Terminating Party shall not be liable for
any of the representations and warranties of the Servicer or Special Servicer
herein or in any related document or agreement, for any acts or omissions of
the predecessor Servicer or Special Servicer or for any losses incurred in
respect of any Permitted Investment by the Servicer pursuant to Section 3.07
hereunder nor shall the Trustee be required to purchase any Mortgage Loan
hereunder. As compensation therefor, the Terminating Party as successor
Servicer or Special Servicer shall be entitled to the Servicing Compensation or
Special Servicing Compensation, as applicable, and all funds relating to the
Mortgage Loans that accrue after the date of the Terminating Party's succession
to which the Servicer or Special Servicer would have been entitled if the
Servicer or Special Servicer, as applicable, had continued to act hereunder.
In the event any Advances made by the Servicer and the Trustee or the Fiscal
Agent shall at any time be outstanding, or any amounts of interest thereon
shall be accrued and unpaid, all amounts available
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to repay Advances and interest hereunder shall be applied entirely to the
Advances made by the Trustee or the Fiscal Agent (and the accrued and unpaid
interest thereon), until such Advances and interest shall have been repaid in
full. Notwithstanding the above, the Trustee may, if it shall be unwilling to
so act, or shall, if it is unable to so act, or if the Holders of Certificates
entitled to at least 25% of the aggregate Voting Rights so request in writing
to the Trustee, or if neither the Trustee nor the Fiscal Agent is rated by each
Rating Agency in one of its two highest long-term debt rating categories or if
the Rating Agencies do not provide written confirmation that the succession of
the Trustee, as Servicer or Special Servicer, as applicable, will not cause a
downgrade, qualification or withdrawal of the then current ratings assigned to
the Certificates, promptly appoint, or petition a court of competent
jurisdiction to appoint, any established mortgage loan servicing institution
the appointment of which will not result in a downgrade, qualification or
withdrawal of the then current rating or ratings assigned to any Class of
Certificates as evidenced in writing by each Rating Agency, as the successor to
the Servicer or Special Servicer, as applicable, hereunder in the assumption of
all or any part of the responsibilities, duties or liabilities of the Servicer
or Special Servicer hereunder. No appointment of a successor to the Servicer
or Special Servicer hereunder shall be effective until the assumption by such
successor of all the Servicer's or Special Servicer's responsibilities, duties
and liabilities hereunder. Pending appointment of a successor to the Servicer
(or the Special Servicer if the Special Servicer is also the Servicer)
hereunder, unless the Trustee shall be prohibited by law from so acting, the
Trustee shall act in such capacity as herein above provided. Pending the
appointment of a successor to the Special Servicer, unless the Servicer is also
the Special Servicer, the Servicer shall act in such capacity. In connection
with such appointment and assumption described herein, the Trustee may make
such arrangements for the compensation of such successor out of payments on
Mortgage Loans as it and such successor shall agree; provided, however, that no
such compensation shall be in excess of that permitted the Terminated Party
hereunder, provided, further, that if no successor to the Terminated Party can
be obtained to perform the obligations of such Terminated Party hereunder,
additional amounts shall be paid to such successor and such amounts in excess
of that permitted the Terminated Party shall be treated as Realized Losses.
The Depositor, the Trustee, the Servicer or Special Servicer and such successor
shall take such action, consistent with this Agreement, as shall be necessary
to effectuate any such succession.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination pursuant to Section 7.01 above or
appointment of a successor to the Servicer or the Special Servicer, the Trustee
shall give prompt written notice thereof to Certificateholders at their
respective addresses appearing in the Certificate Register and to each Rating
Agency.
(b) Within 30 days after the occurrence of any Event of Default of
which a Responsible Officer of the Trustee has actual knowledge, the Trustee
shall transmit by mail to all Holders of Certificates and to each Rating Agency
notice of such Event of Default, unless such Event of Default shall have been
cured or waived.
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SECTION 7.04. Other Remedies of Trustee.
During the continuance of any Servicer Event of Default or a Special
Servicer Event of Default, so long as such Servicer Event of Default or Special
Servicer Event of Default, if applicable, shall not have been remedied, the
Trustee, in addition to the rights specified in Section 7.01, shall have the
right, in its own name as trustee of an express trust, to take all actions now
or hereafter existing at law, in equity or by statute to enforce its rights and
remedies and to protect the interests, and enforce the rights and remedies, of
the Certificateholders (including the institution and prosecution of all
judicial, administrative and other proceedings and the filing of proofs of
claim and debt in connection therewith). In such event, the legal fees,
expenses and costs of such action and any liability resulting therefrom shall
be expenses, costs and liabilities of the Trust Fund, and the Trustee shall be
entitled to be reimbursed therefor from the Collection Account as provided in
Section 3.06. Except as otherwise expressly provided in this Agreement, no
remedy provided for by this Agreement shall be exclusive of any other remedy,
and each and every remedy shall be cumulative and in addition to any other
remedy and no delay or omission to exercise any right or remedy shall impair
any such right or remedy or shall be deemed to be a waiver of any Servicer
Event of Default or Special Servicer Event of Default, if applicable.
SECTION 7.05. Waiver of Past Events of Default; Termination.
The Holders of Certificates evidencing not less than 66-2/3% of the
aggregate Voting Rights of the Certificates may, on behalf of all Holders of
Certificates, waive any default by the Servicer or Special Servicer in the
performance of its obligations hereunder and its consequences, except a default
in making any required deposits (including P&I Advances) to or payments from
the Collection Account or the Distribution Account or in remitting payments as
received, in each case in accordance with this Agreement. Upon any such waiver
of a past default, such default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereon.
ARTICLE VIII.
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
(a) The Trustee, prior to the occurrence of an Event of Default of
which a Responsible Officer of the Trustee has actual knowledge and after the
curing or waiver of all Events of Default which may have occurred, undertakes
to perform such duties and only such duties as are specifically set forth in
this Agreement and no permissive right of the Trustee shall be construed as a
duty. During the continuance of an Event of Default of which a Responsible
Officer of the Trustee has actual knowledge, the Trustee, subject to the
provisions of Sections 7.02 and 7.05 shall exercise such of the rights and
powers vested in it by this Agreement, and use the same degree of care and
skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
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(b) The Trustee, upon receipt of any resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; provided, however,
that, the Trustee shall not be responsible for the accuracy or content of any
such resolution, certificate, statement, opinion, report, document, order or
other instrument provided to it hereunder. If any such instrument is found not
to conform on its face to the requirements of this Agreement in a material
manner, the Trustee shall take action as it deems appropriate to have the
instrument corrected, and if the instrument is not corrected to the Trustee's
reasonable satisfaction, the Trustee will provide notice thereof to the
Certificateholders.
(c) Neither the Trustee nor any of its officers, directors,
employees, agents or "control" persons within the meaning of the Act shall have
any liability arising out of or in connection with this Agreement, provided,
that, subject to Section 8.02, no provision of this Agreement shall be
construed to relieve the Trustee, or any such person, from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct or its own bad faith; and provided, further, that:
(i) Prior to the occurrence of an Event of Default of
which a Responsible Officer of the Trustee has actual knowledge, and after the
curing or waiver of all such Events of Default which may have occurred, the
duties and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in
this Agreement, no implied covenants or obligations shall be read into this
Agreement against the Trustee and, in the absence of bad faith on the part of
the Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
resolutions, certificates, statements, reports, opinions, documents, orders or
other instruments furnished to the Trustee that conform on their face to the
requirements of this Agreement without responsibility for investigating the
contents thereof;
(ii) The Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer or Responsible
Officers, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of Holders of Certificates entitled to
greater than 50% of the Percentage Interests (or such other percentage as is
specified herein) of each affected Class, or of the aggregate Voting Rights of
the Certificates, relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Agreement;
(iv) Neither the Trustee nor any of its respective
directors, officers, employees, agents or control persons shall be responsible
for any act or omission of any Custodian, Paying Agent or Certificate Registrar
that is not an Affiliate of the Trustee and that is selected other than by the
Trustee, performed or omitted in compliance with any custodial or other
agreement, or any
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act or omission of the Servicer, Special Servicer, the Depositor or any other
Person, including, without limitation, in connection with actions taken
pursuant to this Agreement;
(v) The Trustee shall not be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective duties as Trustee in accordance with this Agreement (and, if it
does, all legal expenses and costs of such action shall be expenses and costs
of the Trust Fund), and the Trustee shall be entitled to be reimbursed therefor
from the Collection Account, unless such legal action arises out of the
negligence or bad faith of the Trustee or any breach of an obligation,
representation, warranty or covenant of the Trustee contained herein; and
(vi) The Trustee shall not be charged with knowledge of
any act, failure to act or breach of any Person upon the occurrence of which
the Trustee may be required to act, unless a Responsible Officer of the Trustee
obtains actual knowledge of such failure. The Trustee shall be deemed to have
actual knowledge of the Servicer's or the Special Servicer's failure to provide
scheduled reports, certificates and statements when and as required to be
delivered to the Trustee pursuant to this Agreement.
None of the provisions contained in this Agreement shall require
either the Trustee, in its capacity as Trustee, or the Fiscal Agent, to expend
or risk its own funds, or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if in the opinion of the Trustee or the Fiscal Agent,
respectively, the repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it, and none of the provisions
contained in this Agreement shall in any event require the Trustee to perform,
or be responsible for the manner of performance of, any of the obligations of
the Servicer or the Special Servicer under this Agreement, except during such
time, if any, as the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Servicer or the Special Servicer
in accordance with the terms of this Agreement. Neither the Trustee nor the
Fiscal Agent shall be required to post any surety or bond of any kind in
connection with its performance of its obligations under this Agreement and
neither the Trustee nor the Fiscal Agent shall be liable for any loss on any
investment of funds pursuant to this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 8.01:
(i) The Trustee may request and/or rely upon and shall be
protected in acting or refraining from acting upon any resolution, Officers'
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond
or other paper or document reasonably believed by it to be genuine and to have
been signed or presented by the proper party or parties and the Trustee shall
have no responsibility to ascertain or confirm the genuineness of any such
party or parties;
(ii) The Trustee may consult with counsel and any Opinion
of Counsel shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it hereunder in good faith and in
accordance with such Opinion of Counsel;
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(iii) (A) The Trustee shall be under no obligation to
institute, conduct or defend any litigation hereunder or in relation hereto at
the request, order or direction of any of the Certificateholders, pursuant to
the provisions of this Agreement, unless such Certificateholders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby; (B) the
right of the Trustee to perform any discretionary act enumerated in this
Agreement shall not be construed as a duty, and the Trustee shall not be
answerable for other than its negligence or willful misconduct in the
performance of any such act; and (C) provided, that subject to the foregoing
clause (A), nothing contained herein shall relieve the Trustee of the
obligations, upon the occurrence of an Event of Default (which has not been
cured or waived) of which a Responsible Officer of the Trustee has actual
knowledge, to exercise such of the rights and powers vested in it by this
Agreement, and to use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs;
(iv) Neither the Trustee nor any of its directors,
officers, employees, Affiliates, agents or "control" persons within the meaning
of the Act shall be personally liable for any action taken, suffered or omitted
by it in good faith and reasonably believed by the Trustee to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement;
(v) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval, bond or other paper or document, unless requested in writing to do so
by Holders of Certificates entitled to at least 25% (or such other percentage
as is specified herein) of the Percentage Interests of any affected Class;
provided, however, that if the payment within a reasonable time to the Trustee
of the costs, expenses or liabilities likely to be incurred by it in the making
of such investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms of this Agreement,
the Trustee may require reasonable indemnity against such expense or liability
as a condition to taking any such action. The reasonable expense of every such
investigation shall be paid by the Servicer or the Special Servicer if an Event
of Default shall have occurred and be continuing relating to the Servicer, or
the Special Servicer, respectively, and otherwise by the Certificateholders
requesting the investigation; and
(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys.
(b) Following the Start-up Day, the Trustee shall not, except as
expressly required by any provision of this Agreement, accept any contribution
of assets to the Trust Fund unless the Trustee shall have received an Opinion
of Counsel (the costs of obtaining such opinion to be borne by the Person
requesting such contribution) to the effect that the inclusion of such assets
in the Trust Fund will not cause either the Upper-Tier REMIC or the Lower-Tier
REMIC to fail to qualify as a REMIC at any time that any Certificates are
outstanding or subject either the Upper-Tier REMIC or the Lower-Tier REMIC to
any tax under the REMIC Provisions or other applicable provisions of federal,
state and local law or ordinances.
(c) All rights of action under this Agreement or under any of the
Certificates, enforceable by the Trustee, may be enforced by it without the
possession of any of the Certificates, or the
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production thereof at the trial or other proceeding relating thereto, and any
such suit, action or proceeding instituted by the Trustee shall be brought in
its name for the benefit of all the Holders of such Certificates, subject to
the provisions of this Agreement.
The Trustee shall have no duty to conduct any affirmative
investigation as to the occurrence of any condition requiring the repurchase of
any Mortgage Loan by the Depositor pursuant to this Agreement or the
eligibility of any Mortgage Loan for purposes of this Agreement.
SECTION 8.03. Trustee and Fiscal Agent Not Liable for Certificates
or Mortgage Loans.
The recitals contained herein and in the Certificates shall not be
taken as the statements of the Trustee, the Fiscal Agent, the Servicer, or the
Special Servicer and the Trustee, the Fiscal Agent, Servicer and the Special
Servicer assume no responsibility for their correctness. The Trustee, the
Fiscal Agent, the Servicer and the Special Servicer make no representations or
warranties as to the validity or sufficiency of this Agreement, of the
Certificates or any prospectus used to offer the Certificates for sale or the
validity, enforceability or sufficiency of any Mortgage Loan, or related
document. Neither the Trustee nor the Fiscal Agent shall at any time have any
responsibility or liability for or with respect to the legality, validity and
enforceability of any Mortgage, any Mortgage Loan, or the perfection and
priority of any Mortgage or the maintenance of any such perfection and
priority, or for or with respect to the sufficiency of the Trust Fund or its
ability to generate the payments to be distributed to Certificateholders under
this Agreement. Without limiting the foregoing, neither the Trustee nor the
Fiscal Agent shall be liable or responsible for: the existence, condition and
ownership of any Mortgaged Property; the existence of any hazard or other
insurance thereon (other than if the Trustee shall assume the duties of the
Servicer pursuant to Section 7.02) or the enforceability thereof; the existence
of any Mortgage Loan or the contents of the related Mortgage File on any
computer or other record thereof (other than if the Trustee shall assume the
duties of the Servicer or the Special Servicer pursuant to Section 7.02); the
validity of the assignment of any Mortgage Loan to the Trust Fund or of any
intervening assignment; the completeness of any Mortgage File; the performance
or enforcement of any Mortgage Loan (other than if the Trustee shall assume the
duties of the Servicer or the Special Servicer pursuant to Section 7.02); the
compliance by the Depositor, the Servicer or the Special Servicer with any
warranty or representation made under this Agreement or in any related document
or the accuracy of any such warranty or representation prior to the Trustee's
receipt of notice or other discovery of any non-compliance therewith or any
breach thereof; any investment of monies by or at the direction of the Servicer
or any loss resulting therefrom, it being understood that the Trustee shall
remain responsible for any Trust Fund property that it may hold in its
individual capacity; the acts or omissions of any of the Depositor, the
Servicer or the Special Servicer (other than if the Trustee shall assume the
duties of the Servicer pursuant to Section 7.02) or any subservicer or any
Borrower; any action of the Servicer (other than if the Trustee shall assume
the duties of the Servicer pursuant to Section 7.02) or any subservicer taken
in the name of the Trustee, except to the extent such action is taken at the
express written direction of the Trustee; the failure of the Servicer or the
Special Servicer or any subservicer to act or perform any duties required of it
on behalf of the Trust Fund or the Trustee hereunder; or any action by or
omission of the Trustee taken at the instruction of the Servicer or the Special
Servicer (other than if the Trustee shall assume the duties of the Servicer or
the Special Servicer pursuant to Section 7.02) unless the taking of such action
is not permitted by the express
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terms of this Agreement; provided, however, that the foregoing shall not
relieve the Trustee of its obligation to perform its duties as specifically set
forth in this Agreement. Neither the Trustee nor the Fiscal Agent shall be
accountable for the use or application by the Depositor, the Servicer or the
Special Servicer of any of the Certificates or of the proceeds of such
Certificates, or for the use or application of any funds paid to the Depositor,
the Servicer or the Special Servicer in respect of the assignment of the
Mortgage Loans or deposited in or withdrawn from the Collection Account,
Distribution Account, Upper-Tier Distribution Account, Lock Box Account, Cash
Collateral Account, Reserve Accounts, Interest Reserve Account, Default
Interest Distribution Account or Excess Interest Distribution Account or any
other account maintained by or on behalf of the Servicer or the Special
Servicer, other than any funds held by the Trustee or the Fiscal Agent, as
applicable. Neither the Trustee nor the Fiscal Agent shall have any
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder (unless the Trustee shall
have become the successor Servicer) or to record this Agreement. In making any
calculation hereunder which includes as a component thereof the payment or
distribution of interest for a stated period at a stated rate "to the extent
permitted by applicable law," the Trustee shall assume that such payment is so
permitted unless a Responsible Officer of the Trustee has actual knowledge, or
receives an Opinion of Counsel (at the expense of the Person asserting the
impermissibility) to the effect, that such payment is not permitted by
applicable law.
SECTION 8.04. Trustee and Fiscal Agent May Own Certificates.
The Trustee, the Fiscal Agent and any agent of the Trustee and Fiscal
Agent in its individual capacity or any other capacity may become the owner or
pledgee of Certificates, and may deal with the Depositor, the Servicer and
Special Servicer in banking transactions, with the same rights it would have if
it were not Trustee, Fiscal Agent or such agent.
SECTION 8.05. Payment of Trustee's Fees and Expenses;
Indemnification.
(a) The Trustee or any successor Trustee shall be entitled, on
each Distribution Date, to the Trustee Fee (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust) for all services rendered by the Trustee in the execution of the trusts
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee, which Trustee Fee shall be paid to the Trustee
prior to the distribution on such Distribution Date of amounts to the
Certificateholders. In the event that the Trustee assumes the servicing
responsibilities of the Servicer or the Special Servicer hereunder pursuant to
or otherwise arising from the resignation or removal of the Servicer or the
Special Servicer, the Trustee shall be entitled to the compensation to which
the Servicer or the Special Servicer, as the case may be, would have been
entitled.
(b) The Trustee and the Fiscal Agent shall each be paid or
reimbursed by the Trust Fund upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee or the Fiscal Agent
pursuant to and in accordance with any of the provisions of this Agreement
(including the reasonable compensation and the expenses and disbursements of
its counsel and of all persons not regularly in its employ) to the extent such
payments are "unanticipated expenses incurred by the REMIC" within the meaning
of Treasury Regulations Section 1.860G-
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1(b)(iii) except any such expense, disbursement or advance as may arise from
its negligence or bad faith; provided, however, that, subject to the last
paragraph of Section 8.01, neither the Trustee nor the Fiscal Agent shall
refuse to perform any of its duties hereunder solely as a result of the failure
to be paid the Trustee Fee and the Trustee's expenses or any sums due to the
Fiscal Agent.
The Servicer and the Special Servicer covenant and agree to pay or
reimburse the Trustee for the reasonable expenses, disbursements and advances
incurred or made by the Trustee in connection with any transfer of the
servicing responsibilities of the Servicer or the Special Servicer,
respectively, hereunder, pursuant to or otherwise arising from the resignation
or removal of the Servicer, in accordance with any of the provisions of this
Agreement (and including the reasonable fees and expenses and disbursements of
its counsel and all other persons not regularly in its employ), except any such
expense, disbursement or advance as may arise from the negligence or bad faith
of the Trustee; provided, that in the event that the Servicer is terminated
pursuant to Section 6.04(c), expenses incurred in connection with such transfer
shall be paid by the Certificateholders effecting such termination.
(c) Each of the Paying Agent, the Certificate Registrar, the
Custodian, the Depositor, the Servicer and the Special Servicer (each, an
"Indemnifying Party") shall indemnify the Trustee and the Fiscal Agent and
their respective Affiliates and each of the directors, officers, employees and
agents of the Trustee, the Fiscal Agent and their respective Affiliates (each,
an "Indemnified Party"), and hold each of them harmless against any and all
claims, losses, damages, penalties, fines, forfeitures, reasonable and
necessary legal fees and related costs, judgments, and any other costs, fees
and expenses that the Indemnified Party may sustain in connection with this
Agreement (including, without limitation, reasonable fees and disbursements of
counsel incurred by the Indemnified Party in any action or proceeding between
the Indemnifying Party and the Indemnified Party or between the Indemnified
Party and any third party or otherwise) related to each such Indemnifying
Party's respective willful misconduct, bad faith, fraud and/or negligence in
the performance of each of it's respective duties hereunder or by reason of
reckless disregard of its respective obligations and duties hereunder
(including in the case of the Servicer, any agent of the Servicer or
subservicer).
(d) The Trust Fund shall indemnify each Indemnified Party from,
and hold it harmless against, any and all losses, liabilities, damages, claims
or unanticipated expenses (including, without limitation, reasonable fees and
disbursements of counsel incurred by the Indemnified Party in any action or
proceeding between the Indemnifying Party and the Indemnified Party or between
the Indemnified Party and any third party or otherwise) arising in respect of
this Agreement or the Certificates, in each case to the extent and only to the
extent, such payment are expressly reimbursable under this Agreement or are
"unanticipated expenses incurred by the REMIC" within the meaning of Treasury
Regulations Section 1.860G-1(b)(3)(iii), other than (i) those resulting from
the negligence, fraud, bad faith or willful misconduct of the Indemnified Party
and (ii) those as to which such Indemnified Party is entitled to
indemnification pursuant to Section 8.05(c). The term "unanticipated expenses
incurred by a REMIC" shall include any fees, expenses and disbursement of any
separate trustee or co-trustee appointed hereunder, only to the extent such
fees, expenses and disbursements were not reasonably anticipated as of the
Closing Date and the losses, liabilities, damages, claims or expenses
(including reasonable attorneys' fees) incurred or advanced by an Indemnified
Party in connection with any litigation arising out of this Agreement,
including, without
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limitation, under Section 2.03, Section 3.10, the third paragraph of Section
3.11, Section 4.05 and Section 7.01. The right of reimbursement of the
Indemnified Parties under this Section 8.05(d) shall be senior to the rights of
all Certificateholders.
(e) Notwithstanding anything herein to the contrary, this Section
8.05 shall survive the termination or maturity of this Agreement or the
resignation or removal of the Trustee or the Fiscal Agent, as the case may be,
as regards rights accrued prior to such resignation or removal and (with
respect to any acts or omissions during their respective tenures) the
resignation, removal or termination of the Servicer, the Special Servicer, the
Paying Agent, the Certificate Registrar or the Custodian.
(f) This Section 8.05 shall be expressly construed to include, but
not be limited to, such indemnities, compensation, expenses, disbursements,
advances, losses, liabilities, damages and the like, as may pertain or relate
to any environmental law or environmental matter.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or
association organized and doing business under the laws of any state or the
United States of America, authorized under such laws to exercise corporate
trust powers and to accept the trust conferred under this Agreement, having a
combined capital and surplus of at least $50,000,000 and a rating on its
unsecured long-term debt of at least "BBB" by Fitch and DCR and "Baa2" by
Moody's (or at any time when there is no Fiscal Agent appointed and acting
hereunder or any such Fiscal Agent so appointed has a rating on its long-term
unsecured debt that is lower than "AA" by Fitch and DCR and "Aa2" by Moody's
(without regard to any plus or minus or numeric qualifier), or meeting
different standards provided that each Rating Agency shall have confirmed in
writing that such different standards would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
the Certificates) and subject to supervision or examination by federal or state
authority and shall not be an Affiliate of the Servicer (except during any
period when the Trustee has assumed the duties of the Servicer pursuant to
Section 7.02); provided that, notwithstanding that the long-term unsecured debt
of _____________________________ and ____________________________ are not rated
by DCR and Fitch, _________________________ shall not fail to qualify as
Trustee solely by virtue of the lack of such ratings until such time as either
DCR or Fitch shall notify the Trustee, the Servicer and the Special Servicer in
writing that _________________________ is no longer exempt from the foregoing
rating requirements imposed by this sentence. If a corporation or association
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for
purposes of this Section the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In the event that the place of
business from which the Trustee administers the Trust Fund is a state or local
jurisdiction that imposes a tax on the Trust Fund or the net income of a REMIC
(other than a tax corresponding to a tax imposed under the REMIC Provisions)
the Trustee shall elect either to (i) resign immediately in the manner and with
the effect specified in Section 8.07, (ii) pay such tax and continue as Trustee
or (iii) administer the Trust Fund from a state and local jurisdiction that
does not impose such a tax. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 8.07.
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SECTION 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Depositor, the Servicer
and each Rating Agency. Upon such notice of resignation, the Fiscal Agent
shall also be deemed to have been removed and, accordingly, the Servicer shall
promptly appoint a successor Trustee, acceptable to each Rating Agency (such
acceptability confirmed in writing), and successor Fiscal Agent, which, if the
successor Trustee is not rated by each Rating Agency in one of its two highest
long-term debt rating categories, shall be acceptable to each Rating Agency
(such acceptability confirmed in writing), by written instrument, in
triplicate, which instrument shall be delivered to the resigning Trustee, with
a copy to the Fiscal Agent deemed removed, and the successor Trustee and
successor Fiscal Agent. If no successor Trustee and successor Fiscal Agent
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Trustee and the Fiscal
Agent may petition any court of competent jurisdiction for the appointment of a
successor Trustee and successor Fiscal Agent.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.06 and shall fail to resign after written
request therefor by the Depositor or Servicer, 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 or the Servicer may remove the Trustee and the Fiscal Agent and
the Servicer shall promptly appoint a successor Trustee and successor Fiscal
Agent by written instrument, which shall be delivered to the Trustee and the
Fiscal Agent so removed and to the successor Trustee and the successor Fiscal
Agent.
The Holders of Certificates entitled to at least 50% of the Voting
Rights may at any time remove the Trustee and the Fiscal Agent (and any removal
of the Trustee shall be deemed to be a removal also of the Fiscal Agent) and
appoint a successor Trustee and successor Fiscal Agent by written instrument or
instruments, in seven originals, signed by such Holders or their attorneys-in-
fact duly authorized, one complete set of which instruments shall be delivered
to the Depositor, one complete set to the Servicer, one complete set to the
Trustee so removed, one complete set to the Fiscal Agent deemed removed, one
complete set to the successor Trustee so appointed and one complete set to the
successor Fiscal Agent so appointed.
In the event of removal of the Trustee the Fiscal Agent shall be
deemed to have been removed.
In the event that the Trustee or Fiscal Agent is terminated or removed
pursuant to this Section 8.07, all of its rights and obligations under this
Agreement and in and to the Mortgage Loans shall be terminated, other than any
rights or obligations that occurred prior to the date of such termination or
removal (including the right to receive all fees, expenses and other amounts
accrued or owing to it under this Agreement, plus interest at the Advance Rate
on all such amounts until received to the extent such amounts bear interest as
provided in this Agreement, with respect to periods prior to the date of such
termination or removal).
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Any resignation or removal of the Trustee and Fiscal Agent and
appointment of a successor Trustee and, if such trustee is not rated by each
Rating Agency in one of its two highest long-term debt rating categories, a
successor Fiscal Agent pursuant to any of the provisions of this Section 8.07
shall not become effective until acceptance of appointment by the successor
Trustee and, if necessary, Fiscal Agent as provided in Section 8.08.
SECTION 8.08. Successor Trustee and Fiscal Agent.
(a) Any successor Trustee and any Fiscal Agent appointed as
provided in Section 8.07 shall execute, acknowledge and deliver to the
Depositor, the Servicer and to the predecessor Trustee and predecessor Fiscal
Agent, as the case may be, instruments accepting their appointment hereunder,
and thereupon the resignation or removal of the predecessor Trustee and
predecessor Fiscal Agent, shall become effective and such successor Trustee and
successor Fiscal Agent, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as Trustee
or Fiscal Agent herein, provided that each Rating Agency shall have approved in
writing the appointment of such successor Trustee and successor Fiscal Agent.
The predecessor Trustee shall deliver to the successor Trustee all Mortgage
Files and related documents and statements held by it hereunder, and the
Depositor and the predecessor Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor Trustee all such
rights, powers, duties and obligations. No successor Trustee shall accept
appointment as provided in this Section 8.08 unless at the time of such
acceptance such successor Trustee shall be eligible under the provisions of
Section 8.06.
Upon acceptance of appointment by a successor Trustee as provided in
this Section 8.08, the Depositor shall mail notice of the succession of such
Trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register. If the Depositor fails to mail such notice within 10
days after acceptance of appointment by the successor Trustee, the successor
Trustee shall cause such notice to be mailed at the expense of the Depositor.
(b) Any successor Trustee or Fiscal Agent appointed pursuant to
this Agreement shall meet the eligibility requirements set forth in Section
8.06 hereof and shall be acceptable to each Rating Agency as evidenced by
written confirmation that such appointment will not cause a downgrade,
qualification or withdrawal of the then current ratings assigned to the
Certificates.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be eligible under the provisions of
Section 8.06, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
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SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Fund or property securing the same may at the time be located, the
Depositor and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act (at the expense of the Trustee) as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such Person or Persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to
the other provisions of this Section 8.10, such powers, duties, obligations,
rights and trusts as the Depositor and the Trustee may consider necessary or
desirable. If the Depositor shall not have joined in such appointment within
15 days after the receipt by it of a request so to do, or in case an Event of
Default shall have occurred and be continuing, the Trustee alone shall have the
power to make such appointment. Except as required by applicable law, the
appointment of a co-trustee or separate trustee shall not relieve the Trustee
of its responsibilities, obligations and liabilities hereunder. No co-trustee
or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor Trustee under Section 8.06 hereunder and no notice
to Holders of Certificates of the appointment of co-trustee(s) or separate
trustee(s) shall be required under Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 8.10, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act), except
to the extent that under any law of any jurisdiction in which any particular
act or acts are to be performed (whether as Trustee hereunder or as successor
to the Servicer hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Fund or any portion
thereof in any such jurisdiction) shall be exercised and performed by such
separate trustee or co-trustee solely at the direction of the Trustee.
No trustee under this Agreement shall be personally liable by reason
of any act or omission of any other trustee under this Agreement. The
Depositor and the Trustee acting jointly may at any time accept the resignation
of or remove any separate trustee or co-trustee, or if the separate trustee or
co- trustee is an employee of the Trustee, the Trustee acting alone may accept
the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VIII. Every such instrument shall be filed with
the Trustee. Each separate trustee and co-trustee, upon its acceptance of the
trusts conferred, shall be vested with the estates or property specified in its
instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the
conduct of, affecting the liability of, or affording protection to, the
Trustee. In no event shall any such separate trustee or co-trustee be entitled
to any provision relating to the conduct of affecting the liability of or
affording protection to such separate
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trustee or co-trustee that imposes a standard of conduct less stringent than
that imposed by the Trustee hereunder, affording greater protection than that
afforded to the Trustee hereunder or providing a greater limit on liability
than that provided to the Trustee hereunder.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Trustee, to the extent permitted by law, without the appointment of a
new or successor trustee.
SECTION 8.11. Fiscal Agent Appointed; Concerning the Fiscal Agent.
(a) The Trustee hereby appoints ________________________ as the
initial Fiscal Agent hereunder for the purposes of exercising and performing
the obligations and duties imposed upon the Fiscal Agent by Sections 3.24 and
4.06.
(b) The Fiscal Agent undertakes to perform such duties and only
such duties as are specifically set forth in Sections 3.24 and 4.06.
(c) No provision of this Agreement shall be construed to relieve
the Fiscal Agent from liability for its own negligent failure to act or its own
willful misfeasance; provided, however, that (i) the duties and obligations of
the Fiscal Agent shall be determined solely by the express provisions of
Sections 3.24 and 4.06, the Fiscal Agent shall not be liable except for the
performance of such duties and obligations, no implied covenants or obligations
shall be read into this Agreement against the Fiscal Agent and, in the absence
of bad faith on the part of the Fiscal Agent, the Fiscal Agent may conclusively
rely, as to the truth and correctness of the statements or conclusions
expressed therein, upon any resolutions, certificates, statements, opinions,
reports, documents, orders or other instruments furnished to the Fiscal Agent
by the Depositor, the Servicer, the Special Servicer or the Trustee and which
on their face do not contradict the requirements of this Agreement, and (ii)
the provisions of clause (ii) of Section 8.01(c) shall apply to the Fiscal
Agent.
(d) Except as otherwise provided in Section 8.11(c), the Fiscal
Agent also shall have the benefit of provisions of clauses (i), (ii), (iii)
(other than the proviso thereto), (iv), (v) (other than the proviso thereto)
and (vi) of Section 8.02(a).
ARTICLE IX
TERMINATION
SECTION 9.01. Termination.
(a) The respective obligations and responsibilities of the
Servicer, the Special Servicer, the Depositor, the Trustee and the Fiscal Agent
created hereby with respect to the Certificates (other than the obligation to
make certain payments and to send certain notices to Certificateholders as
hereinafter set forth) shall terminate immediately following the occurrence of
the last action required
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to be taken by the Trustee pursuant to this Article IX on the Termination Date;
provided, however, that in no event shall the trust created hereby continue
beyond the expiration of twenty-one years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late ambassador of the United
States to the United Kingdom, living on the date hereof.
(b) The Trust Fund, the Upper-Tier REMIC and the Lower-Tier REMIC
shall be terminated and the assets of the Trust Fund shall be sold or otherwise
disposed of in connection therewith, only pursuant to a "plan of complete
liquidation" within the meaning of Code Section 860F(a)(4)(A) providing for the
actions contemplated by the provisions hereof pursuant to which the applicable
Notice of Termination is given and requiring that the Trust Fund, the Upper-
Tier REMIC and the Lower-Tier REMIC shall terminate on a Distribution Date
occurring not more than 90 days following the date of adoption of the plan of
complete liquidation. For purposes of this Section 9.01(b), the Notice of
Termination given pursuant to Section 9.01(c) shall constitute the adoption of
the plan of complete liquidation as of the date such notice is given, which
date shall be specified by the Servicer in the final federal income tax returns
of the Upper-Tier REMIC and the Lower-Tier REMIC.
(c) Any holder of a Class LR Certificate representing greater than
a 50% Percentage Interest in such Class may effect an early termination of the
Trust Fund, upon not less than 30 days' prior Notice of Termination given to
the Trustee and Servicer any time on or after the Early Termination Notice Date
specifying the Anticipated Termination Date, by purchasing on such date all,
but not less than all, of the Mortgage Loans then included in the Trust Fund,
and all property acquired in respect of any Mortgage Loan, at a purchase price,
payable in cash, equal to not less than the greater of:
(i) the sum of
(A) 100% of the unpaid principal balance of each Mortgage
Loan included in the Trust Fund as of the last day of the month preceding such
Distribution Date;
(B) the fair market value of all other property included
in the Trust Fund as of the last day of the month preceding such Distribution
Date, as determined by an Independent appraiser acceptable to the Servicer as
of the date not more than 30 days prior to the last day of the month preceding
such Distribution Date;
(C) all unpaid interest accrued on such principal balance
of each such Mortgage Loan (including for this purpose any Mortgage Loan as to
which title to the related Mortgaged Property has been acquired) at the
Mortgage Rate (plus the Excess Rate, to the extent applicable), to the last day
of the month preceding such Distribution Date;
(D) the aggregate amount of unreimbursed Advances, with
interest thereon at the Advance Rate, and unpaid Servicing Compensation,
Special Servicing Compensation, Trustee Fees and Trust Fund expenses; and
(ii) the aggregate fair market value of the Mortgage
Loans, and all other property acquired in respect of any Mortgage Loan in the
Trust Fund, on the last day of the month preceding
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such Distribution Date, as determined by an Independent appraiser acceptable to
the Servicer as of a date not more than 30 days prior to the last day of the
month preceding such Distribution Date, together with one month's interest
thereon at the Mortgage Rate.
The Servicer or the Depositor may also effect such termination as
provided above if it first notifies each Holder of a Class LR Certificate
through the Trustee of its intention to do so in writing at least 30 days prior
to the Early Termination Notice Date and no Class LR Holder terminates the
Trust Fund as described above within such 30-day period. All costs and
expenses incurred by any and all parties to this Agreement or by the Trust Fund
in connection with the purchase of the Mortgage Loans and other assets of the
Trust Fund pursuant to this Section 9.01(c) shall be borne by the party
exercising its purchase rights hereunder. The Trustee shall be entitled to
rely conclusively on any determination made by an Independent appraiser
pursuant to this subsection (c).
Anything in this Section 9.01 to the contrary notwithstanding, the
holders of the Class V-1 Certificates shall receive that portion of the
proceeds of a sale of the assets of the Trust Fund allocable to the Net Default
Interest, as their interests may appear, and the holders of the Class V-2
Certificates shall receive that portion of the proceeds of a sale of the assets
of the Trust Fund allocable to Excess Interest, as their interests may appear.
(d) If the Trust Fund has not been previously terminated pursuant
to subsection (c) of this Section 9.01, the Trustee shall determine as soon as
practicable the Distribution Date on which the Trustee reasonably anticipates,
based on information with respect to the Mortgage Loans previously provided to
it, that the final distribution will be made (i) to the Holders of outstanding
Regular Certificates, and to the Trustee in respect of the Lower-Tier Regular
Interests notwithstanding that such distribution may be insufficient to
distribute in full the Certificate Balance of each Certificate or Lower-Tier
Regular Interest, together with amounts required to be distributed on such
Distribution Date pursuant to Section 4.01(a) or (ii) if no such Classes of
Certificates are then outstanding, to the Holders of the Class LR Certificates
of any amount remaining in the Collection Account or the Distribution Account
and to the Holders of the Class R Certificates of any amount remaining in the
Upper-Tier Distribution Account, in either case, following the later to occur
of (A) the receipt or collection of the last payment due on any Mortgage Loan
included in the Trust Fund or (B) the liquidation or disposition pursuant to
Section 3.18 of the last asset held by the Trust Fund.
(e) Notice of any termination of the Trust Fund pursuant to this
Section 9.01 shall be mailed by the Trustee to affected Certificateholders with
a copy to the Servicer and each Rating Agency at their addresses shown in the
Certificate Registrar as soon as practicable after the Trustee shall have
received, given or been deemed to have received a Notice of Termination but in
any event not more than thirty days, and not less than ten days, prior to the
Anticipated Termination Date. The notice mailed by the Trustee to affected
Certificateholders shall:
(i) specify the Anticipated Termination Date on which the
final distribution is anticipated to be made to Holders of Certificates of the
Classes specified therein;
(ii) specify the amount of any such final distribution, if
known; and
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(iii) state that the final distribution to
Certificateholders will be made only upon presentation and surrender of
Certificates at the office of the Paying Agent therein specified.
If the Trust Fund is not terminated on any Anticipated Termination
Date for any reason, the Trustee shall promptly mail notice thereof to each
affected Certificateholder.
(f) Any funds not distributed on the Termination Date because of
the failure of any Certificateholders to tender their Certificates shall be set
aside and held in trust for the account of the appropriate non-tendering
Certificateholders, whereupon the Trust Fund shall terminate. If any
Certificates as to which notice of the Termination Date has been given pursuant
to this Section 9.01 shall not have been surrendered for cancellation within
six months after the time specified in such notice, the Trustee shall mail a
second notice to the remaining Certificateholders, at their last addresses
shown in the Certificate Register, to surrender their Certificates for
cancellation in order to receive, from such funds held, the final distribution
with respect thereto. If within one year after the second notice any
Certificate shall not have been surrendered for cancellation, the Trustee may,
directly or through an agent, take appropriate steps to contact the remaining
Certificateholders concerning surrender of their Certificates. The costs and
expenses of maintaining such funds and of contacting Certificateholders shall
be paid out of the assets which remain held. If within two years after the
second notice any Certificates shall not have been surrendered for
cancellation, the Paying Agent shall pay to the Trustee all amounts
distributable to the Holders thereof, and the Trustee shall thereafter hold
such amounts for the benefit of such Holders until the earlier of (i) its
termination as Trustee hereunder and the transfer of such amounts to a
successor Trustee and (ii) the termination of the Trust Fund and distribution
of such amounts to the Class LR Certificateholders. No interest shall accrue
or be payable to any Certificateholder on any amount held as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 9.01. Any such amounts transferred to
the Trustee may be invested in Permitted Investments and all income and gain
realized from investment of such funds shall be for the benefit of the Trustee.
(g) The Holder of a more than a 50% Percentage Interest in the
Class LR Certificates may purchase any Mortgage Loan on its Anticipated
Repayment Date, if any, at a price equal to the sum of the following:
(i) 100% of the outstanding principal balance of such
Mortgage Loan on such Anticipated Repayment Date;
(ii) all unpaid interest accrued on such principal balance
of such Mortgage Loan at the Mortgage Rate thereof, to the last day of the
Interest Accrual Period preceding such Anticipated Repayment Date;
(iii) the aggregate amount of unreimbursed Advances with
respect to such Mortgage Loan, with interest thereon at the Advance Rate, and
unpaid Special Servicing Compensation, Servicing Compensation, Trustee Fees and
Trust Fund expenses; and
(iv) the amount of any Liquidation Expenses incurred by
the Trust Fund in connection with such purchase.
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provided, that, such Holder, at its expense, has provided the Trustee with an
opinion of counsel to the effect that such purchase would not (x) result in a
gain which would be subject to the tax on net income derived from "prohibited
transactions" imposed by Code Section 860F(a)(1) or otherwise result in the
imposition of any other tax on the Lower-Tier REMIC or the Upper-Tier REMIC
under the REMIC Provisions or (y) cause either the Upper-Tier REMIC or the
Lower-Tier REMIC to fail to qualify as a REMIC; such opinion relying upon
appraisals of the fair market value (for the purposes of Section 860F(c)(1) of
the Code) of such Mortgage Loan by at least three Independent appraisers.
The proceeds of any such purchase shall be deposited in the
Collection Account and disbursed as provided herein.
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 10.01. Counterparts.
Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
SECTION 10.02. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Agreement or any Mortgage Loan, unless such Holder previously shall have given
to the Trustee a written notice of default and of the continuance thereof, as
hereinbefore provided, and unless also the Holders of Certificates representing
Percentage Interests of at least 25% of each affected Class of Certificates
shall have made written request upon the Trustee to institute such action, suit
or proceeding in its own name as Trustee hereunder and shall have offered to
the Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and the Trustee,
for 60 days after its receipt of such notice, request and offer of indemnity,
shall have neglected or refused to institute any such action,
- 146 -
<PAGE> 153
suit or proceeding. It is understood and intended, and expressly covenanted by
each Certificateholder with every other Certificateholder and the Trustee, that
no one or more Holders of Certificates of any Class shall have any right in any
manner whatever by virtue of any provision of this Agreement to affect, disturb
or prejudice the rights of the Holders of any other of such Certificates, or to
obtain or seek to obtain priority over or preference to any other such Holder,
or to enforce any right under this Agreement, except in the manner herein
provided and for the equal, ratable and common benefit of all Holders of
Certificates of such Class. For the protection and enforcement of the
provisions of this Section, each and every Certificateholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.
SECTION 10.03. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 10.04. Notices.
All demands, notices and communications hereunder shall be in writing,
shall be deemed to have been given upon receipt (except that notices to Holders
of Class B-4B, Class R and Class LR Certificates or Holders of any Class of
Certificates no longer held through a Depository and instead held in
registered, definitive form shall be deemed to have been given upon being sent
by first class mail, postage prepaid) as follows:
If to the Trustee, to:
LaSalle National Bank
25 Northwest Point Boulevard
Suite 800
Elk Grove Village, Illinois 60007
---------------------------
Attention: Corporate Trust Department
-------------------------------------
If to the Fiscal Agent, to:
_______________________
_______________________
_______________________
_______________________
_______________________
Attention: _______________________
_______________________
- 147 -
<PAGE> 154
If to the Depositor, to:
_______________________
_______________________
_______________________
_______________________
Attention: _______________________
_______________________
If to the Servicer and/or Special Servicer, to:
AMRESCO Management, Inc.
235 Peachtree Street
Suite 900
Atlanta, Georgia 30303
Attention: Legal Counsel
With copies to:
AMRESCO, Inc.
700 N. Pearl Street
Suite 1700
Dallas, Texas 75201
Attention: General Counsel
If to the Mortgage Loan Seller, to:
_______________________
_______________________
_______________________
_______________________
Attention: _______________________
_______________________
If to any Certificateholder, to:
the address set forth in the
Certificate Register,
or, in the case of the parties to this Agreement, to such other
address as such party shall specify by written notice to the other parties
hereto.
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<PAGE> 155
SECTION 10.05. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, then, to the
extent permitted by applicable law, such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
SECTION 10.06. Notice to the Depositor and Each Rating Agency.
(a) The Trustee shall use its best efforts to promptly provide
notice to the Depositor and each Rating Agency with respect to each of the
following of which a Responsible Officer of the Trustee has actual knowledge:
(i) any material change or amendment to this Agreement;
(ii) the occurrence of any Event of Default that has not
been cured;
(iii) the merger, consolidation, resignation or termination
of the Servicer, Special Servicer, the Trustee or Fiscal Agent;
(iv) the repurchase of Mortgage Loans pursuant to Section
2.03(d) or 2.03(e);
(v) the final payment to any Class of Certificateholders;
(vi) any change in the location of the Collection Account
or the Distribution Account;
(vii) any event that would result in the voluntary or
involuntary termination of any insurance of the accounts of the Servicer;
(viii) each report to Certificateholders described in
Section 4.02 and Section 3.22;
(ix) any change in the lien priority of a Mortgage Loan;
(x) any new lease of an anchor or a termination of an
anchor lease at a retail Mortgaged Property;
(xi) any termination of licensing certification at a
Mortgaged Property securing a Senior Housing/Healthcare Loan; and
(xii) any material damage to a Mortgaged Property.
(b) The Servicer shall promptly furnish to each Rating Agency
copies of the following:
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<PAGE> 156
(i) each of its annual statements as to compliance
described in Section 3.14;
(ii) each of its annual independent public accountants'
servicing reports described in Section 3.15; and
(iii) a copy of each rent roll and each operating and other
financial statement and occupancy reports, to the extent such information is
required to be delivered under a Mortgage Loan, in each case to the extent
collected pursuant to Section 3.03.
(c) The Servicer shall furnish each Rating Agency with such
information with respect to the Trust Fund, a Mortgaged Property, a Borrower
and a non-performing or Specially Serviced Mortgage Loan as such Rating Agency
shall reasonably request and which the Servicer can reasonably obtain. The
Rating Agencies shall not be charged any fee or expense in connection
therewith.
(d) Notices to each Rating Agency shall be addressed as follows:
-------------------------------------------
-------------------------------------------
-------------------------------------------
Attention:
--------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Attention:
--------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Attention:
--------------------------
or in each case to such other address as either Rating Agency shall specify by
written notice to the parties hereto.
SECTION 10.07. Amendment.
This Agreement or any Custodial Agreement may be amended from time to
time by the Depositor, the Servicer, the Special Servicer, the Trustee and the
Fiscal Agent, without the consent of any of the Certificateholders, (i) to cure
any ambiguity, (ii) to correct or supplement any provisions herein or therein
that may be defective or inconsistent with any other provisions herein or
therein, (iii) to amend any provision hereof to the extent necessary or
desirable to maintain the rating or ratings assigned to each of the Classes of
Regular Certificates by each Rating Agency, (iv) to amend or supplement any
provisions herein or therein that shall not adversely affect in any material
respect the interests of any Certificateholder not consenting thereto, as
evidenced in writing by an Opinion of Counsel, at the expense of the party
requesting such amendment or confirmation
- 150 -
<PAGE> 157
in writing from each Rating Agency that such amendment or supplement will not
result in a qualification, withdrawal or downgrading of the then-current
ratings assigned to the Certificates, or (v) to make any other provisions with
respect to matters or questions arising under this Agreement, which shall not
be inconsistent with the provisions of this Agreement and will not result in a
downgrade, qualification or withdrawal of the then current rating or ratings
then assigned to any outstanding Class of Certificates, as confirmed by each
Rating Agency in writing.
This Agreement or any Custodial Agreement may also be amended from
time to time by the Depositor, the Servicer, the Special Servicer, the Trustee
and the Fiscal Agent with the consent of the Holders of each of the Classes of
Regular Certificates representing not less than 66-2/3% of the Percentage
Interests of each Class of Certificates affected by the amendment for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the
rights of the Certificateholders; provided, however, that no such amendment
shall:
(i) reduce in any manner the amount of, or delay the
timing of, payments received on Mortgage Loans which are required to be
distributed on any Certificate without the consent of all the holders of all
Certificates representing all Percentage Interests of the Class or Classes
affected thereby;
(ii) change the percentages of Voting Rights of Holders of
Certificates which are required to consent to any action or inaction under this
Agreement, without the consent of the Holders of all Certificates representing
all of the Percentage Interest of the Class or Classes affected hereby;
(iii) alter the Servicing Standard or the obligations of
the Servicer, the Special Servicer, the Trustee or the Fiscal Agent to make a
P&I Advance or Property Advance without the consent of the Holders of all
Certificates representing all of the Percentage Interests of the Class or
Classes affected thereby; or
(iv) amend any section hereof which relates to the
amendment of this Agreement without the consent of all the holders of all
Certificates representing all Percentage Interests of the Class or Classes
affected thereby.
Further, the Depositor, the Servicer, the Special Servicer, the
Trustee and the Fiscal Agent, at any time and from time to time, without the
consent of the Certificateholders, may amend this Agreement to modify,
eliminate or add to any of its provisions to such extent as shall be necessary
to maintain the qualification of the Trust REMIC as two separate REMICs, or to
prevent the imposition of any additional material state or local taxes, at all
times that any Certificates are outstanding; provided, however, that such
action, as evidenced by an Opinion of Counsel (obtained at the expense of the
Trust Fund), is necessary or helpful to maintain such qualification or to
prevent the imposition of any such taxes, and would not adversely affect in any
material respect the interest of any Certificateholder.
In the event that neither the Depositor nor any successor thereto, if
any, is in existence, any amendment under this Section 10.07 shall be effective
with the consent of the Trustee, the Fiscal
- 151 -
<PAGE> 158
Agent, and the Servicer, in writing, and to the extent required by this
Section, the Certificateholders. Promptly after the execution of any
amendment, the Servicer shall forward to the Trustee and the Trustee shall
furnish written notification of the substance of such amendment to each
Certificateholder and each Rating Agency.
It shall not be necessary for the consent of Certificateholders under
this Section 10.07 to approve the particular form of any proposed amendment,
but it shall be sufficient if such consent shall approve the substance thereof.
The method of obtaining such consents and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe; provided, however, that such method
shall always be by affirmation and in writing.
Notwithstanding any contrary provision of this Agreement, no amendment
shall be made to this Agreement or any Custodial Agreement unless, if requested
by the Servicer and/or the Trustee, the Servicer and the Trustee shall have
received an Opinion of Counsel, at the expense of the party requesting such
amendment (or, if such amendment is required by either Rating Agency to
maintain the rating issued by it or requested by the Trustee for any purpose
described in clause (i) or (ii) of the first sentence of this Section, then at
the expense of the Trust Fund), to the effect that such amendment will not
cause either the Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify as a
REMIC at any time that any Certificates are outstanding or cause a tax to be
imposed on the Trust Fund under the REMIC Provisions (other than a tax at the
highest marginal corporate tax rate on net income from foreclosure property).
Prior to the execution of any amendment to this Agreement or any
Custodial Agreement, the Trustee, the Fiscal Agent, the Special Servicer and
the Servicer may request and shall be entitled to rely conclusively upon an
Opinion of Counsel, at the expense of the party requesting such amendment (or,
if such amendment is required by either Rating Agency to maintain the rating
issued by it or requested by the Trustee for any purpose described in clause
(i), (ii), (iii) or (v) (which do not modify or otherwise relate solely to the
obligations, duties or rights of the Trustee) of the first sentence of this
Section, then at the expense of the Trust Fund) stating that the execution of
such amendment is authorized or permitted by this Agreement. The Trustee and
the Fiscal Agent may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's or the Fiscal Agent's own rights, duties
or immunities under this Agreement.
SECTION 10.08. Confirmation of Intent.
It is the express intent of the parties hereto that the conveyance of
the Trust Fund (including the Mortgage Loans) by the Depositor to the Trustee
on behalf of Certificateholders as contemplated by this Agreement and the sale
by the Depositor of the Certificates be, and be treated for all purposes as, a
sale by the Depositor of the undivided portion of the beneficial interest in
the Trust Fund represented by the Certificates. It is, further, not the
intention of the parties that such conveyance be deemed a pledge of the Trust
Fund by the Depositor to the Trustee to secure a debt or other obligation of
the Depositor. However, in the event that, notwithstanding the intent of the
parties, the Trust Fund is held to continue to be property of the Depositor
then (a) this Agreement shall also be deemed to be a security agreement under
applicable law; (b) the transfer of the Trust Fund provided for herein shall be
deemed to be a grant by the Depositor to the Trustee on behalf of
- 152 -
<PAGE> 159
Certificateholders of a first priority security interest in all of the
Depositor's right, title and interest in and to the Trust Fund and all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
thereof and all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including,
without limitation, all amounts from time to time held or invested in the
Collection Account, the Distribution Account, Upper-Tier Account, Default
Interest Distribution Account and Excess Interest Distribution Account, whether
in the form of cash, instruments, securities or other property; (c) the
possession by the Trustee (or the Custodian on its behalf) of Notes and such
other items of property as constitute instruments, money, negotiable documents
or chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9-305 of the
Delaware and Illinois Uniform Commercial Code; and (d) notifications to Persons
holding such property, and acknowledgments, receipts or confirmations from
Persons holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Trustee for the purpose of perfecting
such security interest under applicable law. Any assignment of the interest of
the Trustee pursuant to any provision hereof shall also be deemed to be an
assignment of any security interest created hereby. The Depositor shall, and
upon the request of the Servicer, the Trustee shall, to the extent consistent
with this Agreement (and at the expense of the Trust Fund), take such actions
as may be necessary to ensure that, if this Agreement were deemed to create a
security interest in the Mortgage Loans, such security interest would be deemed
to be a perfected security interest of first priority under applicable law and
will be maintained as such throughout the term of this Agreement. It is the
intent of the parties that such a security interest would be effective whether
any of the Certificates are sold, pledged or assigned.
SECTION 10.09. Streit Act.
Any provisions required to be contained in this Agreement by Section
126 and/or Section 130-k or Article 4-A of the New York Real Property Law are
hereby incorporated herein, and such provisions shall be in addition to those
conferred or imposed by this Agreement; provided, however, that to the extent
that such Section 126 and/or Section 130-k shall not have any effect, and if
said Section 126 and/or Section 130-k should at any time be repealed or cease
to apply to this Agreement or be construed by judicial decision to be
inapplicable, said Section 126 and/or Section 130-k shall cease to have any
further effect upon the provisions of this Agreement. In case of a conflict
between the provisions of this Agreement and any mandatory provisions of
Article 4-A of the New York Real Property Law, such mandatory provisions of
said Article 4-A shall prevail, provided that if said Article 4-A shall not
apply to this Agreement, should at any time be repealed, or cease to apply to
this Agreement or be construed by judicial decision to be inapplicable, such
mandatory provisions of such Article 4-A shall cease to have any further effect
upon the provisions of this Agreement.
SECTION 10.10. No Intended Third-Party Beneficiaries.
No Person other than a party to this Agreement and any
Certificateholder shall have any rights with respect to the enforcement of any
of the rights or obligations hereunder. Without limiting the foregoing, the
parties to this Agreement specifically state that no Borrower, property manager
or other party to a Mortgage Loan is an intended third-party beneficiary of
this Agreement.
- 153 -
<PAGE> 160
IN WITNESS WHEREOF, the Depositor, the Servicer, the Special Servicer,
the Trustee and the Fiscal Agent have caused their names to be signed hereto by
their respective officers thereunto duly authorized all as of the day and year
first above written.
Signed and acknowledged AMRESCO COMMERCIAL MORTGAGE
in the presence of: FUNDING I CORPORATION,
as Depositor
By:
- ------------------------------------------- --------------------------
Print Name: Name:
Title:
Signed and acknowledged AMRESCO MANAGEMENT, INC.
in the presence of: as Servicer and Special
Servicer
By:
- ------------------------------------------- --------------------------
Print Name: Name:
Title:
- -------------------------------------------
Print Name:
Signed and acknowledged
in the presence of:
- -------------------------------------------
Print Name:
- -------------------------------------------
Print Name:
Signed and acknowledged LASALLE NATIONAL BANK
in the presence of: as Trustee, Custodian,
Certificate Registrar
and Paying Agent
- -------------------------------------------
Print Name:
- 154 -
<PAGE> 161
By:
- ------------------------------------------- --------------------------
Print Name: Name:
Title:
- ------------------------------------------- -----------------------------
as Fiscal Agent As Fiscal Agent
By: By:
---------------------------------------- --------------------------
Name: Name:
Title: Title:
Acknowledged by _____________
________________, solely with
respect to Section 3.07 and
Section 5.02
By:
--------------------------
Name:
Title:
- 155 -
<PAGE> 162
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this ____ day of_________, 199_, before me, the undersigned, a
Notary Public in and for the State of ____________, duly commissioned and
sworn, personally appeared ___________, to me known who, by me duly sworn, did
depose and acknowledge before me and say that s/he resides at
______________________________________________; that s/he is the _____________
of _________________________CORPORATION, a Delaware corporation, the
corporation described in and that executed the foregoing instrument; and that
s/he signed her/his name thereto under authority of the board of directors of
said corporation and on behalf of such corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
-----------------------------
NOTARY PUBLIC in and for the
State of ____________
My Commission expires:
(stamp)
(seal)
This instrument prepared by:
- ----------------------------------
Name:
-----------------------------
Address:
--------------------------
- ----------------------------------
- 1 -
<PAGE> 163
STATE OF__________________________ )
) ss:
COUNTY OF_________________________ )
On this ____ day of __________, 199_, before me, the undersigned, a
Notary Public in and for the State of _______, duly commissioned and sworn,
personally appeared _____________________, to me known who, by me duly sworn,
did depose and acknowledge before me and say that s/he resides at
__________________________________________ is the ____________________ of
______________________, the corporation described in and that executed the
foregoing instrument; and that he/she signed his/her name thereto under
authority of the board of directors of said corporation and on behalf of such
corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
-------------------------------------
NOTARY PUBLIC in and for the
State of__________________________.
My Commission expires:
(stamp)
(seal)
This instrument prepared by:
- ----------------------------------
Name:
-----------------------------
Address:
--------------------------
- ----------------------------------
- 1 -
<PAGE> 164
STATE OF _________________________ )
) ss:
COUNTY OF ________________________ )
On this ____ day of _____________, 199_, before me, the undersigned, a
Notary Public in and for the State of _______, duly commissioned and sworn,
personally appeared _____________________, to me known who, by me duly sworn,
did depose and acknowledge before me and say that s/he resides at ___________;
is the ____________________ of ______________________________, the corporation
described in and that executed the foregoing instrument; and that he/she signed
his/her name thereto under authority of the board of directors of said
corporation and on behalf of such corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
-------------------------------------
NOTARY PUBLIC in and for the
State of __________________________.
My Commission expires:
(stamp)
(seal)
This instrument prepared by:
- ----------------------------------
Name:
-----------------------------
Address:
--------------------------
- ----------------------------------
- 1 -
<PAGE> 165
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this ____ day of ___________, 199_, before me, the undersigned, a
Notary Public in and for the State of _______________, duly commissioned and
sworn, personally appeared _____________________, to me known who, by me duly
sworn, did depose and acknowledge before me and say that he resides at
___________________________; that s/he is a _____________ of
____________________________, a _______________________________, the
corporation described in and that executed the foregoing instrument; and that
he signed his name thereto under authority of the board of directors of said
corporation and on behalf of such corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
-----------------------------
NOTARY PUBLIC in and for the
State of ________________
My Commission expires:
(stamp)
(seal)
This instrument prepared by:
- ----------------------------------
Name:
-----------------------------
Address:
--------------------------
- ----------------------------------
- 1 -
<PAGE> 166
STATE OF ILLINOIS )
) ss:
COUNTY OF_________________ )
On this ____ day of _____________, 199_, before me, the undersigned, a
Notary Public in and for the State of Illinois, duly commissioned and sworn,
personally appeared _____________, to me known who, by me duly sworn, did
depose and acknowledge before me and say that s/he resides at _____________,
_____________, __________; that s/he is a _____________ of
_________________________., a _____________________________, the corporation
described in and that executed the foregoing instrument; and that s/he signed
her/his name thereto under authority of the board of directors of said
corporation and on behalf of such corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
-----------------------------
NOTARY PUBLIC in and for the
State of _____________
My Commission expires:
(stamp)
(seal)
This instrument prepared by:
- ----------------------------------
Name:
-----------------------------
Address:
--------------------------
- ----------------------------------
- 1 -
<PAGE> 1
LOAN SALE AGREEMENT
This Loan Sale Agreement (the "Agreement"), dated as of March 1, 1997,
is between AMRESCO Commercial Mortgage Funding I Corporation., as purchaser
(the "Purchaser"), and AMRESCO Commercial Mortgage Funding, L.P., as Seller
(the "Seller").
Capitalized terms used in this Agreement not defined herein shall have
the meanings ascribed to them in the Pooling and Servicing Agreement dated as
of March 1, 1997 (the "Pooling and Servicing Agreement") among the Purchaser,
as depositor, AMRESCO Management, Inc., as servicer, ________, as special
servicer, and LaSalle National Bank, as trustee (in such capacity, the
"Trustee"), pursuant to which the Purchaser will sell the Mortgage Loans (as
defined herein) to a trust fund and certificates representing ownership
interest in the Mortgage Loans will be issued by the trust fund. For purposes
of this Agreement, the "Mortgage Loans" refers to the mortgage loans listed on
Exhibit A hereto and "Mortgaged Properties" refers to the properties securing
such Mortgage Loans.
The Purchaser and the Seller wish to prescribe the manner of sale of the
Mortgage Loans from the Seller to the Purchaser and in consideration of the
premises and the mutual agreements hereinafter set forth, agree as follows:
SECTION I. Sale and Conveyance of Mortgages: Possession of Mortgage
File. The Seller does hereby sell, transfer, assign, set over and convey to the
Purchaser all of its right, title, and interest in and to the Mortgage Loans
described in Exhibit A hereto, including all interest and principal received on
or with respect to the Mortgage Loans after the Cut-off Date (other than
payments of principal and interest first due on the Mortgage Loans on or before
the Cut-off Date), each related Mortgage File and, to the extent of its rights
and obligations thereunder with respect to the Mortgage Loans, each Servicing
Agreement. Upon sale of the Mortgage Loans, the ownership of each Mortgage
Note, the Mortgage and the contents of the related Mortgage File will be vested
in the Purchaser and immediately thereafter the Trustee and the ownership of
records and documents with respect to the related Mortgage Loan prepared by or
which come into the possession of the Seller shall immediately vest in the
Purchaser and immediately thereafter the Trustee and shall be retained and
maintained in trust, by the Seller at the will of the Purchaser and the Trustee
in such custodial capacity only. The Seller's records will accurately reflect
the sale of each Mortgage Loan to the Trustee. The Seller shall release its
custody of the contents of any Mortgage File only in accordance with the
Custodial Agreement.
As the purchase price of the Mortgage Loans, the Purchaser shall pay to
the Seller or at the Seller's direction the sum of (a) the net proceeds of the
offering of the Certificates (net of any underwriting and placement agent fees)
plus (b) the amount, as determined by the Seller and notified to the Purchaser,
of any costs or expenses incurred by the Seller in connection with unwinding
any hedges placed by the Seller on the Mortgage Loans.
<PAGE> 2
SECTION II. Books and Records. From and after the sale of the Mortgage
Loans to the Purchaser, record title to each Mortgage and the related Mortgage
Note shall be transferred to the Trustee in accordance with this Agreement. All
rights arising out of the Mortgage Loans, including, but not limited to, all
funds received on or in connection with a Mortgage Loan, shall be received and
held by the Seller in trust for the benefit of the Trustee as the owner of the
Mortgage Loans.
The transfer of each Mortgage Loan shall be reflected on the Seller's
balance sheets and other financial statements as a sale of the Mortgage Loans
by the Seller to the Purchaser. The Seller shall be responsible for
maintaining, and shall maintain, a set of records for each Mortgage Loan which
shall be clearly marked to reflect the ownership of each Mortgage Loan by the
Trustee pursuant to the Pooling and Servicing Agreement.
SECTION III. Delivery of Mortgage Loan Documents. On the Delivery Date,
the Seller shall deliver or cause to be delivered to the Trustee or its
custodian each of the following documents for each Mortgage Loan:
a. the original or, if accompanied by a "lost note"
affidavit, a copy of the Mortgage Note, endorsed by the
Seller in blank or to the order of the Trustee;
b. the original Mortgage, and any intervening assignments (or
certified copies of such assignments) thereof, in each
case with evidence of recording indicated thereon or a
certified copy thereof if not returned from the applicable
recording officer;
c. originals or certified copies of any related Assignment of
Leases and Rents and any related Security Agreement (if,
in either case, such item is a document separate from the
Mortgage), any intervening assignments of each such
document or instrument, and any related UCC Financing
Statements;
d. an assignment of the Mortgage, executed by the Seller in
blank or to the order of the Trustee, with the assignment
to the Trustee in the following form: "LaSalle National
Bank, as trustee for AMRESCO Commercial Mortgage Funding I
Corporation Mortgage Pass-Through Certificates, Series
199__-___", in recordable form;
e. assignments of any related Assignment of Leases and Rents
and any related Security Agreement (if, in either case,
such item is a document separate from the Mortgage),
executed by the Seller or the prior holder which
transferred such Mortgage Loan in blank or to the order of
the Trustee, with the assignment to the trustee in the
following form: "LaSalle National Bank, as trustee for
AMRESCO Commercial Mortgage Funding I Corporation Mortgage
Pass-Through Certificates, Series 199__-___";
-2-
<PAGE> 3
f. 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 Note has
been assumed;
g. 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 Mortgage
Property is located;
h. with respect to any Mortgage Loan secured by a leasehold
interest, a certified copy of the related ground lease;
i. either (i) the originals of all intervening assignments,
including warehousing assignments, with evidence of
recording thereon, (ii) copies of such assignments
certified by a title company or escrow company to be true
and complete copies thereof where the originals have been
transmitted for recording until such time as the originals
are returned by the public recording office or (iii)
copies of such assignments certified by the public
recording offices where such assignments were recorded to
be true and complete copies thereof in those instances
where the public recording offices retain the originals or
where the original recorded assignments are lost;
j. either (i) copies of the UCC-1 financing statements and
any related continuation statements, each showing the
mortgagor as debtor and the originator as secured party
and each with evidence of filing thereon, together with a
copy of each intervening UCC-2 or UCC-3 financing
statement showing a complete chain of assignment from the
secured party named in such UCC-1 financing statement to
the Trustee with evidence of filing thereon disclosing the
assignment to the Trustee of the security interest in the
personal property securing the Mortgage Loan or (ii)
copies of such financing statements certified to be true
and complete copies thereof in instances where the
original financing statements have been sent to the
appropriate public filing office for filing;
k. the original appraisal; and
l. any escrow, guarantee and environmental liability
agreement.
SECTION IV. Treatment as a Security Agreement. The Seller, concurrently
with the execution and delivery hereof, has conveyed to the Purchaser, all of
its right, title and interest in and to the Mortgage Loans. The parties intend
that such conveyance of the Seller's right, title and
-3-
<PAGE> 4
interest in and to the Mortgage Loans pursuant to this Agreement shall
constitute a purchase and sale and not a loan. If such conveyance is deemed to
be a pledge and not a sale, then the parties also intend and agree that the
Seller shall be deemed to have granted, and does hereby grant, to the
Purchaser, a first priority perfected security interest in all of its right,
title and interest in, to and under the Mortgage Loans, all payments of
principal or interest on such Mortgage Loans, all other payments made and to be
made in respect of such Mortgage Loans and all proceeds thereof and that this
Agreement shall constitute a security agreement under applicable law. If such
conveyance is deemed to be a pledge and not a sale, the Seller consents to the
Purchaser hypothecating and transferring such security interest in favor of the
Trustee and transferring the obligation secured thereby to the Trustee.
SECTION V. Recordation of Assignments of Mortgage. The Purchaser shall
require, to the extent required in the Pooling and Servicing Agreement, the
Seller to record in the appropriate public recording office for real property
the intermediate assignments of the Mortgage Loans and the Assignments of
Mortgage from the Seller to the Trustee in connection with the Pooling and
Servicing Agreement. All recording fees relating to the initial recordation of
such intermediate assignments and Assignments of Mortgage shall be paid by the
Seller.
SECTION VI. Representations and Warranties.
A. The Purchaser represents and warrants it is a corporation duly
organized, validly existing, and in good standing in the State of Delaware.
B. The Seller represents and warrants it is a limited partnership
duly organized, validly existing, and in good standing in the State of [ ].
C. The Seller represents and warrants that immediately prior to the
sale and assignment contemplated herein, the Seller was the sole owner of the
Mortgage Loans free and clear of any and all liens, pledges, charges of
security interests of any nature and has full right and authority to sell and
assign the same.
D. The Seller and the Purchaser each represents and warrants to the
other that:
1. it has the power and authority to own its property and to
carry on its business as now conducted;
2. it has the power to execute, deliver and perform this
Agreement;
3. the execution, delivery and performance of this Agreement
have been duly authorized by all requisite action by such
entity's board of directors or general partner and will not
violate or breach any provision of any organizational document or
other agreement or instrument to which such entity is a party or
by which it is
-4-
<PAGE> 5
bound, or constitute a default or result in an acceleration under
any of the foregoing, or results in the violation of any law,
rule, regulation, order, judgment or decree to which such party
or its property is subject; and
4. this Agreement constitutes a legal, valid and binding
obligation of such party enforceable in accordance with its
terms, except as such enforcement may be limited by the
provisions of any bankruptcy or insolvency law, or law relating
to enforcement of creditors' rights generally, and by general
principles of equity, regardless of whether enforcement is sought
in a proceeding at law or in equity.
E. The Seller further makes the representations and warranties as to
the Mortgage Loans set forth in Exhibit B hereto as of the Delivery Date. The
Seller hereby covenants and agrees that is shall cure any breach of such
representations and warranties or repurchase any Mortgage Loans as to which
there has been any such breach at the Purchase Price, to the extent that such
breach materially and adversely affects the value of any Mortgage Loan or the
interest of any Certificateholders therein. Such cure or repurchase shall occur
within 90 days of the receipt of notice by the Seller of any such breach of a
representation and warranty in accordance with Section 2.04 of the Pooling and
Servicing Agreement.
F. The representations and warranties of the parties hereto shall
survive the execution and delivery and any termination of this Agreement.
SECTION VII. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
SECTION VIII. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of [Texas] and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
SECTION IX. No Third-Party Beneficiaries. The parties do not intend the
benefits of this Agreement to insure to any third party except as expressly set
forth in Section X.
SECTION X. Assignment. The Seller hereby acknowledges that the Purchaser
has, concurrently with the execution hereof, executed and delivered in the
Pooling and Servicing Agreement and that, in connection therewith, it has
assigned its rights hereunder to the Trustee for the benefit of the
Certificateholders.
SECTION XI. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by first class or registered mail, postage prepaid, to
(i) in the case of the Purchaser, AMRESCO Commercial
-5-
<PAGE> 6
Mortgage Funding I Corporation, 700 North Pearl Street, Suite 2400, L.B. No.
342, Dallas, Texas 75201 Attention: Michael N. Maberry, (ii) in the case of the
Seller, AMRESCO Commercial Mortgage Funding, L.P., ________, ________, ________
Attention: ________, and (iii) in the case of any of the preceding parties,
such other address as may hereafter be furnished to the other party in writing
by such Parties.
SECTION XII. Amendment. This Agreement may be amended only by a written
instrument which specifically refers to this Agreement and is executed by the
Purchaser and the Seller. This Agreement shall not be deemed to be amended
orally or by virtue of any continuing custom or practice.
SECTION XIII. Counterparts. This Agreement may be executed in any number
of counterparts, and by the parties hereto in separate counterparts, each of
which when executed and delivered shall be deemed to be an original and all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Purchaser and the Seller have caused their names
to be signed hereto by this respective officers thereunto duly authorized as of
the day and year first above written.
AMRESCO COMMERCIAL MORTGAGE FUNDING I
CORPORATION
By:
---------------------------------------
Name:
Title:
AMRESCO COMMERCIAL MORTGAGE FUNDING, L.P.
By:
---------------------------------------
Name:
Title:
-6-
<PAGE> 7
EXHIBIT A
MORTGAGE LOAN SCHEDULE
<PAGE> 1
Exhibit 5.1
February 21, 1997
AMRESCO Commercial Mortgage Funding I Corporation
700 North Pearl Street
Suite 2400, L.B. No. 342
Dallas, Texas 75201
Re: AMRESCO Commercial Mortgage Funding I Corporation
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special counsel for AMRESCO Commercial Mortgage Funding
I Corporation, a corporation organized under the laws of the State of Delaware
(the "Registrant"), in connection with the Registration Statement on Form S-3
(the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), on January
10, 1997 for the registration under the Act of Mortgage Pass-Through
Certificates (the "Certificates"). Each series of such Certificates will be
issued pursuant to a separate pooling and servicing agreement (the "Pooling and
Servicing Agreement"), among the Registrant, a trustee, a master servicer or
servicer and/or special servicer, each to be identified in the prospectus
supplement for such series of Certificates.
We have made such investigation of law as we deem appropriate and have
examined the proceedings heretofore taken and are familiar with the procedures
proposed to be taken by the Registrant in connection with the authorization,
issuance and sale of such Certificates. We have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Registrant's form
of organizational documents, the form of Pooling and Servicing Agreement and
the form of Certificates included therein and such other documents, records,
certificates of the Issuer and public officials and other instruments as we
have deemed necessary for the purposes of rendering this opinion. In addition,
we have assumed that the Pooling and Servicing Agreement as completed for each
series will be duly executed and delivered by each of the parties thereto; that
the Certificates as completed for each series will be duly executed and
delivered substantially in the forms contemplated by the Pooling and Servicing
Agreement; and that the Certificates for each series will be sold as described
in the Registration Statement.
Based upon the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that:
<PAGE> 2
AMRESCO Commercial Mortgage Funding I Corporation
February 21, 1997
Page 2
(i) When each Pooling and Servicing Agreement in respect of which we
have participated as your counsel has been duly authorized by all necessary
corporate action and has been duly executed and delivered, it will constitute a
valid and binding obligation of the Registrant enforceable in accordance with
its terms, subject to applicable bankruptcy, reorganization, insolvency and
similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law); and
(ii) When the issuance, execution and delivery of the Certificates in
respect of which we have participated as your counsel have been duly authorized
by all necessary corporate action, and when such Certificates have been duly
executed, authenticated and delivered and sold as described in the Registration
Statement, such Certificates will be legally and validly issued and the holders
of such Certificates will be entitled to the benefits provided by the Pooling
and Servicing Agreement pursuant to which such Certificates were issued.
In rendering the foregoing opinions, we have assumed the accuracy and
truthfulness of all public records of the Registrant and of all certifications,
documents and other proceedings examined by us that have been executed or
certified by officials of the Registrant acting within the scope of their
official capacities and have not verified the accuracy or truthfulness thereof.
We have also assumed the genuineness of the signatures appearing upon such
public records, certifications, documents and proceedings. In addition, we
have assumed that each such Pooling and Servicing Agreement and the related
Certificates will be executed and delivered in substantially the form filed as
exhibits to the Registration Statement, and that such Certificates will be sold
as described in the Registration Statement.
We express no opinion as to the laws of any jurisdiction other than the
substantive laws of the State of Texas, the General Corporation Law of the
State of Delaware and the federal laws of the United States of America, and we
express no opinion herein as to the effect that the laws and decisions of
courts of any such other jurisdiction may have upon such opinions.
We consent to the use and filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus Supplement and Prospectus contained therein.
In giving such consent we do not imply or admit that we are an expert with
respect to any part of the Registration Statement, including this exhibit,
within the meaning of the term "expert" as used in the Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
------------------------------
<PAGE> 1
Exhibit 8.1
[ANDREWS & KURTH LETTERHEAD]
February 21, 1997
AMRESCO Commercial Mortgage Funding I Corporation
700 North Pearl Street
Suite 2400, L.B. No. 342
Dallas, Texas 75201
Re: AMRESCO Commercial Mortgage Funding I Corporation
Registration Statement on Form S-3 (Number 333-19591)
Ladies and Gentlemen:
We have acted as counsel for AMRESCO Commercial Mortgage Funding I
Corporation, a corporation organized under the laws of the State of Delaware
(the "Registrant"), in connection with the issuance and sale of its Mortgage
Pass- Through Certificates that evidence interests in certain pools of mortgage
loans (the "Certificates"). Each series of Certificates will be issued
pursuant to a Pooling and Servicing Agreement among the Registrant, a trustee,
a master servicer or servicer and/or a special servicer, each to be specified
in the prospectus supplement for such series of Certificates. We have advised
the Registrant with respect to certain federal income tax consequences of the
proposed issuance of the Certificates. This advice is summarized under the
headings "Summary of Prospectus--Tax Status of the Certificates" and "Federal
Income Tax Consequences" in the Prospectus in respect of which we participated
as your counsel, all as part of the Registration Statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"), on January 10, 1997
for the registration of such Certificates under the Act.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Company's organizational documents and
such other documents, records, certificates of the Company and public officials
and other instruments as we have deemed necessary for the purposes of rendering
this opinion. In addition, we have assumed that the Pooling and Servicing
Agreement as completed for each series will be duly executed and delivered;
that the Certificates as completed for each series will be duly executed and
delivered substantially in the forms contemplated by the Pooling and Servicing
Agreement; and that the Certificates for each series will be sold as described
in the Registration Statement.
Based upon such examination and the qualifications set forth herein
and in reliance thereon, we are of the opinion that the description of federal
income tax consequences set forth under the
<PAGE> 2
AMRESCO Commercial Mortgage Funding I Corporation
February 21, 1997
Page 2
headings "Summary of Prospectus--Tax Status of the Certificates" and "Federal
Income Tax Consequences" in the Prospectus, to the extent it constitutes
matters of law or legal conclusions, is correct in all material respects.
The opinion herein is based upon our interpretations of current law,
including court authority and existing Final and Temporary Regulations, which
are subject to change both prospectively and retroactively, and upon the facts
and assumptions discussed herein. This opinion letter is limited to the
matters set forth herein, and no opinions are intended to be implied or may be
inferred beyond those expressly stated herein. Our opinion is rendered as of
the date hereof and we assume no obligation to update or supplement this
opinion or any matter related to this opinion to reflect any change of fact,
circumstances, or law after the date hereof. In addition, our opinion is based
on the assumption that the matter will be properly presented to the applicable
court. Furthermore, our opinion is not binding on the Internal Revenue Service
or a court. Our opinion represents merely our best legal judgment on the
matters presented; others may disagree with our conclusion. There can be no
assurance that the Internal Revenue Service will not take a contrary position
or that a court would agree with our opinion if litigated. In the event any
one of the statements, representations or assumptions we have relied upon to
issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
We hereby consent to the filing of this letter as an Exhibit 8.1 to
the Registration Statement and to the reference to this firm under the captions
"Federal Income Tax Consequences" in the Prospectus and "Summary of Prospectus
Supplement--Federal Income Tax Consequences" and "Federal Income Tax
Consequences" in the Prospectus Supplement, without implying or admitting that
we are "experts" within the meaning of the Act or the rules and regulations of
the Commission issued thereunder, with respect to any part of the Registration
Statement, including this Exhibit 8.1.
Sincerely,
/s/ Andrews & Kurth L.L.P.
--------------------------
