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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 11, 1998
Residential Asset Funding Corporation
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(Exact name of registrant as specified in its charter)
North Carolina 333-64775 56-2064715
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(State or Other Jurisdiction of (Commission File (I.R.S. Employer
Incorporation) Number) Identification No.)
301 South College Street
Charlotte, North Carolina 28202-6001
(Address of Principal Executive -------------------
Offices) (Zip Code)
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Registrant's telephone number, including area code (704) 374-4868
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No Change
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
Description of the Notes and the Mortgage Loans
Residential Asset Funding Corporation registered issuances of up to
$500,000,000 principal amount of Mortgage Pass-Through Certificates on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Act"), by the Registration Statements on Form S-3 (Registration
File No. 333-64775) (as amended, the "Registration Statement"). Pursuant to the
Registration Statement, Mortgage Lenders Network Home Equity Loan Trust 1998-3
(the "Trust") issued $114,925,000 in aggregate principal amount of its Asset
Backed Notes, Series 1998-3 (the "Notes"), on December 18, 1998. This Current
Report on Form 8-K is being filed to satisfy an undertaking to file copies of
certain agreements executed in connection with the issuance of the Notes.
The Notes were issued pursuant to an Indenture (the "Indenture")
attached hereto as Exhibit 4.1, dated as of December 1, 1998, between Mortgage
Lenders Network Home Equity Loan Trust 1998-3 and Norwest Bank Minnesota,
National Association, in its capacity as indenture trustee (the "Indenture
Trustee"). The Notes represent obligations of the Trust, which obligations are
secured by a pledge of mortgage loans and certain related property. Norwest Bank
Minnesota, National Association, will serve as indenture trustee with respect to
the Notes and the Registrant is filing herewith as Exhibit 25.1 to this Form
8-K, the Form T-1 Statement of Eligibility for the Trustee.
The assets of the Trust consist primarily of fixed-rate, closed-end,
conventional, monthly pay, mortgage loans (the "Mortgage Loans") secured by
first or second lien mortgages or deeds of trust (the "Mortgages") on real
properties (the "Mortgage Properties"). The Mortgaged Properties securing the
Mortgage Loans consist primarily of single family residences (which may be
detached, part of a two-to four-family dwelling, a condominium unit, a mixed use
property or a unit in a planned unit development).
Interest distributions on the Notes are based on the aggregate
principal balance thereof and the then applicable Note Interest Rate thereof.
The Note Interest Rate for the Notes is 6.38% for each Interest Period prior to
the Initial Redemption Date and 6.88% for each Interest Period thereafter.
As of December 1, 1998, the Mortgage Loans possessed the
characteristics described in the Prospectus dated November 10, 1998 and the
Prospectus Supplement dated December 11, 1998 filed pursuant to Rule 424(b)(5)
of the Act on June 21, 1998.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Not applicable
(b) Not applicable
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(c) Exhibit 2.1. Mortgage Loan Sale Agreement, dated December 1 among
Mortgage Lenders Network USA, Inc. ("MLN"), Norwest Bank Minnesota,
National Association ("Norwest" and Residential Asset Funding
Corporation ("RAFC").
Exhibit 2.2. Mortgage Loan Contribution Agreement, dated December 1,
1998, between Mortgage Lenders Network Home Equity Loan Trust,
Series 1998-3 (the "Issuer") and RAFC.
Exhibit 4.2. Deposit Trust Agreement, dated as of December 1, 1998,
among RAFC, MLN, Norwest and Wilmington Trust Company, as Owner
Trustee.
Exhibit 5.1. Opinion of Dewey Ballantine LLP regarding legality
Exhibit 5.2. Opinion of Dewey Ballantine LLP regarding tax matters.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized.
RESIDENTIAL ASSET FUNDING CORPORATION
as Depositor and on behalf of Mortgage Lenders
Network Home Equity Loan Trust 1998-3
Registrant
By: /s/ Carolyn Eskridge
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Name: Carolyn Eskridge
Title: Vice President
Dated: December 31, 1998
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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Exhibit 2.1. Mortgage Loan Sale Agreement, dated December 1 among Mortgage
Lenders Network USA, Inc. ("MLN"), Norwest Bank Minnesota,
National Association ("Norwest" and Residential Asset Funding
Corporation ("RAFC").
Exhibit 2.2. Mortgage Loan Contribution Agreement, dated December 1, 1998,
between Mortgage Lenders Network Home Equity Loan Trust,
Series 1998-3 (the "Issuer") and RAFC
Exhibit 4.2. Deposit Trust Agreement, dated as of December 1, 1998, among
RAFC, MLN, Norwest and Wilmington Trust Company, as Owner
Trustee
Exhibit 5.1. Opinion of Dewey Ballantine LLP regarding legality
Exhibit 5.2. Opinion of Dewey Ballantine LLP regarding tax matters.
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MORTGAGE LOAN SALE AGREEMENT
DATED AS OF DECEMBER 1, 1998
BETWEEN
MORTGAGE LENDERS NETWORK USA, INC.
AND
RESIDENTIAL ASSET FUNDING CORPORATION
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TABLE OF CONTENTS
SECTION 1. Sale and Purchase..........................................2
SECTION 2. Pool Purchase Price........................................2
SECTION 3. Transfer of the Mortgage Loans.............................3
SECTION 4. Representations and Warranties of the Seller...............5
SECTION 5. Representations and Warranties of the Depositor............8
SECTION 6. Covenants of the Seller....................................9
SECTION 7. Repurchase Obligations....................................10
SECTION 8. Indemnification...........................................11
SECTION 9. Conditions to Obligation of the Depositor.................12
SECTION 10. Fees and Deposits.........................................13
SECTION 11. Mandatory Delivery; Grant of Security Interest............13
SECTION 12. Notices...................................................14
SECTION 13. Severability of Provisions................................14
SECTION 14. GOVERNING LAW.............................................15
SECTION 15. Agreement of the Seller...................................15
SECTION 16. Survival..................................................15
SECTION 17. Assignment; Third Party Beneficiaries.....................15
SECTION 18. Miscellaneous.............................................15
EXHIBITS
A. Bill of Sale............................................A-1
B. Mortgage Loans Representations and Warranties...........B-1
C. Defined Terms...........................................C-1
D. Special Power of Attorney...............................D-1
E. Assignment of Mortgage Notes............................E-1
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MORTGAGE LOAN SALE AGREEMENT
THIS MORTGAGE LOAN SALE AGREEMENT (this "Agreement"), made as of
December 1, 1998, by and between MORTGAGE LENDERS NETWORK USA, INC., a Delaware
corporation ("MLN" or the "Seller"), and RESIDENTIAL ASSET FUNDING CORPORATION,
a Delaware corporation (the "Depositor"), recites and provides as follows:
RECITALS
1. Schedule I attached hereto (the "Mortgage Loan Schedule") and
made a part hereof lists fixed-rate mortgage loans secured by first and second
liens on real properties (the "Mortgage Loans"). The Mortgage Loans are
currently owned by the Seller and the Seller desires to sell such Mortgage Loans
to the Depositor.
2. The Depositor desires to purchase the Mortgage Loans and intends
immediately after its purchase to transfer the Mortgage Loans to Mortgage
Lenders Network Home Equity Loan Trust 1998-3 (the "Issuer"), which will be
formed pursuant to the terms of a deposit trust agreement (the "Trust
Agreement"), dated as of December 1, 1998, by and between the Depositor, as
depositor, and Wilmington Trust Company, a Delaware banking corporation, as
trustee (the "Owner Trustee").
3. The Issuer will in turn pledge the Mortgage Loans to Norwest Bank
Minnesota, National Association, as trustee (the "Indenture Trustee"), under an
indenture to be dated as of December 1, 1998 (the "Indenture"), by and between
the Issuer and the Indenture Trustee, pursuant to which the Issuer's Asset
Backed Notes, Series 1998-3 (the "Notes") will be issued.
4. The Notes shall be sold pursuant to an underwriting agreement
dated December 11, 1998 (the "Underwriting Agreement"), among First Union
Capital Markets, a division of Wheat First Securities Corp. ("First Union"), as
representative of First Union and Prudential Securities Incorporated
("Prudential", and together with First Union, the "Underwriters"), and the
Depositor, and will be offered publicly for sale by the Underwriters pursuant to
a prospectus supplement dated December 11, 1998 (the "Prospectus Supplement"),
and the related prospectus, dated November 10, 1998 (together with the
Prospectus Supplement, the "Prospectus").
5. The certificates of beneficial ownership of the Issuer (the
"Trust Certificates") will be issued at the direction of the Depositor to MLN
Capital Corporation I, a subsidiary of the Seller.
6. Capitalized terms used and not defined herein shall have the
meanings assigned to them in Exhibit C attached hereto or, if not defined
therein, in the Indenture.
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AGREEMENT
NOW, THEREFORE, in consideration of the above premises, the mutual
promises herein made and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. SALE AND PURCHASE.
(a) Subject to the terms and conditions of this Agreement, the Seller
agrees to sell, and the Depositor agrees to purchase, on the date of the
issuance of the Notes (the "Closing Date"), which is expected to be on or about
December 18, 1998, Mortgage Loans having an aggregate principal balance as of
the close of business on December 1, 1998 or, in the case of those Mortgage
Loans which were funded after December 1, 1998 but before the Closing Date, as
of their respective origination dates, of approximately 114,925,787.66 The
"Cut-off Date" is the close of business on December 1, 1998.
(b) The Seller has prepared the schedule attached hereto as Schedule I
identifying all of the Mortgage Loans to be purchased by the Depositor on the
Closing Date and describing such Mortgage Loans. The Seller shall, with the
Depositor's consent, amend or modify Schedule I on or prior to the Closing Date
if necessary to reflect the inclusion of additional Mortgage Loans and the
withdrawal of certain of the Mortgage Loans currently listed on the attached
Schedule I. Schedule I, as so amended or modified (the "Mortgage Loan
Schedule"), shall conform to the requirements of the Depositor as set forth in
this Agreement and shall be used as the definitive mortgage loan schedule
attached as an exhibit to the Indenture identifying all of the Mortgage Loans
actually transferred by the Seller and accepted by the Depositor on the Closing
Date.
(c) The sale of the Mortgage Loans shall be effected pursuant to the
Bill of Sale substantially in the form attached hereto as Exhibit A (the "Bill
of Sale").
SECTION 2. POOL PURCHASE PRICE.
(a) On the Closing Date, as full consideration for the Seller's sale of
the Mortgage Loans to the Depositor, the Depositor will (1) pay to the Seller
cash, in immediately available funds, equal to the proceeds of the sale of the
Notes by the Issuer, net of underwriting discounts and the Issuance Fee
described in Section 10 below, and (2) direct the issuance of the Trust
Certificates (collectively, the "Pool Purchase Price").
(b) The Depositor or any assignee or transferee of the Depositor (which
will include the Issuer and the Indenture Trustee) shall be entitled to all
Monthly Payments due after the Cut-off Date and all Principal Prepayments and
other unscheduled collections of principal collected in respect of the Mortgage
Loans on or after the Cut-off Date. All Monthly Payments due on or before the
Cut-off Date and collected on or after the Cut-off Date shall belong to the
Seller.
(c) The Depositor will transfer and assign all of its right, title and
interest in and to the Mortgage Loans to the Issuer, which will in turn pledge
all of its right, title and
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interest in and to the Mortgage Loans to the Indenture Trustee pursuant to the
Indenture for the benefit of the holders of the Notes and the Note Insurer.
SECTION 3. TRANSFER OF THE MORTGAGE LOANS.
(A) TRANSFER OF OWNERSHIP. Upon the sale of the Mortgage Loans, the
ownership of each Mortgage Loan and the related Mortgage Loan Documents shall be
vested in the Depositor, and the ownership of all other records and documents
with respect to any Mortgage Loan prepared by or which come into the possession
of the Seller shall immediately vest in the Depositor upon such preparation or
possession. The Seller shall promptly deliver to the Custodian, on behalf of the
Indenture Trustee, any documents that come into its possession with respect to
the Mortgage Loans following the sale of the Mortgage Loans to the Depositor.
Prior to such delivery, the Seller shall hold any such documents for the benefit
of the Depositor, its successors and assigns.
All documents with respect to any Mortgage Loan in the possession of
MLN following the execution by MLN of the Servicing Agreement shall be held by
MLN, in its capacity as Servicer, as bailee and agent for the Depositor, its
successors and assigns (including particularly the Issuer and the Indenture
Trustee), and shall only be released in accordance with the terms of the
Servicing Agreement.
(B) DELIVERY OF MORTGAGE LOAN FILES. Not later than two Business Days
prior to the Closing Date, the Seller shall deliver to the Custodian, on behalf
of the Indenture Trustee, each of the Mortgage Loan Documents required to be
included in the Mortgage File for each Mortgage Loan and an assignment of
Mortgage endorsed in blank substantially in the form of Exhibit E hereto. In the
event that the assignment of mortgage is recorded in accordance with Section
3(d) hereof, the Mortgage Note for each Mortgage Loan shall be endorsed by the
Custodian without recourse to the Indenture Trustee and the Mortgage for each
Mortgage Loan shall be assigned to the Indenture Trustee. Each endorsement of a
Mortgage Note to the Indenture Trustee shall be in the following form:
WITHOUT RECOURSE,
PAY TO THE ORDER OF
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
AS INDENTURE TRUSTEE
Each assignment of a Mortgage relating to a Mortgage Loan shall be made to
"NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE under an
Indenture with Mortgage Lenders Network Home Equity Loan Trust 1998-3 dated as
of December 1, 1998."
The Seller shall deliver the Mortgage Notes and the assignments of
Mortgage in recordable form to the Custodian, on behalf of the Indenture
Trustee, endorsed and assigned in blank, and in the event that the assignment of
mortgage is recorded in accordance with Section 3(d) hereof, the Custodian, on
behalf of the Indenture Trustee, shall fill in the endorsements and assignments
as specified above by stamp. The
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Indenture Trustee shall return the completed assignments of Mortgage to the
Custodian as soon as possible after the Closing Date so the Custodian can send
them out for recording as appropriate.
Prior to the transfer and sale of the Mortgage Loans pursuant to this
Agreement, all Mortgage Loan Documents delivered to the Custodian, on behalf of
the Indenture Trustee, shall be held by the Custodian, on behalf of the
Indenture Trustee, for the benefit of the Seller, and the possession by the
Custodian, on behalf of the Indenture Trustee, of such Mortgage Loan Documents
will be at the will of the Seller and will be in a custodial capacity only.
Following the transfer and sale of the Mortgage Loans from the Seller to the
Depositor in accordance with the terms and upon satisfaction of the conditions
of this Agreement and until transfer of the Mortgage Loans to the Issuer, the
Custodian, on behalf of the Indenture Trustee, will hold all Mortgage Loan
Documents delivered to it hereunder for the benefit of the Depositor, as its
agent and bailee. The Custodian will act on the Depositor 's behalf as a
custodian for the receipt and custody of all Mortgage Files during the period
described in the preceding sentence and, after the transfer of the Mortgage
Loans to the Issuer, the Custodian will hold all Mortgage Loan Documents
delivered to it hereunder as the agent of and custodian for the Issuer until the
Mortgage Loans are pledged by the Issuer to the Indenture Trustee.
(C) EXAMINATION OF MORTGAGE LOAN DOCUMENTS; ACCEPTANCE OF MORTGAGE LOANS.
Prior to the Closing Date, the Seller shall either (1) deliver to the Depositor
or its designee in escrow, for examination, the Mortgage Loan Documents
pertaining to each Mortgage Loan, or (2) make such Mortgage Loan Documents
available to the Depositor or its designee for examination at the Seller's
offices or at such other place as the Seller shall specify. The Depositor, the
Issuer, the Custodian, the Indenture Trustee, or a designee of any such entity
may review the Mortgage Loan Documents.
Prior to the Closing Date, the Custodian shall review the documents
delivered pursuant to Section 3(b) hereof as provided in Section 6.15(a) of the
Indenture. An additional review shall be conducted by the Custodian, on behalf
of the Indenture Trustee prior to the first anniversary of the Closing Date as
provided in Section 6.15(b) of the Indenture. If at any time the Depositor, the
Custodian or the Indenture Trustee discovers or receives notice that any
Mortgage Loan Document is missing or defective in any material respect with
respect to any Mortgage Loan, or that there exists any material discrepancy
between the Mortgage Loan Documents and the Mortgage Loan Schedule, it shall
promptly notify the Seller and the Note Insurer in writing thereof. Upon its
receipt of notice of such incompleteness, defect or discrepancy, the Seller
shall cure, repurchase or substitute for the affected Mortgage Loan to the
extent provided in Section 7(b) hereof. At the time of any such repurchase or
substitution, the Custodian shall release documents in its possession relating
to such Mortgage Loan to the Seller. The fact that the Depositor, the Custodian,
the Indenture Trustee or a designee of either entity has conducted or has failed
to conduct any partial or complete examination of the Mortgage Loan Documents
shall not affect the rights of the Depositor, the Indenture Trustee (or any
assignee or successor of either of them) to demand repurchase or other relief as
provided herein.
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(D) RECORDATION OF ASSIGNMENTS OF MORTGAGE. Subject to the sale of the
Mortgage Loans by the Seller to the Depositor in accordance with the terms of
this Agreement, the Depositor hereby authorizes and instructs the Seller, and
the Seller hereby agrees, to record (or to cause one of its affiliates to
record) all assignments with respect to each Mortgage Loan required to be
contained in the Mortgage File pursuant to the Indenture in the public recording
office for the jurisdiction in which the related Mortgaged Property is located;
PROVIDED, HOWEVER, that, for administrative convenience and facilitation of
servicing and to reduce closing costs, assignments of mortgage shall not be
required to be submitted for recording with respect to any Mortgage Loan, unless
a Recordation Trigger Event shall have occurred and be continuing; and PROVIDED,
FURTHER, that no recordation of the assignment of mortgage shall be required
upon the occurrence of a Recordation Trigger Event, if the Indenture Trustee,
the Note Insurer and each Rating Agency has received an Opinion of Counsel,
satisfactory in form to the Note Insurer and each Rating Agency, to the effect
that the recordation of such assignments in any specific jurisdiction is not
necessary to protect the Indenture Trustee's interest in the related Mortgage.
All recording fees relating to the recordation of the assignments as described
above shall be paid by the Seller or an affiliate of the Seller. Such
assignments with respect to each Mortgage Loan must be delivered to the
recording office of the appropriate jurisdiction within 60 days after the
Closing Date, and the failure of the related assignment to contain evidence of
recording thereon within one year after the Closing Date will constitute a
defect for purposes of Section 7 below.
(e) On or before the Closing Date, the Seller shall deliver to the
Indenture Trustee original executed powers of attorney, from the current
recordholders of the related Mortgage substantially in the form of Exhibit D,
authorizing the Indenture Trustee to record the assignments of mortgage as
provided in (d) above, if necessary. Pursuant to such powers of attorney, the
Indenture Trustee also may authorize the Servicer to execute a new assignment of
mortgage for any Mortgage Loan if the original assignment of mortgage delivered
by the Seller to the Indenture Trustee is not in recordable form at such time as
the assignment of mortgage is to be recorded by the Custodian.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
(a) The Seller hereby represents and warrants to the Depositor as of
the date of this Agreement, or as of such other date as is specifically
provided, as follows:
(1) The Seller has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware and is
duly qualified to do business and in good standing under the laws of
each jurisdiction that requires such qualification wherein it owns or
leases any material properties (except where the failure so to qualify
would not have a material adverse effect on the Seller). The Seller has
the full power and authority (corporate and other) to own its
properties and conduct its business as its business is presently
conducted.
(2) The Seller has the full power, authority and legal right to
transfer and convey the Mortgage Loans to the Depositor, and has the
full power, authority (corporate and other) and legal right to execute
and deliver, engage in the
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transactions contemplated by, and perform and observe the terms and
conditions of, this Agreement.
(3) This Agreement has been duly and validly authorized, executed
and delivered by the Seller and (assuming the due authorization,
execution and delivery hereof by the Depositor) constitutes the valid,
legal and binding agreement of the Seller, enforceable against the
Seller in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws
affecting creditors' rights generally and to general principles of
equity, regardless of whether such enforcement is sought in a
proceeding in equity or at law.
(4) No consent, approval, authorization or order of or registration
or filing with, or notice to, any governmental authority or court is
required for the execution, delivery and performance of or compliance
by the Seller with this Agreement or the consummation by the Seller of
any other transaction contemplated hereby except for those that have
been obtained by the Seller and are in full force and effect.
(5) Neither the execution and delivery of this Agreement by the
Seller, nor the consummation by the Seller of the transactions herein
contemplated, nor compliance with the provisions hereof by the Seller,
will (A) conflict with or result in a breach of, or constitute a
default under, any of the provisions of the Seller's articles of
incorporation or by-laws, or any law, governmental rule or regulation,
or any judgment, decree or order binding on the Seller or any of its
properties, or any of the provisions of any indenture, mortgage, deed
of trust, contract or other instrument to which the Seller is a party
or by which the Seller is bound or (B) result in the creation or
imposition of any lien, charge or encumbrance which would have a
material adverse effect upon any of the Seller's properties pursuant to
the terms of any such indenture, mortgage, deed of trust, contract or
other instrument.
(6) The Seller is not, and with passage of time does not expect to
become, insolvent or bankrupt.
(7) There are no actions, suits, proceedings or investigations
pending or, to the Seller's knowledge, threatened against the Seller
that should reasonably be expected to affect adversely the transfer of
the Mortgage Loans, the issuance of the Notes, or the execution,
delivery, performance or enforceability of this Agreement or have a
material adverse effect on the financial condition of the Seller.
(8) The Seller is, and, immediately prior to the sale of the
Mortgage Loans to the Depositor, the Seller will be, the sole owner of,
and will have good, indefeasible and marketable title to, the Mortgage
Loans, subject to no prior lien, mortgage, security interest, pledge,
charge or other encumbrance, except any lien to be released prior to or
concurrently with the purchase of the Mortgage Loans
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by the Depositor. Following the sale of the Mortgage Loans, the
Depositor or the Issuer as the Depositor's transferee will own such
Mortgage Loans, free and clear of any prior lien, mortgage, security
interest, pledge, charge or other encumbrance (assuming that an
Assignment of the related Mortgage from the Seller to the Depositor, or
its designee, is recorded), except the lien created by the Indenture.
(9) Neither this Agreement, nor any statement, report or other
document prepared by MLN and furnished or to be furnished pursuant to
this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement or alleged untrue statement of any
material fact or omits to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances
under which they were made, not misleading.
(b) As to each Mortgage Loan, the Seller hereby represents and warrants
to the Depositor as of the date of this Agreement, or as of such other date as
is specifically provided, that each representation and warranty set forth in
Exhibit B hereto is true and correct.
(1) The Seller has not dealt with any broker, investment banker,
agent or other person that may be entitled to any commission or
compensation in connection with the sale of the Mortgage Loans to the
Depositor.
(2) The Seller will treat the transfer of the Mortgage Loans to the
Depositor as a sale on its books and records in accordance with
generally accepted accounting principles.
(3) With respect to each Mortgage Loan, the Seller is in possession
of each of the Mortgage Loan Documents required to be included in the
related Mortgage File (except to the extent such Mortgage File has been
delivered to the Indenture Trustee or the Custodian as described in
this Agreement).
(4) The transfer, assignment and conveyance of the Mortgage Loans
by the Seller pursuant to this Agreement are not subject to the bulk
transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
(5) The Seller used no adverse selection procedures in selecting
the Mortgage Loans that identified the Mortgage Loans as being less
desirable or valuable than other mortgage loans in its portfolio as to
which the representations and warranties required by this Agreement
could truthfully be made. The Mortgage Loans are representative of the
Seller's portfolio of fixed-rate residential mortgage loans.
(6) The description of those Mortgage Loans that had been
identified as of December 1, 1998 (the "Mortgage Loans") set forth in
the Offering Documents and the Prospectus Supplement under the heading
"Summary of Terms - The Mortgage Loans" and "Description of the
Mortgage Pool" does not contain any untrue statement of any material
fact or omit any material fact required to be
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stated therein or necessary in order to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading.
(7) The information set forth in the Mortgage Loan Schedule hereto
is true and correct in all material respects in the case of each
Mortgage Loan, as of its respective Cut-off Date.
(8) The consideration received by the Seller upon the sale of the
Mortgage Loans under this Agreement constitutes fair consideration and
reasonably equivalent value for the Mortgage Loans.
(9) The Seller is solvent, and the sale of the Mortgage Loans as
contemplated hereby will not cause the Seller to become insolvent. The
sale of the Mortgage Loans is not undertaken with the intent to hinder,
delay or defraud any of the Seller's creditors.
(10) The Seller intends to relinquish all rights to possess,
control and monitor the Mortgage Loans sold pursuant to this Agreement
(except such rights as are entailed in its serving as the Servicer of
the Mortgage Loans under the Servicing Agreement). After the Closing
Date, the Seller will have no right to modify or alter the terms of the
sale of the Mortgage Loans (except such rights as are entailed in its
serving as the Servicer of the Mortgage Loans under the Servicing
Agreement), and the Seller will have no right or obligation to
repurchase any Mortgage Loan or substitute another mortgage loan for
any Mortgage Loan sold hereunder, except as provided in Sections 3 and
7 hereof.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Seller as of the date of this
Agreement, or as of such other date as is specifically provided, as follows:
(a) The Depositor is a corporation duly organized and validly existing
in good standing under the laws of the State of North Carolina.
(b) The Depositor has the full power, authority (corporate and other)
and legal right to execute and deliver, engage in the transactions contemplated
by, and perform and observe the terms and conditions of, this Agreement.
(c) This Agreement has been duly and validly authorized, executed and
delivered by the Depositor, and (assuming the due authorization, execution and
delivery hereof by the Seller) constitutes the valid, legal and binding
agreement of the Depositor, enforceable against the Depositor in accordance with
its terms, subject to bankruptcy, insolvency, reorganization, receivership,
moratorium or other similar laws affecting creditors' rights generally and to
general principles of equity, regardless of whether such enforcement is sought
in a proceeding in equity or at law.
(d) No consent, approval, authorization or order of or registration or
filing with, or notice to, any governmental authority or court is required, for
the execution, delivery and performance of or compliance by the Depositor with
this Agreement or the
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consummation by the Depositor of any other transaction contemplated hereby
except for those which have been obtained by the Depositor and are in full force
and effect.
(e) Neither the execution and delivery of this Agreement by the
Depositor, nor the consummation by the Depositor of the transactions hereby
contemplated, nor compliance with the provisions hereof by the Depositor, will
(i) conflict with or result in a breach of, or constitute a default under, any
of the provisions of the Depositor's certificate of incorporation or by-laws, or
any law, governmental rule or regulation, or any judgment, decree or order
binding on the Depositor or any of its properties, or any of the provisions of
any contract or other instrument to which the Depositor is a party or by which
it is bound or (ii) result in the creation or imposition of any lien, charge or
encumbrance which would have a material adverse effect upon the Notes.
(f) There are no actions, suits, proceedings or investigations pending
or, to the Depositor's knowledge, threatened against the Depositor that should
reasonably be expected to affect adversely the execution, delivery, performance
or enforceability of this Agreement or have a material adverse effect on the
financial condition of the Depositor.
SECTION 6. COVENANTS OF THE SELLER. The Seller hereby covenants to the
Depositor as follows:
(a) On or before the Closing Date, the Seller shall execute and deliver
a Secretary's or Assistant Secretary's Certificate evidencing the Seller's
authority to enter into the transactions contemplated by this Agreement.
(b) On or before the Closing Date, the Seller shall take all steps
reasonably required of it to effect the transfer of the Mortgage Loans to the
Depositor, the transfer of the Mortgage Loans to the Issuer and the pledge of
the Mortgage Loans to the Indenture Trustee, free and clear of any lien, charge,
or encumbrance except the lien evidenced by the Indenture.
(c) The Seller shall use its best efforts to make available to counsel
for the Depositor in executed form each of the Closing Documents (as defined in
Section 9(b) below) on or before the Closing Date, it being understood that such
documents are to be released and delivered only on the closing of the
transaction contemplated hereby and the sale of the Notes.
(d) In the event the Seller fails to take all actions necessary to
effect the conveyance of the Mortgage Loans to the Depositor on or before the
Closing Date as contemplated hereby, the Seller hereby constitutes and appoints
the Depositor and its officers and representatives as the Seller's true and
lawful attorneys-in-fact to do all acts and transactions and to execute and
deliver all agreements, documents, instruments and papers by and on behalf of
the Seller as may be necessary to consummate the transfer of the Mortgage Loans
to the Depositor. The foregoing grant of authority shall be deemed to be
irrevocable and a power coupled with an interest.
(e) The Seller covenants that it shall operate in such a manner that
MLN Capital Corporation I would not be substantively consolidated in the
bankruptcy estate of the
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Seller, such that the separate existence of MLN Capital Corporation I would be
disregarded in the event of the bankruptcy or insolvency of the Seller.
SECTION 7. REPURCHASE OBLIGATIONS.
(a) Each of the representations and warranties made by the Seller
herein shall survive the purchase by the Depositor of the Mortgage Loans and
shall continue in full force and effect, notwithstanding any restrictive or
qualified endorsement on the Mortgage Notes and notwithstanding subsequent
termination of this Agreement, the Trust Agreement or the Indenture. The
Seller's representations and warranties shall not be impaired by any review or
examination of Mortgage Loan Documents or other documents evidencing or relating
to the Mortgage Loans or any failure on the part of the Depositor to review or
examine such documents and shall inure to the benefit of the Issuer and the
Indenture Trustee (as the assignees of the Depositor) for the benefit of the
Noteholders and the Note Insurer. With respect to the representations and
warranties contained herein that are made to the best of the Seller's knowledge
or as to which the Seller has no knowledge, if it is discovered by either the
Seller, the Depositor, or the Indenture Trustee that the substance of any such
representation and warranty is inaccurate and such inaccuracy materially and
adversely affects the value of the related Mortgage Loan, then notwithstanding
the Seller's lack of knowledge with respect to the substance of such
representation and warranty being inaccurate at the time the representation and
warranty was made, the Seller shall take action in accordance with the following
paragraph in respect of such Mortgage Loan.
(b) Upon discovery or receipt of notice by the Seller, the Depositor or
the Indenture Trustee of any missing or materially defective document in any
Mortgage File, a breach of any of the representations and warranties set forth
in Section 4 hereof or in Exhibit B hereto, or a default in the performance of
any of the covenants or other obligations of the Seller under this Agreement,
that in any of the foregoing cases materially and adversely affects the value of
any Mortgage Loan or the interest therein of the Depositor, the Issuer, the
Indenture Trustee, the Noteholders or the Note Insurer, the party discovering or
receiving notice of the missing or materially defective document, breach, or
default shall give prompt written notice to the other parties and to the
Underwriters. Upon its discovery or its receipt of notice of any such missing or
materially defective documentation or any such breach of a representation and
warranty or covenant, the Seller shall, within 60 days after such discovery or
receipt of such notice, either (i) cure such defect or breach in all material
respects, or (ii) either repurchase the affected Mortgage Loan at the Purchase
Price therefor or substitute one or more Qualified Replacement Mortgage Loans
for the related Mortgage Loan. The Seller shall amend the Mortgage Loan Schedule
to reflect the withdrawal of any Mortgage Loan from the terms of this Agreement,
the Trust Agreement and the Indenture and the addition, if any, of any Qualified
Replacement Mortgage Loan(s). In order to effect a substitution pursuant to this
Section 7(b), the Seller will deliver to the Indenture Trustee or the Custodian
(i) each of the Mortgage Loan Documents required to be contained in the Mortgage
File with respect to the Qualified Replacement Mortgage Loan(s) and (ii) if the
aggregate Principal Balance on the date of substitution of the Qualified
Replacement Mortgage Loan(s) is less than the Principal Balance of the replaced
Mortgage Loan (after application of
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Monthly Payments due in the month of substitution), cash in an amount equal to
such shortfall plus 30 days' interest at the Mortgage Interest Rate for the
replaced Mortgage Loan on the amount of such shortfall. The Indenture Trustee
shall deposit any such cash into the Note Account. Any repurchase of a Mortgage
Loan pursuant to this Section 7(b) shall be accomplished by the delivery to the
Indenture Trustee, on (or determined as of) the last day of the calendar month
in which such repurchase is made, of the Purchase Price for such Mortgage Loan
(such delivery may be made on or before the Deposit Date in the month following
such calendar month).
(c) It is understood and agreed that the obligations of the Seller set
forth in this Section 7 to cure, repurchase or substitute for a Mortgage Loan
and to indemnify the Depositor as provided in Section 8 of this Agreement
constitute the sole remedies of the Depositor, the Issuer and the Indenture
Trustee against the Seller with respect to a missing or materially defective
document in any Mortgage File, a breach of representations and warranties of the
Seller set forth in Section 4 hereof or in Exhibit B hereto, or a default in the
performance by the Seller of any of its covenants or other obligations under
this Agreement.
SECTION 8. INDEMNIFICATION.
(a) In the event the Seller breaches its representations, warranties,
covenants or obligations set forth herein or in the event of Mortgage Pool
Error, the Seller shall indemnify and hold harmless the Depositor (and its
assignees in accordance with Section 17 hereof) (the "Indemnified Parties") from
and against any losses, damages, penalties, fines, forfeitures, legal fees and
related costs, judgments, and other costs and expenses resulting from any claim,
demand, defense or assertion based on or grounded upon, or resulting from, such
breach or such Mortgage Pool Error. Promptly after receipt by an Indemnified
Party of notice of the commencement of any such action, such Indemnified Party
will notify the Seller in writing of the commencement thereof if a claim in
respect of such action is to be made against the Seller under this Section 8,
but the omission so to notify the Seller will not relieve the Seller from any
liability hereunder unless such omission materially prejudices the rights and
positions of the Seller. If any such action is brought against an Indemnified
Party, and it notifies the Seller of the commencement thereof, the Seller will
be entitled to participate therein, and to assume the defense thereof, with
counsel selected by the Seller and reasonably satisfactory to such Indemnified
Party, and after notice from the Seller to the Indemnified Party of its election
so to assume the defense thereof, the Seller will not be liable to the
Indemnified Party under this Section 8 for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
of such action; provided, however, that this sentence shall not be in effect if
(1) the Seller shall not have employed counsel reasonably satisfactory to the
Indemnified Party to represent the Indemnified Party within a reasonable time
after notice of commencement of the action or (2) the Seller shall have
authorized the employment of counsel for the Indemnified Party at the expense of
the Seller. If the Seller assumes the defense of any such proceeding, it shall
be entitled to settle such proceeding with the consent of any Indemnified Party
that is also subject to such proceeding or, if such settlement provides for
release of any such Indemnified Party in connection with all matters relating to
the proceeding which have been asserted against
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such Indemnified Party in such proceeding by the other parties to such
settlement, without the consent of such Indemnified Party.
(b) The Seller shall reimburse the Underwriters upon demand for all
amounts otherwise payable by the Depositor pursuant to the indemnification
provisions in the Underwriting Agreement, in the event that any breach referred
to in the preceding paragraph or any of the following results in the inability
of the parties hereto to consummate the transactions contemplated herein: (1)
failure to obtain any consent or authorization, if any, required under federal
or applicable state law for the Seller to perform the transactions contemplated
herein; or (2) the Seller's failure to perform any of the obligations of the
Seller under Section 9(a), (b), (c) or (d) hereof.
(c) In the event of a breach by an Underwriter of its obligation to
purchase the Notes pursuant to the Underwriting Agreement, subject to payment in
full of the Issuance Fee (as defined in Section 10 below) to the Depositor, the
Depositor hereby assigns to the Seller any and all rights of action or other
claims the Depositor may have against any Underwriter pursuant to the
Underwriting Agreement (other than the Depositor's right to receive payment due
the Depositor from the Underwriters for the Depositor's expenses related to the
proposed issuance of the Notes); provided, however, that the Depositor expressly
reserves, and does not hereby assign, its rights to indemnification and
contribution under the Underwriting Agreement and any other rights to
indemnification or contribution it may have at law or in equity.
SECTION 9. CONDITIONS TO OBLIGATION OF THE DEPOSITOR. The obligation of
the Depositor hereunder to purchase the Mortgage Loans is subject to the
following conditions:
(a) The accuracy in all material respects of all of the representations
and warranties of the Seller under this Agreement and the non-occurrence of any
event which, with notice or the passage of time, would constitute a default
under this Agreement;
(b) the Depositor shall have received, or the Depositor's attorneys
shall have received, in escrow (to be released from escrow at the time of
closing), the following documents (collectively, the "Closing Documents") in
such forms as are agreed upon and acceptable to the Depositor, duly executed by
all signatories other than the Depositor as required pursuant to the respective
terms thereof:
(i) A Bill of Sale substantially in the form of Exhibit A hereto;
(ii) An opinion of counsel for the Seller as to various corporate
matters and such other opinions of counsel as are necessary in
order to obtain the ratings set forth in Section 9(f) below, each
of which shall be acceptable to the Depositor, its counsel, the
Seller, its counsel, and Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies, Inc. ("S&P" and together with Moody's,
the "Rating Agencies") (it being understood
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that such opinions shall expressly provide that the Indenture
Trustee shall be entitled to rely on such opinions of counsel); and
(iii) From PricewaterhouseCoopers LLP, certified public
accountants, comfort letters as required by the Underwriting
Agreement.
(c) The Seller shall have delivered to the Indenture Trustee, in
escrow, all documents required to be delivered hereunder and shall have released
its interest therein to the Depositor or its designee;
(d) Compliance by the Seller with all other terms and conditions of
this Agreement;
(e) The purchase by the Underwriters of the Notes pursuant to the terms
of the Underwriting Agreement; and
(f) The receipt of written confirmation from Moody's and S&P that they
have assigned ratings of "Aaa" and "AAA" to the Notes, respectively.
SECTION 10. FEES AND DEPOSITS. The Seller shall be responsible for
payment of (1) all fees and expenses of accountants, printers, the Note Insurer,
the Owner Trustee and the Indenture Trustee in connection with the issuance of
the Notes, including the fees of their respective attorneys, including such fees
and expenses associated with loan file due diligence review, (2) the fees
incurred by the Depositor in connection with the establishment of the
registration statement with respect to the Notes, including fees payable to the
Securities and Exchange Commission with respect to the Notes, the payment of an
issuance fee (the "Issuance Fee") of 287,313 to or at the direction of the
Depositor for the use of its services in connection with the issuance of the
Notes and the Depositor's related fees and expenses for attorneys and
accountants, and (3) the fees and expenses payable to the Rating Agencies for
their initial ratings of the Notes, including the fees of their respective
attorneys. In addition, the Seller shall pay the fees and expenses of its and
the Depositor's attorneys and accountants in connection with the issuance of the
Notes.
SECTION 11. MANDATORY DELIVERY; GRANT OF SECURITY INTEREST. The sale
and delivery on the Closing Date of the Mortgage Loans described in the Mortgage
Loan Schedule are mandatory, it being specifically understood and agreed that
each Mortgage Loan is unique and identifiable on the Closing Date and that an
award of money damages would be insufficient to compensate the Depositor for the
losses and damages that would be incurred by the Depositor in the event of the
Seller's failure to deliver the Mortgage Loans on or before the Closing Date.
The Seller hereby grants to the Depositor a first lien on and a continuing first
priority security interest in each Mortgage Loan and each document and
instrument evidencing each Mortgage Loan to secure the performance by the Seller
of its obligation to deliver such Mortgage Loans hereunder. All rights and
remedies of the Depositor under this Agreement are distinct from, and cumulative
with, any other rights or remedies under this Agreement or afforded by law or
equity, and all such rights and remedies may be exercised concurrently,
independently or successively.
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SECTION 12. NOTICES. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered or mailed by registered mail, postage prepaid, or transmitted by
telecopier, telex or telegraph and confirmed by a similar mailed writing, to the
following:
a. If to the Depositor:
Residential Asset Funding Corporation
c/o First Union Capital Markets
301 South College Street, TW-06
Charlotte, North Carolina 28288-0610
Attention: Shanker Merchant
Telecopy: (704) 383-8121
b. If to the Seller:
Mortgage Loan Network USA, Inc.
Middlesex Corporate Center, 11th Floor
213 Court Street
Middletown, Connecticut 06487
Attention: General Counsel
Telecopy: (860) 344-5707
c. If to the Note Insurer:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio Management - Structured
Finance (IMP-SF) (Mortgage Lenders Network Home Equity
Loan Trust 1998-3)
Telecopy: (914) 765-3810
Any party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this Section 12 for the giving of notice.
SECTION 13. SEVERABILITY OF PROVISIONS. Any part, provision,
representation, warranty or covenant contained in this Agreement that is
prohibited or unenforceable or that is held to be void or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law that prohibits
or renders void or unenforceable any provision hereof.
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SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, NOTWITHSTANDING
ANY NEW YORK OR OTHER CONFLICT OF LAWS PROVISION TO THE CONTRARY.
SECTION 15. AGREEMENT OF THE SELLER. The Seller agrees to execute and
deliver such instruments and take such actions as the Depositor, the Issuer or
the Indenture Trustee may, from time to time, reasonably request in order to
effectuate the purpose and to carry out the terms of this Agreement, including,
without limitation, the execution and filing of any UCC financing statements to
evidence the interests of the Depositor and any of its transferees in the
Mortgage Loans and other assets pledged to the Indenture Trustee.
SECTION 16. SURVIVAL. The Seller agrees that the representations,
warranties and agreements made by it herein and in any certificate or other
instrument delivered pursuant hereto shall be deemed to have been relied upon by
the Depositor, notwithstanding any investigation heretofore or hereafter made by
the Depositor or on the Depositor's behalf, and that the representations,
warranties and agreements made by the Seller herein or in any such certificate
or other instrument shall survive the delivery of and payment for the Mortgage
Loans.
SECTION 17. ASSIGNMENT; THIRD PARTY BENEFICIARIES. The Seller hereby
acknowledges that the Depositor will assign all its rights hereunder (except
those rights set forth in Section 8(b) and Section 10 hereof) to the Issuer,
which will in turn pledge all of the rights hereunder to the Indenture Trustee.
The Seller agrees that, upon the execution of the Indenture, the Indenture
Trustee will have all such rights and remedies provided to the Depositor
hereunder (except those rights set forth in Section 8(b) and Section 10 hereof)
and this Agreement will inure to the benefit of the Indenture Trustee for the
benefit of the Noteholders and the Note Insurer.
The Indenture Trustee shall constitute not only an assignee of the
Depositor's rights in accordance with this Section 17 but also an intended
third-party beneficiary of this Agreement to the extent necessary to enforce
such rights and to obtain the benefit of such remedies. The Note Insurer is an
intended third-party beneficiary of this Agreement, and this Agreement shall be
binding upon and inure to the benefit of the Note Insurer; provided that,
notwithstanding the foregoing, for so long as a Note Insurer Default is
continuing with respect to its obligations under the Note Insurance Policy, the
Noteholders shall succeed to the Note Insurer's rights hereunder. Without
limiting the generality of the foregoing, all covenants and agreements in this
Agreement that expressly confer rights upon the Note Insurer shall be for the
benefit of and run directly to the Note Insurer, and the Note Insurer shall be
entitled to rely on and enforce such covenants to the same extent as if it were
a party to this Agreement.
SECTION 18. MISCELLANEOUS.
(a) This Agreement may be executed in two or more counterparts, each of
which when so executed and delivered shall be an original, but all of which
together shall
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constitute one and the same instrument. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective
successors and assigns.
(b) Any person into which the Seller may be merged or consolidated or
any person resulting from a merger or consolidation involving the Seller or any
person succeeding to the business of the Seller shall be considered the
successor of the Seller hereunder, without the further act or consent of either
party hereto. Except as provided above, this Agreement cannot be assigned,
pledged or hypothecated by any party without the written consent of each other
party to this Agreement and the Note Insurer.
(c) This Agreement supersedes all prior agreements and understandings
between the parties hereto relating to the subject matter hereof. Neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought. The
headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect the meaning of the provisions of this Agreement.
(d) The Depositor shall immediately deliver the Mortgage Loans and all
related Mortgage Loan Documents to the Seller or the Seller's designee and any
security interest created by Section 11 hereof shall be deemed to have been
released if, on the Closing Date, each of the conditions set forth in Section 9
hereof shall not have been satisfied or waived.
(e) It is the express intent of the parties hereto that the conveyance
of the Mortgage Loans by the Seller to the Depositor as contemplated by this
Agreement be construed as a sale of the Mortgage Loans by the Seller to the
Depositor. It is, further, not the intention of the parties that such conveyance
be deemed a pledge of the Mortgage Loans by the Seller to the Depositor or any
assignee of the Depositor, including, but not limited to, the Indenture Trustee,
to secure a debt or other obligation of the Seller. However, in the event that,
notwithstanding the intent of the parties hereto, the Mortgage Loans are held to
be property of the Seller, then (i) this Agreement shall also be deemed to be a
security agreement within the meaning of Article 9 of the New York Uniform
Commercial Code; (ii) the conveyance provided for herein shall be deemed to be a
grant by the Seller to the Depositor of a first priority security interest in
all of the Seller's right, title and interest in and to the Mortgage Loans and
all amounts payable to the holder 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, other than investment earnings, from time to
time held or invested in the Note Account or the Collection Account, whether in
the form of cash, instruments, securities or other property; (iii) the
possession by the Depositor or its agents of items of property that 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 New York Uniform Commercial Code, and
(iv) 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
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confirmations from, financial intermediaries, bailees or agents (as applicable)
of the Depositor for the purpose of perfecting such security interest under
applicable law. Any assignment of the interest of the Depositor pursuant to any
provision hereof shall also be deemed to be an assignment of any security
interest created hereby. The Seller and the Depositor shall, to the extent
consistent with this Agreement, 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 would be maintained
as such throughout the terms of this Agreement and the Indenture.
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IN WITNESS WHEREOF, the Seller and the Depositor have caused this
Mortgage Loan Sale Agreement to be executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
MORTGAGE LENDERS NETWORK USA, INC.
By: /s/ Marion Matthes
------------------------
Name: Marion Matthes
Title: Senior Vice President
RESIDENTIAL ASSET FUNDING CORPORATION
By: /s/ Shanker Merchant
---------------------------
Name: Shanker Merchant
Title: Senior Vice President
FOR THE LIMITED PURPOSE OF ACKNOWLEDGING ITS OBLIGATIONS UNDER SECTIONS 3 AND 7
HEREOF:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Indenture Trustee
By: /s/ Amy Wahl
-----------------
Name: Amy Wahl
Title: Assistant Vice President
[Mortgage Loan Sale Agreement]
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EXHIBIT A
BILL OF SALE
BILL OF SALE, made as of the 1st day of December, 1998, by Mortgage
Lenders Network USA, Inc., a Delaware corporation ("MLN" or the "Seller"), to
Residential Asset Funding Corporation, a North Carolina corporation (the
"Depositor").
WHEREAS, the Seller and the Depositor are parties to that certain
Mortgage Loan Sale Agreement, dated as of December 1, 1998, with respect to the
sale by the Seller and purchase by the Depositor of certain Mortgage Loans (the
"Sales Agreement");
WHEREAS, the Depositor intends to transfer the Mortgage Loans and
certain related assets to Mortgage Lenders Network Home Equity Loan Trust 1998-3
(the "Issuer"), and the Issuer intends in turn to pledge the Mortgage Loans and
certain related assets to Norwest Bank Minnesota, National Association, as
trustee (the "Indenture Trustee") pursuant to an Indenture (the "Indenture"),
dated as of December 1, 1998, between the Issuer and the Indenture Trustee.
NOW, THEREFORE, the Seller, for and in consideration of the
consideration set forth in the Sales Agreement, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, does
hereby bargain, sell, convey, assign and transfer to the Depositor, without
recourse, free and clear of any liens, claims or other encumbrances, all of its
right, title and interest in and to each of the Mortgage Loans identified on
Schedule I to the Indenture, together with the Mortgage Loan Documents and other
documents maintained as part of the related Mortgage Files and the Seller's
interest in any Mortgaged Properties which secure a Mortgage Loan but are
acquired by repossession, foreclosure or deed in lieu of foreclosure after the
Closing Date, and all scheduled payments due on the Mortgage Loans after their
respective Cut-off Dates, and all principal prepayments and other unscheduled
collections collected in respect of the Mortgage Loans on or after the Cut-off
Date, and all proceeds of the conversion, voluntary or involuntary, of the
foregoing.
The Seller hereby acknowledges receipt from the Depositor of the
Pool Purchase Price referred to in Section 2 of the Sales Agreement.
Nothing in this Bill of Sale shall be construed to be a modification
of, or limitation on, any provision of the Sales Agreement, including the
representations, warranties and agreements set forth therein.
Unless otherwise defined herein, capitalized terms used in this Bill
of Sale shall have the meanings assigned to them in the Sales Agreement, or if
not assigned in the Sales Agreement, the Indenture.
<PAGE>
IN WITNESS WHEREOF, the Seller has caused this Bill of Sale to be
executed and delivered by its respective officer thereunto duly authorized as of
the date above written.
MORTGAGE LENDERS NETWORK USA, INC.
By:_______________________________________
Name:
Title:
2
<PAGE>
EXHIBIT B
MORTGAGE LOAN REPRESENTATIONS AND WARRANTIES
The Seller makes the following representations, warranties and covenants
as to each Mortgage Loan as of its Cut-off Date and as of the Closing Date.
(i) MORTGAGE LOANS AS DESCRIBED. The information set forth in the
Mortgage Loan Schedule (as to the Mortgage Loans) and in the Closing
Schedule (with respect to all of the Mortgage Loans) is true and correct
in all material respects.
(ii) PAYMENTS CURRENT; NO FIRST PAYMENT DEFAULT. No payment
required under the Mortgage Note is more than two payments past due as of
the Cut-off Date.
(iii) NO OUTSTANDING CHARGES. There are no defaults in complying
with the terms of the Mortgage, and all taxes, governmental assessments,
insurance premiums, water, sewer and municipal charges, leasehold payments
and ground rents which previously became due and owing have been paid, or
an escrow of funds has been established in an amount sufficient to pay for
every such item which remains unpaid and which has been assessed but is
not yet due and payable.
(iv) ORIGINAL TERMS UNMODIFIED. The terms of the Mortgage Note
and Mortgage have not been impaired, waived, altered or modified in any
respect, except by a written instrument which has been recorded, if
necessary to protect the interests of the mortgagee and which has been
delivered to the Depositor or its designee as part of the related Mortgage
File. The substance of any such waiver, alteration or modification has
been approved by the title insurer, to the extent required by the policy.
The mortgagor has not been released, in whole or in part, except in
connection with an assumption agreement approved by the title insurer, to
the extent required by the policy, and which assumption agreement is
included in the Mortgage File delivered to the Depositor or its designee.
(v) NO DEFENSES. The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including, without
limitation, the defense of usury, nor will the operation of any of the
terms of the Mortgage Note or the Mortgage, or the exercise of any right
thereunder, render either the Mortgage Note or the Mortgage unenforceable,
in whole or in part, or subject to any right of rescission, set-off,
counterclaim or defense, including, without limitation the defense of
usury, and no such right of rescission, set-off, counterclaim or defense
has been asserted with respect thereto.
(vi) INSURANCE POLICIES IN EFFECT. Pursuant to the terms of the
Mortgage, all improvements upon the related Mortgaged Property are insured
by an insurer rated B/III, A/II or better by BEST'S KEY RATING GUIDE
against loss by fire and such
<PAGE>
other risks as are usually insured against in the broad form of extended
coverage hazard insurance available in the jurisdiction where that
Mortgaged Property is located, including flood hazards if the Mortgaged
Property is in an area identified in the Federal Register by the Federal
Emergency Management Agency as subject to special flood hazards (and if
flood insurance was required by federal regulation and flood insurance has
been made available in the jurisdiction where the related Mortgaged
Property is located). All such insurance policies (collectively, the
"hazard insurance policy") meet the requirements of the current guidelines
of the Federal Insurance Administration and are standard policies of
insurance for the locale where the related Mortgaged Property is located.
The coverage amount of the insurance provided by any such insurance policy
is at least equal to the lesser of (a) the full insurable value of the
Mortgaged Property on a replacement cost basis or (b) the unpaid balance
of the Mortgage Loan. Each such insurance policy names (and will name) the
present owner of the Mortgaged Property as the insured and contains a
standard mortgagee loss payable clause naming the loan's originator or the
Seller and its successors and assigns as Mortgagee, and all premiums
thereon have been paid.
The Mortgage obligates the mortgagor thereunder to maintain the
hazard insurance policy at the mortgagor's cost and expense, and on the
mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain
and maintain such insurance at such mortgagor's cost and expense, and to seek
reimbursement therefor from the mortgagor. Where required by state law or
regulation, the mortgagor has been given an opportunity to choose the carrier of
any required hazard or flood insurance, provided the policy is not a "master" or
"blanket" hazard insurance policy covering a condominium, or a hazard insurance
policy covering the common facilities of a planned unit development. Any such
hazard or flood insurance policy is the valid and binding obligation of the
related insurer, is in full force and effect, and will be in full force and
effect and inure to the benefit of the Depositor and its successors and assigns
upon the consummation of the sale of the Mortgage Loan to the Depositor and its
assignees. In connection with the issuance of any hazard or flood insurance
policy, no unlawful fee, commission, kickback or other unlawful compensation or
value of any kind has been or will be received, retained or realized by any
attorney, firm or other person or entity, and no such unlawful items have been
received, retained or realized by the Seller. The Seller has not engaged in, and
has no knowledge of the mortgagor having engaged in, any act or omission which
should reasonably be expected to impair the coverage of any such policy, the
benefits of the endorsement provided for therein, or the validity and binding
effect of either.
(vii) COMPLIANCE WITH APPLICABLE LAW. Any and all requirements of
any federal, state or local law, rules and regulations, including, without
limitation, usury laws, TILA and Regulation Z relating thereto, RESPA and
related regulations, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act and Regulation B relating thereto, the Debt Collection
Practices Act, the Home Mortgage Disclosure Act, and any and all consumer
credit protection laws and disclosure laws applicable to the Mortgage
Loan, and all rules and regulations relating thereto, have been complied
with.
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(viii) NO SATISFACTION OF MORTGAGE OR MORTGAGE NOTE. Neither the
Mortgage nor the Mortgage Note has been satisfied, canceled, subordinated
or rescinded, in whole or in part, and the related Mortgaged Property has
not been released from the lien of the Mortgage, in whole or in part, nor
has any instrument been executed that would effect any such release,
cancellation, subordination or rescission. The Seller has not waived the
performance by the mortgagor of any action, if the mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor
has the Seller waived any default resulting from any action or inaction by
the mortgagor.
(ix) LOCATION AND TYPE OF MORTGAGED PROPERTY. The related
Mortgaged Property consists of a parcel of real property with a single
family residence erected thereon, or a two- to four-family dwelling, or an
individual condominium unit in a low-rise or mid-rise condominium project,
or an individual unit in a planned unit development, or a unit of
manufactured housing, or a mixed use property, provided that no residence
or dwelling is a cooperative or a mobile home attached to a foundation or
otherwise constitutes other than real property under applicable state law.
(x) VALID LIEN. The Mortgage creates a valid, subsisting and
enforceable first or second lien on the related Mortgaged Property,
including all buildings on the Mortgaged Property and all installations
and mechanical, electrical, plumbing, heating and air conditioning systems
located in or annexed to such buildings, and all additions, alterations
and replacements made at any time with respect to the foregoing. With
respect to the first Mortgage Loans, the lien of the Mortgage is subject
only to Permitted Exceptions and with respect to junior Mortgage Loans,
the lien of the Mortgage is subject only to the senior lien on the related
Mortgaged Property and to Permitted Exceptions. Any security agreement,
chattel mortgage or equivalent document related to and delivered in
connection with the Mortgage Loan establishes and creates a valid,
subsisting and enforceable first lien and first priority security interest
on the property described therein with respect to each first Mortgage Loan
and a valid, subsisting and enforceable lien and security interest on the
property described therein with respect to each junior Mortgage Loan and
the Seller has the full right and authority to pledge and assign the same
to the Depositor or its designee.
(xi) VALIDITY AND ENFORCEABILITY OF MORTGAGE DOCUMENTS. The
Mortgage Note and the Mortgage and each other agreement, if any, executed
and delivered by the mortgagor in connection with the Mortgage Loan is
genuine, and each is the legal, valid and binding obligation of the maker
thereof enforceable in accordance with its terms. All parties to the
Mortgage Note, the Mortgage and each other such related agreement had
legal capacity to enter into the Mortgage Loan and to execute and deliver
the Mortgage Note, the Mortgage and any such agreement, and the Mortgage
Note, the Mortgage and each such agreement has been duly and properly
executed by such parties.
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(xii) FULL DISBURSEMENT OF PROCEEDS. Each Mortgage Loan has been
closed and the proceeds of the Mortgage Loan have been fully disbursed,
there is no requirement for future advances thereunder, and there was no
commitment to make future advances in effect with respect to the Mortgage
Loan as of the date of its origination except in the case of a Mortgage
Loan, a portion of the proceeds of which has been disbursed to an escrow
account in connection with improvements to be made to the related
Mortgaged Property where (i) the Mortgage Loan bears interest on the
entire principal amount thereof as if it had been fully disbursed, (ii)
any proceeds of such Mortgage Loan have not been held in such an escrow
account for more than 60 days, and (iii) the deposit of such funds into
such an escrow account has been effected in accordance with the Seller's
holdback policies. Any and all requirements as to completion of any
on-site or off-site improvements and as to disbursements of any escrow
funds therefor have been complied with. All costs, fees and expenses
incurred in making or closing the Mortgage Loan and the recording of the
Mortgage were paid, and the mortgagor is not entitled to any refund of any
amounts paid or due under the Mortgage Note or Mortgage.
(xiii) DOING BUSINESS. All parties who have had any interest in
the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise,
are (or, during the period in which they held and disposed of such
interest, were) (a) in compliance with any and all applicable licensing
requirements of the laws of the state wherein the related Mortgaged
Property is located, and (b) (i) organized under the laws of such state,
or (ii) qualified to do business in such state, or federal savings and
loan associations, or national banks or (iii) federal credit unions having
principal offices in such state, or (iv) not doing business in such state.
(xiv) LOAN-TO-VALUE (LTV). The initial Loan-to-Value Ratio
("LTV") or Combined Loan-to-Value Ratio ("CLTV"), if applicable, of the
Mortgage Loan was as set forth in the Mortgage Loan Schedule. The weighted
average CLTV of the Mortgage Loans as of the Cut-off Date is no greater
than 79.49%.
(xv) TITLE INSURANCE. The Mortgage Loan is covered by either (a)
an attorney's opinion of title and abstract of title the form and
substance of which is acceptable to Fannie Mae (if the related Mortgaged
Property is located in Iowa) or (b) an ALTA lender's title insurance
policy or other generally acceptable form of policy of insurance, issued
by a title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, in either case insuring the Seller
and its successors and assigns as to the first or second priority lien, as
the case may be, of the Mortgage in the amount of 100% of the outstanding
principal amount of the Mortgage Loan, subject only to Permitted
Exceptions and the lien of any senior mortgagee, and against any loss by
reason of the invalidity or unenforceability of the lien resulting from
any provisions of the Mortgage proving for adjustment to the mortgage
interest rate and Monthly Payment. Where required by state law or
regulation, the mortgagor has been
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<PAGE>
given the opportunity to choose the carrier of such lender's title
insurance policy. Immediately prior to the sale of the Mortgage Loan to
the Depositor under this agreement, the Seller, together with its
successors or assigns, was the sole insured under such lender's title
insurance policy, and such lender's title insurance policy is full force
and effect and will be in full force and effect upon the sale of the
Mortgage Loan to the Depositor. No claims have been made under such
lender's title insurance policy, and no prior holder of the Mortgage,
including the Seller, has done, by act or omission, anything which should
reasonably be expected to impair the coverage provided by such lender's
title insurance policy. In connection with the issuance of such lender's
title insurance policy, no unlawful fee, commission, kickback or other
unlawful compensation or value of any kind has been or will be received,
retained or realized by any attorney, firm or other person or entity, and
no such unlawful items have been received, retained or realized by the
Seller.
(xvi) NO DEFAULTS. There is no material default, breach,
violation or event of acceleration existing under the Mortgage or the
Mortgage Note or related documents and no event which, with the passage of
time or with notice and the expiration of any applicable grace or cure
period (other than payment delinquencies of not more than 30 days), would
constitute a default, breach, violation or event of acceleration, and
neither the Seller nor any of its predecessors has waived any such
default, breach, violation or event of acceleration.
(xvii) NO MECHANICS' LIEN. 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 the law could give rise to such liens)
affecting the related Mortgaged Property which are or may be liens prior
or equal to, or coordinate with, the lien of the Mortgage.
(xviii) LOCATION OF IMPROVEMENTS; NO ENCROACHMENTS. All
improvements which were considered in determining the Appraised Value of
the related Mortgaged Property in the Initial Appraisal lay wholly within
the boundaries and building restriction lines of the Mortgaged Property
and no improvements on adjoining properties encroach upon the Mortgaged
Property. No improvement located on or constituting part of the Mortgaged
Property is in violation of any applicable zoning law or regulation.
(xix) RESERVED.
(xx) CUSTOMARY PROVISIONS. The Mortgage contains customary and
enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the related Mortgaged
Property of the benefits of the security provided thereby, including, (a)
in the case of a Mortgage denominated as a deed of trust, by trustee's
sale, and (b) otherwise by judicial foreclosure. There is no homestead or
other exemption available to a mortgagor
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<PAGE>
which would interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage.
(xxi) CONFORMANCE WITH SELLER'S UNDERWRITING GUIDELINES. With the
exception of Certain Exception Loans, each Mortgage Loan was underwritten
in accordance with, and the Mortgage Loan and Mortgaged Property conform
to, the Seller's applicable underwriting guidelines.
(xxii) OCCUPANCY OF THE MORTGAGED PROPERTY. All inspections,
licenses and certificates required to be made or issued with respect to
all occupied portions of the Mortgaged Property and with respect to the
use and occupancy of the same, including, but not limited to, certificates
of occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities. Except with respect to no more
than 7.03% of the Mortgage Loans, by principal balance as of the Cut-off
Date, the Mortgagor represented at the time of origination of each
Mortgage Loan that the Mortgagor would occupy the related Mortgaged
Property as the Mortgagor's primary residence.
(xxiii) NO ADDITIONAL COLLATERAL. The Mortgage Note is not and
has not been secured by any collateral except the lien of the
corresponding Mortgage and the security interest of any applicable
security agreement or chattel mortgage referred to in representation (x)
above.
(xxiv) DEEDS OF TRUST. In the event the Mortgage is a deed of
trust, a trustee, authorized and duly qualified under applicable law to
serve as such, has been properly designated and currently serves as
trustee and is named in the Mortgage, and no fees or expenses are or will
become payable by the Depositor or its successors and assignees to the
trustee under the deed of trust, except in connection with a trustee's
sale after default by the mortgagor on the Mortgage.
(xxv) DUE ON SALE. The Mortgage contains an enforceable provision
for the acceleration of the payment of the unpaid principal balance of the
Mortgage Note in the event that the related Mortgaged Property is sold or
transferred without the prior written consent of the mortgagee or its
assignee thereunder.
(xxvi) NO BUYDOWN PROVISIONS; NO GRADUATED PAYMENTS OR CONTINGENT
INTEREST. The Mortgage Loan is not subject to any provisions pursuant to
which Monthly Payments are paid or partially paid with funds deposited in
any separate account established by the originator, the Servicer, the
Seller, the mortgagor or anyone on behalf of the mortgagor, or pursuant to
which Monthly Payments are paid by anyone other than the mortgagor, nor
does it contain any other similar provisions which may constitute a
"buydown" provision. The Mortgage Loan is not a graduated payment mortgage
loan and the Mortgage Loan does not have a shared appreciation or other
contingent interest feature.
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<PAGE>
(xxvii) RESERVED.
(xxviii) MORTGAGED PROPERTY UNDAMAGED. The Mortgaged Property is
undamaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty (causing damages thereto in excess of any
insurance coverage therefor less any deductible) so as to affect adversely
the value of the Mortgaged Property as security for the Mortgage Loan or
the use for which the premises were intended. The Mortgaged Property is in
good repair in all material respects. There have been no condemnation
proceedings with respect to the Mortgaged Property and the Seller has no
knowledge of any such proceedings pending.
(xxix) COLLECTION PRACTICES; ESCROW DEPOSITS. The collection and
servicing practices used with respect to the Mortgage Loan have been in
all respects in compliance with Accepted Servicing Practices, applicable
laws and regulations, and have been in all respects legal and consistent
with industry standards for the servicing of non-conforming Mortgage loans
similar to the Mortgage Loan. All servicing of the Mortgage Loan has been
conducted in accordance with Accepted Servicing Practices. With respect to
escrow deposits and escrow payments, all such payments are in the
possession or under the control of the Seller and there exist no
deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. All escrow payments, if any, have
been collected in full compliance with state and federal law. An escrow of
funds is not prohibited by applicable law and has been established in an
amount sufficient to pay for every material item that remains unpaid and
that has been assessed but is not yet due and payable. No escrow deposits
or escrow payments or other charges or payments due to the Seller or to
the applicable servicer have been capitalized under the Mortgage or the
Mortgage Note. Any interest required to be paid with respect to any escrow
deposits pursuant to state and local law has been properly paid and
credited.
(xxx) SELLER APPRAISAL. The Servicer Mortgage File (as defined in
the Servicing Agreement) contains an appraisal of the related Mortgaged
Property signed prior to the approval of the Mortgage Loan application by
a qualified appraiser, duly appointed by or on behalf of the Seller, who
had no interest, direct or indirect in the Mortgaged Property or in any
loan made on the security thereof, and whose compensation was not affected
by the approval or disapproval of the Mortgage Loan.
(xxxi) COMPUTER TAPE. The Seller's computer tape or electronic
data file describing the Mortgage Loans was made available to the
accountants that are providing a comfort letter to the Note Insurer and
the Underwriters in connection with any information contained in the
Prospectus Supplement, and such information was complete and accurate as
of its date and includes a description of the same Mortgage Loans that are
described on the Mortgage Loan Schedule and the payments due thereunder as
of the Closing Date.
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(xxxii) OBLIGATIONS FULFILLED. The Seller has fulfilled all
obligations to be fulfilled on the lender's part under or in connection
with the origination, acquisition and assignment of the Mortgage Loans and
the related Mortgages and Mortgage Notes, including, without limitation,
giving any notices or consents necessary to effect the acquisition of each
Mortgage Loan and the related Mortgage and Mortgage Note by the Depositor
and its assignees, and has done nothing to impair the rights of the
Depositor, the Issuer, the Indenture Trustee, the Note Insurer or the
Noteholders in payments with respect thereto.
(xxxiii) AMORTIZATION; BALLOON LOANS. With respect to 65.21% of
the Initial Mortgage Loans, by principal balance as of the Cut-off Date,
the payments required of the related of the Mortgagor are and will be such
that the Mortgage Loan will fully amortize over its term. 34.79% of the
Mortgage Loans, by principal balance as of the Cut-off Date require a
balloon payment at the end of its term.
(xxxiv) FIRST PAYMENT DATE. The first date on which the
applicable Mortgagor must make a payment on each Mortgage Loan is no later
than February 1, 1999.
(xxxv) TIMING OF PAYMENTS. Each Mortgage Note is payable on the
same day of each month.
(xxxvi) CURRENT SERVICING. The Mortgage Loan is being serviced by
the Servicer.
(xxxvii) FEE SIMPLE, RESIDENTIAL. Each property securing a
Mortgage Loan consists of a fee simple estate (or a leasehold estate if
the related Mortgaged Property is located in a jurisdiction where title to
real property is typically held through leasehold estates) in a single
parcel of real property improved by a one- to four-family residential
dwelling,
(xxxviii) CIVIL RELIEF ACT. To the Seller's knowledge, no
Mortgagor has requested relief under the Soldiers' and Sailors' Civil
Relief Act of 1940.
(xxxix) NO TRANSFER TAXES. The sale, transfer, assignment and
conveyance of Mortgage Loans by the Seller pursuant to the Mortgage Loan
Sale Agreement is not subject to and will not result in any tax, fee or
governmental charge payable by the Seller, the Depositor, the Issuer or
the Indenture Trustee to any federal, state or local government ("Transfer
Taxes") other than Transfer Taxes which have or will be paid by the Seller
as due. In the event that the Depositor, the Issuer or the Indenture
Trustee receives actual notice of any Transfer Taxes arising out of the
transfer, assignment and conveyance of the Mortgage Loans, on written
demand by the Depositor, the Issuer or the Indenture Trustee, or upon the
Seller's otherwise being given notice thereof by the Depositor, the Issuer
or the Indenture Trustee, the Seller shall pay, and otherwise indemnify
and hold the Depositor, the Issuer, the Indenture Trustee, and the Note
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<PAGE>
Issuer harmless, on an after-tax basis, from and against any and all such
Transfer Taxes (it being understood that the Noteholders, the Indenture
Trustee, the Depositor, the Issuer, and the Note Insurer shall have no
obligation to pay such Transfer Taxes).
(xl) ENVIRONMENTAL COMPLIANCE. To the Seller's knowledge, the
Mortgaged Property is free from any and all toxic or hazardous substances
and there exists no violation of any local, state or federal environmental
law, rule or regulation with respect to such property.
(xli) NO ADVERSE CIRCUMSTANCES. There do not exist any
circumstances or conditions with respect to the Mortgage, the property
securing the same, the Mortgagor or the Mortgagor's credit standing that
reasonably can be expected to cause private institutional investors to
regard the related Mortgage Loan as an unacceptable investment, cause the
Mortgage Loan to become delinquent, or adversely affect the value or
marketability of the Mortgage Loan, it being understood that the Mortgage
Loans are sub-prime credit Mortgage Loans and the Mortgagors do not meet
FNMA or FHLMC credit underwriting standards.
(xlii) RESERVED.
(xliii) FINAL PAYMENT. No Mortgage Loan has a final payment date
later than December 2028.
(xliv) PURCHASE MONEY MORTGAGE LOANS. As of the respective
Cut-off Dates, at least 12.91% of the Mortgage Loans, by principal balance
as of the Cut-off Date are purchase money mortgage loans.
(xlv) CHARACTERISTICS OF NON-FIRST LIENS. With respect to each
Mortgage Loan that is not a first mortgage loan:
(a) At the time of origination, the related prior lien was not more
than 30 days delinquent.
(b) Either (i) no consent for the Mortgage Loan is required by the
holder of the related prior lien or (ii) such consent has been
obtained and has been delivered to the Indenture Trustee.
(c) The related prior lien does not provide for negative amortization.
(d) The Seller has not received, and is not aware of, a notice of
default of any senior mortgage loan which has not been cured.
(e) No more than 9.52% of the Mortgage Loans by principal balance as of
the Cut-off Date are second mortgage loans.
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<PAGE>
EXHIBIT C
DEFINED TERMS
"ABS TERM SHEET": Those materials (attached as Exhibits F-1 and F-2
hereto) delivered in the form of "Structural Term Sheets" or "Collateral Term
Sheets", in each case within the meaning of the no-action letter dated February
13, 1995 issued by the Division of Corporation Finance of the Commission to the
Public Securities Association for which the filing of such material is a
condition of the relief granted in such letter.
"ACCEPTED SERVICING PRACTICES": With respect to any Mortgage Loan, written
servicing procedures that the Seller would follow in servicing residential and
mixed- use mortgage loans held for its own account, which shall be consistent
with mortgage servicing practices of prudent mortgage lending institutions that
service mortgage loans of the same type, as such Mortgage Loan.
"APPRAISAL": A written appraisal of a Mortgaged Property made by an
appraiser holding all state certifications or licenses provided by the state in
which the Mortgaged Property is located, which appraisal must be written, in
form and substance, to FDIC, FNMA and FHLMC standards, and must meet the
appraisal standards of the Uniform Standards of Professional Appraisal Practice.
"APPRAISED VALUE": With respect to any Mortgaged Property, the lesser of
(a) the value thereof as determined by an Appraisal and (b) the purchase price
paid for the related Mortgaged Property by the Mortgagor with the proceeds of
the related Mortgage Loan; provided, however, that in the case of a Refinanced
Mortgage Loan, the Appraised Value of the Mortgaged Property shall be equal to
the value thereof as determined by an Appraisal.
"BUSINESS DAY": Any Day other than (i) a Saturday or Sunday or (ii) a day
on which the Note Insurer or banking institutions in the State of Connecticut,
the State of Maryland, the State of Delaware, the State of New York or the city
in which the corporate trust office of the Indenture Trustee are authorized or
obligated by law, regulation, executive order or governmental decree to be
closed.
"COLLECTION ACCOUNT": As defined in the Indenture.
"COMBINED LOAN-TO-VALUE RATIO": As of any date for any Mortgage Loan with
respect to which the related Mortgaged Property is subject to a mortgage, deed
of trust, deed to secure debt or other security instrument creating a lien
subordinate to the lien of the Mortgage, the fraction, expressed as a
percentage, (a) the numerator of which is the sum of (1) the outstanding
principal amount of the indebtedness secured by such subordinate lien, plus (2)
the outstanding principal balance of the Mortgage Loan, and (b) the denominator
of which is the Appraised Value of the related Mortgaged Property.
"COMPUTATIONAL MATERIALS": Those materials (attached as Exhibits F-1 and
F-2 hereto) delivered within the meaning of the no-action letter dated May 20,
1994 issued by the Division of Corporation Finance of the Commission to Kidder,
Peabody Acceptance
<PAGE>
Corporation I, Kidder, Peabody & Co., Incorporated, and Kidder Structured Asset
Corporation and the no-action letter dated May 27, 1994 issued by the Division
of Corporation Finance of the Commission to the Public Securities Association
for which the filing of such material is a condition of the relief granted in
such letters.
"CUSTODIAL AGREEMENT": The Custodial Agreement, dated as of December 1,
1998, among MLN, the Custodian and the Indenture Trustee.
"CUSTODIAN": The custodian appointed pursuant to the Custodial Agreement,
which shall initially be BankBoston.
"ESCROW PAYMENT": An amount escrowed by a mortgagor consisting of amounts
necessary to pay taxes, assessments, hazard and flood insurance premiums and
other similar payments anticipated to be made with respect to the related
Mortgage Loan, which is to be held in escrow by the servicer of such Mortgage
Loan for future payment on behalf of the related mortgagor.
"EXCEPTION LOAN": A Mortgage Loan originated or re-underwritten generally
pursuant to, but which does not fully comply with, the Seller's underwriting
guidelines, but as to which variances from such guidelines have been
specifically approved by the Seller's chief credit officer or chief underwriter
after making a determination that mitigating factors in respect thereof
justified such approval.
"INITIAL APPRAISAL": With respect to any Mortgage Loan, the Appraisal made
for the Mortgage Loan's originator in connection with its origination, which
must be included in the related Mortgage File.
"LOAN-TO-VALUE RATIO" OR "LTV": With respect to any Mortgage Loan as of
its date of origination, the ratio on such date borne by the outstanding
principal amount of the Mortgage Loan to the Appraised Value of the related
Mortgaged Property.
"MONTHLY PAYMENT": As defined in the Servicing Agreement.
"MORTGAGE": With respect to a Mortgage Loan, the mortgage, deed of trust,
deed to secure debt or other instrument securing the related Mortgage Note which
creates a valid and enforceable first (or in the case of junior mortgages,
second) lien on or ownership interest in the related Mortgaged Property, subject
only to Permitted Exceptions and the lien of any senior mortgagee if applicable.
"MORTGAGE FILE": As to each Mortgage Loan, a file containing all of the
related Mortgage Loan Documents.
"MORTGAGE LOAN": Any of the mortgage loans identified on the Mortgage Loan
Schedule.
"MORTGAGE LOAN DOCUMENTS": With respect to each Mortgage Loan, the
following documents:
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(a) The original Mortgage Note bearing all intervening endorsements,
endorsed in blank.
(b) The original of the guarantee executed in connection with the Mortgage
Note (if any ).
(c) The original Mortgage with evidence of recording thereon, or a copy
thereof together with an officer's certificate of MLN or of the title company,
escrow company, or attorney that closed the related Mortgage Loan (the
"Settlement Agent") certifying that such represents a true and correct copy of
the original and that such original has been submitted for recordation in the
appropriate governmental recording office of the jurisdiction where the Mortgage
Property is located.
(d) The originals of all assumption, modification, consolidation or
extension agreements (if any) with evidence of recording thereon, or copies
thereof together with an officer's certificate of MLN or the Settlement Agent
certifying that such represent true and correct copies of the originals and that
such originals have each been submitted for recordation in the appropriate
governmental recording office of the jurisdiction where the Mortgaged Property
is located.
(e) The originals of all intervening assignments of mortgage (if any) with
evidence of recording thereon, or copies thereof together with an officer's
certificate of MLN or the Settlement Agent certifying that such represent true
and correct copies of the originals and that such originals have been submitted
for recordation in the appropriate governmental recording office of the
jurisdiction where the Mortgaged Property is located.
(f) The original attorney's opinion of title and abstract of title or the
original mortgagee title insurance policy, or if the original mortgagee title
insurance policy has not been issued, the irrevocable commitment to issue the
same (which may have been marked-up by the title company or its authorized
agent), or the preliminary title report for appropriate jurisdictions.
(g) The original of any security agreement, chattel mortgage or equivalent
document executed in connection with the Mortgage Loan.
(h) The original power of attorney or other authorizing instrument (if
any) with evidence of recording thereon, if the Mortgage Note or Mortgage or any
other material document relating to the Mortgage Loan has been signed by a
person on behalf of the Mortgagor (or a copy thereof together with an officer's
certificate of MLN or the Settlement Agent certifying that such represent true
and correct copies of the originals and that such originals have been submitted
for recordation in the appropriate governmental recording office of the
jurisdiction where the Mortgaged Property is located).
"MORTGAGE NOTE": With respect to a Mortgage Loan, note or other evidence
of the indebtedness secured by the related Mortgage.
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"MORTGAGE POOL ERROR": Shall mean an error in information regarding the
characteristics of the Mortgage Loans provided by the Company to the
Underwriters for the preparation of Computational Materials or ABS Term Sheets.
"MORTGAGED PROPERTY": With respect to a Mortgage Loan, the real property,
together with the improvements thereon, subject to the lien of the related
Mortgage.
"NOTE ACCOUNT": As defined in the Indenture.
"NOTEHOLDER": As defined in the Indenture.
"NOTE INSURER": As defined in the Indenture.
"OFFERING DOCUMENTS": Collectively, the Prospectus and the Prospectus
Supplement, together with other information and documents specifically approved
by MLN for distribution to prospective holders of the Notes.
"OPINION OF COUNSEL": A written opinion of counsel, which counsel is
satisfactory to the Servicer, the Note Insurer and the Indenture Trustee.
Whenever an Opinion of Counsel is required hereunder, the renderer of such
Opinion may rely on other Opinions of Counsel. Any Opinion of Counsel relating
to tax matters must be an opinion of independent counsel.
"PERMITTED EXCEPTIONS": Any of the following encumbrances on a Mortgaged
Property: (1) the lien of current real property taxes and assessments not yet
due and payable; (2) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording
acceptable to prudent mortgage lending institutions generally and specifically
referred to in the lender's title insurance policy delivered to the originator
of the related Mortgage Loan and referred to or otherwise considered in the
appraisal made for the originator of such Mortgage Loan; and (3) other matters
to which like properties are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by the related
Mortgage or the use, enjoyment, value or marketability of the Mortgaged
Property.
"PRINCIPAL BALANCE": As defined in the Indenture.
"PRINCIPAL PREPAYMENT": Any mortgagor payment or other recovery in respect
of principal on a Mortgage Loan (including Net Liquidation Proceeds (as defined
in the Indenture)) which, in the case of a mortgagor payment, is received in
advance of its scheduled due date and is not accompanied by an amount as to
interest representing scheduled interest for any month subsequent to the month
of such payment, or that was accompanied by instructions from the related
mortgagor directing the Servicer to apply such payment to the Principal Balance
of such Mortgage Loan currently.
"PURCHASE PRICE": As defined in the Indenture.
"QUALIFIED REPLACEMENT MORTGAGE LOAN": As defined in the Indenture.
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"RECORDATION TRIGGER EVENT": The occurrence of any of the following: (i)
the occurrence and continuation of an Event of Default under the Servicing
Agreement, (ii) the request of the Note Insurer, if, in the reasonable judgment
of the Note Insurer, recordation is required to preserve the Trust Estate (as
defined in the Indenture), or (iii) with respect to a particular Mortgage Loan,
the institution of foreclosure proceedings or the insolvency of the related
Mortgagor.
"REFINANCED MORTGAGE LOAN": A Mortgage Loan the proceeds of which were not
used to purchase the related Mortgaged Property.
"SERVICER": MLN, or any successor thereto, in its capacity as servicer
under the Servicing Agreement.
"SERVICING AGREEMENT": The Servicing Agreement, dated as of December 1,
1998, between MLN, as servicer of the Mortgage Loans, the Issuer and the
Indenture Trustee.
C-5
<PAGE>
EXHIBIT D
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, ______________________, authorized
officer of Mortgage Lenders Network USA, Inc. (the "Seller"), do hereby
constitute and appoint Norwest Bank Minnesota, National Association as the true
and lawful attorney, for the Issuer, and in its name, place and stead, to record
the assignments of mortgage with respect to the Mortgage Loans transferred to
the Norwest Bank Minnesota, National Association as indenture trustee (the
"Indenture Trustee"), under that Indenture dated as of December 1, 1998 between
Mortgage Lenders Network Home Equity Loan Trust 1998-3 (the "Issuer") and the
Indenture Trustee, but only under the circumstances in which such recording is
required under the Sale Agreement dated as of December 1, 1998 between the
Seller and Residential Asset Funding Corporation, and to do and perform all
other things and acts relating to such assignments of mortgage as may be
necessary to effectuate the transfer of such Mortgage Loans to the Indenture
Trustee, including the execution and delivery of new assignments of mortgage
where necessary to comply with applicable real estate recording laws at the time
of recordation.
This power of attorney is irrevocable and is coupled with an interest in
the Mortgage Loans, and it may at all times be relied upon by any person, firm
or corporation dealing with the attorney named herein as remaining in full force
and effect, and such person, firm or corporation shall have no liability to the
Issuer with respect thereto.
WITNESS the following signature this 1st day of December, 1998
MORTGAGE LENDERS NETWORK USA, INC.
By: _______________________________________
Name:
Title:
D-1
<PAGE>
EXHIBIT E
BLANKET ASSIGNMENT OF THE NOTES
The undersigned, _____________________, an authorized officer of Mortgage
Lenders Network USA, Inc. (the "Seller"), hereby assigns and conveys all right,
title and interest in the Notes listed on Schedule I to the Indenture, dated as
of December 1, 1998, between Mortgage Lenders Network Home Equity Loan Trust,
Series 1998-3 (the "Issuer") and Norwest Bank Minnesota, National Association as
indenture trustee (the "Indenture Trustee") (except for the undersigned's right,
title and interest in and to principal received prior to and on after the
Cut-off Date) to the Indenture Trustee for the Issuer pursuant to the Mortgage
Loan Sale Agreement, dated as of December 1, 1998 (the "Sale Agreement"),
between the Seller and Residential Asset Funding Corporation, to have and to
hold the same unto the successors, legal representatives and assigns of the
assignee forever.
Capitalized terms not defined herein shall have their respective meanings
as set forth in the Sale Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this assignment this
1st day of December, 1998.
MORTGAGE LENDERS NETWORK USA, INC.
By: _______________________________________
Name:
Title:
E-1
- - --------------------------------------------------------------------------------
MORTGAGE LOAN CONTRIBUTION AGREEMENT
Between
RESIDENTIAL ASSET FUNDING CORPORATION
and
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN TRUST 1998-3
- - --------------------------------------------------------------------------------
Mortgage Lenders Network Home Equity Loan Trust 1998-3
Asset Backed Notes
Series 1998-3
Dated as of December 1, 1998
<PAGE>
MORTGAGE LOAN CONTRIBUTION AGREEMENT
This MORTGAGE LOAN CONTRIBUTION AGREEMENT (this "Agreement"), dated
as of December 1, 1998, is made and entered into by and between RESIDENTIAL
ASSET FUNDING CORPORATION, a Delaware corporation (the "Depositor"), and
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN TRUST 1998-3 (the "Issuer"), a
Delaware business trust formed pursuant to a Deposit Trust Agreement, dated as
of December 1, 1998 (the "Deposit Trust Agreement"), among the Depositor,
Wilmington Trust Company, as Owner Trustee, Norwest Bank Minnesota, National
Association, as Trust Paying Agent and Mortgage Lenders Network USA, Inc., as
Servicer.
RECITALS
On the terms and conditions hereinafter provided, the Depositor
intends to contribute and convey, and the Issuer intends to accept and acquire,
certain Mortgage Loans (hereinafter defined) which the Depositor acquired from
Mortgage Lenders Network USA, Inc. (the "Seller") pursuant to that certain
Mortgage Loan Sale Agreement, dated as of December 1, 1998 (the "Sale
Agreement"). The Issuer intends to pledge the Mortgage Loans to Norwest Bank
Minnesota, National Association, a national banking association, as trustee (in
such capacity, the "Indenture Trustee"), under an indenture, to be dated as of
December 1, 1998 (the "Indenture"), by and between the Issuer and the Indenture
Trustee, pursuant to which the Issuer's Asset Backed Notes, Series 1998-3 (the
"Notes") will be issued. Pursuant to the Deposit Trust Agreement, the Issuer
will issue one or more certificates evidencing a 100% beneficial interest in the
Issuer (the "Certificates"). The Issuer will deliver the net proceeds from the
sale of the Notes and issue the Certificates to or upon the order of the
Depositor in consideration of the transfer of the Mortgage Loans and the related
rights thereunder and the rights pursuant to the Sale Agreement (collectively,
the "Consideration").
Capitalized terms used but not defined herein shall have the
meanings given such terms in the Indenture.
Now, therefore, in consideration of the premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO CONTRIBUTE AND CONVEY. As and for the
Consideration and subject to the terms and conditions set forth herein, the
Depositor agrees to contribute and convey, and the Issuer agrees to accept and
acquire, all of the Depositor's right, title and interest in and to the fixed
rate mortgage loans identified on the schedule (the "Mortgage Loan Schedule")
annexed hereto as Exhibit A (such loans, together with all related rights,
interests and obligations, are collectively referred to herein as the "Mortgage
Loans"). The Mortgage Loan Schedule will set forth as to each Mortgage Loan the
items specified in the definition of "Mortgage Loan Schedule" in the Indenture.
<PAGE>
The aggregate of the principal balances of the Mortgage Loans being
contributed and conveyed pursuant to this Agreement as of the close of business
on the Cut-off Date, after application of all payments of principal received in
respect of such Mortgage Loans on or before the Cut-off Date (the "Initial
Mortgage Pool Balance"), is set forth on the Cross Receipt executed concurrently
herewith in the form of Exhibit B attached hereto (the "Cross Receipt").
Simultaneously with and in consideration of the Depositor's contribution and
conveyance of the Mortgage Loans to the Issuer, the Issuer shall cause the Notes
to be issued and delivered and shall transfer the net proceeds received from the
sale of the Notes to be delivered to the Depositor and the Issuer shall cause
the Certificates to be issued to or upon the order of the Depositor. The
Depositor shall be deemed automatically and for all purposes to have made a
contribution to the capital of the Issuer (which contribution shall be reflected
in the value assigned to the certificates evidencing equity interests in the
Issuer) in an aggregate amount specified on the Cross Receipt. The transfer and
conveyance of the Mortgage Loans shall take place on December 1, 1998 or such
other date as shall be mutually acceptable to the parties hereto (the "Closing
Date").
SECTION 2. CONVEYANCE OF MORTGAGE LOANS.
(a) Effective as of the Closing Date, subject only to delivery of
the Mortgage File (as defined in the Sale Agreement) for each Mortgage Loan
pursuant to subsection (c) below, the Depositor does hereby contribute, assign,
transfer and otherwise convey to the Issuer, without recourse, representation or
warranty (other than as expressly set forth in Section 3(a) hereof), and the
Issuer does hereby accept, assume and acquire, all of the Depositor's right,
title and interest in and to the Mortgage Loans identified on the Mortgage Loan
Schedule, and the Issuer hereby assumes and agrees to perform and be bound by
each and all of the covenants, agreements, duties and obligations of the
Depositor arising under or relating to such Mortgage Loans.
(b) The Issuer and its assignees shall be entitled to receive all
payments of principal and interest due on or with respect to the Mortgage Loans
after the Cut-off Date, and all other recoveries of principal and interest
collected after the Cut-off Date (other than in respect of interest that accrued
on such Mortgage Loan during periods prior to the Cut-off Date), and each of the
rights of the Depositor pursuant to representations, warranties and indemnities
in favor of the Depositor contained in the Sale Agreement. All payments of
interest and principal due on or before the Cut-off Date, but collected after
the Cut-off Date, and recoveries of principal and interest collected on or
before the Cut-off Date (other than amounts representing interest that accrued
on the Mortgage Loans during any period on or after the Cut-off Date), shall
belong to, and be promptly remitted to the Seller.
(c) In connection with its contribution and conveyance of the
Mortgage Loans pursuant to subsection (a) above, the terms of the Sale Agreement
govern the delivery of the Mortgage Files to the Custodian, as the Issuer's
designee, and the Depositor assigns all of its rights under the Sale Agreement
to the Issuer.
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<PAGE>
(d) In connection with its conveyance of the Mortgage Loans pursuant
to subsection (a) above, the Depositor shall deliver to the Issuer or its
designee in respect of such Mortgage Loans, on or before the Closing Date, all
amounts, if any, received on each Mortgage Loan after the applicable Cut-off
Date (other than amounts representing interest and principal due on or prior to
the applicable Cut-off Date) held by or on behalf of the Depositor.
(e) The Depositor shall, at any time upon the request of the Issuer,
without limiting the obligations of the Depositor under this Agreement, execute,
acknowledge and deliver all such additional documents and instruments and all
such further assurances and will do or cause to be done all such further acts
and things as may be proper or reasonably necessary to carry out the intent of
this Agreement.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEPOSITOR.
(a) The Depositor hereby represents and warrants to and covenants
with the Issuer, as of the date hereof, and shall be deemed to have represented
and warranted to and covenanted with the Issuer, as of the Closing Date, 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 execution and delivery of this Agreement by the Depositor,
the consummation of the transactions contemplated in this Agreement by the
Depositor and the performance and compliance with the terms of this
Agreement by the Depositor will not violate the Depositor's certificate of
incorporation or bylaws or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, or
result in the breach of, any material agreement or other instrument to
which it is a party or which is applicable to it or any of its assets, or
result in the imposition of any lien, charge or encumbrance upon any of
its assets pursuant to any such agreement, and all board resolutions and
consents of shareholders necessary for the Depositor to enter into and
consummate all transactions contemplated by this Agreement have been
obtained;
(iii) the Depositor has the full corporate power and authority to
enter into and consummate all transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement;
(iv) this Agreement, assuming due authorization, execution and
delivery by the Issuer, constitutes a valid, legal and binding obligation
of the Depositor, enforceable against the Depositor in accordance with the
terms hereof, subject to (A) applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and (B) general principles of
equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law;
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<PAGE>
(v) the Depositor is not in violation of, and its execution and
delivery of this Agreement and its performance and compliance with the
terms of this Agreement will not constitute a violation of, any law, any
order or decree of any court or arbiter, or any order, regulation or
demand of any federal, state or local governmental or regulatory
authority, which violation is likely to affect materially and adversely
either the ability of the Depositor to perform its obligations under this
Agreement or the financial condition of the Depositor;
(vi) the assignment of the Mortgage Loans to the Issuer as
contemplated herein is not subject to any bulk transfer or similar law in
effect in any applicable jurisdiction;
(vii) no action, suit, proceeding or investigation is pending or, to
the best of the Depositor's knowledge, threatened against the Depositor
which, if determined adversely to the Depositor, would prohibit the
Depositor from entering into this Agreement or is likely to materially and
adversely affect either the ability of the Depositor to perform its
obligations under this Agreement or the financial condition of the
Depositor;
(viii) the Depositor has no knowledge of any recent adverse
financial condition or event with respect to itself that is likely to
materially and adversely affect its ability to perform its obligations
under this Agreement;
(ix) the Depositor has not failed to obtain any consent, approval,
authorization or order of, and has not failed to cause any registration or
qualification with, any court or regulatory authority or other
governmental body having jurisdiction over the Depositor, which consent,
approval, authorization, order, registration or qualification is required
for, and the absence of which would materially and adversely affect, the
legal and valid execution, delivery and performance of this Agreement by
the Depositor. No consent or approval of any other person or entity is
necessary for the Depositor to transfer the Mortgage Loans to the Issuer
as contemplated herein, or, if any such consent or approval is necessary,
such consent or approval has previously been obtained;
(x) immediately prior to the transfer and assignment herein
contemplated, the Depositor held good, marketable and indefeasible title
to, and was the sole owner of, each Mortgage Loan conveyed by the
Depositor subject to no liens, charges, mortgages, encumbrances or rights
of others, except with respect to liens that will be released
simultaneously with such transfer and assignment; and immediately upon the
transfer and assignment herein contemplated, the Issuer will hold good,
marketable and indefeasible title to, and be the sole owner of, each
Mortgage Loan subject to no liens, charges, mortgages, encumbrances or
rights of others and the assignment of the Mortgage Loans contemplated
hereby is valid and effective.
(b) The representations and warranties of the Seller with respect to
the Mortgage Loans set forth in Section 4(b) of and Exhibit B to the Sale
Agreement are
4
<PAGE>
hereby incorporated by reference in their entirety and are assigned to the
Issuer in lieu of any other representations and warranties of the Depositor in
respect of the Mortgage Loans. Nothing herein shall be deemed to limit in any
respect either the representations and warranties of the Seller or the rights
and remedies assigned by the Depositor to the Issuer against the Seller on
account of a breach thereof under the Sale Agreement.
(c) Except for the representations and warranties of the Depositor
in Section 3(a) hereof, the Depositor is contributing and conveying the Mortgage
Loans, without recourse to the Depositor and without representations or
warranties of any kind, express or implied, by the Depositor, whether statutory
or otherwise, including, without limitation, any warranties of transfer,
merchantability or fitness for a particular, or the Issuer's intended, use or
purposes.
SECTION 4. ASSIGNMENT OF RELATED RIGHTS AND REMEDIES.
(a) Effective as of the Closing Date, subject only to delivery of
the Mortgage File for each Mortgage Loan pursuant to Section 2(c) hereof, the
Depositor does hereby assign, transfer and otherwise convey to Issuer, without
recourse, representation or warranty (other than as expressly set forth in
Section 3(a) hereof), and the Issuer does hereby accept, assume and acquire, to
be held jointly and severally with the Depositor, all of the Depositor's rights
and remedies under the Sale Agreement and the Issuer hereby assumes and agrees
to perform and be bound by each and all of the covenants and agreements of the
Depositor arising under the Sale Agreement relating to such rights and remedies
and the exercise or enforcement thereof.
(b) Simultaneously with the exercise of any rights and remedies or
any notices given to the Seller by the Issuer under the Sale Agreement, the
Issuer shall give the Depositor and the Note Insurer notice thereof, including,
without limitation, copies of all notices given to the Seller.
(c) This Section 4 provides the sole remedies available to the
Issuer, its successors and assignees, respecting any breach (i) of
representations and warranties with respect to the Mortgage Loans to which
reference is made in Section 3(c) or (ii) on the part of the Depositor under
Section 2(c) hereof.
SECTION 5. CLOSING. The closing of the conveyance of the Mortgage
Loans (the "Closing") shall be held at the offices of Dewey Ballantine LLP, 1301
Avenue of the Americas, New York, New York 10019 at 10:00 a.m., Eastern time, on
the Closing Date.
The Closing shall be subject to each of the following conditions:
(a) All terms and conditions of this Agreement required to be
complied with on or before the Closing Date shall have been complied with and
the Depositor shall have the ability to comply with all terms and conditions and
perform all duties and obligations required to be complied with or performed
after the Closing Date.
5
<PAGE>
(b) The Issuer shall have paid all costs and expenses payable by it
to the Depositor or otherwise pursuant to this Agreement.
Both parties shall use their best efforts to perform their
respective obligations hereunder in a manner that will enable the Issuer to
acquire the Mortgage Loans on the Closing Date. Notwithstanding the foregoing,
satisfaction by the Depositor or Issuer of its respective obligations under the
foregoing provisions of this Section 5 shall not be conditions precedent to the
obligation of the Depositor or Issuer, respectively, to close the transactions
contemplated by this Agreement.
SECTION 6. SERVICING. As of the Cut-off Date, the Mortgage Loans
will be serviced by Mortgage Lenders Network USA (in such capacity, the
"Servicer") pursuant to the terms of a Servicing Agreement, to be dated as of
December 1, 1998 (the "Servicing Agreement"), by and among the Issuer, the
Servicer and the Indenture Trustee.
SECTION 7. GRANT OF A SECURITY INTEREST. It is the express intent of
the parties hereto that the conveyance of the Mortgage Loans by the Depositor to
the Issuer as provided in Section 2(a) hereof be, and be construed as, a
complete and absolute transfer by the Depositor to the Issuer of all of the
Depositor's right, title and interest in and to the Mortgage Loans and not as a
pledge of the Mortgage Loans by the Depositor to the Issuer to secure a debt or
other obligation of the Depositor. However, if, notwithstanding the
aforementioned intent of the parties, the Mortgage Loans are held to be property
of the Depositor, then (a) it is the express intent of the parties that such
conveyance be deemed a pledge of the Mortgage Loans by the Depositor to the
Issuer to secure a debt or other obligation of the Depositor, and (b) (i) this
Agreement shall also be deemed to be a security agreement within the meaning of
Article 9 of the New York Uniform Commercial Code; (ii) the conveyance provided
for in Section 2(a) hereof shall be deemed to be a grant by the Depositor to the
Issuer of a security interest in all of the Depositor's right, title and
interest in and to the Mortgage Loans, and all amounts payable to the holder 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 such amounts,
other than investment earnings from time to time held or invested pursuant to
and in accordance with the provisions of the Servicing Agreement or the
Indenture, as applicable, whether in the form of cash, instruments, securities
or other property; (iii) the subsequent pledge of the Mortgage Loans by the
Issuer to the Indenture Trustee as contemplated by the preamble hereto shall be
deemed to be an assignment of any security interest created hereunder; (iv) the
possession by the Depositor or the Issuer or any of their respective agents,
including, without limitation, the Indenture Trustee or its agent, of the notes
or other instruments evidencing the indebtedness of the mortgagors under the
related Mortgage Loans (the "Mortgage Notes") and such other items of property
relating to the Mortgage Loans 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 New York Uniform Commercial Code; and (v) notifications to persons
(other than the Indenture Trustee) holding such property, and acknowledgments,
receipts or confirmations from persons holding such property, shall be deemed
notifications to, or acknowledgments, receipts or confirmations
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<PAGE>
from, financial intermediaries, bailees or agents (as applicable) of the secured
party for the purpose of perfecting such security interest under applicable law.
The Depositor and the Issuer shall, to the extent consistent with this
Agreement, 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 and the Indenture.
SECTION 8. NOTICES. All communications provided for or permitted
hereunder shall be in writing and shall be deemed to have been duly given if (a)
personally delivered, (b) mailed by registered or certified mail, postage
prepaid and received by the addressee, (c) sent by express courier delivery
service and received by the addressee, or (d) transmitted by telex or facsimile
transmission (or any other type of electronic transmission agreed upon by the
parties) and confirmed by a writing delivered by any of the means described in
(a), (b) or (c), if to the Issuer, addressed to the Issuer in care of Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001, Attention: Corporate Trust Administration; Reference:
Mortgage Lenders Network Home Equity Loan Trust 1998-3, facsimile: (302)
651-8882 (or to such other address as may hereafter be furnished to the
Depositor in writing by the Issuer), if to the Depositor, addressed to the
Depositor at 301 South College Street, TW-06, Charlotte, North Carolina
28288-0610, facsimile: (704) 383-8121 (or to such other address as may hereafter
be furnished to the Issuer in writing by the Depositor), and, if to the Note
Insurer, to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504,
Attention: Insured Portfolio Management - Structured Finance (IPMSF) (Mortgage
Lenders Network Home Equity Loan Trust 1998-3); facsimile: (914) 765-3810 (or to
such other address previously furnished in writing to the Depositor and Issuer).
SECTION 9. REPRESENTATIONS, WARRANTIES, INDEMNITIES AND AGREEMENTS
TO SURVIVE DELIVERY. All representations, warranties, indemnities and agreements
contained in this Agreement, incorporated herein by reference or contained in
the certificates of officers of the Depositor submitted pursuant hereto, shall
remain operative and in full force and effect and shall survive delivery of the
Mortgage Loans by the Depositor to the Issuer.
SECTION 10. SEVERABILITY OF PROVISIONS. Any part, provision,
representation, warranty or covenant of this Agreement that is prohibited or
which is held to be void or unenforceable shall be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any part, provision, representation, warranty or covenant of
this Agreement that is prohibited or unenforceable or is held to be void or
unenforceable in any particular jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any particular jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the
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<PAGE>
parties hereto waive any provision of law which prohibits or renders void or
unenforceable any provision hereof.
SECTION 11. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but which together
shall constitute one and the same agreement.
SECTION 12. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS, DUTIES,
OBLIGATIONS AND RESPONSIBILITIES OF THE PARTIES HERETO SHALL BE GOVERNED IN
ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW YORK.
SECTION 13. FURTHER ASSURANCES. The Depositor and the Issuer shall
execute and deliver such instruments and take such further actions as the other
party may, from time to time, reasonably request in order to effectuate the
purposes and to carry out the terms of this Agreement.
SECTION 14. SUCCESSORS AND ASSIGNS. The rights and obligations of
the Depositor under this Agreement shall not be assigned by the Depositor
without the prior written consent of the Issuer, except as provided in Section
15 hereof. The Issuer shall assign all of its right, title and interest herein
to the Indenture Trustee for the benefit of the Noteholders and the Note
Insurer, to which the Depositor hereby expressly consents. The Depositor agrees
to perform its obligations hereunder for the benefit of the Issuer, the Note
Insurer and the Noteholders and that the Indenture Trustee may enforce the
provisions of this Agreement, exercise the rights of the Issuer and enforce the
obligations of the Depositor hereunder without the consent of the Issuer.
SECTION 15. MERGER, CONSOLIDATION, ETC. The Depositor may be merged
or consolidated with or into any person or entity, or transfer all or
substantially all of its assets to any person or entity; provided that the
person or entity resulting from any merger or consolidation to which the
Depositor shall be a party, or the person or entity which is the Issuer of all
or substantially all of the assets of the Depositor, shall be the successor to
the Depositor hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
SECTION 16. AMENDMENTS. This Agreement may be amended from time to
time by the parties hereto, with the consent of the Note Insurer, to cure any
ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to add any other provision with
respect to matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement or the Trust Agreement, the
Indenture and the Servicing Agreement; provided, however, that such action shall
not, as evidenced by an Opinion of Counsel to the Issuer delivered to the
Indenture Trustee and the Note Insurer, adversely affect in any material respect
the interests of the Indenture Trustee on behalf of the Noteholders.
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SECTION 17. WAIVERS. No failure or delay on the part of the Issuer
or its assignees in exercising any power, right or remedy under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or remedy preclude any other or further exercise thereof
or the exercise of any other power, right or remedy.
SECTION 18. THIRD PARTY BENEFICIARIES. The Note Insurer is an
intended third-party beneficiary of this Agreement, and this Agreement shall be
binding upon and inure to the benefit of the Note Insurer; provided that,
notwithstanding the foregoing, for so long as a Note Insurer Default is
continuing with respect to its obligations under the Note Insurance Policy, the
Noteholders shall succeed to the Note Insurer's rights hereunder. Without
limiting the generality of the foregoing, all covenants and agreements in this
Agreement that expressly confer rights upon the Note Insurer shall be for the
benefit of and run directly to the Note Insurer, and the Note Insurer shall be
entitled to rely on and enforce such covenants to the same extent as if it were
a party to this Agreement.
SECTION 19. LIMITATION OF LIABILITY. It is expressly understood and
agreed by the parties hereto that (a) this Agreement is executed and delivered
by Wilmington Trust Company, not individually or personally but solely as Owner
Trustee of the Issuer, in the exercise of the powers and authority conferred and
vested in it, (b) each of the representations, undertakings and agreements
herein made on the part of the Issuer is made and intended not as personal
representations, undertakings and agreements by Wilmington Trust Company but is
made and intended for the purpose for binding only the Issuer, (c) nothing
herein contained shall be construed as creating any liability on Wilmington
Trust Company, individually or personally, to perform any covenant either
expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties hereto and by any Person claiming by, through or
under the parties hereto and (d) under no circumstances shall Wilmington Trust
Company be personally liable for the payment of any indebtedness or expenses of
the Issuer or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trust under this
Agreement or any other related documents.
*****
[SIGNATURES FOLLOW]
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IN WITNESS WHEREOF, the Depositor and the Issuer have caused their
names to be signed hereto by their respective duly authorized officers as of the
date first above written.
RESIDENTIAL ASSET FUNDING CORPORATION, a
Delaware corporation
By: /s/ Shanker Merchant
-------------------------
Name: Shanker Merchant
Title:Senior Vice President
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN
TRUST 1998-3, a Delaware business trust
By: Wilmington Trust Company, not in its
individual capacity, but solely as Owner
Trustee of the Issuer
By: /s/ Emmet Harmon
------------------------
Name: Emmet Harmon
Title: Authorized Signatory
[Signature Page to the Mortgage Loan Contribution Agreement]
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EXHIBIT A
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT B
CROSS RECEIPT
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN TRUST 1998-3 ASSET BACKED NOTES
SERIES 1998-3
CROSS RECEIPT BETWEEN RESIDENTIAL ASSET FUNDING CORPORATION AND MORTGAGE
LENDERS NETWORK HOME EQUITY LOAN TRUST 1998-3 ACKNOWLEDGING RECEIPT OF
MORTGAGE NOTES
Reference is made to that certain Mortgage Loan Contribution
Agreement, between Residential Asset Funding Corporation (the "Depositor") and
Mortgage Lenders Network Home Equity Loan Trust 1998-3 (the "Issuer"), dated as
of December 1, 1998 (the "Mortgage Loan Contribution Agreement"). Capitalized
terms used but not otherwise defined herein shall have the meanings ascribed to
such terms in the Mortgage Loan Contribution Agreement.
The Issuer hereby acknowledges receipt from the Depositor of the
Mortgage Notes relating to the Mortgage Loans identified on the Mortgage Loan
Schedule annexed as Exhibit A to the Mortgage Loan Contribution Agreement (the
"Mortgage Loans"). The Mortgage Loans have an Initial Pool Balance of
$114,925,787.66.
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN
TRUST 1998-3
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee of the Issuer
By:______________________________
Authorized Signatory
The Depositor hereby acknowledges receipt of the Consideration for
the contribution of the Mortgage Loans by the Depositor to the Issuer as
specified in the Mortgage Loan Contribution Agreement. The Consideration
consists of (a) $________, in immediately available funds, representing the
aggregate net proceeds from the sale of the Notes delivered to the Underwriters
pursuant to the Underwriting Agreement, and (b) a Certificate, delivered to MLN
Capital Corporation I, a Delaware corporation, representing a 100% beneficial
interest in the Issuer.
RESIDENTIAL ASSET FUNDING CORPORATION
By:______________________________
Name:
Title:
Dated: December 18, 1998
- - --------------------------------------------------------------------------------
DEPOSIT TRUST AGREEMENT
BETWEEN
RESIDENTIAL ASSET FUNDING CORPORATION,
AS DEPOSITOR,
WILMINGTON TRUST COMPANY,
AS OWNER TRUSTEE
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
AS TRUST PAYING AGENT,
AND
MORTGAGE LENDERS NETWORK USA, INC.,
AS SERVICER
- - --------------------------------------------------------------------------------
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN TRUST 1998-3
ASSET BACKED NOTES
SERIES 1998-3
DATED AS OF DECEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..................................................1
SECTION 1.1 Capitalized Terms.......................................1
SECTION 1.2 Other Definitional Provisions...........................5
Article II ORGANIZATION................................................6
SECTION 2.1 Name ..................................................6
SECTION 2.2 Office..................................................6
SECTION 2.3 Purposes and Powers.....................................6
SECTION 2.4 Appointment of Owner Trustee............................7
SECTION 2.5 Initial Capital Contribution of Owner Trust Estate......7
SECTION 2.6 Declaration of Trust....................................7
SECTION 2.7 Liability of the Holders................................8
SECTION 2.8 Title to Trust Property.................................8
SECTION 2.9 Situs of Trust..........................................8
SECTION 2.10 Representations and Warranties of the Depositor;
Covenant of the Depositor.........................8
SECTION 2.11 Federal Income Tax Provisions...........................9
ARTICLE III CERTIFICATES AND TRANSFER OF INTERESTS....................12
SECTION 3.1 Initial Ownership......................................12
SECTION 3.2 The Certificates.......................................12
SECTION 3.3 Execution, Authentication and Delivery of Trust
Certificates.....................................13
SECTION 3.4 Registration of Transfer and Exchange of Trust
Certificates.....................................13
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Certificates......14
SECTION 3.6 Persons Deemed Owners..................................14
SECTION 3.7 Access to List of Holders' Names and Addresses.........15
SECTION 3.8 Maintenance of Office or Agency........................15
SECTION 3.9 Appointment of Trust Paying Agent......................15
SECTION 3.10 Restrictions on Transfer of Certificates...............16
ARTICLE IV ACTIONS BY OWNER TRUSTEE...................................18
SECTION 4.1 Prior Notice to Holders with Respect to Certain
Matters..........................................18
SECTION 4.2 Action by Holders with Respect to Bankruptcy...........20
SECTION 4.3 Restrictions on Holders' Power.........................20
SECTION 4.4 Majority Control.......................................20
2
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ARTICLE V APPLICATION OF TRUST FUNDS; CERTAIN DUTIES..................20
SECTION 5.1 Establishment of Certificate Distribution Account......20
SECTION 5.2 Application Of Trust Funds.............................21
SECTION 5.3 Method of Payment......................................22
SECTION 5.4 Segregation of Moneys; No Interest.....................22
ARTICLE VI AUTHORITY AND DUTIES OF OWNER TRUSTEE......................23
SECTION 6.1 General Authority......................................23
SECTION 6.2 General Duties.........................................23
SECTION 6.3 Action upon Instruction................................24
SECTION 6.4 No Duties Except as Specified in this Agreement,
the Basic Documents or any Instructions.........25
SECTION 6.5 No Action Except Under Specified Documents or
Instructions....................................25
SECTION 6.6 Restrictions...........................................25
ARTICLE VII CONCERNING THE OWNER TRUSTEE..............................25
SECTION 7.1 Acceptance of Trusts and Duties........................25
SECTION 7.2 Furnishing of Documents................................27
SECTION 7.3 Representations and Warranties.........................27
SECTION 7.4 Reliance; Advice of Counsel............................28
SECTION 7.5 Not Acting in Individual Capacity......................29
SECTION 7.6 Owner Trustee Not Liable for Certificates or Mortgage
Loans...........................................29
SECTION 7.7 Owner Trustee May Own Certificates and Notes...........29
SECTION 7.8 Licenses...............................................30
ARTICLE VIII COMPENSATION OF OWNER TRUSTEE............................30
SECTION 8.1 Owner Trustee's Fees and Expenses......................30
SECTION 8.2 Indemnification........................................30
SECTION 8.3 Payments to the Owner Trustee..........................31
SECTION 8.4 Servicer Liability.....................................31
ARTICLE IX TERMINATION OF TRUST AGREEMENT.............................31
SECTION 9.1 Termination of Trust Agreement.........................31
ARTICLE X SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES......32
SECTION 10.1 Eligibility Requirements for Owner Trustee.............32
SECTION 10.2 Resignation or Removal of Owner Trustee................33
SECTION 10.3 Successor Owner Trustee................................33
SECTION 10.4 Merger or Consolidation of Owner Trustee...............34
SECTION 10.5 Appointment of Co-Trustee or Separate Trustee..........34
3
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ARTICLE XI MISCELLANEOUS..............................................36
SECTION 11.1 Supplements and Amendments.............................36
SECTION 11.2 No Legal Title to Owner Trust Estate in Holders........37
SECTION 11.3 Limitations on Rights of Others........................37
SECTION 11.4 Notices................................................37
SECTION 11.5 Severability...........................................38
SECTION 11.6 Separate Counterparts..................................38
SECTION 11.7 Successors and Assigns.................................38
SECTION 11.8 No Petition............................................38
SECTION 11.9 No Recourse............................................38
SECTION 11.10 Headings............................................39
SECTION 11.11 GOVERNING LAW.......................................39
SECTION 11.12 Grant of Certificateholder Rights to Note Insurer...39
SECTION 11.13 Third-Party Beneficiary.............................39
SECTION 11.14 Suspension and Termination of Note Insurer's Rights.40
4
<PAGE>
DEPOSIT TRUST AGREEMENT
This DEPOSIT TRUST AGREEMENT, dated as of December 1, 1998, among
RESIDENTIAL ASSET FUNDING CORPORATION, a Delaware corporation, as depositor (the
"Depositor"), WILMINGTON TRUST COMPANY, a Delaware banking corporation, as owner
trustee (the "Owner Trustee"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association, as trust paying agent (the "Trust Paying Agent"),
and MORTGAGE LENDERS NETWORK USA, INC., as servicer (the "Servicer"), for the
limited purposes set forth herein.
ARTICLE I
DEFINITIONS
SECTION 1.1 CAPITALIZED TERMS. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"ACCOUNTS" shall mean, collectively, the Collection Account and the
Note Accounts.
"AGREEMENT" shall mean this Deposit Trust Agreement, as may be
amended and supplemented from time to time.
"ANNUAL TAX REPORTS" shall have the meaning assigned thereto in
Section 2.11(k).
"AUTHORIZED OFFICER" shall have the meaning assigned thereto in the
Indenture.
"BASIC DOCUMENTS" shall mean this Agreement, the Servicing
Agreement, the Mortgage Loan Sale Agreement, the Mortgage Loan Contribution
Agreement, the Management Agreement, the Insurance Agreement and the Indenture.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or
Sunday or (ii) a day that is either a legal holiday or a day on which the Note
Insurer or banking institutions in the State of New York, the State of
Connecticut, the State of Maryland, the State of Delaware, the State of North
Carolina, or the state in which the Trust Paying Agent's office from which
payments will be made to Certificateholders are authorized or obligated by law,
regulation or executive order to be closed.
"BUSINESS TRUST STATUTE" shall mean Chapter 38 of Title 12 of I the
Delaware Code, 12 Del. Code ss. 3801 et seq., as the same may be amended from
time to time.
"CAPITAL ACCOUNT" shall have the meaning assigned thereto in Section
2.1l(a).
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"CERTIFICATE" shall mean a certificate evidencing the beneficial
interest of a Certificateholder in the Trust, substantially in the form attached
hereto as Exhibit A.
"CERTIFICATE DISTRIBUTION ACCOUNT" shall have the meaning assigned
to such term in Section 5.1.
"CERTIFICATE OF TRUST" shall mean the Certificate of Trust in the
form of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"CERTIFICATE REGISTER" and "Certificate Registrar" shall mean the
register mentioned and the registrar appointed pursuant to Section 3.4.
"CERTIFICATEHOLDER" OR "HOLDER" shall mean a Person in whose name a
Certificate is registered.
"CODE" shall mean the Internal Revenue Code of 1986, as amended,
and, where appropriate in context, Treasury Regulations promulgated thereunder.
"COLLECTION ACCOUNT" shall have the meaning assigned thereto in the
Servicing Agreement.
"COMPANY" shall mean MLN Capital Corporation I, a Delaware
corporation.
"CORPORATE TRUST OFFICE" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration; or at such other address in the State
of Delaware as the Owner Trustee may designate by notice to the
Certificateholders and the Depositor, or the principal corporate trust office of
any successor Owner Trustee (the address (which shall be in the State of
Delaware) of which the successor owner trustee will notify the Certificateholder
and the Depositor).
"DEPOSITOR" shall mean Residential Asset Funding Corporation, a
Delaware corporation.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXPENSES" shall have the meaning assigned to such term in Section
8.2.
"HOLDER NONRECOURSE DEBT MINIMUM GAIN" shall have the meaning set
forth for "partner nonrecourse debt minimum gain" in Treasury Regulations
Section
2
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1.704-2(i)(2). A Holder's share of Holder Nonrecourse Debt Minimum Gain
shall be determined in accordance with Treasury Regulations Section
1.704-2(i)(5).
"INDENTURE" shall mean the Indenture, dated as of December 1, 1998,
by and between the Issuer and the Indenture Trustee.
"INDENTURE TRUSTEE" means Norwest Bank Minnesota, National
Association, as Indenture Trustee under the Indenture.
"INSURANCE AGREEMENT" means the Insurance Agreement, dated as of
December 1, 1998, among MBIA Insurance Corporation, as insurer, the Issuer,
Mortgage Lenders Network USA, Inc., as Seller and Servicer, the Depositor and
the Indenture Trustee.
"INSURANCE POLICY" shall mean the policy issued by the Note Insurer
for the benefit of the holders of the Notes.
"ISSUER" shall mean Mortgage Lenders Network Home Equity Loan Trust
1998-3, the Delaware business trust created pursuant to this Agreement.
"MANAGEMENT AGREEMENT" shall mean the Management Agreement dated as
of December 1, 1998, between the Trust and Norwest Bank Minnesota, National
Association, as Manager.
"MORTGAGE LENDERS NETWORK" shall mean Mortgage Lenders Network USA,
Inc. a Delaware corporation.
"MORTGAGE LOAN CONTRIBUTION AGREEMENT" shall mean that certain
Mortgage Loan Contribution Agreement, dated as of December 1, 1998, between the
Depositor, as transferor, and the Issuer, as transferee.
"MORTGAGE LOAN SALE AGREEMENT" shall mean that certain Mortgage Loan
Sale Agreement, dated as of December 1, 1998, between Mortgage Lenders Network
USA, Inc., as seller, and the Depositor, as purchaser.
"NON-U.S. PERSON" shall mean an individual, corporation, partnership
or other person other than 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 that
is subject to U.S. federal income tax regardless of the source of its income or
a trust if (i) a court in the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust.
"NOTE ACCOUNT" shall have the meaning assigned thereto in the
Indenture.
"NOTE INSURER" shall mean MBIA Insurance Corporation, a New York
stock insurance company.
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<PAGE>
"NOTE INSURER DEFAULT" shall have the meaning assigned to such term
in the Indenture.
"NOTES"shall mean the Mortgage Lenders Network Home Equity Loan
Trust 1998-3 Asset Backed Notes, Series 1998-3.
"OWNER TRUST ESTATE" shall mean the Trust Estate (as defined in the
Indenture), including the contribution of $1 referred to in Section 2.5 hereof.
"OWNER TRUSTEE" shall mean Wilmington Trust Company, a Delaware
banking corporation, not in its individual capacity but solely as owner trustee
under this Agreement, and any successor owner trustee hereunder.
"PAYMENT DATE" SHALL mean the twenty-fifth day of each month or, if
such twenty-fifth day is not a Business Day, the next succeeding Business Day,
commencing January 25, 1999.
"PERCENTAGE INTEREST" shall mean with respect to any Certificate the
percentage portion of all of the Trust Interest evidenced thereby as stated on
the face of such Certificate.
"PERMITTED INVESTMENTS" shall have the meaning assigned to such term
in the Indenture.
"PROSPECTIVE HOLDER" shall have the meaning set forth in Section 3.1
l(a).
"RATING AGENCY CONDITION" means, with respect to any action to which
a Rating Agency Condition applies, that each Rating Agency shall have been given
10 days (or such shorter period as is acceptable to each Rating Agency) prior
notice thereof and that each of the Rating Agencies shall have notified the
Depositor, the Servicer, the Note Insurer, the Owner Trustee and the Issuer in
writing that such action will not result in a reduction or withdrawal of the
then current "implied" rating of the Notes that it maintains without taking into
account the Note Insurance.
"RECORD DATE" shall mean as to each Payment Date the last Business
Day of the month immediately preceding the month in which such Payment Date
occurs.
"SERVICING AGREEMENT" shall mean the Servicing Agreement dated as of
December 1, 1998, among the Trust, as Issuer, the Indenture Trustee and Mortgage
Lenders Network USA, Inc., as Servicer.
"SECRETARY OF STATE" shall mean the Secretary of State of the State
of Delaware.
"TAXABLE YEAR" shall have the meaning assigned thereto in Section
2.11(j).
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"TAX MATTERS PARTNER" shall have the meaning assigned thereto in
Section 2.11(l).
"TREASURY REGULATIONS" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"TRUST" shall mean the trust established by this Agreement.
"TRUST INTEREST" shall mean the right to receive, on each Payment
Date, distributions of the amounts, if any, released to the Issuer pursuant to
Section 8.02(d) of the Indenture or pursuant to Section 2.05 of the Servicing
Agreement.
"TRUST MINIMUM GAIN" shall have the meaning set forth for
"partnership minimum gain" in Treasury Regulations 1.704-2(b)(2) and 1.704-2(d).
In accordance with Treasury Regulations Section 1.704-2(d), the amount of Trust
Minimum Gain is determined by first computing, for each nonrecourse liability of
the Trust, any gain the Trust would realize if it disposed of the property
subject to that liability for no consideration other than full satisfaction of
the liability, and then aggregating the separately computed gains. A Holder's
share of Trust Minimum Gain shall be determined in accordance with Treasury
Regulations Section 1.704-2(g)(1).
"TRUST PAYING AGENT" shall mean any paying agent or co-paying agent
appointed pursuant to Section 3.9 and authorized by the Owner Trustee to make
payments to and distributions from the Certificate Distribution Account.
SECTION 1.2 OTHER DEFINITIONAL PROVISIONS.
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Servicing Agreement or, if not defined
therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
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(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
ARTICLE II
ORGANIZATION
SECTION 2.1 NAME. The Trust created hereby shall be known as "Mortgage Lenders
Network Home Equity Loan Trust 1998-3," in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2 OFFICE. The office of the Trust shall be in care of the Owner
Trustee at the Corporate Trust Office or at such other address in Delaware as
the Owner Trustee may designate by written notice to the Certificateholders, the
Note Insurer and the Depositor.
SECTION 2.3 PURPOSES AND POWERS. The purpose of the Trust is to engage in the
following activities:
(i) to issue the Notes pursuant to the Indenture and to sell such
Notes;
(ii) with the proceeds of the sale of the Notes, to pay the
organizational, startup and transactional expenses of the Trust and to pay
the balance to the Depositor pursuant to the Mortgage Loan Contribution
Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey the
Owner Trust Estate pursuant to the Indenture and to hold, manage and
distribute to the Holders any portion of the Owner Trust Estate released
from the lien of, and remitted to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is or is to be a party;
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(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith;
(vi) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation
of the Owner Trust Estate and the making of distributions and payments to
the Holders and the Noteholders; and
(vii) to issue the Certificates pursuant to this Agreement.
The Trust is hereby authorized by the initial Certificateholders to engage in
the foregoing activities. The Trust shall not engage in any activity other than
in connection with the foregoing or other than as required or authorized by the
terms of this Agreement or the Basic Documents.
SECTION 2.4 APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby appoints the
Owner Trustee as trustee of the Trust effective as of the date hereof, to have
all the rights, powers and duties set forth herein.
SECTION 2.5 INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. The Depositor
hereby sells, assigns, transfers, conveys and sets over to the Owner Trustee, as
of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges receipt
in trust from the Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial Owner Trust Estate and shall be
deposited in the Certificate Distribution Account. The Certificateholders shall
pay organizational expenses of the Trust as they may arise or shall, upon the
request of the Owner Trustee, promptly reimburse the Owner Trustee for any such
expenses paid by the Owner Trustee.
SECTION 2.6 DECLARATION OF TRUST. The Owner Trustee hereby declares that it will
hold the Owner Trust Estate in trust upon and subject to the conditions set
forth herein for the use and benefit of the Holders, subject to the obligations
of the Trust under the Basic Documents. It is the intention of the parties
hereto that the Trust constitute a business trust under the Business Trust
Statute and that this Agreement constitute the governing instrument of such
business trust. It is the intention of the parties hereto that, solely for
income and franchise tax purposes, after issuance of the Certificates, the Trust
shall be treated as a partnership, with the assets of the partnership being the
Mortgage Loans and other assets held by the Trust, the partners of the
partnership being the holders of the Certificates and the Notes being
non-recourse debt of the partnership (or, if there is only one
Certificateholder, that the Trust shall be disregarded as an entity separate
from such Holder, with the assets held by the Trust being treated as assets of
the Holder and the Notes being treated as non-recourse debt of the Holder). The
parties agree that, unless otherwise required by appropriate tax authorities or
unless the Trust is disregarded as an entity separate from its sole
Certificateholder for income and franchise tax purposes, the Owner Trustee will
file or cause to be filed annual or other necessary returns, reports and other
forms consistent with the characterization of the Trust as a partnership for
such tax purposes pursuant to Section 2.11(k). The parties agree that no
7
<PAGE>
election will be made to treat the Trust or the Owner Trust Estate as a real
estate mortgage investment conduit as defined in Section 860D of the Code.
Effective as of the date hereof, the Owner Trustee shall have all rights, powers
and duties set forth herein and in the Business Trust Statute with respect to
accomplishing the purposes of the Trust. The Owner Trustee shall file the
Certificate of Trust with the Secretary of State.
SECTION 2.7 LIABILITY OF THE HOLDERS. No Holder shall have any personal
liability for any liability or obligation of the Trust. The Certificates shall
be fully paid and nonassessable.
SECTION 2.8 TITLE TO TRUST PROPERTY
(a) Legal title to all of the Owner Trust Estate shall be vested at
all times in the Trust as a separate legal entity except where applicable law in
any jurisdiction requires title to any part of the Owner Trust Estate to be
vested in a trustee or trustees, in which case title shall be deemed to be
vested in the Owner Trustee and/or a separate trustee, as the case may be.
(b) The Certificateholders shall not have legal title to any part of
the Owner Trust Estate. No transfer by operation of law or otherwise of any
interest of the Certificateholders shall operate to terminate this Agreement or
the trusts hereunder or entitle any transferee to an Accounting or to the
transfer to it of any part of the Owner Trust Estate.
SECTION 2.9 SITUS OF TRUST. The Trust will be located and administered in the
state of Delaware. All accounts maintained at a bank by the Owner Trustee or the
Indenture Trustee on behalf of the Trust shall be located in the State of
Delaware, the State of Minnesota or the State of Connecticut. The Trust shall
not have any employees; provided, however, nothing herein shall restrict or
prohibit the Owner Trustee from having employees within or without the State of
Delaware. Payments will be received by the Trust only in Delaware, Minnesota or
Connecticut, and payments will be made by the Trust only from Delaware,
Minnesota or Connecticut. The only office of the Trust will be at the Corporate
Trust Office in Delaware.
SECTION 2.10 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR; COVENANT OF
THE DEPOSITOR.The Depositor hereby represents and warrants to
the Owner Trustee and the Note Insurer that:
(i) The Depositor is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware, with
power and authority to own its properties and to conduct its business as
such properties are currently owned and such business is presently
conducted.
(ii) The Depositor has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Depositor has full
power and authority to transfer and assign the property to be transferred
and assigned to and deposited with the Trust and the Depositor has duly
authorized such transfer and assignment
8
<PAGE>
and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Agreement has been duly
authorized by the Depositor by all necessary corporate action.
(iii) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the certificate
of incorporation or by-laws of the Depositor, or any indenture, agreement
or other instrument to which the Depositor is a party or by which it is
bound; nor result in the creation or imposition of any lien upon any of
its properties pursuant to the terms of any such indenture, agreement or
other instrument (other than pursuant to the Basic Documents); nor violate
any law or, to the best of the Depositor's knowledge, any order, rule or
regulation applicable to the Depositor of any court or of any Federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its properties.
(iv) There are no proceedings or investigations pending or notice of
which has been received in writing before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties: (x) asserting the
invalidity of this Agreement, (y) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or (z) seeking any
determination or ruling that should reasonably be expected to materially
and adversely affect the performance by the Depositor of its obligations
under, or the validity or enforceability of, this Agreement.
(v) The representations and warranties of the Depositor in Section 3(a)
of the Mortgage Loan Contribution Agreement are true and correct.
(vi) The Depositor has duly executed and delivered this Agreement, and
this Agreement constitutes the legal, valid and binding obligation of the
Depositor, enforceable against the Depositor, in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by the application of
equitable principles.
(b) Each Certificateholder covenants with the Owner Trustee and the
Note Insurer that during the continuance of this Agreement, and while it holds
Certificates, it will comply in all respects with the provisions of its
Certificate of Incorporation in effect from time to time.
SECTION 2.11 FEDERAL INCOME TAX PROVISIONS. If the Trust is treated as a
partnership (rather than disregarded as a separate entity) for federal income
tax purposes pursuant to Section 2.6, the following provisions shall apply:
(a) A separate capital account (a "Capital Account") shall be
established and maintained for each Certificateholder in accordance with
Treasury Regulations
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Section 1.704-1 (b)(2)(iv). No Certificateholder shall be entitled to interest
on its Capital Account or any capital contribution made by such Holder to the
Trust.
(b) Upon termination of the Trust pursuant to Article IX, any
amounts available for distribution to Holders shall be distributed to the
Holders with positive Capital Account balances in accordance with such balances.
For purposes of this Section 2.1l(b), the Capital Account of each Holder shall
be determined after all adjustments made in accordance with this Section 2.11
resulting from the Trust's operations and from all sales and dispositions of all
or any part of the assets of the Trust. Any distributions pursuant to this
Section 2.1l(b) shall be made by the end of the Taxable Year in which the
termination occurs (or, if later, within 90 days after the date of the
termination).
(c) No Certificateholder shall be required to restore any deficit
balance in its Capital Account. Furthermore, no Holder shall be liable for the
return of the Capital Account of, or of any capital contribution made to the
Trust by, another Holder.
(d) Profit and loss of the Trust for each Taxable Year shall be
allocated to the Certificateholders in accordance with their respective
Percentage Interests.
(e) Notwithstanding any provision to the contrary, (i) any expense
of the Trust that is a "nonrecourse deduction" within the meaning of Treasury
Regulations Section 1.704-2(b)(1) shall be allocated in accordance with the
Holders' respective Percentage Interests, (ii) any expense of the Trust that is
a "partner nonrecourse deduction" within the meaning of Treasury Regulations
Section 1.704-2(i)(2) shall be allocated in accordance with Treasury Regulations
Section 1.704-2(i)(1), (iii) if there is a net decrease in Trust Minimum Gain
within the meaning of Treasury Regulations Section 1.704-2(f)(1) for any Taxable
Year, items of gain and income shall be allocated among the Holders in
accordance with Treasury Regulations Section 1.704-2(f) and the ordering rules
contained in Treasury Regulations Section 1.704-2(i), and (iv) if there is a net
decrease in Holder Nonrecourse Debt Minimum Gain within the meaning of Treasury
Regulations Section 1.704-2(i)(4) for any Taxable Year, items of gain and income
shall be allocated among the Holders in accordance with Treasury Regulations
Section 1.704-2(i)(4) and the ordering rules contained in Treasury Regulations
Section 1.704-2(j). A Holder's "interest in partnership profits" for purposes of
determining its share of the nonrecourse liabilities of the Trust within the
meaning of Treasury Regulations Section 1.752-3(a)(3) shall be such Holder's
Percentage Interest.
(f) If a Holder receives in any Taxable Year an adjustment,
allocation, or distribution described in subparagraphs (4), (5), or (6) of
Treasury Regulations Section 1.704-l(b)(2)(ii)(d) that causes or increases a
negative balance in such Holder's Capital Account that exceeds the sum of such
Holder's shares of Trust Minimum Gain and Holder Nonrecourse Debt Minimum Gain,
as determined in accordance with Treasury Regulations Sections 1.704-2(g) and
1.704-2(i), such Holder shall be allocated specially for such Taxable Year (and,
if necessary, later Taxable Years) items of income and gain in an amount and
manner sufficient to eliminate such negative Capital Account balance as quickly
as possible as provided in Treasury Regulations Section 1.704-l(b)(2)(ii)(d).
After the occurrence of an allocation of income or gain to a Holder in
accordance with
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this Section 2.11(f), to the extent permitted by Regulations
Section 1.704-l(b), items of expense or loss shall be allocated to such Holder
in an amount necessary to offset the income or gain previously allocated to such
Holder under this Section 2.11(f).
(g) Loss shall not be allocated to a Holder to the extent that such
allocation would cause a deficit in such Holder's Capital Account (after
reduction to reflect the items described in Treasury Regulations Section
1.704-l(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such Holder's shares
of Trust Minimum Gain and Holder Nonrecourse Debt Minimum Gain. Any loss in
excess of that limitation shall be allocated to all the Holders in accordance
with their respective Percentage Interests. After the occurrence of an
allocation of loss to a Holder in accordance with this Section 2.11(g), to the
extent permitted by Treasury Regulations Section 1.704-l(b), profit shall be
allocated to such Holder in an amount necessary to offset the loss previously
allocated to such Holder under this Section 2.11(g).
(h) If a Holder transfers any part or all of its Percentage Interest
and the transferee is admitted as provided herein (a "Transferee Holder"), the
distributive shares of the various items of profit and loss allocable among the
Holders during such Taxable Year shall be allocated between the transferor and
the Transferee Holder (at the election of the Holders (including the transferor,
but excluding the Transferee Holder)) either (i) as if the Taxable Year had
ended on the date of the transfer or (ii) based on the number of days of such
Taxable Year that each was a Holder without regard to the results of Trust
activities in the respective portions of such Taxable Year in which the
transferor and Transferee Holder were Holders.
(i) "Profit" and "loss" and any items of income, gain, expense or
loss referred to in this Section 2.11 shall be determined in accordance with
federal income tax accounting principles as modified by Treasury Regulations
Section 1.704-l(b)(2)(iv), except that profits and losses shall not include
items of income, gain, and expense that are specially allocated pursuant to
Sections 2.11(e), 2.11(f) or 2.11(g) hereof. All allocations of income, profits,
gains, expenses, and losses (and all items contained therein) for federal income
tax purposes shall be identical to all allocations of such items set forth in
this Section 2.11, except as otherwise required by Section 704(c) of the Code
and Section 1.704-l(b)(4) of the Treasury Regulations.
(j) The taxable year of the Trust (the "Taxable Year") shall be the
calendar year or such other taxable year as may be required by Section 706(b) of
the Code.
(k) At the Trust's expense, the Owner Trustee shall (i) prepare, or
cause to be prepared, and file or cause to be filed such tax returns relating to
the Trust (including a partnership information return, IRS Form 1065) as are
required by applicable federal, state, and local law, (ii) cause such returns to
be signed in the manner required by law, (iii) make such elections as may from
time to time be required or appropriate under any applicable law so as to
maintain the Trust's classification as a partnership for tax purposes, (iv)
prepare and deliver, or cause to be prepared and delivered, to the Holders, no
later than 120 days after the close of each Taxable Year (or no later than April
15th), a
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Schedule K-1, a copy of the Trust's informational tax return (IRS Form
1065), and such other reports (collectively, the "Annual Tax Reports") setting
forth in sufficient detail all such information and data with respect to the
transactions effected by or involving the Trust during such Taxable Year as
shall enable the each Holder to prepare its federal, state, and local income tax
returns in accordance with the laws then prevailing, and (v) collect, or cause
to be collected, any withholding tax as described in Section 5.2(c) with respect
to income or distributions to Certificateholders.
(l) Mortgage Lenders Network USA, Inc. shall be designated as the
tax matters partner for the Trust within the meaning of Section 6231(a)(7) of
the Code (the "Tax Matters Partner"). The Tax Matters Partner shall have the
right and obligation to take all actions authorized and required, respectively,
by the Code for the Tax Matters Partner. The Tax Matters Partner shall have the
right to retain professional assistance in respect of any audit or controversy
proceeding initiated with respect to the Trust by the Internal Revenue Service
or any state or local taxing authority, and all expenses and fees incurred by
the Tax Matters Partner on behalf of the Trust shall constitute expenses of the
Trust. In the event the Tax Matters Partner receives notice of a final
partnership adjustment under Section 6223(a)(2) of the Code, the Tax Matters
Partner shall either (i) file a court petition for judicial review of such
adjustment within the period provided under Section 6226(a) of the Code, a copy
of which petition shall be mailed to all other Holders on the date such petition
is filed, or (ii) mail a written notice to all other Holders, within such
period, that describes the Tax Matters Partner's reasons for determining not to
file such a petition.
(m) Except as otherwise provided in this Section 2.11, the Holders
shall instruct the Owner Trustee as to whether to make any available election
under the Code or any applicable state or local tax law on behalf of the Trust.
Notwithstanding the foregoing, any Holder may request that the Owner Trustee
make an election under section 754 of the Code; provided that the requesting
Holder shall agree to bear the cost of preparing such election and any
additional accounting expenses of the Trust incurred as a result of such
election.
ARTICLE III
CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1 INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the issuance of
the Certificates, the Depositor shall be the sole beneficiary of the Trust.
SECTION 3.2 THE CERTIFICATES. The Certificates shall be issued without a
principal amount and shall evidence beneficial ownership interests in the Trust.
The Certificates shall be printed, lithographed or engraved or may be produced
in any other manner as is reasonably acceptable to the Owner Trustee, as
evidenced by its execution thereof. The Certificates shall be executed on behalf
of the Trust by manual or facsimile signature of an Authorized Officer of the
Owner Trustee. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be valid,
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notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Certificates or did
not hold such offices at the date of authentication and delivery of such
Certificates.
A transferee of a Certificate shall become a Certificateholder, and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to Section 3.4.
SECTION 3.3 EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST CERTIFICATES.
Concurrently with the initial transfer of the Mortgage Loans to the Trust
pursuant to the Mortgage Loan Contribution Agreement, the Owner Trustee shall
cause the Certificates, representing 100% of the Percentage Interests of the
Trust Interest, to be executed on behalf of the Trust, authenticated and
delivered to the Company, as the designee of the Depositor. No Certificate shall
entitle its holder to any benefit under this Agreement, or shall be valid for
any purpose, unless there shall appear on such Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee or the Owner Trustee's authenticating agent, by manual or
facsimile signature; such authentication shall constitute conclusive evidence
that such Certificate shall have been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
SECTION 3.4 REGISTRATION OF TRANSFER AND EXCHANGE OF TRUST CERTIFICATES. The
Certificate Registrar shall keep or cause to be kept, at the office or agency
maintained pursuant to Section 3.8, a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Owner Trustee shall provide
for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. The Owner Trustee shall be the initial
Certificate Registrar.
Upon surrender for registration of transfer of any Certificate at
the office or agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver (or shall cause its authenticating agent to
authenticate and deliver), in the name of the designated transferee or
transferees, one or more new Certificates of a like Percentage Interest dated
the date of authentication by the Owner Trustee or any authenticating agent. At
the option of a Certificateholder, Certificates may be exchanged for other
Certificates of a like Percentage Interest upon surrender of the Certificates to
be exchanged at the office or agency maintained pursuant to Section 3.8.
Every Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Certificateholder or his attorney duly authorized in writing. In
addition, each Certificate presented or surrendered for registration of transfer
and exchange must be accompanied by a representation letter from the Prospective
Holder certifying as to the representations set forth in Section 3.11(a), (b)
and (c). Each Certificate surrendered for registration of
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transfer or exchange shall be canceled and disposed of by the Owner Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make and the Certificate Registrar shall not register
transfers or exchanges of Certificates for a period of 15 days preceding the
Payment Date with respect to the Certificates.
Notwithstanding anything contained herein to the contrary, the Owner
Trustee shall not be responsible for ascertaining whether any transfer complies
with the registration provisions or exemptions from the Securities Act of 1933,
as amended, the Securities Act of 1934, as amended, applicable state securities
law or the Investment Company Act of 1940; provided, however, that if a
certificate is specifically required to be delivered to the Owner Trustee by a
purchaser or transferee of a Certificate, the Owner Trustee shall be under a
duty to examine the same to determine whether it conforms to the requirements of
this Trust Agreement and shall promptly notify the party delivering the same if
such certificate does not so conform.
SECTION 3.5 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a) any
mutilated Certificate shall be surrendered to the Certificate Registrar, or if
the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Owner Trustee such security or indemnity as
may be required by them to save each of them harmless, then in the absence of
notice that such Certificate shall have been acquired by a bona fide purchaser,
the Owner Trustee on behalf of the Trust shall execute and the Owner Trustee, or
the Owner Trustee's authenticating agent, shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like Percentage Interest. In connection with
the issuance of any new Certificate under this Section, the Owner Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Certificate issued pursuant to this Section shall constitute
conclusive evidence of ownership in the Trust, as if originally issued, whether
or not the lost, stolen or destroyed Certificate shall be found at any time.
SECTION 3.6 PERSONS DEEMED OWNERS. Each person by virtue of becoming a
Certificateholder in accordance with this Agreement shall be deemed to be bound
by the terms of this Agreement. Prior to due presentation of a Certificate for
registration of transfer, the Owner Trustee or the Certificate Registrar may
treat the Person in whose name any Certificate shall be registered in the
Certificate Register as the owner of such Certificate for the purpose of
receiving distributions pursuant to Section 5.2 and for all
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other purposes whatsoever, and neither the Owner Trustee nor the Certificate
Registrar shall be bound by any notice to the contrary.
SECTION 3.7 ACCESS TO LIST OF HOLDERS' NAMES AND ADDRESSES. The Owner Trustee
shall furnish or cause to be furnished to the Servicer, the Depositor and the
Trust Paying Agent immediately prior to each Payment Date, a list of the names
and addresses of the Certificateholders as of the most recent Record Date. If
three or more Certificateholders or one or more Holders of Certificates,
together evidencing Percentage Interests totaling not less than 25%, apply in
writing to the Owner Trustee, and such application states that the applicants
desire to communicate with other Certificateholders with respect to their rights
under this Agreement or under the Certificates and such application is
accompanied by a copy of the communication that such applicants propose to
transmit, then the Owner Trustee shall, within five Business Days after the
receipt of such application, afford such applicants access during normal
business hours to the current list of Certificateholders. Each
Certificateholder, by receiving and holding a Certificate, shall be deemed to
have agreed not to hold any of the Depositor, the Certificate Registrar or the
Owner Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
SECTION 3.8 MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee shall maintain an
office or offices or agency or agencies where Certificates may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Owner Trustee in respect of the Certificates and the Basic Documents
may be served. The Owner Trustee initially designates the Corporate Trust Office
of Wilmington Trust Company as its principal corporate trust office for such
purposes. The Owner Trustee shall give prompt written notice to the Depositor
and to the Certificateholders of any change in the location of the Certificate
Register or any such office or agency.
SECTION 3.9 APPOINTMENT OF TRUST PAYING AGENT. The Owner Trustee hereby appoints
Norwest Bank Minnesota, National Association, as Trust Paying Agent under this
Agreement. The Trust Paying Agent shall make distributions to Certificateholders
from the Certificate Distribution Account pursuant to Section 5.2 and shall
report to the Owner Trustee on the Payment Date via facsimile transmission of a
distribution statement the amounts of such distributions to the
Certificateholders. The Trust Paying Agent shall have the revocable power to
withdraw funds from the Certificate Distribution Account for the purpose of
making the distributions referred to above. In the event that Norwest Bank
Minnesota, National Association, shall no longer be the Trust Paying Agent
hereunder, the Owner Trustee shall appoint a successor to act as Trust Paying
Agent (which shall be a bank or trust company) acceptable to the
Certificateholders, Mortgage Lenders Network, so long as Mortgage Lenders
Network is acting as Servicer, and the Note Insurer. The Owner Trustee shall
cause such successor Trust Paying Agent or any additional Trust Paying Agent
appointed by the Owner Trustee to execute and deliver to the Owner Trustee an
instrument in which such successor Trust Paying Agent or additional Trust Paying
Agent shall agree with the Owner Trustee that as Trust Paying Agent, such
successor Trust Paying Agent or additional Trust Paying Agent will hold all
sums, if any, held by it for payment to the Certificateholders in trust for the
benefit of the Certificateholders entitled thereto until such sums shall be paid
to such Certificateholders.
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After one year from the date of receipt, the Trust Paying Agent shall promptly
return all unclaimed funds to the Owner Trustee, and upon removal of a Trust
Paying Agent, such Trust Paying Agent shall also return all funds in its
possession to the Owner Trustee. The provisions of Sections 7.1, 7.3(b), 7.4,
8.1, and 10.2 as to resignations, shall apply to the Trust Paying Agent to the
same extent as if it were named therein and, to the extent applicable, to any
other paying agent appointed hereunder. Any reference in this Agreement to the
Trust Paying Agent shall include any co-paying agent unless the context requires
otherwise.
SECTION 3.10 RESTRICTIONS ON TRANSFER OF CERTIFICATES.
(a) Each prospective purchaser and any subsequent transferee of a
Certificate (each, a "Prospective Holder"), other than the Company, shall
represent and warrant, in writing, to the Owner Trustee and the Certificate
Registrar and any of their respective successors that:
(i) Such Person is (A) a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), and is aware that the seller of the Certificate may be
relying on the exemption from the registration requirements of the
Securities Act provided by Rule 144A and is acquiring such Certificate for
its own account or for the account of one or more qualified institutional
buyers for whom it is authorized to act, or (B) a Person involved in the
organization or operation of the Trust or an affiliate of such Person
within the meaning of Rule 3a-7 of the Investment Company Act of 1940, as
amended (including, but not limited to, the Depositor).
(ii) Such Person understands that the Certificates have not been
and will not be registered under the Securities Act and may be offered,
sold, pledged or otherwise transferred only to a person whom the seller
reasonably believes is (C) a qualified institutional buyer or (D) a Person
involved in the organization or operation of the Trust or an affiliate of
such Person, in a transaction meeting the requirements of Rule 144A under
the Securities Act and in accordance with any applicable securities laws
of any state of the United States.
(iii) Such Person understands that the Certificates bear a legend
to the following effect:
"THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY
OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS
REGISTERED UNDER THE
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ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE PURSUANT TO RULE 144A OR (II) A
PERSON INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN
AFFILIATE OF SUCH A PERSON WITHIN THE MEANING OF RULE 3a-7 OF THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED (INCLUDING, BUT NOT
LIMITED TO, MLN RESIDUAL HOLDING CORPORATION I) IN A TRANSACTION
THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS CERTIFICATE
UNDER THE ACT OR ANY STATE SECURITIES LAWS."
(b) By its acceptance of a Certificate, each Prospective Holder
agrees and acknowledges that no legal or beneficial interest in all or any
portion of any Certificate may be transferred directly or indirectly to an
entity that holds residual securities as nominee to facilitate the
clearance and settlement of such securities through electronic book-entry
changes in Accounts of participating organizations (a "Book-Entry
Nominee") and any such purported transfer shall be void and have no
effect.
(c) No transfer of a Certificate or any beneficial interest
therein shall be made to any person unless the Note Insurer has given its
prior written consent to such transfer and the Owner Trustee has received
a representation letter from the Transferee to the effect that such
transferee (i) is not a person which is an employee benefit plan, trust or
account subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") or Section 4975 of the Code or a
governmental plan, as defined in Section 3(32) of ERISA, subject to any
federal, state or local law which is, to a material extent, similar to the
foregoing provisions of ERISA or the Code (any such person being a
"Plan"), (ii) is not an entity, including an insurance company separate
account or general account, whose underlying assets include "plan assets"
by reason of a Plan's investment in the entity and (iii) is not directly
or indirectly purchasing such Certificate or interest therein on behalf
of, as investment manager of, as named fiduciary of, as trustee of, or
with the assets of a Plan.
(d) The Owner Trustee shall not execute, and shall not
countersign and deliver, a Certificate in connection with any transfer
thereof unless the transferor shall have provided to the Owner Trustee a
certificate, substantially in the form attached as Exhibit C to this
Agreement, signed by the transferee, which certificate shall contain the
consent of the transferee to any amendments of this Agreement as may be
required to effectuate further the foregoing restrictions on transfer of
the Certificates to Book-Entry Nominees, and an agreement by the
transferee that it will not transfer a Certificate
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without providing to the Owner Trustee a certificate substantially in the form
attached as Exhibit C to this Agreement.
(e) The Certificates shall bear an additional legend referring to
the restrictions contained in paragraph (b) above.
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 PRIOR NOTICE TO HOLDERS WITH RESPECT TO CERTAIN MATTERS.
With respect to the following matters, the Owner Trustee shall not
take action, and the Certificateholders shall not direct the Owner Trustee to
take any action, unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders and the Note Insurer in
writing of the proposed action and neither the Certificateholders nor the Note
Insurer shall have notified the Owner Trustee in writing prior to the 30th day
after such notice is given that such Certificateholders and/or the Note Insurer
have withheld consent or the Certificateholders have provided alternative
direction (any direction by the Certificateholders shall require the prior
consent of the Note Insurer):
(a) the initiation of any claim or lawsuit by the Trust (except
claims or lawsuits brought in connection with the collection of the
Mortgage Loans) and the compromise of any action, claim or lawsuit brought
by or against the Trust (except with respect to the aforementioned claims
or lawsuits for collection of the Mortgage Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed under
the Business Trust Statute);
(c) the amendment or other change to this Agreement or any Basic
Document in circumstances where the consent of any Holder or the Note
Insurer is required;
(d) the amendment or other change to this Agreement or any Basic
Document in circumstances where the consent of any Holder or the Note
Insurer is not required and such amendment materially adversely affects
the interest of the Certificateholders;
(e) the appointment pursuant to the Indenture of a successor Note
Registrar, Trust Paying Agent or Indenture Trustee or pursuant to this
Agreement of a successor Certificate Registrar or Paying Agent, or the
consent to the assignment by the Note Registrar, Paying Agent or Indenture
Trustee or Certificate Registrar or Trust Paying Agent of its obligations
under the Indenture or this Agreement, as applicable.
(f) the consent to the calling or waiver of any default of any
Basic Document;
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(g) the consent to the assignment by the Indenture Trustee or
Servicer of their respective obligations under any Basic Document;
(h) except as provided in Article IX hereof, dissolve, terminate
or liquidate the Trust in whole or in part;
(i) merge or consolidate the Trust with or into any other entity,
or convey or transfer all or substantially all of the Trust's assets to
any other entity;
(j) cause the Trust to incur, assume or guaranty any indebtedness
other than as set forth in this Agreement or the Basic Documents;
(k) do any act that conflicts with any other Basic Document;
(l) do any act which would make it impossible to carry on the
ordinary business of the Trust as described in Section 2.3 hereof;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth in
this Trust Agreement.
In addition the Trust shall not commingle its assets with those of
any other entity. The Trust shall maintain its financial and accounting books
and records separate from those of any other entity. Except as expressly set
forth herein, the Trust shall pay its indebtedness, operating expenses and
liabilities from its own funds, and the Trust shall not pay the indebtedness,
operating expenses and liabilities of any other entity. The Trust shall maintain
appropriate minutes or other records of all appropriate actions and shall
maintain its office separate from the offices of the Depositor, the Company and
Mortgage Lenders Network.
The Owner Trustee shall not have the power, except upon the
direction of the Certificateholders with the consent of the Note Insurer, and to
the extent otherwise consistent with the Basic Documents, to (i) remove or
replace the Servicer or the Indenture Trustee, (ii) institute proceedings to
have the Trust declared or adjudicated a bankruptcy or insolvent, (iii) consent
to the institution of bankruptcy or insolvency proceedings against the Trust,
(iv) file a petition or consent to a petition seeking reorganization or relief
on behalf of the Trust under any applicable federal or state law relating to
bankruptcy, (v) consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or any similar official) of the Trust or a substantial
portion of the property of the Trust, (vi) make any assignment for the benefit
of the Trust's creditors, (vii) cause the Trust to admit in writing its
inability to pay its debts generally as they become due, (viii) take any action,
or cause the Trust to take any action, in furtherance of
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any of the foregoing (any of the above, a "Bankruptcy Action"). So long as the
Indenture and the Insurance Agreement remain in effect and no Note Insurer
Default exists, no Certificateholder shall have the power to take, and shall not
take, any Bankruptcy Action with respect to the Trust or direct the Owner
Trustee to take any Bankruptcy Action with respect to the Trust.
SECTION 4.2 ACTION BY HOLDERS WITH RESPECT TO BANKRUPTCY. The Owner Trustee
shall not have the power to commence a voluntary proceeding in bankruptcy
relating to the Trust without the consent and approval of the Note Insurer, the
unanimous prior approval of all Certificateholders and the Note Insurer and the
delivery to the Owner Trustee by each such Certificateholder of a certification
that such Certificateholder reasonably believes that the Trust is insolvent.
SECTION 4.3 RESTRICTIONS ON HOLDERS' POWER. The Certificateholders shall not
direct the Owner Trustee to take or refrain from taking any action if such
action or inaction would be contrary to any obligation of the Trust or the Owner
Trustee under this Agreement or any of the Basic Documents or would be contrary
to Section 2.3 nor shall the Owner Trustee be obligated to follow any such
direction, if given.
SECTION 4.4 MAJORITY CONTROL. Except as expressly provided herein, any action
that may be taken by the Certificateholders under this Agreement may be taken by
the Holders of Certificates evidencing more than 50% of the Percentage Interest
in the Trust Interest and such action shall be binding upon all
Certificateholders. Except as expressly provided herein, any written notice of
the Certificateholders delivered pursuant to this Agreement shall be effective
if signed by Holders of Certificates evidencing more than 50% of the Percentage
Interest in the Trust Interest at the time of the delivery of such notice and
such action shall be binding upon all Certificateholders.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1 ESTABLISHMENT OF CERTIFICATE DISTRIBUTION ACCOUNT. The Owner Trustee
shall cause the Trust Paying Agent, for the benefit of the Certificateholders,
to establish and maintain with Norwest Bank Minnesota, National Association, for
the benefit of the Owner Trustee one or more Accounts that while the Trust
Paying Agent holds such Account shall be entitled "Certificate Distribution
Account, Norwest Bank Minnesota, National Association, as Trust Paying Agent, in
trust for the Holders of Certificates evidencing beneficial interests in
Mortgage Lenders Network Home Equity Loan Trust 1998-3." Funds shall be
deposited in the Certificate Distribution Account as required by the Indenture
or, following satisfaction and release of the Indenture, by the Servicing
Agreement.
All of the right, title and interest of the Owner Trustee in all
funds on deposit from time to time in the Certificate Distribution Account and
in all proceeds thereof shall be held for the benefit of the Certificateholders,
the Note Insurer and such other persons entitled to distributions therefrom.
Except as otherwise expressly provided
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herein, the Certificate Distribution Account shall be under the sole dominion
and control of the Owner Trustee for the benefit of the Certificateholders and
the Note Insurer.
SECTION 5.2 APPLICATION OF TRUST FUNDS.
(a) On each Payment Date, the Trust Paying Agent shall distribute
to the Certificateholders, on the basis of their respective Percentage
Interests, all amounts then on deposit in the Certificate Distribution
Account.
(b) On each Payment Date, the Trust Paying Agent shall send to
Certificateholders the statement provided to the Owner Trustee by the
Indenture Trustee pursuant to Section 2.08(d) of the Indenture with
respect to such Payment Date. If the Trust Paying Agent is an entity other
than the Indenture Trustee, the Owner Trustee shall provide a copy of such
statement to the Trust Paying Agent to enable it to perform its duties
under this Section 5.2(b).
(c) In the event that any withholding tax is imposed under
federal, state, or local tax on the Trust's payment (or allocations of
income) to a Certificateholder, such tax shall reduce the amount otherwise
distributable to such Certificateholder in accordance with this Section.
The Owner Trustee, and the Trust Paying Agent on its behalf, is hereby
authorized and directed to retain in the Certificate Distribution Account
from amounts otherwise distributable to the Certificateholders sufficient
funds for the payment of any tax that is legally owed by the Trust (but
such authorization shall not prevent the Owner Trustee from contesting any
such tax in appropriate proceedings, and withholding payment of such tax,
if permitted by law, pending the outcome of such proceedings). The
Certificate Registrar will provide the Trust Paying Agent with a statement
indicating the amount of any such withholding tax. The amount of any
withholding tax imposed with respect to a Certificateholder shall be
treated as cash distributed to such Certificateholder at the time it is
withheld by the Trust and remitted to the appropriate taxing authority
from the Certificate Distribution Account at the direction of the Owner
Trustee or the Trust Paying Agent on its behalf. If there is a possibility
that withholding tax is payable with respect to a distribution (such as a
distribution to a Certificateholder who is a Non-U.S. Person), the Trust
Paying Agent may in its sole discretion withhold such amounts in
accordance with this paragraph (c). In the event that a Certificateholder
wishes to apply for a refund of any such withholding tax, the Owner
Trustee and the Trust Paying Agent shall reasonably cooperate with such
Certificateholder in making such claim so long as such Certificateholder
agrees to reimburse the Owner Trustee for any out-of-pocket expenses
incurred.
Any Holder which is organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date such Holder becomes a
Holder, (a) so notify the Trust, the Owner Trustee and the Trust Paying Agent,
(b) (i) provide the Trust, the Owner Trustee and the Trust Paying Agent with
Internal Revenue Service form 1001, 4224, 8709 or W-8, as appropriate, or (ii)
notify the Trust, the Owner Trustee and the Trust Paying Agent that it is not
entitled to an exemption from United States withholding tax or a reduction in
the rate thereof on payments of interest. Any such Holder agrees by its
acceptance of a Certificate, on an ongoing basis, to provide like certification
for each
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taxable year and to notify the Trust, the Owner Trustee and the Trust Paying
Agent should subsequent circumstances arise affecting the information provided
in clauses (a) and (b) above. The Trust, the Owner Trustee and the Trust Paying
Agent shall be fully protected in relying upon, and each Holder by its
acceptance of a Certificate hereunder agrees to indemnify and hold the Trust,
the Owner Trustee and the Trust Paying Agent harmless against all claims or
liability of any kind arising in connection with or related to their reliance
upon any documents, forms or information provided by any Holder. In addition, if
the Trust Paying Agent has not withheld taxes on any payment made to any Holder,
and the Trust Paying Agent is subsequently required to remit to any taxing
authority any such amount not withheld, such Holder shall return such amount to
the Trust Paying Agent upon written demand by the Trust Paying Agent. Neither
the Owner Trustee nor the Trust Paying Agent shall be liable for damages to any
Holder due to a violation of the Code unless and only to the extent such
liability is caused by the Owner Trustee's or the Trust Paying Agent's failure
to act in accordance with its standard of care under this Agreement.
(d) Notwithstanding anything to the contrary herein, at any time
after the Indenture is no longer in effect but while this Agreement remains in
effect, the manager under the Management Agreement (the "Manager") shall be
entitled to a fee on each Payment Date equal to the Indenture Trustee Fee that
would have been payable to the Indenture Trustee on such Payment Date if the
Indenture were still in effect. Such fee shall be distributed to the Manager
from funds in the Certificate Distribution Account prior to distribution of any
such funds to Certificateholders. Also, in such event, the Servicer shall
provide the same information to the Manager that it would have provided to the
Indenture Trustee pursuant to the Servicing Agreement, as well as any other
information concerning the Mortgage Loans as may be reasonably requested by the
Manager to enable the Manager to perform its obligations under the Management
Agreement. On each such Payment Date, the Trust Paying Agent shall mail to each
Certificateholder a statement detailing the amount remitted to the Trust Paying
Agent by the Servicer on the related Deposit Date and setting forth the amount
of the Monthly Servicing Fee and fees paid to the Manager with respect to such
Payment Date, and the aggregate amount distributed to Certificateholders on such
Payment Date.
SECTION 5.3 METHOD OF PAYMENT. Distributions required to be made to
Certificateholders on any Payment Date shall be made to each Certificateholder
of record on the preceding Record Date either by wire transfer, in immediately
available funds, to the account of such Holder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder shall have provided
to the Trust Paying Agent appropriate written instructions at least five
Business Days prior to such Payment Date, or, if not, by check mailed to such
Certificateholder at the address of such Holder appearing in the Certificate
Register.
SECTION 5.4 SEGREGATION OF MONEYS; NO INTEREST. Subject to Sections 5.1 and 5.2,
moneys received by the Trust Paying Agent hereunder and deposited into the
Certificate Distribution Account will be segregated except to the extent
required otherwise by law and, if the Holders of more than 50% of the
Certificates so direct, shall be invested in Permitted Investments maturing no
later than one Business Day prior to the
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related Payment Date at the direction of such Certificateholders. The Trust
Paying Agent shall not be liable for payment of any interest or losses in
respect of such moneys. Investment gains shall be for the account of and paid to
the Certificateholders.
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1 GENERAL AUTHORITY. The Owner Trustee is authorized and directed to
execute and deliver or cause to be executed and delivered the Notes, the
Certificates and the Basic Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Basic Documents to which the Trust is to be a party and any amendment or
other agreement or instrument described in Article III, in each case, in such
form as the Depositor and the Owner Trustee shall approve, as evidenced
conclusively by the Owner Trustee's execution thereof. In addition, the Owner
Trustee is authorized and directed, on behalf of the Trust, to execute and
deliver to the Authenticating Agent the Issuer Request and the Issuer Order
referred to in Section 2.11 of the Indenture, in such form as the Depositor
shall approve, as evidenced conclusively by the Owner Trustee's or the
Depositor's execution thereof, directly to the Authenticating Agent to
authenticate and deliver Notes in the aggregate principal amount of
$114,925,000. In addition to the foregoing, the Owner Trustee is authorized, but
shall not be obligated, to take all actions required of the Trust, pursuant to
the Basic Documents.
SECTION 6.2 GENERAL DUTIES.
(a) It shall be the duty of the Owner Trustee:
(i) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Basic
Documents to which the Trust is a party and to administer the Trust in the
interest of the Certificateholders, subject to the Basic Documents and in
accordance with the provisions of this Agreement; and
(ii) to obtain and preserve (or cause to be obtained and
preserved) the Issuer's qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the
validity and enforceability of the Indenture, the Notes, the Mortgage
Loans and each other instrument and agreement included in the Trust
Estate. The Servicer agrees to perform the obligations of the Owner
Trustee under this Section 6.2(a)(ii), other than with respect to the
obligation to obtain and preserve the Issuer's qualification to do
business in the State of Delaware which shall remain the obligation of the
Owner Trustee hereunder.
(b) The Owner Trustee shall not be responsible for taking any
action on behalf of the Trust under any Basic Document unless specifically
directed in writing to do so in accordance with Section 6.3 of this
Agreement.
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(c) The Owner Trustee shall not be responsible for any matter
regarding the Securities Act, the Exchange Act or the Investment Company
Act of 1940, as amended, or the rules or regulations thereunder.
SECTION 6.3 ACTION UPON INSTRUCTION.
(a) Subject to Article IV and in accordance with the terms of the
Basic Documents, the Certificateholders may by written instruction direct
the Owner Trustee in the management of the Trust but only to the extent
consistent with the limited purpose of the Trust. Such direction may be
exercised at anytime by written instruction of the Certificateholders
pursuant to Article IV. Without limiting the generality of the foregoing,
the Owner Trustee shall act as directed by the Certificateholders in
connection with Note redemptions requested by the Certificateholders, and
shall take all actions and deliver all documents that the Trust is
required to take and deliver in accordance with Section 4.01 and Article X
of the Indenture in order to effect any redemption requested by the
Certificateholders.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have
reasonably determined, or shall have been advised by counsel, that such
action is likely to result in liability on the part of the Owner Trustee
or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or under any Basic Document, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances)
to the Certificateholders and the Note Insurer requesting instruction from
the Certificateholders as to the course of action to be adopted, and to
the extent the Owner Trustee acts in good faith in accordance with any
written instruction of the Certificateholders received, the Owner Trustee
shall not be liable on account of such action to any Person. If the Owner
Trustee shall not have received appropriate instruction within 10 days of
such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it
may, but shall be under no duty to, take or refrain from taking such
action, not inconsistent with this Agreement or the Basic Documents, as it
shall deem to be in the best interests of the Certificateholders, and
shall have no liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or
any such provision is ambiguous as to its application, or is, or appears
to be, in conflict with any other applicable provision, or in the event
that this Agreement permits any determination by the Owner Trustee or is
silent or is incomplete as to the course of action that the Owner Trustee
is required to take with respect to a particular set of facts, the Owner
Trustee may give notice (in such form as shall be appropriate under the
circumstances) to the Certificateholders requesting instruction and, to
the extent that the Owner Trustee acts or refrains from acting in good
faith in accordance with any such instruction received, the
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Owner Trustee shall not be liable, on account of such action or inaction,
to any Person. If the Owner Trustee shall not have received appropriate
instruction within 10 days of such notice (or within such shorter period
of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or
refrain from taking such action, not inconsistent with this Agreement or
the Basic Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such
action or inaction.
SECTION 6.4 NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT, THE BASIC DOCUMENTS
OR ANY INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Trust is a party, except as expressly provided by the terms of this
Agreement, any Basic Document or in any document or written instruction received
by the Owner Trustee pursuant to Section 6.3; and no implied duties or
obligations shall be read into this Agreement or any Basic Document against the
Owner Trustee. The Owner Trustee shall have no 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 or to prepare or file any Securities and Exchange
Commission filing for the Trust or to record this Agreement or any Basic
Document. The Owner Trustee nevertheless agrees that it will, at its own cost
and expense, promptly take all action as may be necessary to discharge any liens
on any part of the Owner Trust Estate that result from actions by, or claims
against, the Owner Trustee in its individual capacity that are not related to
the ownership or the administration of the Owner Trust Estate.
SECTION 6.5 NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR INSTRUCTIONS. The
Owner Trustee shall not manage, control, use, sell, dispose of or otherwise deal
with any part of the Owner Trust Estate except (i) in accordance with the powers
granted to and the authority conferred upon the Owner Trustee pursuant to this
Agreement, (ii) in accordance with the Basic Documents and (iii) in accordance
with any document or instruction delivered to the Owner Trustee pursuant to
Section 6.3.
SECTION 6.6 RESTRICTIONS. The Owner Trustee shall not take any action (a) that
violates or results in a breach of or is inconsistent with the purposes of the
Trust set forth in Section 2.3 or (b) that, to the actual knowledge of the Owner
Trustee, would result in the Trust's becoming taxable as a corporation for
Federal income tax purposes. The Certificateholders shall not direct the Owner
Trustee to take action that would violate the provisions of this Section.
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee accepts the
trusts hereby created and agrees to perform its duties hereunder with respect to
such trusts but only upon the terms of this Agreement and the Basic Documents.
The Owner
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Trustee also agrees to disburse all moneys actually received by it constituting
part of the Owner Trust Estate upon the terms of the Basic Documents and this
Agreement. The Owner Trustee shall not be answerable or accountable hereunder
under any circumstances, except (i) for its own willful misconduct or gross
negligence or (ii) in the case of the inaccuracy of any representation or
warranty contained in Section 7.3 expressly made by the Owner Trustee in its
individual capacity. In particular, but not by way of limitation (and subject to
the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the instructions of
the Certificateholders;
(c) no provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Basic Document if the Owner Trustee shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect
of the validity or sufficiency of this Agreement or for the due execution hereof
by the Depositor or for the form, character, genuineness, sufficiency, value or
validity of any of the Owner Trust Estate or for or in respect of the validity
or sufficiency of the Basic Documents, other than the certificate of
authentication on the Certificates, and the Owner Trustee shall in no event
assume or incur any liability, duty, or obligation to any Noteholder or to any
Certificateholder, other than as expressly provided for herein and in the Basic
Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Seller, the Depositor, the Indenture Trustee, the Trust Paying
Agent, the Manager or the Servicer under any of the Basic Documents or otherwise
and the Owner Trustee shall have no obligation or liability to perform the
obligations of the Trust under this Agreement or the Basic Documents that are
required to be performed by the Indenture Trustee under the Indenture, the
Servicer under the Servicing Agreement, the Trust Paying Agent under this
Agreement or the Manager under the Management Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document, at the request, order or
direction of any of the Certificateholders, unless such
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Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Agreement or in any Basic
Document shall not be construed as a duty, and the Owner Trustee shall not be
answerable for other than its gross negligence or willful misconduct in the
performance of any such act.
(h) Notwithstanding anything contained herein to the contrary,
neither Wilmington Trust Company nor the Owner Trustee shall be required to take
any action in any jurisdiction other than in the State of Delaware if the taking
of such action will (i) require the consent or approval or authorization or
order of or the giving of notice to, or the registration with or the taking of
any other action in respect of, any state or other governmental authority or
agency of any jurisdiction other than the State of Delaware; (ii) result in any
fee, tax or other governmental charge under the laws of any jurisdiction or any
political subdivisions thereof in existence on the date hereof other than the
State of Delaware becoming payable by Wilmington Trust Company; or (iii) subject
Wilmington Trust Company to personal jurisdiction in any jurisdiction other than
the State of Delaware for causes of action arising from acts unrelated to the
consummation of the transactions by Wilmington Trust Company or the Owner
Trustee, as the case may be, contemplated hereby. The Owner Trustee shall be
entitled to obtain advice of counsel (which advice shall be an expense of
Mortgage Lenders Network) to determine whether any action required to be taken
pursuant to the Agreement results in the consequences described in clauses (i),
(ii) and (iii) of the preceding sentence. In the event that said counsel advises
the Owner Trustee that such action will result in such consequences, the Owner
Trustee will appoint an additional trustee pursuant to Section 10.5 hereof to
proceed with such action.
SECTION 7.2 FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish to the
Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents. On behalf of the Owner Trustee, the Depositor shall
furnish to Noteholders promptly upon written request therefor, copies of the
Servicing Agreement and the Indenture.
SECTION 7.3 REPRESENTATIONS AND WARRANTIES.
(a) The Owner Trustee hereby represents and warrants to the
Depositor, the Owner Trustee for the benefit of the Certificateholders, that:
(i) It is a banking corporation duly organized and validly existing
in good standing under the laws of the State of Delaware. It has all
requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and
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delivered by one of its officers who is duly authorized to execute and
deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this Agreement
nor the consummation by it of the transactions contemplated hereby nor
compliance by it with any of the terms or provisions hereof will
contravene any Federal or Delaware law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment
or order binding on it, or constitute any default under its charter
documents or by-laws.
(b) The Trust Paying Agent hereby represents and warrants to the
Depositor and the Note Insurer for the benefit of the Certificateholders, that:
(i) It is a banking association duly organized and validly
existing in good standing under the laws of the United States of America.
It has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal law, governmental rule or regulation governing
the banking or trust powers of the Trust Paying Agent or any judgment or
order binding on it, or constitute any default under its charter documents
or by-laws.
SECTION 7.4 RELIANCE; ADVICE OF COUNSEL.
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, Note, or other document or paper believed
by it to be genuine and believed by it to be signed by the proper party or
parties. The Owner Trustee may accept a certified copy of a resolution of the
board of directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that the
same is in full force and effect. As to any fact or matter the method of the
determination of which is not specifically prescribed herein, the Owner Trustee
may for all purposes hereof rely on a certificate, signed by the president or
any vice president or by the treasurer or other authorized officers of the
relevant party, as to such fact or matter and such certificate shall constitute
full protection to the Owner Trustee for any action taken or omitted to be taken
by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and
in the performance of its duties and obligations under this Agreement or the
Basic Documents,
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the Owner Trustee (i) may act directly or through its agents or attorneys
pursuant to agreements entered into with any of them, and the Owner Trustee
shall not be liable for the conduct or misconduct of such agents or attorneys if
such agents or attorneys shall have been selected by the Owner Trustee with
reasonable care, and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, Accountants or other such persons and not contrary to this Agreement or
any Basic Document.
SECTION 7.5 NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in this
Article VII, in accepting the trusts hereby created, Wilmington Trust Company
acts solely as Owner Trustee hereunder and not in its individual capacity, and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.6 OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR MORTGAGE LOANS. The
recitals contained herein and in the Certificates (other than the signature and
countersignature of the Owner Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Owner Trustee assumes no responsibility for
the correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Agreement, of any Basic Document or of the
Certificates (other than the signature and countersignature of the Owner Trustee
on the Certificates and as specified in Section 7.3) or the Notes, or of any
Mortgage Loans or related documents. The Owner Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity and
enforceability of any Mortgage Loan, or the perfection and priority of any
security interest created by any Mortgage Loan or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Owner
Trust Estate or its ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Noteholders under the Indenture,
including, without limitation, the existence, condition and ownership of any
Mortgaged Property, the existence and enforceability of any insurance thereon,
the existence and contents of any Mortgage Loan on any computer or other record
thereof, the validity of the assignment of any Mortgage Loan to the Trust or of
any intervening assignment, the completeness of any Mortgage Loan, the
performance or enforcement of any Mortgage Loan, the compliance by the Depositor
or the Servicer with any warranty or representation made under any Basic
Document or in any related document or the accuracy of any such warranty or
representation or any action of the Indenture Trustee or the Servicer or any
subservicer taken in the name of the Owner Trustee.
SECTION 7.7 OWNER TRUSTEE MAY OWN CERTIFICATES AND NOTES. The Owner Trustee in
its individual or any other capacity may become the owner or pledgee of
Certificates or Notes and may deal with the Depositor, the Indenture Trustee and
the Servicer in banking transactions with the same rights as it would have if it
were not Owner Trustee.
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SECTION 7.8 LICENSES. The Owner Trustee shall cause the Trust to use its best
efforts to obtain and maintain the effectiveness of any licenses required in
connection with this Agreement and the Basic Documents and the transactions
contemplated hereby and thereby until such time as the Trust shall terminate in
accordance with the terms hereof. The Servicer agrees to perform the obligations
of the Owner Trustee under this Section 7.8, other than with respect to the
obligation to obtain and maintain the effectiveness of any licenses required in
the State of Delaware which shall remain the obligation of the Owner Trustee
hereunder.
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
SECTION 8.1 OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee shall receive
as compensation for its services hereunder such fees as have been separately
agreed upon before the date hereof between Mortgage Lenders Network and the
Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by
Mortgage Lenders Network for its other reasonable expenses hereunder, including
the reasonable compensation, expenses and disbursements of such agents,
representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder. Mortgage Lenders Network shall be responsible and liable for the
payment of such fees and expenses and shall pay such fees and expenses promptly
after receipt of a written invoice therefor from the Owner Trustee.
SECTION 8.2 INDEMNIFICATION. The Certificateholders shall be jointly and
severally liable as obligor for, and shall indemnify the Owner Trustee (in its
individual and trust capacities) and the Trust Paying Agent and their respective
successors, assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever (collectively, "Expenses") which may at any time be
imposed on, incurred by, or asserted against any Indemnified Party in any way
relating to or arising out of this Agreement, the Basic Documents, the Owner
Trust Estate, the administration of the Owner Trust Estate or the action or
inaction of the Owner Trustee or the Trust Paying Agent hereunder, except only
that the Certificateholders shall not be liable for or required to indemnify an
Indemnified Party from and against Expenses arising or resulting from any of the
matters described in the third sentence of Section 7.1. The indemnities
contained in this Section shall survive the resignation or termination of the
Owner Trustee or the Trust Paying Agent or the termination of this Agreement. In
any event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Certificateholders will be entitled to participate
therein, with counsel selected by such Holders and reasonably satisfactory to
the Indemnified Parties, and after notice from Certificateholders to the
Indemnified Parties of its election to assume the defense thereof, the
Certificateholders shall not be liable to the Indemnified Party under this
Section 8.2 for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense of such action; provided,
however, that this sentence shall not be in effect if (1) the
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Certificateholders shall not have employed counsel reasonably satisfactory to
the Indemnified Party to represent the Indemnified Party within a reasonable
time after notice of commencement of the action, (2) the Certificateholders
shall have authorized the employment of counsel for the Indemnified Party at the
expense of the Certificateholders or (3) in the event any such claim involves a
possible imposition of criminal liability or penalty or a material civil penalty
on such Indemnified Party, a conflict of interest between such Indemnified Party
and the Certificateholders or another indemnitee or the granting of material
injunctive relief against such Indemnified Party, and such Indemnified Party
informs the Certificateholders that such Indemnified Party desires to be
represented by separate counsel, in which case, the reasonable fees and expenses
of such separate counsel shall be born by the Certificateholders. If the
Certificateholders assume the defense of any such proceeding, they shall be
entitled to settle such proceeding without any liability being assessed against
any Indemnified Party or, if such settlement provides for release of any such
Indemnified Party without any liability being assessed against any Indemnified
Party in connection with all matters relating to the proceeding which have been
asserted against such Indemnified Party in such proceeding by the other parties
to such settlement, without the consent of such Indemnified Party, but otherwise
only with the consent of such Indemnified Party. Certificateholders shall be
liable for this indemnification obligation pro rata, based upon their respective
Percentage Interests.
SECTION 8.3 PAYMENTS TO THE OWNER TRUSTEE. Any amounts paid to the Owner Trustee
or the Trust Paying Agent pursuant to this Article VIII shall be deemed not to
be a part of the Owner Trust Estate immediately after such payment.
SECTION 8.4 SERVICER LIABILITY. In the event the Certificateholders fail to pay
all or any portion of any fees, expenses or indemnification amounts to the Owner
Trustee or the Trust Paying Agent for which they are liable under this Article
VIII, the Servicer shall pay such amounts to the Owner Trustee or the Trust
Paying Agent, as the case may be, promptly after receipt of an invoice therefor
from the party entitled thereto.
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
SECTION 9.1 TERMINATION OF TRUST AGREEMENT.
(a) This Agreement (other than Article VIII) shall terminate and
the Trust shall be dissolved, wound up and terminated and be of no further force
or effect on the earlier of: (i) the final payment or other liquidation of the
Mortgage Loans and the disposition of all REO Properties and the remittance of
all funds due hereunder with respect to such Mortgage Loans and REO Properties
or the disposition of the Mortgage Loans and REO Properties at the direction of
a majority of the Certificateholders, in either case after the satisfaction and
discharge of the Indenture pursuant to Section 4.01 of the Indenture; and (ii)
the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy (the late ambassador of the United States to
the Court of St. James's). The bankruptcy, liquidation, dissolution, death or
incapacity of any Certificateholder or the Depositor shall not (x) operate to
terminate this Agreement or the
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Trust, nor (y) 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 all or any part of the Trust or Owner Trust Estate
nor (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Except as provided in Section 9.1(a) above, none of the
Depositor, the Servicer, the Note Insurer nor any Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Payment Date upon which the Certificateholders shall surrender their
Certificates to the Owner Trustee for payment of the final distributions and
cancellation, shall be given by the Owner Trustee to the Certificateholders, the
Note Insurer, the Rating Agencies and the Trust Paying Agent mailed within five
Business Days of receipt by the Owner Trustee of notice of such termination
pursuant to Section 9.1(a) above, which notice given by the Owner Trustee shall
state (i) the Payment Date upon or with respect to which final payment of the
Certificates shall be made upon presentation and surrender of the Certificates
at the office of the Owner Trustee therein designated, (ii) the amount of any
such final payment and (iii) that the Record Date otherwise applicable to such
Payment Date is not applicable, payments being made only upon presentation and
surrender of the Certificates at the office of the Owner Trustee therein
specified. The Owner Trustee shall give such notice to the Certificate Registrar
(if other than the Owner Trustee) and the Trust Paying Agent at the time such
notice is given to Certificateholders. The Owner Trustee shall give notice to
the Trust Paying Agent of each presentation and surrender of Certificates
promptly, and the Trust Paying Agent shall promptly cause to be distributed to
the related Certificateholders amounts distributable on such Payment Date
pursuant to Section 5.2(a).
(d) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner Trustee shall
at all times be a corporation satisfying the provisions of Section 3807(a) of
the Business Trust Statute; authorized to exercise trust powers; having a
combined capital and surplus of at least $50,000,000 and subject to supervision
or examination by Federal or state authorities; and having (or having a parent
that has) a rating of at least "Baa3" by Moody's and "A-1" by Standard & Poor's
(or otherwise acceptable to the Rating Agencies) and being acceptable to the
Note Insurer. If such corporation shall publish reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose 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
case
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at any time the Owner Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Owner Trustee shall resign immediately in the
manner and with the effect specified in Section 10.2.
SECTION 10.2 RESIGNATION OR REMOVAL OF OWNER TRUSTEE. The Owner Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Servicer, the Indenture Trustee and the Note
Insurer. Upon receiving such notice of resignation, the Servicer shall promptly
appoint a successor Owner Trustee (acceptable to the Note Insurer) by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
resigning Owner Trustee and one copy to the successor Owner Trustee. If no
successor Owner Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Owner Trustee or the Note Insurer may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Certificateholders or the Servicer, or if at any
time the Owner Trustee shall be legally unable to act, or shall be adjudged
bankrupt or insolvent, or a receiver of the Owner Trustee or of its property
shall be appointed, or any public officer shall take charge or control of the
Owner Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Note Insurer, or the Certificateholders or
the Servicer with the consent of the Note Insurer, may remove the Owner Trustee.
If the Certificateholders or the Servicer or the Note Insurer shall remove the
Owner Trustee under the authority of the immediately preceding sentence, the
Note Insurer, or the Servicer with the consent of the Note Insurer, shall
promptly appoint a successor Owner Trustee by written instrument in duplicate,
one copy of which instrument shall be delivered to the outgoing Owner Trustee so
removed and one copy to the successor Owner Trustee and payment of all fees owed
to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3 written approval by the Note Insurer and
payment of all fees and expenses owed to the outgoing Owner Trustee. The
Servicer shall provide notice of such resignation or removal of the Owner
Trustee to each of the Rating Agencies, the Indenture Trustee, the Trust Paying
Agent and the Note Insurer.
SECTION 10.3 SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee appointed
pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Depositor, the Indenture Trustee, the Note Insurer and to its predecessor Owner
Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee (if acceptable to the Note
Insurer), without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties, and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees
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and expenses deliver to the successor Owner Trustee all documents and statements
and moneys held by it under this Agreement; and the Depositor and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties, and
obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section, the Depositor shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Indenture Trustee, the Trust Paying
Agent, the Noteholders, the Note Insurer and the Rating Agencies. If the
Depositor fails to mail such notice within 10 days after acceptance of
appointment by the successor Owner Trustee, the successor Owner Trustee shall
cause such notice to be mailed at the expense of the Depositor.
Any successor Owner Trustee appointed pursuant to this Section 10.2
shall file an amendment to the Certificate of Trust with the Secretary of State
identifying the name and principal place of business of such successor Owner
Trustee in the State of Delaware.
SECTION 10.4 MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any corporation into
which the Owner 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 Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided
further that the Owner Trustee shall mail notice of such merger or consolidation
to the Rating Agencies.
SECTION 10.5 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Owner Trust Estate or any Mortgaged Property may at the time be
located, and for the purpose of performing certain duties and obligations of the
Owner Trustee with respect to the Trust and the Certificates, the Owner Trustee
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Owner Trustee and acceptable to the Note
Insurer to act as cotrustee, jointly with the Owner Trustee, or separate trustee
or separate trustees, of all or any part of the Owner Trust Estate, and to vest
in such Person, in such capacity, such title to the Trust, or any part thereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Note Insurer and the Owner Trustee may
consider necessary or desirable. No co-trustee or separate trustee under this
Agreement shall be
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required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provision and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner 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 Owner 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, the Owner 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 or any portion thereof in any such jurisdiction) shall
be exercised and performed singly by such separate trustee or cotrustee,
but solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Owner Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee
shall be deemed to have been given to the separate trustees and co-trustees, as
if given to each of them. Every instrument appointing any separate trustee or
co-trustee, other than this Agreement, shall refer to this Agreement and to the
conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of appointment, shall be vested with the estates specified in its
instrument of appointment, either jointly with the Owner 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 Owner Trustee.
Each such instrument shall be filed with the Owner Trustee.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as 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
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1 SUPPLEMENTS AND AMENDMENTS. This Agreement may be amended by the
Depositor, and the Owner Trustee, with the prior consent of the Note Insurer,
and with prior written notice to the Rating Agencies, but without the consent of
any of the Noteholders or the Certificateholders or the Indenture Trustee, to
cure any ambiguity, to correct or supplement any provisions in this Agreement or
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions in this Agreement or of modifying in any
manner the rights of the Noteholders or the Certificateholders; provided,
however, such action shall not adversely affect in any material respect the
interests of any Noteholder or Certificateholder or the rights of the Note
Insurer. An amendment described above shall be deemed not to adversely affect in
any material respect the interests of any Noteholder if the party requesting the
amendment satisfies the Rating Agency Condition with respect to such amendment.
This Agreement may also be amended from time to time by the
Depositor and the Owner Trustee, with the prior written consent of the Rating
Agencies and with the prior written consent of the Indenture Trustee, the Note
Insurer, the Holders (as defined in the Indenture) of Notes evidencing more than
50% of the Outstanding Amount of the Notes, the Holders of Certificates
evidencing more than 50% of the Percentage Interests of the Trust Interest and
if the party requesting such amendment satisfies the Rating Agency Condition
with respect to such 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 Noteholders or the
Certificateholders; provided, however, no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the Mortgage Loans or distributions that shall be
required to be made for the benefit of the Noteholders, the Certificateholders
or the Note Insurer, (b) reduce the aforesaid percentage of the Outstanding
Amount of the Notes or the Percentage Interests required to consent to any such
amendment, in either case of clause (a) or (b) without the consent of the
holders of all the outstanding Notes, the Note Insurer and the Holders of all
the outstanding Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the Note
Insurer and each of the Rating Agencies.
It shall not be necessary for the consent of Certificateholders, the
Noteholders or the Indenture Trustee pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be sufficient
if such consent shall approve the substance thereof. The manner of obtaining
such consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
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Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.2 NO LEGAL TITLE TO OWNER TRUST ESTATE IN HOLDERS. The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided ownership interest therein only in accordance with
Articles V and IX. No transfer, by operation of law or otherwise, of any right,
title, or interest of the Certificateholders to and in their ownership interest
in the Owner Trust Estate shall operate to terminate this Agreement or the
trusts hereunder or entitle any transferee to an Accounting or to the transfer
to it of legal title to any part of the Owner Trust Estate.
SECTION 11.3 LIMITATIONS ON RIGHTS OF OTHERS. Except for Section 2.7, the
provisions of this Agreement are solely for the benefit of the Owner Trustee,
the Depositor, the Certificateholders, the Note Insurer and, to the extent
expressly provided herein, the Indenture Trustee and the Noteholders, and
nothing in this Agreement (other than Section 2.7), whether express or implied,
shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 11.4 NOTICES.
(a) Unless otherwise expressly specified or permitted by the
terms hereof, all communications provided for or permitted hereunder shall be in
writing and shall be deemed to have been given if (1) personally delivered, (2)
upon receipt by the intended recipient or three Business Days after mailing if
mailed by certified mail, postage prepaid (except that notice to the Owner
Trustee shall be deemed given only upon actual receipt by the Owner Trustee),
(3) sent by express courier delivery service and received by the intended
recipient or (4) except with respect to notices sent to the Owner Trustee,
transmitted by telex or facsimile transmission (or any other type of electronic
transmission agreed upon by the parties and confirmed by a writing delivered by
any of the means described in (1), (2) or (3), at the following addresses: (i)
if to the Owner Trustee, its Corporate Trust Office; (ii) if to the Depositor,
Residential Asset Funding Corporation, c/o First Union National Bank
Incorporated, 301 South College Street, Charlotte, North Carolina, 28288-0610,
Telecopy: (704) 383-8121; (iii) if to the Note Insurer, MBIA Insurance
Corporation, 113 King Street, Armonk, New York 10504, Attention:
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Mortgage Lenders Network Home Equity Loan Trust 1998-3, Telecopy: (914)
765-3810; (iv) if to the Trust Paying Agent, Norwest Bank Minnesota, National
Association, 11000 Broken Land Parkway, Columbia, Maryland 21044, Attention:
Mortgage Lenders Network 1998-3, Telecopy: (410) 884-2360; (v) if to Mortgage
Lenders Network USA, Inc., Middlesex Corporate Center, 213 Court Street,
Middletown, Connecticut 06457, Attention: General Counsel, Telecopy (860)
344-5707 or, as to each such party, at such other address as shall be designated
by such party in a written notice to each other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Certificateholder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
SECTION 11.5 SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 11.6 SEPARATE COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7 SUCCESSORS AND ASSIGNS. All covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the Depositor, the
Note Insurer, the Owner Trustee and its successors and each owner and its
successors and permitted assigns, all as herein provided. Any request, notice,
direction, consent, waiver or other instrument or action by a Certificateholder
shall bind the successors and assigns of such Certificateholder.
SECTION 11.8 NO PETITION. The Owner Trustee, by entering into this Agreement,
each Certificateholder, by accepting a Certificate, and the Indenture Trustee
and each Noteholder by accepting the benefits of this Agreement, hereby covenant
and agree that they will not at any time institute against the Depositor or the
Trust, or join in any institution against MLN Capital Corporation I or the Trust
of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or law in connection with any obligations relating to the
Certificates, the Notes, this Agreement or any of the Basic Documents.
SECTION 11.9 NO RECOURSE. Each Certificateholder by accepting a Certificate
acknowledges that such Certificateholder's Certificate represents a beneficial
interest in the Trust only and does not represent an interest in or an
obligation of the Servicer, the Depositor, the Owner Trustee or any Affiliate
thereof and no recourse may be had against such parties or their assets, except
as may be expressly set forth or contemplated in this Agreement, the
Certificates or the Basic Documents.
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SECTION 11.10 HEADINGS. The headings of the various Articles and Sections herein
are for convenience of reference only and shall not define or limit any of the
terms or provisions hereof.
SECTION 11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.12 GRANT OF CERTIFICATEHOLDER RIGHTS TO NOTE INSURER.
(a) In consideration for the issuance of the Certificates and for
the guarantee of the Notes by the Note Insurer pursuant to the Insurance Policy,
the holders of the Certificates hereby grant to the Note Insurer the right to
act as the holder of 100% of the outstanding Certificates for the purpose of
exercising the rights of the Certificateholders under this Agreement without the
consent of the Certificateholders, including the voting rights of such holders
hereunder, but excluding those rights requiring the consent of all such holders
under Section 11.1 and any rights of such holders to distributions under Section
5.2(a); provided that the preceding grant of rights to the Note Insurer by the
holders of the Trust Interest shall be subject to Section 11.14.
(b) The rights of the Note Insurer to direct certain actions and
consent to certain actions of the Certificateholders hereunder will terminate at
such time as the Balance of the Notes has been reduced to zero and the Note
Insurer has been reimbursed for any amounts owed under the Insurance Policy and
the Insurance Agreement and the Note Insurer has no further obligation under the
Insurance Policy.
The duties and responsibilities of the Owner Trustee shall be
limited to those expressly provided for in this Agreement. The parties hereto
agree that except for purposes of the foregoing sentence, the Owner Trustee
shall have no management responsibilities or owe any fiduciary duties to the
Note Insurer (or the Noteholders in the event they succeed to the Note Insurer's
rights).
Whenever in connection with its performance under this Agreement the
Owner Trustee receives inconsistent notices or advice from the Note Insurer and
the Certificateholders, the Owner Trustee need not take any action in respect of
such notices or advice unless and until Owner Trustee receives (a)
indemnification in respect of the matters noted in such notices or advice to its
satisfaction or (b) written direction signed by the Note Insurer and the
Certificateholders in respect thereof.
SECTION 11.13 THIRD-PARTY BENEFICIARY. The Note Insurer is an intended
third-party beneficiary of this Agreement, and this Agreement shall be binding
upon and inure to the benefit of the Note Insurer; provided that,
notwithstanding the foregoing, for so long as a Note Insurer Default is
continuing with respect to its obligations under the Note Insurance Policy, the
Noteholders shall succeed to the Note Insurer's rights hereunder. Without
limiting the generality of the foregoing, all covenants and agreements in this
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Agreement that expressly confer rights upon the Note Insurer shall be for the
benefit of and run directly to the Note Insurer, and the Note Insurer shall be
entitled to rely on and enforce such covenants to the same extent as if it were
a party to this Agreement.
In addition, the Manager is an intended third-party beneficiary of
this Agreement for purposes of enforcing Section 5.2(d) hereof.
SECTION 11.14 SUSPENSION AND TERMINATION OF NOTE INSURER'S RIGHTS.
During the continuation of a Note Insurer Default, rights granted or
reserved to the Note Insurer hereunder shall vest instead in the
Certificateholders; provided that the Note Insurer shall be entitled to any
distributions of reimbursements as set forth in the Insurance Agreement and the
Note Insurer shall retain those rights under Section 11.1 to consent to any
amendment of this Agreement.
At such time as either (i) the Note Balance of the Notes has been
reduced to zero or (ii) the Insurance Policy has been terminated and in either
case of (i) or (ii) the Note Insurer has been reimbursed for all amounts owed
under the Insurance Policy and the Insurance Agreement (and the Note Insurer no
longer has any obligation under the Insurance Policy, except for breach thereof
by the Note Insurer), then the rights and benefits granted or reserved to the
Note Insurer hereunder (including the rights to direct certain actions and
receive certain notices) shall terminate and the Certificateholders shall be
entitled to the exercise of such rights and to receive such benefits of the Note
Insurer following such termination to the extent that such rights and benefits
are applicable to the Certificateholders.
[Signatures follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Deposit
Trust Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
RESIDENTIAL ASSET FUNDING CORPORATION,
as Depositor
By: /s/ Shanker Merchant
-------------------------
Name: Shanker Merchant
Title: Senior Vice President
WILMINGTON TRUST COMPANY,
in its individual capacity and as Owner Trustee
By: /s/ Emmet Harmon
---------------------------------
Authorized Signatory
The Trust Paying Agent hereby acknowledges its appointment as Trust
Paying Agent under this Agreement and agrees to act in such capacity as
described herein.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By: /s/ Amy Wahl
----------------------
Name: Amy Wahl
Title: Assistant Vice President
The Servicer hereby acknowledges its obligations under this
Agreement and agrees to act in accordance therewith.
MORTGAGE LENDERS NETWORK USA, INC.
By: /s/ Marion Matthes
-----------------------------
Name: Marion Matthes
Title: Senior Vice President
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EXHIBIT A-1
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE)
THE EQUITY INTEREST IN THE TRUST REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS EQUITY INTEREST MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON INVOLVED IN THE
ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A PERSON WITHIN
THE MEANING OF RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(INCLUDING, BUT NOT LIMITED TO, MLN CAPITAL CORPORATION I) IN A TRANSACTION THAT
IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS
OBLIGATED TO REGISTER THIS EQUITY INTEREST UNDER THE ACT OR ANY STATE SECURITIES
LAWS.
NO TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN SHALL BE MADE
TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED A REPRESENTATION LETTER FROM
THE TRANSFEREE TO THE EFFECT THAT SUCH TRANSFEREE (I) IS NOT A PERSON WHICH IS
AN EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE CODE OR A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT
TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO
THE FOREGOING PROVISIONS OF ERISA OR THE CODE (ANY SUCH PERSON BEING A "PLAN"),
(II) IS NOT AN ENTITY, INCLUDING AN INSURANCE COMPANY SEPARATE ACCOUNT OR
GENERAL ACCOUNT, WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A
PLAN'S INVESTMENT IN THE ENTITY AND (III) IS NOT DIRECTLY OR INDIRECTLY
PURCHASING THIS CERTIFICATE OR A BENEFICIAL INTEREST HEREIN ON BEHALF OR, AS
INVESTMENT MANAGER OF, AS TRUSTEE OF, OR WITH THE ASSETS OF A PLAN.
THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS,
PRIOR TO SUCH DISPOSITION, THE PROPOSED TRANSFEREE DELIVERS TO THE OWNER TRUSTEE
AND THE CERTIFICATE REGISTRAR A CERTIFICATE STATING THAT SUCH TRANSFEREE (A)
AGREES TO BE BOUND BY AND TO ABIDE BY THE TRANSFER RESTRICTIONS APPLICABLE TO
THIS CERTIFICATE; (B) IS NOT AN ENTITY THAT WILL
A-1
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HOLD THIS CERTIFICATE AS NOMINEE TO FACILITATE THE CLEARANCE AND SETTLEMENT OF
SUCH SECURITY THROUGH ELECTRONIC BOOK-ENTRY CHANGES IN ACCOUNTS OF PARTICIPATING
ORGANIZATIONS; AND (C) UNDERSTANDS THAT IT MUST TAKE INTO ACCOUNT ITS PERCENTAGE
INTEREST OF THE TAXABLE INCOME RELATING TO THIS CERTIFICATE.
A-2
<PAGE>
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN TRUST 1998-3
CERTIFICATE
No. 0001
THIS CERTIFIES THAT MLN Capital Corporation I (the "Owner") is the
registered owner of a 100% Percentage Interest of the Trust Interest in Mortgage
Lenders Network Home Equity Loan Trust 1998-3 (the "Trust") existing under the
laws of the State of Delaware and created pursuant to that certain Deposit Trust
Agreement, dated as of December 1, 1998 (the "Trust Agreement"), between
Residential Asset Funding Corporation, as depositor, and Wilmington Trust
Company, in its individual capacity and in its fiduciary capacity as owner
trustee under the Trust Agreement (the "Owner Trustee"). Capitalized terms used
but not otherwise defined herein have the meanings assigned to such terms in the
Trust Agreement. The Owner Trustee, on behalf of the Issuer and not in its
individual capacity, has executed this Certificate by one of its duly authorized
signatories as set forth below. This Certificate is one of the Certificates
referred to in the Trust Agreement and is issued under and is subject to the
terms, provisions and conditions of the Trust Agreement to which the holder of
this Certificate by virtue of the acceptance hereof agrees and by which the
holder hereof is bound. Reference is hereby made to the Trust Agreement for the
rights of the holder of this Certificate, as well as for the terms and
conditions of the Trust created by the Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Certificate except in accordance with terms and provisions of the Agreement.
A-3
<PAGE>
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and
not in its individual capacity, has caused this Certificate to be duly executed.
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN TRUST 1998-3
By: Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the
Trust Agreement
By:_______________________________________
Authorized Signatory
DATED: December 1, 1998
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Agreement.
Wilmington Trust Company, not in its individual capacity
but solely as Owner Trustee as Authenticating Agent
By:________________________________________
Authorized Signatory
A-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing___________________________ Attorney to transfer said
Instrument on the books of the Certificate Registrar, with full power of
substitution in the premises.
Dated:
____________
_______________________________________*/
Signature Guaranteed:
______________________________________*/
__________________
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Instrument in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-5
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
MORTGAGE LENDERS NETWORK HOME EQUITY LOAN TRUST 1998-3
THIS CERTIFICATE OF TRUST OF MORTGAGE LENDERS NETWORK HOME EQUITY
LOAN TRUST 1998-3 (the "Trust"), dated as of December __, 1998, is being duly
executed and filed by Wilmington Trust Company, a Delaware banking corporation,
as trustee, to form a business trust under the Delaware Business Trust Act (12
Del. Code, S 3801 et seq.).
1. NAME. The name of the business trust formed hereby is Mortgage
Lenders Network Home Equity Loan Trust 1998-3.
2. DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
Attention: Corporate Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon
filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
Wilmington Trust Company, not in its
individual capacity but solely as
Owner Trustee under a Deposit Trust
Agreement, dated as of December 1,
1998.
By:_________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
FORM OF INVESTMENT LETTER
______, 1998
Residential Asset Funding Corporation
c/o First Union Capital Markets
301 South College Street
Charlotte, North Carolina 28288-0610
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Re: Mortgage Lenders Network Home Equity Loan Trust 1998-3
(the "Issuer") Asset Backed Notes, Series 1998-3
Ladies and Gentlemen:
_________________________________________ (the "Holder") has
purchased or acquired, or intends to purchase or acquire from ________________,
the current Holder (the "Current Holder"), a Certificate representing a ___%
Percentage Interest (the "___% Certificate") in the Trust Interest for the
referenced Issuer, which represents an interest in the Issuer created pursuant
to that certain Deposit Trust Agreement, dated as of December 1, 1998 (the
"Trust Agreement"), between MLN Residual Holding Corporation I, as depositor,
and Wilmington Trust Company, as Owner Trustee. Capitalized terms used and not
otherwise defined herein have the meanings assigned to such terms in the Trust
Agreement.
CERTIFICATION
The undersigned, as an authorized officer or agent of the Holder,
hereby certifies, represents, warrants and agrees on behalf of the Holder as
follows:
1. The Holder is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was formed and is
authorized to invest in the ___% Certificate. The person executing this letter
on behalf of the Holder is duly authorized to do so on behalf of the Holder.
2. The Holder hereby acknowledges that no transfer of the ___%
Certificate may be made unless such transfer is exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act");
and applicable state securities laws, or is made in accordance with the
Securities Act and such laws.
C-1
<PAGE>
3. The Holder understands that the ___% Certificate has not been and
will not be registered under the Securities Act and may be offered, sold,
pledged or otherwise transferred apply to a person whom the transferor
reasonably believes is (A) a qualified institutional buyer (as defined in Rule
144A under the Securities Act) or (B) a Person involved in the organization or
operation of the Trust or an affiliate of such Person, in a transaction meeting
the requirements of Rule 144A under the Securities Act and in accordance with
any applicable securities laws of any state of the United States. The Holder
understands that the _% Certificate bears a legend to the foregoing effect.
4. The Holder is acquiring the ___% Certificate for its own account
or for accounts for which it exercises sole investment discretion, and not with
a view to or for sale or other transfer in connection with any distribution of
the ___% Certificate in any manner that would violate Section 5 of the
Securities Act or any applicable state securities laws, subject nevertheless to
any requirement of law that the disposition of the Holder's property shall at
all times be and remain within its control.
5. The Holder is (A) a "qualified institutional buyer" (a "QIB") as
defined in Rule 144A under the Securities Act, and is aware that the transferor
of the ___% Certificate may be relying on the exemption from the registration
requirements of the Securities Act provided by Rule 144A and is acquiring such
___% Certificate for its own Account or for the Account of one or more qualified
institutional buyers for whom it is authorized to act, or (B) a Person involved
in the organization or operation of the Trust or an affiliate of such Person
within the meaning of Rule 3a-7 of the Investment Company Act of 1940, as
amended (including, but not limited to, the Transferor). The Holder is able to
bear the economic risks of such an investment. The Holder is a QIB because
[STATE FACTUAL BASIS FOR QIB STATUS]
6. If the Holder sells or otherwise transfers the registered
ownership of such ___% Certificate, the Holder will comply with the restrictions
and requirements with respect to the transfer of the ownership of the ___%
Certificate under the Trust Agreement, and the Holder will obtain from any
subsequent purchaser or transferee substantially the same certifications,
representations, warranties and covenants as required under the Trust Agreement
in connection with such subsequent sale or transfer thereof.
7. The Holder is not an entity that will hold a ___% Certificate as
nominee (a "Book Entry Nominee") to facilitate the clearance and settlement of
such security through electronic book-entry changes in Accounts or participating
organizations.
8. The Holder (i) is not a person which is an employee benefit plan,
trust or account subject to Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 4975 of the Code or a governmental
plan, as defined in Section 3(32) of ERISA, subject to any federal, state or
local law which is, to a material extent, similar to the foregoing provisions of
ERISA or the Code (any such person being a "Plan"), (ii) is not an entity,
including an insurance company separate account or general account, whose
underlying assets include "plan assets" by reason of a
C-2
<PAGE>
Plan's investment in the entity and (iii) is not directly or indirectly
purchasing such ___% Certificate on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with assets of a Plan.
9. The Holder hereby agrees to indemnify each of the Issuer, the
Indenture Trustee and the Owner Trustee against any liability that may result if
the Holder's transfer of a ___% Certificate (or any portion thereof) is not
exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is not made in accordance with such federal
and state laws. Such indemnification of the Issuer, the Owner Trustee shall
survive the termination of the related Trust Agreement.
IN WITNESS WHEREOF, the Holder has caused this instrument to be
executed on its behalf, pursuant to the authority of its Board of Directors, by
its duly authorized signatory this ____ day of __________, 199_.
[NAME OF HOLDER]
By:________________________
Name:
Title:
C-3
<PAGE>
4
December 18, 1998
To the parties listed on Annex A attached hereto
Re: Mortgage Lenders Network Home Equity Loan Trust 1998-3,
Asset Backed Notes, Series 1998-3
Ladies and Gentlemen:
We have acted as special counsel to Residential Asset Funding
Corporation (the "Depositor") and Mortgage Lenders Network Home Equity Loan
Trust 1998-3, a Delaware business trust (the "Issuer") in connection with the
execution and delivery of the following documents:
(i) the Mortgage Loan Sale Agreement dated as of December 1, 1998
(the "Sale Agreement") between the Depositor and Mortgage Lenders Network
USA, Inc., as Seller (the "Seller");
(ii) the Deposit Trust Agreement dated as of December 1, 1998
(the "Trust Agreement") among the Depositor, the Seller, Norwest Bank
Minnesota, National Association, as Trust Paying Agent and Wilmington
Trust Company, as Owner Trustee;
(iii) the Management Agreement dated as of December 1, 1998 (the
"Management Agreement") between the Issuer and Norwest Bank Minnesota,
National Association, as Manager;
(iv) the Mortgage Loan Contribution Agreement dated as of
December 1, 1998 (the "Contribution Agreement") between the Depositor and
the Issuer;
(v) the Indenture dated as of December 1, 1998 (the "Indenture")
between Norwest Bank Minnesota, National Association, as Indenture Trustee
(in such capacity, the "Indenture Trustee") and the Issuer;
<PAGE>
(vi) the Underwriting Agreement dated as of December 11, 1998
(the "Underwriting Agreement") between the Depositor and First Union
Capital Markets, a division of Wheat First Securities, Inc. (the
"Underwriter");
(vii) the Standard Provisions to Underwriting Agreement dated as
of December 11, 1998 between the Depositor and the Underwriter;
(viii) the Custodial Agreement dated as of December 1, 1998 among
Mortgage Lenders Network USA, Inc., as Servicer (in such capacity, the
"Servicer"), Bank Boston, as Custodian and the Indenture Trustee;
(ix) the Servicing Agreement dated as of December 1, 1998 among
the Servicer, the Issuer and Norwest Bank Minnesota, as Trust Paying
Agent; and
(x) the Insurance Agreement dated as of December 1, 1998 (the
"Insurance Agreement") among MBIA Insurance Corporation (the "Insurer"),
the Issuer, the Seller, the Servicer, the Depositor and the Indenture
Trustee.
Capitalized terms used herein, but not defined, shall have the
meanings assigned to them in the Indenture.
We have examined executed copies of the Sale Agreement, the
Underwriting Agreement, the Standard Provisions to Underwriting Agreement, the
Contribution Agreement, the Trust Agreement, the Servicing Agreement; the
Custodial Agreement, the Indenture. the Management Agreement and the Insurance
Agreement (collectively, the "Documents"). We have also examined a copy of each
of the executed Notes. We have also examined the Registration Statement No.
333-64775, as heretofore amended (the "Registration Statement") and the
Prospectus dated November 10, 1998 the Preliminary Prospectus Supplement
relating to the Notes and the Prospectus Supplement dated December 11, 1998
relating to the Notes (such Prospectus, Preliminary Prospectus Supplement and
Prospectus Supplement being referred to together as the "Prospectus").
We have also examined originals or photostatic or certified copies
of all such corporate records of the Depositor and such certificates of public
officials, certificates of corporate officers, and other documents, and such
questions of law, as we have deemed relevant and necessary as a basis for the
opinions hereinafter expressed. As to certain issues of fact material to the
opinions expressed herein, we have, with your consent, relied to the extent we
deemed appropriate upon certificates and representations of officers of the
Depositor. In making our examinations and rendering the opinions herein
expressed, we have made the following assumptions:
(1) each party to each of the Documents (other than the Depositor) has
the corporate power to enter into and perform all of its obligations
thereunder;
(2) the due authorization, execution and delivery of the Documents by
all parties thereto (other than the Depositor) and the validity and
binding effect on all parties (other than the Depositor) of each of
the Documents, as applicable;
2
<PAGE>
(3) the genuineness of all signatures;
(4) the authenticity of all documents submitted to us as originals and
the conformity to originals of all documents submitted to us as
copies;
(5) in the case of each purchaser of a Note investing assets of an
employee benefit plan covered by ERISA, such plan is a plan to which
Prohibited Transaction Exemption 90-32 is fully available.
The opinions expressed in paragraphs 3 and 4 with respect to the
enforceability of certain agreements are subject to the following additional
qualifications:
The effect of bankruptcy, insolvency, reorganization, moratorium,
receivership, or other similar laws of general applicability relating to
or affecting creditors' rights generally or the rights of creditors of
national banking associations in the event of bankruptcy, insolvency,
reorganization, moratorium or receivership.
The application of general principles of equity, including, but not
limited to, the right of specific performance (regardless of whether
enforceability is considered in a proceeding in equity or at law).
In addition, we wish to advise you that the enforceability of
certain provisions set forth in the Underwriting Agreement which purport to
provide for indemnification for losses due to securities laws violations may be
limited by public policy considerations.
We are admitted to the Bar of the State of New York, and we express
no opinion as to the laws of any other jurisdiction except as to matters that
are governed by federal law and with respect to paragraph 1 below, the General
Corporation Law of the State of Delaware. All opinions expressed herein are
based on laws, regulations and policy guidelines currently in force and may be
affected by future regulations. Furthermore, no opinion is expressed herein
regarding the applicable state Blue Sky, legal investment or real estate
syndication laws.
Based upon the foregoing and subject to the last paragraph hereof,
we are of the opinion that:
1. The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of North
Carolina and is duly qualified to do business in each State necessary to
enable it to perform its obligations under the Documents to which it is a
party.
2. The Depositor has the corporate power and authority to convey
the Mortgage Loans and to execute, deliver and perform, and to enter into
and consummate transactions contemplated by the Documents to which it is a
party and such Documents have been duly authorized, executed and delivered
by the Depositor.
3
<PAGE>
3. Each of the Documents to which the Depositor is a party
constitutes the valid, legal and binding agreement of the Depositor, and
is enforceable against the Depositor in accordance with its terms.
4. Each of the Documents to which the Issuer is a party is
enforceable against the Issuer in accordance with its terms.
5. The Notes, assuming the due execution by the Owner Trustee on
behalf of the Trust and due authentication by the Indenture Trustee and
payment therefor pursuant to the Underwriting Agreement, are validly
issued and outstanding and are entitled to the benefits of the Indenture.
6. No consent, approval, authorization or order of, registration
or filing with, or notice to, any governmental authority or court is
required under federal laws or the laws of the State of New York for the
execution, delivery and performance of the Documents to which the
Depositor is a party, or the offer, issuance, sale or delivery of the
Notes or the consummation of any other transaction contemplated thereby by
the Depositor, except such which have been obtained.
7. The Registration Statement and the Prospectus (other than the
financial and statistical data included therein, as to which we are not
called upon to express any opinion), at the time the Registration
Statement became effective, as of the date of execution of the
Underwriting Agreement and as of the date hereof comply as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended, and the rules and regulations thereunder, and the Exchange Act
and the rules and regulations thereunder, and we do not know of any
amendment to the Registration Statement required to be filed, or of any
contracts, indentures or other documents of a character required to be
filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus, which has not
been filed or described as required.
8. The Registration Statement is effective, and to the best of
our knowledge, the Commission has not issued any stop order suspending the
effectiveness of the Registration Statement (which for purposes of this
opinion shall not be deemed to include any exhibits filed therewith) or
any order directed to any prospectus relating to the Notes (including the
Prospectus), and has not initiated or threatened any proceeding for that
purpose.
9. The Indenture has been duly qualified under the Trust
Indenture Act of 1939 (the "TIA"), as amended, the Trust Agreement is not
required to be qualified under the TIA and neither the Depositor nor the
Issuer is required to be qualified under the Investment Company Act of
1940.
10. The statements in the Prospectus Supplement set forth under
the caption "DESCRIPTION OF THE NOTES," to the extent such statements
purport
4
<PAGE>
to summarize certain provisions of the Notes or of the Indenture, are fair
and accurate in all material respects.
11. None of the sale of the Mortgage Loans to the Issuer, the
issuance or sale of the Notes, or the execution, delivery or performance
by the Depositor of its obligations under the Documents, conflicts with or
will conflict with, or results or will result in a breach of, or
constitutes or will constitute a default under the charter or bylaws of
the Depositor or any law, rule or regulation of the United States federal
government or of the State of New York.
12. The Indenture establishes in favor of the Indenture Trustee
for the benefit of the Noteholders and the Insurer, a valid and
enforceable security interest in all right, title and interest of the
Issuer in the Mortgage Loans.
Our opinions contained herein are rendered only as of the date
hereof, and we undertake no obligation to update this letter or the opinions
contained herein after the date hereof.
This opinion is furnished by us as counsel in connection with the
conveyance of the Mortgage Loans to the Issuer as of the date hereof and is
solely for the benefit of the addressees hereto, and is not to be used,
circulated, quoted or otherwise referred to for any other purpose without our
express written permission.
Very truly yours,
/s/ Dewey Ballantine LLP
5
<PAGE>
<TABLE>
<CAPTION>
ANNEX A
<S> <C>
MBIA Insurance Corporation First Union Capital Markets,
113 King Street a division of Wheat First Securities, Inc.
Armonk, New York 10504 301 South College Street
Charlotte, North Carolina 28288
Norwest Bank Minnesota, National Residential Asset Funding Corporation
Association c/o First Union Capital Markets
Sixth Street and Marquette Avenue 301 South College Street
Minneapolis, Minnesota 55479-0070 Charlotte, North Carolina 28288-0610
Standard & Poor's Ratings Services Moody's Investors Service, Inc.
25 Broadway 99 Church Street
New York, New York 10004 New York, New York 10007
Mortgage Lenders Network USA, Inc. Wilmington Trust Company
Middlex Corporate Center, 11th Floor Rodney Square North
213 Court Street 1100 North Market Street
Middletown, Connecticut 06457 Wilmington, Delaware 19890-0001
Mortgage Lenders Home Equity Loan Trust
1998-3
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
</TABLE>
December 18, 1998
First Union Capital Markets,
a division of Wheat First Securities, Inc.
301 South College Street
Charlotte, North Carolina 28288
Prudential Securities Incorporated
One New York Plaza
New York, New York 10292-2015
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Re: Mortgage Lenders Network Home Equity Loan Trust 1998-3
Asset Backed Notes, Series 1998-3
Ladies and Gentlemen:
We have acted as special tax counsel in connection with the issuance
and delivery of certain notes denominated as Mortgage Lenders Network Home
Equity Loan Trust 1998-3, Series 1998-3 Notes, Class A (the "Notes") pursuant to
the terms of the Indenture (the "Indenture"), dated as of December 1, 1998,
between the Mortgage Lenders Network Home Equity Loan Trust 1998-3 (the
"Issuer") and Norwest Bank Minnesota, National Association, as indenture trustee
(the "Indenture Trustee"). Capitalized terms used herein but not defined herein
shall have the meanings ascribed to them in the Indenture.
In rendering the opinions expressed below, we have examined the
following documents:
(a) The Registration Statement, the Base Prospectus, and the
Prospectus Supplement, all relating to the Notes;
(b) The Deposit Trust Agreement;
(c) The Indenture; and
<PAGE>
(d) Such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.
We do not purport to express an opinion on any laws other than the
federal income tax law of the United States of America. No opinion has been
sought and none has been given concerning the tax treatment of the issuance and
sale of the Notes under the laws of any state.
In our examination we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents.
We have examined the question of whether the Notes will be treated
as indebtedness for federal income tax purposes. Our analysis is based on the
provisions of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder as in effect on the date hereof and on
existing judicial and administrative interpretations thereof. These authorities
are subject to change and to differing interpretations, which could apply
retroactively. The opinion of special tax counsel is not binding on the courts
or the Internal Revenue Service (the "IRS").
In general, whether a transaction constitutes the issuance of
indebtedness for federal income tax purposes is a question of fact, the
resolution of which is based primarily upon the economic substance of the
instruments and the transaction pursuant to which they are issued rather than
the form of the transaction or the manner in which the instruments are labeled.
The IRS and the courts have set forth various factors to be taken into account
in determining whether or not a transaction constitutes the issuance of
indebtedness for federal income tax purposes, which we have reviewed as they
apply to this transaction.
Based on the foregoing, and such legal and factual investigations as
we have deemed appropriate, while no transaction closely comparable to that
contemplated in the Basic Documents has been the subject of any Treasury
regulation, revenue ruling or judicial decision, and therefore the matter is
subject to interpretation, we are of the opinion that for federal income tax
purposes:
(1) The Notes will properly be treated as indebtedness for federal
income tax purposes and not as an ownership interest in the Mortgage
Loans, or an equity interest in the Issuer or in a separate association
taxable as a corporation or other taxable entity;
(2) Neither the Issuer nor the Mortgage Pool will be characterized
as an association (or a publicly traded partnership) taxable as a
corporation or a taxable mortgage pool.
We express no opinion on any matter not discussed in this letter.
This opinion is rendered as of the Closing Date, for the sole benefit of the
addressees hereof
2
<PAGE>
and it may not be relied on by any other party or quoted without our express
consent in writing.
We consent to reliance on this opinion letter by you and by
Richards, Layton & Finger, for the purpose of issuing their opinion with respect
to the tax treatment of the Trust under Delaware law. Except as provided in the
proceeding sentence, this opinion letter may not be relied upon by, nor may
copies be delivered to, any person without our prior written consent. We do not
undertake to advise you of any changes in the opinions expressed herein from
matters that might hereafter arise or be brought to our attention.
Very truly yours,
/s/ Dewey Ballantine LLP
