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: October 8, 1999
(Date of earliest event reported)
Commission File No. 333-62547
ASSET BACKED FUNDING CORPORATION
- --------------------------------------------------------------------------------
DELAWARE 75-2533468
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
100 North Tryon Street
CHARLOTTE, NORTH CAROLINA 28255
- --------------------------------------------------------------------------------
Address of principal executive offices (Zip Code)
(704) 386-2400
- --------------------------------------------------------------------------------
Registrant's Telephone Number, including area code
NATIONSBANC ASSET SECURITIES, INC.
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
<PAGE>
ITEM 5. OTHER EVENTS
------------
On October 12, 1999, Asset Backed Funding Corporation (the
"Corporation"), will transfer fixed-rate and adjustable-rate Mortgage Loans (the
"Mortgage Loans") to United PanAm Mortgage Loan Trust 1999-2 (the "Trust"). With
respect to certain of these Mortgage Loans (the "PMI Mortgage Loans"), Mortgage
Guaranty Insurance Corporation (the "Insurer") will issue a Mortgage Guaranty
Master Policy in favor of the Trustee covering certain losses on the PMI
Mortgage Loans.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
Item 601(a)
of Regulation S-K
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(EX-99.1) Mortgage Guaranty Master Policy
issued by Mortgage Guaranty
Insurance Corporation
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASSET BACKED FUNDING CORPORATION
October 8, 1999
By: _/S/ BOB PERRET
---------------
Name: Bob Perret
Title: Senior Vice President
<PAGE>
INDEX TO EXHIBITS
-----------------
Paper (P) or
EXHIBIT NO. DESCRIPTION ELECTRONIC(E)
- ----------- ----------- ----------
(EX-99.1) Mortgage Guaranty Master Policy
issued by Mortgage Guaranty Insurance E
Corporation
EX 99.1
MGIC
MORTGAGE GUARANTY INSURANCE CORPORATION
250 E. Kilbourn Avenue
P.O. Box 488, Milwaukee, Wisconsin 53201
800-558-9900 ----------------------
DECLARATION PAGE
FOR USE WITH MORTGAGE
GUARANTY MASTER POLICY
----------------------
- --------------------------------------------------------------------------------
Mortgage Guaranty Insurance Corporation (a stock insurance company hereinafter
called the "Company") agrees to pay to the Insured identified below, in
consideration of the premium or premiums to be paid as specified in this Policy
and in reliance on the Insured's Application for coverage under this Policy any
Loss due to the Default by a Borrower on a Loan, subject to the terms and
conditions in this Policy.
- --------------------------------------------------------------------------------
Insured's Name and Mailing Address
Bankers Trust Company of California, N. A Master Policy Number
as Trustee for United PanAm Mtg Loan Trust 1999-2 04-645-3-1984
3 Park Plaza #1600
Irvine CA 92604 Effective Date of Policy
09/16/1999
- --------------------------------------------------------------------------------
INCLUDES TERMS AND CONDITIONS #71-7135 (8/94)
INCLUDES ENDORSEMENT(S):
#71-70007 (4/96)
#71-70008 (5/96)
#71-70110 (11/97)
#71-70122 (8/99)
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Company has caused its Corporate Seal to be hereto
affixed and these presents to be signed by its duly authorized officers in
facsimile to become effective as its original seal and signatures and binding on
the Company.
MORTGAGE GUARANTY INSURANCE CORPORATION
CORPORATE SEAL WITH SIGNATURES (GRAPHIC OMITTED)
------------------------------------------------------
Authorized Representative
- --------------------------------------------------------------------------------
Form #71-70035 (10/96)
<PAGE>
MGIC
MORTGAGE GUARANTY INSURANCE CORPORATION
250 E. Kilbourn Avenue
P.O. Box 488, Milwaukee, Wisconsin 53201-0488
----------------------------------------------
ENDORSEMENT TO MORTGAGE GUARANTY MASTER POLICY
(INCONTESTABILITY)
----------------------------------------------
- --------------------------------------------------------------------------------
The purpose of this Endorsement is to amend Section 2.4 of the above Policy
(Form 71-7135 (8/94), but not any other Endorsement to the Policy under which
Loans are insured), relating to the incontestability of coverage, by deleting
paragraph b. of Section 2.4. To the extent of any inconsistency or conflict
between the terms of the Policy and this Endorsement, this Endorsement will
control.
A. Section 2.4 is amended by deleting paragraph b. thereof.
B. Prior to this Endorsement, Paragraph b. of Section 2.4, which is being
deleted, read as follows:
b. The Borrower must have made twelve (12) consecutive full installment
payments of principal, interest and impound or escrow amounts in the
amounts as called for by the Loan, and all those payments must have
been made from the Borrower's own funds.
A payment will be considered to be "consecutive" only if it is made
prior to the date the next scheduled installment becomes due. The
"Borrower's own funds" will include any funds used by the Borrower for
the purpose of making installment payments, but will not include funds
provided directly or indirectly by any Person (other than the Borrower)
who is or was a party to the Loan or to the related Property
transaction, unless expressly set forth in the Application.
C. This Endorsement will apply only to those Loans with a Commitment
Effective Date which is on or after May 1, 1996. Section 2.4, which is
being deleted, read as follows:
All terms capitalized will have the meanings set forth in the Policy, except as
otherwise defined herein. Nothing herein contained will be held to vary, alter,
waive or extend any of the terms and conditions of the Policy, or any amendments
thereto, except as expressly set forth above.
- --------------------------------------------------------------------------------
Form #71-70007 (4/96)
<PAGE>
MGIC
MORTGAGE GUARANTY INSURANCE CORPORATION
250 E. Kilbourn Avenue
P.O. Box 488, Milwaukee, Wisconsin 53201-0488
----------------------------------------------
ENDORSEMENT TO MORTGAGE GUARANTY MASTER POLICY
(DEFERRED INITIAL PREMIUM)
----------------------------------------------
- --------------------------------------------------------------------------------
The purpose of this Endorsement is to amend the Policy to provide the terms for
the insurance of Loans for which payment of the initial premium is deferred. To
the extent of any inconsistency or conflict between the terms of the Policy and
this Endorsement, this Endorsement will control. The Policy is amended by
adding, deleting, or amending the following terms and conditions, as indicated.
A new Section 2.5 c. is added to the Policy, as follows:
c. If the Loan is insured under a premium plan whereby payment of the
initial premium is deferred and is not a condition to coverage being
extended to the Loan, all of the following provisions shall apply to
such Loan, notwithstanding any contrary provisions in this Section 2.5
of this Policy:
i) Payment of the initial premium shall be deferred to a date after
which coverage has been extended to the Loan, as specified by the
Company.
ii) Coverage shall become effective upon satisfaction of conditions
prescribed by the Company, but payment of the initial premium
shall not be a condition precedent to coverage being extended to
such Loan.
iii) Except as provided below, if the initial premium is not paid
within the time period required by the Company, coverage of such
Loan will be terminated, retroactively to the Certificate
Effective Date.
iv) If a Default on the Loan occurs after the Certificate Effective
Date, but within the time period for payment of the initial
premium, the Insured shall not be required to pay the initial
premium when it becomes due, and coverage of such Default will
continue, while such Default exists; and future payment of the
initial premium and renewal premiums shall be governed by the
following terms:
(1) If such Default is cured, the initial premium not paid during the
period of Default shall be payable (unless previously paid by the
Insured) within the time prescribed by the Company after notice
from the Company in order to continue coverage, and renewal
premiums on such Loan shall also be payable, as provided in
Section 2.6 (a) of this Policy.
(2) If such Default is not cured and results in a Claim, the unpaid
initial premium which was due shall be deducted from the payment
of Loss due under Section 6.3.
v) Without changing how Section 2.6 (b) applies to renewal premiums,
Section 2.6 (b) shall also apply to termination of coverage for
non-payment of the initial premium, except that references in
Section 2.6 (b) to "renewal premiums" shall instead be to "initial
premium"; and references to "grace period" shall instead be to the
"period for payment of the initial premium in Section 2.5".
- --------------------------------------------------------------------------------
Form #71-70008 (5/96) Page 1 of 2
<PAGE>
vi) To the extent any other provisions of this Policy are in conflict
or inconsistent with the terms of this paragraph (c), such
provisions shall be waived or modified to make them consistent.
All terms capitalized will have the meanings set forth in the Policy, except as
otherwise defined herein. Nothing herein contained will be held to vary, alter,
waive or extend any of the terms and conditions of the Policy, or any amendments
thereto, except as expressly set forth above.
- --------------------------------------------------------------------------------
Form #71-70008 (5/96) Page 2 of 2
<PAGE>
MGIC
MORTGAGE GUARANTY INSURANCE CORPORATION
250 E. Kilbourn Avenue
P.O. Box 488, Milwaukee, Wisconsin 53201-0488
----------------------------------------------
ENDORSEMENT TO MORTGAGE GUARANTY MASTER POLICY
(LOANS WITH PREMIUM AMOUNT
INCLUDED IN THE LOAN'S PRINCIPAL AMOUNT)
----------------------------------------------
- --------------------------------------------------------------------------------
The purpose of this Endorsement is to amend terms and conditions of the Policy
with respect to the payment of Loss on a Loan which is calculated under the
percentage guaranty option, if an amount representing all or a portion of the
premium for coverage of such Loan is included in the original principal amount
of the Loan. This Endorsement will apply to a Loan if the Application submitted
by the Insured identifies the amount equal to such premium which is to be
included in, and paid from, the original principal amount of the Loan. To the
extent of any inconsistency or conflict between the terms of the Policy and this
Endorsement, this Endorsement will control. The Policy is amended by adding,
deleting, or amending the following terms and conditions, as indicated:
A. Section 6.2 of the Policy is amended by adding the following new paragraph
(vi) and deleting the word "and" at the end of paragraph (iv) and
replacing the period at the end of paragraph (v) with "; and":
(vi) If the percentage guaranty option is payable by the Company or
used to calculate the pre-Claim sale option, an amount calculated
as (A) the premium paid to the Company for coverage of the Loan,
to the extent such premium was included in, and paid from, the
original principal amount of the Loan and was identified as so
included in the Application for coverage of the Loan received by
the Company, multiplied by (B) a percentage (not to exceed one
hundred percent) equal to the unpaid principal balance due under
the Loan determined under Section 6.2 (a), divided by the
original principal amount of the Loan.
B. Section 6.3 of the Policy is amended by deleting the first sentence of the
last paragraph thereof and replacing it with the following:
In addition to the sum due pursuant to the option described above
which the Company selects, the Loss payable by the Company will
include (i) the other amounts provided for under Sections 6.5 or 7.2
when such Sections are applicable, and (ii) if the percentage guaranty
option is payable by the Company or used to calculate the pre-Claim
sale option, the amount calculated under Section 6.2 (vi), if
applicable, with respect to the premium paid to the Company.
All terms capitalized will have the meanings set forth in the Policy, except as
otherwise defined herein. Nothing herein contained will be held to vary, alter,
waive or extend any of the terms and conditions of the Policy, or any amendments
thereto, except as expressly set forth above.
- --------------------------------------------------------------------------------
Form #71-70110 (11/97)
<PAGE>
MGIC
MORTGAGE GUARANTY INSURANCE CORPORATION
250 E. Kilbourn Avenue
P.O. Box 488, Milwaukee, Wisconsin 53201-0488
------------------------------------------------------
ENDORSEMENT TO MORTGAGE GUARANTY MASTER POLICY
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
AS TRUSTEE FOR UNITED PANAM MORTGAGE LOAN TRUST 1999-2
------------------------------------------------------
- --------------------------------------------------------------------------------
It is hereby understood and agreed that coverage under this Policy is for the
benefit of the Insured, Bankers Trust Company of California, N.A., as Trustee
for United PanAm Mortgage Loan Trust 1999-2, and:
1. coverage under this Policy may not be assigned or transferred
without the written consent of the Company, and
2. that neither the Insured, Bankers Trust Company of California, N.A.,
as Trustee for United PanAm Mortgage Loan Trust 1999-2, nor any
subsequent Insured permitted by the Company, shall cancel coverage
on any Loan subject to the Policy or permit such coverage to lapse
for non-payment of premium unless or until: (a) the principal
balance of the Loan is paid in full, or (b) the principal balance of
the Loan has amortized down to a level that results in a
loan-to-value ratio of 68% or less. For purposes of this
Endorsement, the loan-to-value ratio of a Loan shall be the ratio,
expressed as a percentage, of the outstanding principal balance of
the Loan to the Value (as defined in Section 1.26 of the Policy) of
the Property securing the Loan.
- --------------------------------------------------------------------------------
Form #71-70122 (8/99)
<PAGE>
TABLE OF CONTENTS
MORTGAGE GUARANTY MASTER POLICY
1 DEFINITIONS
1.1 APPLICATION
1.2 APPROPRIATE PROCEEDINGS
1.3 BORROWER
1.4 BORROWER'S TITLE
1.5 CERTIFICATE
1.6 CERTIFICATE EFFECTIVE DATE
1.7 CLAIM
1.8 CLAIM AMOUNT
1.9 COMMITMENT
1.10 DEFAULT
1.11 ENVIRONMENTAL CONDITION
1.12 GOOD AND MERCHANTABLE TITLE
1.13 INSURED
1.14 LOAN
1.15 LOSS
1.16 OWNER OR OWNER OF THE LOAN
1.17 PERFECTED CLAIM
1.18 PERSON
1.19 PHYSICAL DAMAGE
1.20 POLICY
1.21 POSSESSION OF THE PROPERTY
1.22 PROPERTY
1.23 RESIDENTIAL
1.24 SERVICER
1.25 SETTLEMENT PERIOD
1.26 VALUE
2 OBTAINING COVERAGE AND PAYMENT OF PREMIUMS
2.1 APPLICATION AND CERTIFICATE
2.2 REPRESENTATIONS OF THE INSURED
2.3 COMPANY'S REMEDIES FOR MISREPRESENTATION
2.4 INCONTESTABILITY FOR CERTAIN MISREPRESENTATIONS
2.5 INITIAL PREMIUM AND TERM OF COVERAGE
2.6 RENEWAL OF CERTIFICATE AND TERMINATION FOR NON-PAYMENT OF RENEWAL
PREMIUM; REINSTATEMENT OF TERMINATED COVERAGE
2.7 SPECIAL PROCEDURES FOR CERTIFICATION OF COVERAGE; PAYMENT OF INITIAL
AND RENEWAL PREMIUMS
2.8 CANCELLATION BY THE INSURED OF A CERTIFICATE
2.9 CANCELLATION OF POLICY
2.10 RELATIONSHIP AMONG THE COMPANY, THE OWNER OF A LOAN, AND THE
SERVICER OF A LOAN
2.11 REFUND OF PREMIUM FOR DENIAL OF CLAIM IN FULL
3 CHANGES IN VARIOUS LOAN TERMS, SERVICING AND INSURED; CO-ORDINATION AND
DUPLICATION OF INSURANCE BENEFITS
3.1 LOAN MODIFICATIONS
3.2 OPEN END PROVISIONS
3.3 ASSUMPTIONS
3.4 CHANGE OF SERVICING
3.5 CHANGE OF OWNER
3.6 CO-ORDINATION AND DUPLICATION OF INSURANCE BENEFITS
Form #71-7135 (8/94) Page i
<PAGE>
4 EXCLUSIONS FROM COVERAGE
4.1 BALLOON PAYMENT
4.2 EFFECTIVE DATE
4.3 INCOMPLETE CONSTRUCTION
4.4 FRAUD, MISREPRESENTATION AND NEGLIGENCE
4.5 NON-APPROVED SERVICER
4.6 PHYSICAL DAMAGE (OTHER THAN RELATING TO PRE-EXISTING ENVIRONMENTAL
CONDITIONS)
4.7 PRE-EXISTING ENVIRONMENTAL CONDITIONS
4.8 DOWN PAYMENT 4.9 FIRST LIEN STATUS
4.10 BREACH OF THE INSURED'S OBLIGATIONS OR FAILURE TO COMPLY WITH TERMS
5 CONDITIONS PRECEDENT TO PAYMENT OF CLAIM
5.1 NOTICE OF DEFAULT
5.2 MONTHLY REPORTS
5.3 COMPANY'S OPTION TO ACCELERATE FILING OF A CLAIM
5.4 VOLUNTARY CONVEYANCE
5.5 APPROPRIATE PROCEEDINGS
5.6 MITIGATION OF DAMAGES
5.7 ADVANCES
5.8 CLAIM INFORMATION AND OTHER REQUIREMENTS
5.9 ACQUISITION OF BORROWER'S TITLE NOT REQUIRED
5.10 SALE OF A PROPERTY BY THE INSURED BEFORE END OF SETTLEMENT PERIOD
5.11 FORECLOSURE BIDDING INSTRUCTIONS GIVEN BY THE COMPANY
5.12 EFFECT OF UNEXPIRED REDEMPTION PERIOD ON PAYMENT OF A CLAIM
5.13 COLLECTION ASSISTANCE
6 LOSS PAYMENT PROCEDURE
6.1 FILING OF CLAIM
6.2 CALCULATION OF CLAIM AMOUNT
6.3 PAYMENT OF LOSS; COMPANY'S OPTIONS
6.4 CALCULATION OF SETTLEMENT PERIOD
6.5 PAYMENT BY THE COMPANY AFTER THE SETTLEMENT PERIOD
6.6 DISCHARGE OF OBLIGATION
7 ADDITIONAL CONDITIONS
7.1 PROCEEDINGS OF EMINENT DOMAIN
7.2 PURSUIT OF DEFICIENCIES
7.3 SUBROGATION
7.4 POLICY FOR EXCLUSIVE BENEFIT OF THE INSURED AND THE OWNER
7.5 EFFECT OF BORROWER INSOLVENCY OR BANKRUPTCY ON PRINCIPAL BALANCE
7.6 ARBITRATION OF DISPUTES; SUITS AND ACTIONS BROUGHT BY THE INSURED
7.7 RELEASE OF BORROWER; DEFENSES OF BORROWER
7.8 AMENDMENTS; NO WAIVER; RIGHTS AND REMEDIES; USE OF TERM "INCLUDING"
7.9 NO AGENCY
7.10 SUCCESSORS AND ASSIGNS
7.11 APPLICABLE LAW AND CONFORMITY TO LAW
7.12 NOTICE
7.13 REPORTS AND EXAMINATIONS
7.14 ELECTRONIC MEDIA
Form #71-7135 (8/94) Page ii
<PAGE>
TERMS AND CONDITIONS
1 DEFINITIONS
1.1 APPLICATION means a request for coverage, including assumption of
coverage, under this Policy for a Loan on a form or in a format
provided by the Company, and all other statements, documents or
information furnished to the Company by the Insured or any other Person
in connection with the insuring of the Loan. An application will
include information, if so furnished to the Company, contained in the
Borrower's Loan application, appraisal, verifications of income and
deposit, plans and specifications for the Property, and all other
exhibits and documents, and will include all data and information so
furnished by electronic means.
1.2 APPROPRIATE PROCEEDINGS means any legal or administrative action by the
Insured affecting either a Loan or title to a Property, including:
a. Preserving a deficiency recovery by making a bid at the foreclosure
sale and pursuing a deficiency judgment until the end of the
Settlement Period, where appropriate and permissible and where
directed by the Company; or
b. Enforcing the terms of the Loan as allowed by the laws where the
Property is located; or
c. Acquiring Borrower's Title or Good and Merchantable Title to the
Property, as either may be required under this Policy, but
excluding such title as may be acquired by a voluntary conveyance
from the Borrower; or
d. Asserting the Insured's interest in the Property in a Borrower's
bankruptcy.
1.3 BORROWER means any Person legally obligated to repay the debt
obligation created by a Loan, including any co-signer or guarantor of
the Loan.
1.4 BORROWER'S TITLE means such title to a Property as was vested in the
Borrower at the time of a conveyance to the Insured arising out of or
pursuant to a foreclosure of the Loan; provided, however, if the
Insured so elects, the redemption period need not have expired.
Borrower's Title in the Insured may be, but need not be the equivalent
of Good and Merchantable Title, and the deed evidencing Borrower's
Title need not be recorded unless required by applicable law.
1.5 CERTIFICATE means the document, which may be on the same form as the
Commitment, issued by the Company pursuant to this Policy and extending
the coverage indicated therein to a specified Loan.
1.6 CERTIFICATE EFFECTIVE DATE means, as specified in the Certificate, (a)
the closing date of a Loan, or (b) the later date requested by the
Insured and accepted by the Company.
1.7 CLAIM means the timely filed written request, made on a form or in a
format provided or approved by the Company, to receive the benefits of
this Policy.
1.8 CLAIM AMOUNT means the amount calculated in accordance with Section 6.2
of this Policy.
1.9 COMMITMENT means the document, which may be on the same form as the
Certificate, issued by the Company evidencing the Company's offer to
insure the Loan identified therein, subject to the terms and conditions
therein and in this Policy.
1.10 DEFAULT means the failure by a Borrower (a) to pay when due an amount
equal to or greater than one (1) monthly regular periodic payment due
under the terms of a Loan or (b) to pay all amounts due on acceleration
of the Loan by the Insured after breach by the Borrower of a due on
sale provision in the Loan, granting the Insured the right to
accelerate the Loan upon transfer of title to, or an interest in, the
Property and to institute Appropriate Proceedings. Violation by the
Borrower of any other term or condition of the Loan which is a basis
for Appropriate Proceedings shall not be considered to be a Default.
Form #71-7135 (8/94) Page 1
<PAGE>
A Loan is deemed to be in Default for that month as of the close of
business on the installment due date for which a scheduled monthly
payment has not been made or as of the close of business on the due
date stated in the notice of acceleration given pursuant to the
due-on-sale provision in the Loan. The Loan will be considered to
remain in Default until filing of a Claim so long as such periodic
payment has not been made or such basis for Appropriate Proceedings
remains. For example, a Loan is "four (4) months in Default" if the
monthly installments due on January 1 through April 1 remain unpaid as
of the close of business on April 1 or if a basis for acceleration and
Appropriate Proceedings exists for a continuous period of four months.
1.11 ENVIRONMENTAL CONDITION means the presence of environmental
contamination, including nuclear reaction or radioactive waste, toxic
waste, or poisoning, contamination or pollution of earth or water
subjacent to the Property or of the atmosphere above the Property; or
the presence, on or under a Property, of any "Hazardous Substance" as
that term is defined by the federal Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Sec. 9601 et.
seq., as amended from time to time) or as defined by any similar state
law, or of any "Hazardous Waste" or "Regulated Substance" as those
terms are defined by the federal Resource Conservation and Recovery Act
(42 U.S.C. sec. 6901, et seq., as amended from time to time) or as
defined by any similar state law. Environmental Condition does not mean
the presence of radon, lead paint, or asbestos.
1.12 GOOD AND MERCHANTABLE TITLE means title to a Property free and clear of
all liens, encumbrances, covenants, conditions, restrictions, easements
and rights of redemption, except for any of the following or as
permitted in writing by the Company:
a. Any lien established by public bond, assessment or tax, when no
installment, call or payment of or under such bond, assessment or
tax is delinquent;
b. Any municipal and zoning ordinances and exceptions to title waived
by the regulations of federal mortgage insurers and guarantors with
respect to mortgages on one-to-four family residences in effect on
the date on which the Loan was closed and all documents were
executed; and
c. Any other impediments which will not have a materially adverse
effect on either the transferability of the Property or the sale
thereof to a bona fide purchaser.
Good and Merchantable Title will not exist if (i) there is any lien
pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act, or similar federal or state law, as in effect
from time to time, providing for liens in connection with the
removal and clean-up of environmental conditions, or if notice has
been given of commencement of proceedings which could result in
such a lien, or (ii) there are limitations on ingress and egress to
the Property or on use of utilities. Any action or proceeding after
a foreclosure sale relating to establishing a deficiency judgment
will not be considered in determining whether the Insured has
acquired Good and Merchantable Title.
1.13 INSURED means:
a. The Person designated on the face of this Policy; or
b. Any Person to whom coverage has been assigned resulting in a change
in the Insured named on a Certificate in accordance with this
Policy.
The Insured must be the Servicer of a Loan or, if there is no Servicer,
the Owner of the Loan.
1.14 LOAN means any note, bond, or other evidence of indebtedness secured by
a mortgage, deed of trust, or other similar instrument, which
constitutes or is equivalent to a first lien or charge on a Property
and which the Company has approved for insurance and to which coverage
under this Policy has been extended.
1.15 LOSS means the liability of the Company with respect to a Loan for
payment of a Perfected Claim which is calculated in accordance with
Section 6.3. A Loss will be deemed to have occurred when a Default on a
Loan occurs, even though the amount of Loss is not then either
presently ascertainable or due and payable.
Form #71-7135 (8/94) Page 2
<PAGE>
1.16 OWNER OR OWNER OF THE LOAN means the Person who owns a Loan and of whom
the Company is notified in accordance with this Policy.
1.17 PERFECTED CLAIM means a Claim received by the Company which contains
all information or proof required by the Company and for which all
requirements of this Policy applicable to payment of a Claim are
satisfied.
1.18 PERSON means any individual, corporation, partnership, association or
other entity.
1.19 PHYSICAL DAMAGE means any tangible injury to a Property, whether caused
by accident, natural occurrence, or any other reason, including damage
caused by defects in construction, land subsidence, earth movement or
slippage, fire, flood, earthquake, riot, vandalism or any Environmental
Condition.
1.20 POLICY means this contract of insurance and all Applications,
Commitments, endorsements, schedules, and Certificates, which are
incorporated in this Policy, related to Loans insured under this
Policy.
1.21 POSSESSION OF THE PROPERTY means, if the Company elects to acquire the
Property, physical and undisputed occupancy and control of the Property
at the time of acquisition.
1.22 PROPERTY means a Residential real property and all improvements thereon
which secure a Loan, together with all easements and appurtenances, all
rights of access, all rights to use common areas, recreational and
other facilities, and all of their replacements or additions.
1.23 RESIDENTIAL means a type of building or a portion thereof which is
designed for occupancy by not more than four (4) families, or a
single-family condominium, or a unit in a planned unit development.
1.24 SERVICER means that Person acting on behalf of the Owner of a Loan (or
on behalf of the Owner's designee, if any) to service the Loan and of
whom the Company has been notified. The Servicer acts as a
representative of the Owner of the Loan (and the Owner's designee, if
any) and will bind the Owner and its designee for all purposes of this
Policy, including providing information to the Company, receiving any
notices, paying premiums, accepting Loss payments, and performing any
other acts under this Policy. References in this Policy to a Servicer's
obligations will not be construed as relieving the Owner or its
designee of responsibility for the Servicer's performance.
1.25 SETTLEMENT PERIOD means the sixty (60) day period as determined under
Section 6.4, at the end of which a Loss is payable by the Company;
provided that if the Company pays a Loss prior to expiration of such
sixty (60) day period, the Settlement Period ends with such payment.
1.26 VALUE means the lesser of the sales price of a Property (only
applicable in the case of a Loan to finance the purchase of such
Property) or appraised value of the Property as set forth in the
Certificate.
Any pronouns, when used in this Policy, will mean the singular or plural,
masculine or feminine, as the case may be.
2 OBTAINING COVERAGE AND PAYMENT OF PREMIUMS
2.1 APPLICATION AND CERTIFICATE -- In order to insure a Loan under this
Policy, the Insured or a Person acting on behalf of the Insured must
submit to the Company a properly completed Application. Approval of any
Application will be at the discretion of the Company and will be in the
form of a Commitment or a Certificate which offers to extend, or
extends coverage under the terms and conditions of both this Policy and
the Commitment or Certificate, as the case may be.
In lieu of such an Application and supporting statements, documents and
information submitted to the Company in connection with insuring a
Loan, the Company may accept an alternative form of Application,
containing more limited information, including certifications by or on
behalf of the Insured as to characteristics of a Loan in lieu of
supporting statements, documents and information. The Company shall be
entitled to fully rely on such alternative Application as submitted.
Use of an alternative form of Application shall not waive or change the
other terms and conditions of this Policy under which a Loan is insured
or the responsibility of the Insured for the
Form #71-7135 (8/94) Page 3
<PAGE>
accuracy of statements, documents and information submitted by it or
other Persons to the Company as provided in this Policy.
If the Company declines to approve a mortgage loan, it will not issue a
Commitment or Certificate, and it will notify the Insured in writing of
such declination. If the Insured or the Person acting on its behalf
subsequently denies the mortgage loan application which it received
from the applicant, the Insured or such Person will be responsible for
notifying the applicant that the Company declined to approve the
mortgage loan. Such notification will be made in compliance with any
applicable state or federal laws or regulations, including the Equal
Credit Opportunity Act and any other similar law or regulation.
2.2 REPRESENTATIONS OF THE INSURED -- The Insured represents that:
a. all statements made and information provided to the Company in an
Application or in any Commitment or Certificate (including as such
is related to continuation of coverage upon assumption of a Loan),
whether by it, the Borrower, or any other Person, have been made
and presented for and on behalf of the Insured; and
b. such statements and information are not false or misleading in any
material respect as of the date(s) on which they are made or
provided and do not omit any fact necessary in order to make such
statements and information not false or misleading in any material
respect as of such date(s).
It is understood and agreed that such statements and information in the
aggregate are, and in certain instances individually may be, material
to the Company's decision to offer, provide or so continue coverage of
the related Loan; the Company issues the related Commitment and
Certificate or continues coverage in reliance on the accuracy and
completeness of such statements and information and without any
obligation to independently verify the statements and information
submitted to it; and the Company's reliance on the representations in
Section 2.2(a) and (b) above survive the issuance of a Commitment and
Certificate or such continuation of coverage.
Without otherwise limiting the scope of this Section 2.2, a breach of
Section 4.8 relating to down payment will be deemed a material
misrepresentation for purposes of this Section 2.2. The foregoing
representations shall be effective whether or not they are made by the
Insured or other Person with the intent to deceive or mislead, or with
the knowledge that they are not true and correct.
2.3 COMPANY'S REMEDIES FOR MISREPRESENTATION -- Subject to Section 2.4, if
any of the Insured's representations as described in Section 2.2 are
materially false or misleading with respect to a Loan, the Company will
have at its option, the right to defend against a Claim, or to the
extent permitted by applicable law, to cancel or rescind coverage under
any Certificate retroactively to commencement of coverage (or if the
misrepresentation occurs with respect to continuation of coverage upon
assumption of a Loan, to so defend, cancel or rescind retroactively to
the date of such continuation). In the case of such cancellation or
rescission, the Company shall return at that time all paid premiums
retroactively to such applicable date.
2.4 INCONTESTABILITY FOR CERTAIN MISREPRESENTATIONS -- Notwithstanding
Sections 2.2 or 2.3, no Claim for Loss will be denied or adjusted, nor
will the Certificate's coverage be rescinded or canceled, by reason of
any misrepresentations (whether by statements made or omitted)
contained in an Application, provided that all of the following
requirements, conditions and circumstances, to the extent not waived in
writing at the option of the Company, are satisfied:
a. The misrepresentation must not have been knowingly made, or
knowingly participated in, by:
1. The Insured or any other Person which originated the Loan; or
2. Any other of the following Persons:
i) correspondent lender, mortgage loan broker or other
intermediary underwriting or processing the Loan on behalf
of the Insured or any other Person which originated the
Loan; or
Form #71-7135 (8/94) Page 4
<PAGE>
ii) escrow or closing agents, or any other agent of, or broker
for, the Insured or any other Person which originated the
Loan acting with respect to the Loan or the related
Property transaction.
b. The Borrower must have made twelve (12) consecutive full
installment payments of principal, interest and impound or escrow
amounts in the amounts as called for by the Loan, and all of those
payments must have been made from the Borrower's own funds.
A payment will be considered to be "consecutive" only if it is made
prior to the date the next scheduled installment becomes due. The
"Borrower's own funds" will include any funds used by the Borrower
for the purpose of making installment payments, but will not
include funds provided directly or indirectly by any Person (other
than the Borrower) who is or was a party to the Loan or to the
related Property transaction, unless expressly set forth in the
Application.
c. This Section 2.4 will not apply to a Certificate if within twelve
(12) months before or after a material misrepresentation by a
Borrower or other Person (other than those Persons identified in
Section 2.4(a)), there are one or more material misrepresentations
in an Application (i) with respect to three (3) or more other
mortgage loans insured at any time by the Company for the Insured
or any other lender and (ii) which result from the direct or
indirect acts or omissions of the same Borrower or same other
Person (including any other Person acting directly or indirectly in
concert).
d. This Section 2.4 shall not be construed to limit the applicability
of Section 4.4(b) to a misrepresentation which is subject to this
Section 2.4.
e. The Company's payment of a Claim will not limit any rights which
the Company has against the Borrower or any other Person (other
than the Insured) for any misrepresentation.
2.5 INITIAL PREMIUM AND TERM OF COVERAGE
a. Within fifteen (15) days from the Certificate Effective Date, or
such other date as the Company and the Insured may agree to in
writing, the Insured must forward to the Company the appropriate
initial premium. Payment of the initial premium shall be a
condition precedent to coverage being extended to the Loan. Subject
to cancellation by the Insured or the Company as provided in this
Policy, coverage shall remain in full force and effect for the
period covered by the initial premium. Tender of the initial
premium will constitute a representation for purposes of Section
2.2 by the Insured that any special conditions included by the
Company in the related Commitment have been satisfied and that no
payment which is then due under the Loan is more than thirty (30)
days past due.
b. The Company will not rescind or cancel coverage, or deny or adjust
a Claim for Loss, with respect to a Loan on the basis of a failure
to satisfy a special condition (other than a special condition
relating to completion of construction, as described in Section 4.3
or to rehabilitation or repairs) if the Borrower has made
twenty-four (24) consecutive full installment payments from the
Borrower's own funds. The terms "installment payments,"
"consecutive," and "Borrower's own funds" shall have the meanings
provided in Section 2.4(b).
2.6 RENEWAL OF CERTIFICATE AND TERMINATION FOR NON-PAYMENT OF RENEWAL
PREMIUM; REINSTATEMENT OF TERMINATED COVERAGE
a. The Company must give the Insured prior notice of the due date for
payment of the applicable renewal premium payable for continued
coverage of each Certificate. The entire renewal premium must be
paid within a forty-five (45) day grace period (or such longer
grace period generally allowed by the Company) after the due date
for payment. Upon payment of the entire renewal premium within such
grace period, the Certificate will be deemed renewed for the
applicable renewal period and a Default occurring within said grace
period which is not cured, and which results in a Claim being
filed, will be covered.
If a Default occurs prior to the date through which the applicable
premium has been paid, and if such Default is not cured and results
in a Claim being filed, such Default shall remain covered and no
further premium shall be due in order to maintain coverage of such
Default.
Form #71-7135 (8/94) Page 5
<PAGE>
With respect to a Loan with renewal premiums due on an annual
basis, if the annual renewal premium is not paid within such grace
period (but subject to the Owner's right to cure non-payment as
provided in (b) of this Section 2.6), the coverage of the
Certificate and the Company's liability will terminate effective as
of 12:01 a.m. on the first day following the date through which the
applicable premium has been paid and as a result, any Default
occurring after the date through which the applicable premium has
been paid will not be covered.
With respect to a Loan with renewal premiums due on a monthly
basis, if the monthly renewal premium is not paid within such grace
period (but subject to the Owner's right to cure non-payment as
provided in (b) of this Section 2.6), the coverage of the
Certificate and the Company's liability will terminate as of 12:01
a.m. on the first day following the date through which the
applicable monthly premium has been paid, except that if a Default
on the Loan occurs between the last date through which the
applicable monthly renewal premium has been paid and the end of
such grace period, the Insured shall not be required to pay renewal
premiums, and coverage of such Default will continue, while such
Default exists. If such Default is cured, all monthly renewal
premiums not paid during the period of Default shall be payable
(unless previously paid by the Insured) within forty-five (45) days
or such longer period generally allowed by the Company after notice
from the Company in order to continue coverage. If such Default is
not cured and results in a Claim, the unpaid monthly renewal
premiums through the renewal month in which such Default occurred
shall be paid as provided in Section 6.3 by deduction from the
Loss.
b. If there occurs a transfer of servicing rights for a group of Loans
to a new Servicer, a seizure of servicing rights by the Owner of
such Loans, or a Servicer's surrender to the Owner of such
servicing rights and if:
1. the Company terminates coverage on one or more of such Loans
for nonpayment of the renewal premium; and the grace period for
payment of the renewal premium provided for in Section 2.6 (a)
expired after such transfer, seizure or surrender;
2. either the Owner of such Loans on which coverage was
terminated, or the new Servicer for such Loans, certifies in
writing to the Company within sixty (60) days after expiration
of such grace period, that all of such Loans were serviced for
the Owner at the time of nonpayment of renewal premium; and
that in good faith it believes that the failure to pay the
renewal premium on all such Loans was an error or omission
caused by such transfer, seizure or surrender of servicing; and
3. either the Owner or the new Servicer of such Loans pays the
entire amount of renewal premiums due and unpaid on all such
Loans within such sixty day period; then
upon satisfaction of all of the foregoing conditions, the Company
shall reinstate coverage on such Loans retroactively to the
effective date of termination of coverage, under all of the terms
and conditions in effect at termination and as if there had been no
lapse in coverage.
2.7 SPECIAL PROCEDURES FOR CERTIFICATION OF COVERAGE; PAYMENT OF INITIAL
AND RENEWAL PREMIUMS
a. The Company may permit coverage of a Loan to be certified and
become effective without the Insured's return of an executed
Commitment or Certificate, but coverage will only become effective
if within fifteen (15) days after the Certificate Effective Date
(or such longer period as the Company may allow) the Insured
provides the Company with the Certificate Effective Date and other
information required by the Company, and pays the required premium.
If signature and return of an executed Commitment or Certificate is
not required, the Insured will nevertheless be automatically deemed
to have made all certifications, representations and statements
attributable to it in the form of the Commitment or Certificate, as
though, and to the same extent as if, the Insured had executed and
returned the Commitment or Certificate.
b. The Insured acknowledges that the Company deposits initial and
renewal premium checks immediately upon receipt and agrees that the
receipt and deposit of a premium check by the Company after the
time specified in this Policy for receipt, does not constitute a
waiver of the requirements of this Policy for timely receipt or an
acceptance of premium by the Company. The Company will have the
right to return such late premium payment, but only within sixty
(60) days after receipt, in which case coverage will be cancelled
retroactively
Form #71-7135 (8/94) Page 6
<PAGE>
to the Certificate Effective Date for a late initial premium, or to
the last day of the period covered by the previous premium payment
for a late renewal premium. Receipt, deposit and retention of a
premium check will not constitute a waiver of any defenses with
respect to any other matters which the Company may have under this
Policy.
2.8 CANCELLATION BY THE INSURED OF A CERTIFICATE -- The Insured may obtain
cancellation of a Certificate by returning the Certificate to the
Company or making a written request to the Company for cancellation.
Upon receipt, the Company will refund, where applicable, a portion of
the premium paid in accordance with the appropriate cancellation
schedule which is either attached to this Policy or which will be
provided by the Company to the Insured upon request. However, no refund
on a Certificate will be paid if the Loan is in Default on the date the
Company receives the request. Cancellation of a Certificate will not
cancel this Policy.
2.9 CANCELLATION OF POLICY -- Either the Insured or the Company may cancel
their respective right or obligation to receive or issue new
Commitments or Certificates under this Policy by providing thirty (30)
days' written notice of cancellation of this Policy. However,
Commitments and Certificates issued prior to such cancellation of this
Policy will continue in force so long as all premiums are paid and all
other terms and conditions of this Policy for coverage are complied
with by the Insured.
2.10 RELATIONSHIP AMONG THE COMPANY, THE OWNER OF A LOAN, AND THE SERVICER
OF A LOAN -- The Company will be entitled to assume that the Insured
identified on this Policy and under a Certificate is the Owner of the
Loan. If the Company receives written notice acceptable to it that
there is an Owner of the Loan who is not the Insured, the Company shall
identify that Owner in its internal records and for purposes of this
Policy. The Company shall be required to identify only one Owner for a
Loan at any one time.
The Company will provide the Owner of a Loan so identified in its
records with an opportunity to cure non-payment of renewal premium, as
provided under Section 2.6; will notify such Owner of the Loan of a
non-approved Servicer and allow replacement with a new Servicer, as
provided under Section 4.5; will allow the Owner (or its designee, if
any) to replace a Servicer and allow the replacement Servicer to become
the Insured under Section 1.13; and will allow the Owner to become the
Insured under Section 1.13 if the Owner services the Loan itself. Any
Person becoming an Insured under this Policy shall be subject to all of
the terms and conditions of this Policy to the same extent as any
previous Insured hereunder and without regard to the extent of the
knowledge or responsibility of such Person, relating to matters
occurring before such Person became an Insured.
2.11 REFUND OF PREMIUM FOR DENIAL OF CLAIM IN FULL -- If, because of a
provision in Sections 2, 3 or 4 (other than Sections 4.3, 4.6, or 4.7),
no Loss is payable to the Insured, the Company shall return to the
Insured all paid premiums retroactively and pro rata to the date when
the event or circumstance occurred which resulted in no Loss being
payable.
3 CHANGES IN VARIOUS LOAN TERMS, SERVICING AND OWNER; CO-ORDINATION AND
DUPLICATION OF INSURANCE BENEFITS
3.1 LOAN MODIFICATIONS -- Unless advance written approval is provided by,
or obtained from, the Company, the Insured may not make any change in
the terms of a Loan, including the borrowed amount, interest rate, term
or amortization schedule of the Loan, except as permitted by terms of
the Loan; nor make any change in the Property or other collateral
securing the Loan; nor release the Borrower from liability on a Loan.
3.2 OPEN END PROVISIONS -- The Insured may increase the principal balance
of a Loan, provided that the written approval of the Company has been
obtained. The Insured will pay the Company the additional premium due
at the then prevailing premium rate.
3.3 ASSUMPTIONS -- If a Loan is assumed with the Insured's approval, the
Company's liability for coverage under its Certificate will terminate
as of the date of such assumption, unless the Company approves the
assumption in writing. The Company will not unreasonably withhold
approval of an assumption. It is understood that coverage will
continue, and that the restriction of this Section 3.3 will not apply,
if under the Loan or applicable law the Insured cannot exercise a
"due-on-sale" clause or is obligated to consent to such assumption
under the Loan or applicable law.
Form #71-7135 (8/94) Page 7
<PAGE>
3.4 CHANGE OF SERVICING -- If the servicing rights for a Loan are sold,
assigned or transferred by the Insured or the Owner, coverage of the
Loan hereunder will continue provided that written notice of the new
Servicer is given to the Company and the new Servicer is approved in
writing by the Company. The Company shall be automatically deemed to
have approved as a Servicer any person to whom the Company has issued a
master policy, which has not been cancelled, providing for residential
mortgage guaranty insurance.
3.5 CHANGE OF OWNER -- If a Loan or a participation in a Loan is sold,
assigned or transferred by its Owner, coverage of the Loan will
continue, subject to all of the terms and conditions contained in this
Policy. The new Owner of the Loan will be identified in the Company's
records from the date that the Company receives written notice thereof.
In the case of the sale of a participation in a Loan, the Company shall
be notified of only one new Owner. If there is new ownership, the Loan
must continue to be serviced by a Person approved by the Company as a
Servicer.
3.6 CO-ORDINATION AND DUPLICATION OF INSURANCE BENEFITS -- The coverage
under this Policy shall be excess over any other insurance which may
apply to the Property or to the Loan, except for mortgage guaranty pool
insurance or supplemental or second tier mortgage insurance.
4 EXCLUSIONS FROM COVERAGE
The Company will not be liable for, and this Policy will not apply to,
extend to or cover the following:
4.1 BALLOON PAYMENT -- Any Claim arising out of or in connection with the
failure of the Borrower to make any payment of principal and/or
interest due under a Loan, (a) as a result of the Insured exercising
its right to call the Loan (other than when the Loan is in Default) or
because the term of the Loan is shorter than the amortization period,
and (b) which is for an amount more than twice the regular periodic
payments of principal and interest that are set forth in the Loan
(commonly referred to as a "balloon payment"). This exclusion will not
apply if the Insured, the Owner of the Loan, or other Person acting on
either's behalf offers the Borrower, in writing, a renewal or extension
of the Loan or a new loan which (i) constitutes a first lien, (ii) is
at rates and terms generally prevailing in the marketplace (but
otherwise subject to Section 3.1), (iii) is in an amount not less than
the then outstanding principal balance, (iv) has no decrease in the
amortization period, and (v) is offered regardless of whether the
Borrower is then qualified under the Insured's or Owner's underwriting
standards. This exclusion also will not apply if the Borrower is
notified of the availability of such renewal or extension of the Loan
or new loan and does not accept the renewal, extension or new loan.
4.2 EFFECTIVE DATE -- Any Claim resulting from a Default existing at the
Certificate Effective Date or occurring after lapse or cancellation of
a Certificate.
4.3 INCOMPLETE CONSTRUCTION -- Any Claim when, as of the date of such
Claim, construction of a Property is not completed in accordance with
the construction plans and specifications upon which the appraisal of
the Property at origination of the Loan was based.
4.4 FRAUD, MISREPRESENTATION AND NEGLIGENCE -- (a) Any Claim not otherwise
within the scope of Section 2.3 where there was fraud or
misrepresentation by the Insured with respect to the Loan, and the
fraud or misrepresentation (1) materially contributed to the Default
resulting in such Claim; or (2) increased the Loss, except that if the
Company can reasonably determine the amount of such increase, such
Claim will not be excluded, but the Loss will be reduced to the extent
of such amount.
(b) Any Claim where there was negligence by the Insured with respect to
the Loan, which (1) was material to either the acceptance of the risk
or the hazard assumed by the Company; (2) materially contributed to the
Default resulting in such Claim; or (3) increased the Loss, except that
if the Company can reasonably determine the amount of such increase,
such Claim will not be excluded, but the Loss will be reduced to the
extent of such amount.
4.5 NON-APPROVED SERVICER -- Any Claim occurring when the Servicer, at time
of Default or thereafter, is not approved in writing or in a list
published by the Company; provided that this exclusion shall only apply
if the Company notifies the Owner of the Loan in writing if a Servicer
is no longer approved and if within ninety (90) days thereafter the
Owner does not complete a transfer of servicing to a new Servicer
approved by the Company.
Form #71-7135 (8/94) Page 8
<PAGE>
4.6 PHYSICAL DAMAGE (OTHER THAN RELATING TO PRE-EXISTING ENVIRONMENTAL
CONDITIONS) -- Any Claim where, at any time after the Certificate
Effective Date, Physical Damage to a Property (of a type other than as
described in Section 4.7 and other than reasonable wear and tear),
occurs or manifests itself subject to the following provisions:
a. This exclusion will not apply if the Company in good faith
determines that the aggregate cost of restoring all such Physical
Damage is less than fifteen hundred dollars ($1,500), or such
higher amount as the Company may provide from time to time.
b. This exclusion will apply only if such Physical Damage occurred or
manifested itself (1) prior to expiration of the Settlement Period
and the Company elects to acquire the related Property in
settlement of a Claim; or (2) prior to the Default and was the most
important cause of the Default and the Property was either
uninsured for loss arising from such Physical Damage or was insured
for an amount which, disregarding normal and customary deductibles
not to exceed fifteen hundred dollars ($1,500) or such higher
amount as the Company may provide from time to time, was
insufficient to restore the Property as provided in paragraph (c)
below.
c. The exclusion resulting from paragraph (b) will not apply if the
Property is restored in a timely and diligent manner to its
condition (except reasonable wear and tear) as of the Certificate
Effective Date. In lieu of requiring restoration of the Property,
the Company may, at its option, reduce the Claim Amount by an
amount equal to the cost of such restoration.
d. For purposes of this Section 4.6, the Property subject to
restoration will consist only of the land, improvements or personal
property deemed part of the real property under applicable law; and
chattel items affixed to the real property and identified in the
appraisal of the Property at the time the Loan was made, whether or
not they are deemed part of the real property.
e. Cost estimates relied upon by the Company in connection with this
Section 4.6 shall be provided in writing by an independent party
selected by the Company. The Company will furnish the Insured with
any such written cost estimates, if requested by the Insured.
4.7 PRE-EXISTING ENVIRONMENTAL CONDITIONS -- Any Claim where there is an
Environmental Condition which existed on the Property (whether or not
known by the Person submitting an Application for coverage of the Loan)
as of the Certificate Effective Date, subject to the following
provisions:
a. This exclusion will not apply if the existence of such
Environmental Condition, or the suspected existence of such
Environmental Condition, was specifically disclosed to the Company
in the Application relating to the Property.
b. This exclusion will apply only if such Environmental Condition (1)
was a principal cause of the Default, and (2) has made the
principal Residential structure on the Property uninhabitable. A
structure will be considered "uninhabitable" if generally
recognized standards for residential occupancy are violated or if,
in the absence of such standards, a fully informed and reasonable
person would conclude that such structure was not safe to live in
without fear of injury to health or safety.
c. This exclusion will not apply if the Environmental Condition is
removed or remedied in a timely and diligent manner in accordance
with applicable governmental standards for safe residential
occupancy.
4.8 DOWN PAYMENT -- Any Claim involving a Loan which is for the purchase of
the Property, and for which the Borrower did not make a down payment as
described in the Application.
4.9 FIRST LIEN STATUS -- Any Claim, if the mortgage, deed of trust or other
similar instrument executed by the Borrower and insured hereunder did
not provide the Insured at origination with a first lien on the
Property.
Form #71-7135 (8/94) Page 9
<PAGE>
4.10 BREACH OF THE INSURED'S OBLIGATIONS OR FAILURE TO COMPLY WITH TERMS --
Any Claim involving or arising out of any breach by the Insured of its
obligations under, or its failure to comply with the terms of, this
Policy or of its obligations as imposed by operation of law, if the
breach or failure:
a. Materially contributed to the Default resulting in such Claim; or
b. Except for a breach described in Section 2.3, increased the Loss;
provided that if the Company can reasonably determine the amount of
such increase, such Claim will not be excluded, but the Loss will
be reduced to the extent of such amount.
5 CONDITIONS PRECEDENT TO PAYMENT OF CLAIM
It is a condition precedent to the Company's obligation to pay a Loss that
the Insured comply with all of the following requirements:
5.1 NOTICE OF DEFAULT -- The Insured must give the Company written notice:
a. Within forty-five (45) days of the Default, if it occurs when the
first payment is due under the Loan; or
b. Within ten (10) days of either
1. The date when the Borrower becomes four (4) months in Default
on the Loan; or
2. The date when any Appropriate Proceedings which affect the Loan
or the Property or the Insured's or Borrower's interest therein
have been started;
whichever occurs first.
5.2 MONTHLY REPORTS -- Following a notice of Default on the Loan, the
Insured must give the Company monthly reports on forms or in a format
acceptable to the Company on the status of the Loan and on the
servicing efforts undertaken to remedy the Default. These monthly
reports may be furnished less frequently if allowed in writing by the
Company and must continue until the Borrower is no longer in Default,
the Appropriate Proceedings terminate, or until the Insured has
acquired the Property.
5.3 COMPANY'S OPTION TO ACCELERATE FILING OF A CLAIM -- If the Company so
directs, at any time after receiving the Insured's notice of Default,
the Insured must file a Claim within twenty (20) days after notice from
the Company. The Company will then make a payment of Loss in accordance
with the percentage guaranty option in Section 6.3(b). Thereafter,
following the acquisition of Borrower's Title by the Insured, the
Insured will be entitled to file a supplemental Claim at the time
prescribed in Section 6.1 in an amount equal to the sum of its
advances, less the deductions, all as specified in Section 6.2, to the
extent not included in the payment of the initial Claim. Such
supplemental Claim must be paid by the Company in accordance with
Section 6.3(b). No interest shall be includable in the Claim Amount
under this Section 5.3 after the date that the accelerated claim is
filed. If a Loan for which the Company has paid a Claim is subsequently
brought current by the Borrower, the Insured shall refund to the
Company the Loss paid by the Company with respect to that Loan. If the
Company exercises its option under this Section 5.3, the Company shall
not have the right to direct or participate in a deficiency recovery
under Section 7.2.
5.4 VOLUNTARY CONVEYANCE -- The Insured may only accept a conveyance of the
Property from the Borrower in lieu of foreclosure or other proceeding
if the prior written approval of the Company has been obtained. Such
approval shall not be considered as an acknowledgement of liability by
the Company with respect to such Loan.
Form #71-7135 (8/94) Page 10
<PAGE>
5.5 APPROPRIATE PROCEEDINGS -- The Insured must begin Appropriate
Proceedings no later than when the Loan becomes six (6) months in
Default unless the Company provides written instructions that some
other action be taken. Such instructions may be general or applicable
only to specific Loans. The Company reserves the right to direct the
Insured to institute Appropriate Proceedings at any time after Default.
When either defending against or bringing Appropriate Proceedings, the
Insured must report their status to the Company as reasonably and
expeditiously as possible.
In conducting Appropriate Proceedings, the Insured must:
a. Diligently pursue the Appropriate Proceedings once they have begun;
b. Apply for the appointment of a receiver and assignment of rents, if
permitted by law and requested by the Company;
c. Furnish the Company with copies of all notices and pleadings filed
or required in the Appropriate Proceedings, except as the Company
may waive such requirement in writing;
d. Act and bid at the foreclosure sale in accordance with Section 5.11
so that its ability to preserve, transfer and assign to the Company
its rights against the Borrower are not impaired; and so that the
rights of the Company under this Policy against the Borrower are
fully protected. Such rights include any rights to obtain a
deficiency judgment, subject to the Company's compliance with
Sections 7.2 and 7.3 relating to establishing a deficiency; and
e. When requested by the Company, furnish the Company with a written
statement indicating the estimated potential Claim Amount (as
computed under Section 6.2) at least fifteen (15) days before the
foreclosure sale.
5.6 MITIGATION OF DAMAGES -- The Insured must actively cooperate with and
assist the Company to prevent and mitigate the Loss, including good
faith efforts by the Insured to obtain a cure of the Default, collect
amounts due under the Loan, inspect and appraise the Property and
effectuate the early disposition of the Property. The Company must
administer this Policy in good faith.
5.7 ADVANCES -- The Insured must advance:
a. Normal and customary hazard insurance premiums and real estate
property taxes, in each case as due and payable;
b. Reasonable and necessary Property protection and preservation
expenses approved by the Company at the time the Company reviews
the Claim, which shall not include expenditures to remove an
exclusion from coverage under Section 4; and
c. Reasonable costs to complete Appropriate Proceedings and eviction
and moving of occupants, including related court expenses and
attorney's fees.
5.8 CLAIM INFORMATION AND OTHER REQUIREMENTS -- The Insured must provide
the Company with:
a. All information reasonably requested by the Company;
b. A completed form furnished by or acceptable to the Company for
payment of a Claim;
c. If the Property is not being acquired by the Company: a copy of an
executed trustee's or sheriff's deed (which may be unrecorded)
conveying Borrower's Title to the Property to the Insured (or
satisfactory evidence that the foreclosure sale has been completed
if the Borrower's right of redemption has not expired); or a deed
from the Borrower (which may be unrecorded) if a voluntary
conveyance has been approved by the Company, conveying to the
Insured the title that was required by the Company in the approval
of the conveyance.
Form #71-7135 (8/94) Page 11
<PAGE>
In the event the most important cause of Default was a circumstance
or event which would prevent the Insured from obtaining Good and
Merchantable Title, the Insured shall instead provide the Company
with evidence described in Section 5.8(d)(2) that it has acquired
Good and Merchantable Title to the Property.
d. If the Property is being acquired by the Company:
1. a recordable deed in normal and customary form containing the
customary warranties and covenants conveying to the Company or
its designee Good and Merchantable Title to the Property;
2. a title insurance policy acceptable to the Company or an
attorney's opinion of title acceptable to the Company,
confirming that the Insured has and can convey to the Company
Good and Merchantable Title to the Property; and
3. Possession of the Property, but only if the Company has
required such Possession in writing.
e. Access to the Property, if requested by the Company under Section
6.4 (b).
5.9 ACQUISITION OF BORROWER'S TITLE NOT REQUIRED -- The Insured will not be
required to acquire Borrower's Title to a Property if (a) the Company
approves a sale of the Property prior to a foreclosure sale and such
sale is closed; (b) the Company requires an early Claim filing pursuant
to Section 5.3, except that such acquisition will be required as a
condition to the Insured's filing of a supplemental Claim; or (c) the
Property is acquired by someone other than the Insured at a foreclosure
sale, as provided in Section 5.11, or thereafter pursuant to exercise
of rights of redemption.
5.10 SALE OF A PROPERTY BY THE INSURED BEFORE END OF SETTLEMENT PERIOD
a. The Insured must submit to the Company any offer to purchase a
Property which it receives after the Company has notified the
Insured that it will acquire the Property and before the end of the
Settlement Period. The Company must then promptly notify the
Insured that it will either (1) not approve of such offer, in which
case the Company's notice to acquire the Property will remain in
effect, or (2) approve such offer, in which case the Company's
notice of acquisition will remain in effect, if the approved offer
does not close as scheduled. The Insured shall promptly notify the
Company if the approved offer does not close as scheduled.
b. If the Company has not notified the Insured that it will acquire
the Property, and if the Company's right to acquire the Property
has not expired pursuant to Section 6.5 or has not been waived, the
Insured must submit to the Company for approval any offer to
purchase the Property which would be acceptable to the Insured. The
Company shall then promptly either approve or not approve such
offer. If the approved offer expires or is terminated, the Company
shall be entitled to pay the Loss payable by (1) paying the
percentage guaranty option as calculated under Section 6.3(b), or
(2) paying the property acquisition settlement option as calculated
under Section 6.3(a), and acquiring the Property; but if the
Company's right to acquire the Property has expired pursuant to
Section 6.5, or been waived, then such acquisition shall be under
the same terms and conditions as the expired or terminated offer,
except for terms and conditions relating to the sale price and
method of payment of the sale price, which shall instead be
governed by Section 6.3.
c. The following provisions shall apply to offers submitted to the
Company under this Section 5.10:
1. At the time it presents an offer, the Insured must also
provide the Company with a good faith estimate of gross
proceeds and expenses in sufficient detail for the Company to
calculate the estimated net proceeds described below. The
Company may not require any changes to the offer or direct
the marketing of the Property or expenditures by the Insured
for restoration of the Property as a condition to its
approval.
2. If the Company approves the offer submitted by the Insured,
it must also advise the Insured of the estimated net proceeds
which it has calculated. The estimated net proceeds
calculated by the Company will be the estimated gross sales
proceeds to be received by the Insured less all reasonable
Form #71-7135 (8/94) Page 12
<PAGE>
estimated expenses submitted by the Insured and approved by
the Company in its approval of the offer which have been or
are expected to be paid by the Insured in obtaining and
closing the sale of the Property. If the estimated net
proceeds as calculated by the Company is acceptable to the
Insured, the Loss payable shall be computed as determined
below. If such calculation is not acceptable to the Insured,
the offer shall be deemed to have not been approved by the
Company.
3. If the Company approves the offer, the Loss payable by the
Company under this Section 5.10 will be the lesser of (i) the
actual net amount as calculated below, or (ii) the percentage
guaranty option under Section 6.3(b) without regard to a sale
of the Property. The actual net amount will be the Claim
Amount calculated under Section 6.2, except that (a)
delinquent interest will be computed through the closing date
for sale of the Property and (b) the Claim Amount shall be
reduced by the actual net proceeds realized by the Insured
from the sale of the Property. The actual net proceeds will
be determined in the same manner as the estimated net
proceeds, but on the basis of the actual sales proceeds. For
purposes of computing a Loss, such actual net proceeds shall
not be less than the estimated net proceeds calculated by the
Company under this subparagraph (c), or as otherwise approved
by the Company.
4. The Company shall not unreasonably withhold its approval of
expenses submitted to it after its approval of an offer.
Expenses paid to Persons employed or controlled by the
Insured or the Owner of the Loan or their internal costs will
not be allowed in calculation of either the estimated or
actual net proceeds.
5. If requested by the Company, the Insured shall advise the
Company of the name of the real estate broker or other Person
marketing the Property and authorize such broker or other
Person to release marketing information about the Property to
the Company, if requested by the Company.
5.11 FORECLOSURE BIDDING INSTRUCTIONS GIVEN BY THE COMPANY -- The Insured
will be entitled to bid at the foreclosure sale held as part of the
Appropriate Proceedings any amount which it determines necessary to
obtain Borrower's Title to the Property, unless otherwise directed by
the Company. The Company will be entitled to direct the Insured to bid
an amount to be determined by the Insured within a minimum and maximum
range, as follows:
a. The minimum amount shall not be less than the fair market value of
the Property, but if there has been Physical Damage to the Property
which affects its fair market value (as determined before such
Physical Damage) by more than ten per cent (10%), the fair market
value of the Property shall be its fair market value after
restoration of the Property.
b. The maximum amount shall not exceed the greater of (1) the fair
market value of the Property as determined under subparagraph (a)
above, or (2) the estimated Claim Amount less the amount which the
Company would pay as the percentage guaranty option under Section
6.3(b).
c. For purposes of this Section 5.11, fair market value shall be
determined as of a date acceptable to the Company by an opinion of
an independent real estate broker, or by an independent appraiser,
in either case selected by or acceptable to the Company.
The Insured is not required to acquire Borrower's Title if it has bid
in accordance with this Section 5.11, whether or not pursuant to
directions from the Company.
5.12 EFFECT OF UNEXPIRED REDEMPTION PERIOD ON PAYMENT OF A CLAIM -- If the
Insured files a Claim prior to expiration of an applicable redemption
period, the Loss payable shall only be computed through the date of
filing of the Claim, and if the Company elects to acquire the Property,
the Insured will remain responsible for management and control of the
Property until the Company's acquisition thereof, which may be after
expiration of the redemption period, but not later than as required by
Section 6.4.
If the Company has paid to the Insured a Claim under its percentage
guaranty option in Section 6.3 (b), and the related Property is
subsequently redeemed by the Borrower, the Insured shall promptly
report such redemption to the Company and reimburse the Company for the
amount of the Company's Claim payment, to the extent that
Form #71-7135 (8/94) Page 13
<PAGE>
the sum of the Company's Claim payment and the amount realized by the
Insured from the redemption exceeds the Claim Amount, as would have
been calculated through the date of redemption.
5.13 COLLECTION ASSISTANCE -- If the Company so requests, the Insured shall
permit the Company to cooperatively assist the Insured in the
collection of moneys due under the Loan, including obtaining
information from the Borrower, attempting to develop payment schedules
acceptable to the Insured, conducting Property inspections and
requesting appraisals of the Property.
6 LOSS PAYMENT PROCEDURE
6.1 FILING OF CLAIM -- The Insured shall file a Claim after, but no later
than sixty (60) days following, the conveyance to the Insured of
Borrower's Title to the Property. If the Insured is not required to
have Borrower's Title to file a Claim for a reason described in Section
5.9, then the Claim must be filed (a) within sixty (60) days after the
Property is conveyed in a pre-foreclosure sale, at the foreclosure
sale, or by exercise of the rights of redemption or (b) at the time
specified by Section 5.3. If the Insured fails to file a Claim within
the applicable time, the Insured will not be entitled to, and the
Company will not be obligated for, any payment under this Policy for
amounts, including additional interest and expenses, which would
otherwise be claimable, but which accrue or are incurred after the
sixty (60) day period for filing of a Claim.
If the Insured fails to file a Perfected Claim within one hundred
eighty (180) days after the filing of the Claim (or within such longer
period of time as the Company may allow in writing), the Insured will
no longer be entitled to payment of a Loss and the Company will not be
obligated to make any payment under this Policy.
6.2 CALCULATION OF CLAIM AMOUNT -- Subject to Sections 7.5 and 5.3, the
Claim Amount will be an amount equal to the sum of:
a. The amount of unpaid principal balance due under the Loan as of the
date of Default without capitalization of delinquent interest,
penalties or advances; and
b. The amount of accrued and unpaid interest due on the Loan computed
at the contract rate stated in the Loan through the date that the
Claim is filed with the Company, but excluding applicable late
charges, penalty interest or other changes to the interest rate by
reason of Default; and
c. The amount of advances incurred by the Insured under Section 5.7
prior to filing of the Claim (except to Persons employed or
controlled by the Insured or the Owner of the Loan or their other
internal costs) provided that:
1. Attorney's fees advanced for completion of Appropriate
Proceedings and obtaining Possession of the Property will not
be allowed to the extent they exceed three percent (3%) of
the sum of the unpaid principal balance and the accrued and
accumulated interest due; and
2. Such advances, other than attorney's fees, must have first
become due and payable after the Default, and payment of such
advances must be prorated through the date the Claim is filed
with the Company;
less:
(i) The amount of all rents and other payments (excluding proceeds of
a sale of the Property and the proceeds of fire and extended
coverage insurance) collected or received by the Insured, which
are derived from or in any way related to the Property;
(ii) The amount of cash remaining in any escrow account as of the last
payment date;
(iii) The amount of cash or other collateral to which the Insured has
retained the right of possession as security for the Loan;
Form #71-7135 (8/94) Page 14
<PAGE>
(iv) The amount paid under applicable fire and extended coverage
policies which are in excess of the cost of restoring and
repairing the Property, if the Property is damaged, and which has
not been paid to the Borrower or applied to the payment of the
Loan as required by the terms of the Loan; and
(v) Any other amounts claimed by the Insured to the extent they are
excluded from the Claim Amount by reason of Section 4.
6.3 PAYMENT OF LOSS; COMPANY'S OPTIONS -- Within the Settlement Period, but
only if the Insured has satisfied all requirements for a payment of
Loss and if the Company has received a Perfected Claim, the Company
shall at its sole option exercise its:
a. Property acquisition settlement option. Pay to the Insured as the
Loss the Claim Amount calculated in accordance with Section 6.2
for the Company's acquisition of the Property; or
b. Percentage guaranty option. Allow the Insured to retain all
rights in and title to the Property, and pay to the Insured as
the Loss the Claim Amount calculated in accordance with Section
6.2 of this Policy multiplied by the percentage of coverage or as
otherwise calculated as specified in the Certificate. However, if
prior to the Company's payment of the Loss, a third party
acquires title to the Property at the foreclosure sale or a
Borrower redeems the Property (unless such acquisition or
redemption occurs because the Insured failed to bid as provided
in Section 5.11), then the Company shall pay the lesser of: (i)
the percentage guaranty option amount described above; or (ii)
the difference between the Claim Amount and the amount realized
by the Insured at the foreclosure sale or redemption; or
c. Pre-Claim sale option. Pay to the Insured as the Loss the amount
calculated in accordance with Section 5.10, if the terms and
conditions of Section 5.10 are met.
In addition to the sum due pursuant to the option described above which
the Company selects, the Loss payable by the Company will include the
other amounts provided for under Sections 6.5 or 7.2 when such Sections
are applicable. The Company will deduct from its payment of Loss such
amounts as may be permitted by this Policy and the aggregate amounts of
any payments of Loss which it had previously made. In the event of a
Loss on a Loan with renewal premiums due monthly, which results from a
Default covered under Section 2.6(a), the Company shall deduct from the
payment of Loss an amount equal to any unpaid renewal premiums for the
subject Loan through the end of the monthly renewal period in which
such Default occurred.
6.4 CALCULATION OF SETTLEMENT PERIOD -- The Settlement Period will be a
sixty (60) day period after the Company's receipt of a Claim,
calculated as follows:
a. No later than the twentieth (20th) day after filing of a Claim,
the Company may notify the Insured of additional documents or
information which it requires for processing the Claim. The
sixty-day period will be suspended until the Company receives
such additional documents and information. The Company may
request additional documents and information after such
twenty-day period, and the Insured must use reasonable efforts to
satisfy such request.
b. No later than the sixtieth (60th) day after filing of a Claim,
the Company may notify the Insured that it will require access to
the Property sufficient to inspect, appraise and evaluate the
Property. If the Company does not notify the Insured by that
date, its right to such access will be deemed waived. If such
notice is given, the Insured will use its best efforts to provide
access to the Company and, if access is not then available, the
sixty day period will be suspended from the date such notice was
given until the Company receives notice from the Insured that
access is available to it. If access is in fact not available
when sought by the Company after such notice from the Insured,
the Company will promptly notify the Insured of such
unavailability, and the passage of the sixty day period will
remain suspended as if the Insured's notice of availability had
not been given to the Company.
c. If the Company has elected to acquire the Property in settlement
of a Claim, the sixty day period also will be suspended if
necessary for there to be a period of ten (10) days after the
date on which the Insured satisfies all conditions to
acquisition, including any required restoration of the Property,
for the Insured's
Form #71-7135 (8/94) Page 15
<PAGE>
delivery of a recordable deed and title policy or opinion
evidencing Good and Merchantable Title (not subject to any rights
of redemption, unless the Company waives such requirement) and,
if applicable, delivery of Possession to the Property.
d. If the sixty day period is suspended for more than one reason,
the resulting suspended periods will only be cumulative if in
fact they occur at different times; to the extent they occur
simultaneously, they will not be cumulative.
6.5 PAYMENT BY THE COMPANY AFTER THE SETTLEMENT PERIOD -- If the Company
has not paid a Loss during the Settlement Period, then (a) the Company
will include in its payment of Loss, if a Loss is ultimately payable,
simple interest on the amount payable accruing after the Settlement
Period to the date of payment of Loss at the applicable interest rate
or rates which would have been payable on the Loan during such period,
and (b) the Company will no longer be entitled to acquire the Property
as an option for payment of the Loss.
The Company must either pay the amount of applicable Loss (including
any additional applicable interest as computed above) or deny the Claim
in its entirety within (a) one hundred twenty (120) days after
expiration of the Settlement Period, or (b) if the Settlement Period
has not expired, no later than one hundred eighty (180) days after
filing of the Claim. If at a later date it is finally determined by
agreement between the Insured and the Company (or by completion of
legal or other proceedings to which the Insured and the Company are
parties) that the Company was not entitled to deny all or a portion of
the Claim, the Company will include in any resulting subsequent payment
of Loss interest as calculated above through the date of such payment
on the amount of Loss which the Company was not entitled to deny.
6.6 DISCHARGE OF OBLIGATION -- Payment by the Company of the amount of Loss
required to be paid in accordance with this Policy will be a full and
final discharge of its obligation with respect to such Loss under this
Policy.
7 ADDITIONAL CONDITIONS
7.1 PROCEEDINGS OF EMINENT DOMAIN -- In the event that part or all of a
Property is taken by eminent domain, or condemnation or by any other
proceedings by federal, state or local governmental unit or agency, the
Insured must require that the Borrower apply the maximum permissible
amount of any compensation awarded in such proceedings to reduce the
principal balance of the Loan, in accordance with the law of the
jurisdiction where the Property is located.
7.2 PURSUIT OF DEFICIENCIES
a. The Insured will be entitled to pursue Appropriate Proceedings,
or shall at the direction of the Company pursue Appropriate
Proceedings through the end of the Settlement Period, which may
result in the Borrower becoming liable for a deficiency after
completion of the Insured's acquisition of a Property. Such
pursuit may not be directed by the Company unless such deficiency
is estimated to exceed $7,500. If the Company proposes to pursue
a deficiency judgment, in whole or in part for its account, it
will notify the Insured at least thirty (30) days before the
foreclosure sale. If the Company does not so notify the Insured,
the deficiency judgment, if established by the Insured, will be
solely for the account of the Insured, and the Company will not
be subrogated to any rights to pursue the deficiency judgment.
b. The following provisions will apply if, in completing Appropriate
Proceedings there are additional expenses advanced pursuant to
Section 5.7 or additional interest accrued on the Loan, due to
(1) an additional redemptive period or a delay in acquisition of
Borrower's Title, which period or delay is directly related to
establishing the deficiency judgment or (2) legal proceedings
which are necessary to establish and pursue the deficiency
judgment and which would not otherwise be the custom and practice
used.
i. If the deficiency judgment is to be established, in whole or
in part, for the account of the Company, the Company must pay
the Insured at the time of payment of the Claim, regardless
of which settlement option the Company has selected, the full
amount of:
(A) such additional expenses advanced pursuant to Section 5.7
by the Insured; and
Form #71-7135 (8/94) Page 16
<PAGE>
(B) such additional interest accrued on the unpaid principal
balance of the Loan at the contract rate stated in the
Loan, but excluding applicable late charges, penalty
interest, or other changes to the interest rate by reason
of Default.
ii. If the deficiency judgment is not to be established, in whole
or in part, for the account of the Company, none of the
additional interest or expenses of the type described in
subparagraph (i) above will be includable in the Claim Amount
or payable at any time by the Company.
iii.For purposes of determining the additional expenses described
in subparagraph (i) above resulting from pursuing the
deficiency judgment, the limitation on attorneys' fees in
Section 6.2 will not apply.
iv. All of the additional interest, expenses, attorney's fees and
court expenses described in subparagraph (i) above will be
accrued or advanced only through acquisition of Borrower's
Title, including any additional redemptive period.
c. The Company and the Insured may agree generally or with respect
to a Loan to different terms and conditions than set forth in
this Section 7.2. The Company and the Insured also may agree to
the joint pursuit or other arrangements for the collection of
deficiency judgments on mutually acceptable terms and conditions.
7.3 SUBROGATION -- Subject to Section 7.2(a), and only to the extent that
the Company is entitled under applicable law to pursue such deficiency
rights, the Company will be subrogated, upon payment of the Loss, in
the amount thereof and with an equal priority to all of the Insured's
rights of recovery against a Borrower and any other Person relating to
the Loan or to the Property. The Insured must execute and deliver at
the request of the Company such instruments and papers and undertake
such actions as may be necessary to transfer, assign and secure such
rights. The Insured shall refrain from any action, either before or
after payment of a Loss, that prejudices such rights.
7.4 POLICY FOR EXCLUSIVE BENEFIT OF THE INSURED AND THE OWNER -- A
Commitment and Certificate issued as the result of any Application
submitted hereunder and the coverage provided under this Policy will be
for the sole and exclusive benefit of the Insured and the Owner of the
related Loan, and in no event will any Borrower or other Person be
deemed a party to, or an intended beneficiary of, this Policy or any
Commitment or Certificate.
7.5 EFFECT OF BORROWER INSOLVENCY OR BANKRUPTCY ON PRINCIPAL BALANCE -- If
under applicable insolvency or bankruptcy law, a Loan's principal
balance secured by a Property is reduced (after all appeals of such
reduction are final or the time for such appeals has lapsed without
appeal), the portion of such principal balance of the Loan not secured
by the Property, and related interest, will be includable in the Claim
Amount, as provided in this Section 7.5.
If a Default occurs on the Loan, the Insured has acquired Borrower's
Title or Good and Merchantable Title to the Property as required by
this Policy, and all other requirements for filing of a Claim are
complied with, the Insured will be entitled to include in the Claim
Amount (a) the amount of the principal balance of the Loan which was
deemed unsecured under applicable insolvency or bankruptcy law, less
any collections or payments on such unsecured principal balance
received by the Insured, and (b) interest thereon at the rate and as
computed in Section 6.2, from the date of Default giving rise to the
Claim (but for no prior period). In no event will any expenses or other
amounts associated with the amount by which the principal balance of
the Loan became unsecured be includable in the Claim Amount, directly
or by an addition to the principal balance includable in the Claim
Amount.
Form #71-7135 (8/94) Page 17
<PAGE>
7.6 ARBITRATION OF DISPUTES; SUITS AND ACTIONS BROUGHT BY THE INSURED
a. Unless prohibited by applicable law, all controversies, disputes
or other assertions of liability or rights arising out of or
relating to this Policy, including the breach, interpretation or
construction thereof, shall be settled by arbitration.
Notwithstanding the foregoing, the Company or the Insured both
retain the right to seek a declaratory judgement from a court of
competent jurisdiction on matters of interpretation of the
Policy. Such arbitration shall be conducted in accordance with
the Title Insurance Arbitration Rules of the American Arbitration
Association in effect on the date the demand for arbitration is
made, or if such Rules are not then in effect, such other Rules
of the American Arbitration Association as the Company may
designate as its replacement.
The arbitrator(s) shall be neutral person(s) selected from the
American Arbitration Association's National Panel of Arbitrators
familiar with the mortgage lending or mortgage guaranty insurance
business. Any proposed arbitrator may be disqualified during the
selection process, at the option of either party, if they are, or
during the previous two (2) years have been, an employee, officer
or director of any mortgage guaranty insurer, or of any entity
engaged in the origination, purchase, sale or servicing of
mortgage loans or mortgage-backed securities.
b. No suit or action (including arbitration hereunder) brought by
the Insured against the Company with respect to the Company's
liability for a Claim under this Policy shall be sustained in any
court of law or equity or by arbitration unless the Insured has
substantially complied with the terms and conditions of this
Policy, and unless the suit or action is commenced within three
(3) years (five (5) years in Florida or Kansas) after the Insured
has acquired Borrower's Title to the Property or sale of the
Property approved by the Company is completed, whichever is
applicable to a Loan. No such suit or action with respect to a
Claim may be brought by the Insured against the Company until
sixty (60) days after such acquisition of Borrower's Title or
sale, as applicable to a Loan.
c. If a dispute arises concerning the Loan which involves either the
Property or the Insured, the Company has the right to protect its
interest by defending the suit, even if the allegations contained
in such suit are groundless, false or fraudulent. The Company is
not required to defend any lawsuit involving the Insured, the
Property or the Loan.
7.7 RELEASE OF BORROWER; DEFENSES OF BORROWER -- The Insured's execution of
a release or waiver of the right to collect any portion of the unpaid
principal balance of a Loan or other amounts due under the Loan will
release the Company from its obligation under its Certificate to the
extent and amount of said release. If, under applicable law, the
Borrower successfully asserts defenses which have the effect of
releasing, in whole or in part, the Borrower's obligation to repay the
Loan, or if for any other reason the Borrower is released from such
obligation, the Company will be released to the same extent and amount
from its liability under this Policy, except as provided by Section
7.5.
7.8 AMENDMENTS; NO WAIVER; RIGHTS AND REMEDIES; USE OF TERM "INCLUDING"
a. The Company reserves the right to amend the terms and conditions
of this Policy from time to time; provided, however, that any
such amendment will be effective only after the Company has given
the Insured written notice thereof by endorsement setting forth
the amendment. Such amendment will only be applicable to those
Certificates where the related Commitment was issued on or after
the effective date of the amendment.
b. No condition or requirement of this Policy will be deemed waived,
modified or otherwise compromised unless that waiver,
modification or compromise is stated in a writing properly
executed on behalf of the Company. Each of the conditions and
requirements of this Policy is severable, and a waiver,
modification or compromise of one will not be construed as a
waiver, modification or compromise of any other.
c. No right or remedy of the Company provided for by this Policy
will be exclusive of, or limit, any other rights or remedies set
forth in this Policy or otherwise available to the Company at law
or equity.
Form #71-7135 (8/94) Page 18
<PAGE>
d. As used in this Policy, the term "include" or "including" will
mean "include or including, without limitation."
7.9 NO AGENCY -- Neither the Insured, any Servicer or Owner, nor any of
their employees or agents, will be deemed for any reason to be agents
of the Company. Neither the Company, nor any of its employees or
agents, will be deemed for any reason to be agents of any Insured,
Servicer or Owner.
7.10 SUCCESSORS AND ASSIGNS -- This Policy will inure to the benefit of and
shall be binding upon the Company and the Insured and their respective
successors and permitted assigns.
7.11 APPLICABLE LAW AND CONFORMITY TO LAW -- All matters under this Policy
will be governed by and construed in accordance with the laws of the
jurisdiction in which the office of the original Insured on a
Certificate is located. Any provision of this Policy which is in
conflict with any provision of the law of such jurisdiction is hereby
amended to conform to the provisions required by that law.
7.12 NOTICE -- All claims, premium payments, tenders, reports, other data
and any other notices required to be submitted to the Company by the
Insured must be sent to the Company at MGIC Plaza, 250 East Kilbourn
Avenue, Milwaukee, WI 53202. The Company may change this address by
giving written notice to the Insured. Unless the Insured otherwise
notifies the Company in writing, all notices to the Insured must be
sent to the address on the face of this Policy or, if the Insured is
not located at such address, to the last known address of the Insured.
All notices under this Policy, whether or not identified in this Policy
as required to be in writing, will be effective only if in writing and
only upon receipt thereof. Written notices may instead be given in the
form of telecopy or, if acceptable to the Company (for notices given to
the Company) or to the Insured (for notices given to the Insured) in
the form of computer tape or computer-generated or any other electronic
message. A telecopy or such tape or message shall be effective only
when received. The Company and the Insured may mutually agree that
notices will be sent to any additional Person. Except as expressly
agreed to by the Company and the Insured, no liability shall be
incurred by the Company for the failure to give a notice to a Person
other than the Insured.
7.13 REPORTS AND EXAMINATIONS -- The Company may request, and the Insured
must provide, such files, reports or information as the Company may
deem necessary pertaining to any Loan, and the Company will be entitled
to inspect the files, books and records of the Insured or any of its
representatives pertaining to such Loan.
7.14 ELECTRONIC MEDIA -- The Company and the Insured may, from time to time,
deliver or transfer information, documents or other data between them
by electronic media acceptable to them. In addition, the Company and
the Insured may maintain information, documents or other data on
electronic media or other media generally accepted for business
records, including microfiche. Such electronic or other media will be
as equally acceptable for all purposes between the Insured and the
Company as information, documents or other data maintained in printed
or written form.
Form #71-7135 (8/94) Page 19
