General
The notes will be issued pursuant to an indenture and servicing agreement, among the depositor, the issuing entity, the master servicer, the special servicer, the indenture trustee, the note administrator, the operating advisor and the asset representations reviewer (the “ISA”), and will represent non-recourse obligations of the issuing entity. Under the terms of the ISA, the issuing entity will grant to the indenture trustee, for the benefit of the holders of the Secured Notes and the indenture trustee (collectively, the
“Secured Parties”) a security interest in the assets of the issuing entity to secure the obligations of the issuing entity under the ISA and the Secured Notes. The assets of the issuing entity will consist of: (1) the Mortgage Loans, the Owned Subordinate Companion Loan and all payments under and proceeds of the Mortgage Loans and the Owned Subordinate Companion Loan received after the Cut-off Date (exclusive of payments of principal and/or interest due on or before the Cut-off Date and interest relating to periods prior to, but due after, the Cut-off Date); (2) any REO Property but, with respect to any Whole Loan, only to the extent of the issuing entity’s interest in such Whole Loan; (3) those funds or assets as from time to time are deposited in the accounts discussed in “Indenture and Servicing Agreement—Accounts” (such accounts collectively, the “Securitization Accounts”) (but, with respect to any Whole Loan, only to the extent of the issuing entity’s interest in such Whole Loan), if established; (4) the rights of the mortgagee under all insurance policies with respect to its Mortgage Loans; (5) certain rights of the depositor under each mortgage loan purchase agreement relating to Mortgage Loan document delivery requirements and the representations and warranties of each mortgage loan seller regarding the Mortgage Loans it sold to the depositor; (6) rights under the Swap Contract and payments made by the swap counterparty under the Swap Contract; and (7) the Issuing Entity’s ownership interest in, and rights to, all Permitted Subsidiaries (collectively, the “Collateral”).
To the extent that amounts are insufficient to meet payments due in respect of the notes and expenses following liquidation of the Collateral, the obligations of the issuing entity to pay such deficiency will be extinguished. Generally, all payments on the notes will be junior to certain payments required to be made in respect of any Advances (and interest on Advances), the Servicing Fee, the Special Servicing Fee, the Note Administrator/Indenture Trustee Fee, the Operating Advisor Fee and the CREFC® Intellectual Property Royalty License Fee and certain other amounts (including reimbursements of Servicing Advances and interest thereon) payable in accordance with the ISA.
The Commercial Mortgage-Backed Notes, Series [SERIES DESIGNATION] will consist of the following classes: the Class [EXCH],Class [__], Class [__], [LOAN-SPECIFIC CLASS] and Class [__] notes. [THERE MAY BE OTHER CLASSES SUCH AS: (1) CLASSES THAT PROVIDE FOR THE ACCRUAL OF INTEREST AT A FIXED RATE, VARIABLE RATE OR ADJUSTABLE RATE; (2) CLASSES THAT ARE SENIOR OR SUBORDINATE TO ONE OR MORE OTHER CLASSES IN ENTITLEMENT TO CERTAIN PAYMENTS ON THE NOTES; (3) CLASSES THAT ARE PRINCIPAL ONLY NOTES ENTITLED TO PAYMENTS OF PRINCIPAL, WITH DISPROPORTIONATELY SMALL, NOMINAL OR NO PAYMENTS OF INTEREST; (4) CLASSES THAT ARE INTEREST-ONLY NOTES ENTITLED TO PAYMENTS OF INTEREST, WITH DISPROPORTIONATELY SMALL, NOMINAL OR NO PAYMENTS OF PRINCIPAL; (5) CLASSES THAT PROVIDE FOR PAYMENTS OF INTEREST ON, OR PRINCIPAL OF, THOSE NOTES THAT COMMENCE ONLY AFTER THE OCCURRENCE OF CERTAIN EVENTS, SUCH AS THE RETIREMENT OF ONE OR MORE OTHER CLASSES OF NOTES OF THAT SERIES; (6) CLASSES THAT PROVIDE FOR PAYMENTS OF PRINCIPAL OF THOSE NOTES TO BE MADE, FROM TIME TO TIME OR FOR DESIGNATED PERIODS, AT A RATE THAT IS FASTER, AND, IN SOME CASES, SUBSTANTIALLY FASTER, OR SLOWER, AND, IN SOME CASES, SUBSTANTIALLY SLOWER, THAN THE RATE AT WHICH PAYMENTS OR OTHER COLLECTIONS OF PRINCIPAL ARE RECEIVED ON THE MORTGAGE LOANS; (7) CLASSES THAT PROVIDE FOR CONTROLLED PAYMENTS OF PRINCIPAL TO BE MADE BASED ON A SPECIFIED PAYMENT SCHEDULE OR OTHER METHODOLOGY, SUBJECT TO AVAILABLE FUNDS; (8) CLASSES AS TO WHICH DEFERRED INTEREST IS ADDED TO THE PRINCIPAL BALANCE OF THE CLASS FOR A PERIOD OF TIME; AND/OR (9) CLASSES THAT PROVIDE FOR PAYMENTS BASED ON COLLECTIONS OF PREPAYMENT PREMIUMS ON THE MORTGAGE LOANS.]
The [SENIOR CLASSES] notes are referred to collectively in this prospectus as the “Senior Notes”. The [SUBORDINATE CLASSES] notes are referred to collectively in this prospectus as the “Subordinate Notes”. The notes other than the [LOAN-SPECIFIC CLASS] notes are referred to in this prospectus as the “Pooled Notes”. The Senior Notes and the Subordinate Notes (other than the Class [__] notes) are collectively referred to in this prospectus as the “Secured Notes”. The [IDENTIFY OFFERED CLASSES] notes are also referred to in this prospectus as the “Offered Notes”. The Class [A], Class [B], and Class [C] notes are collectively referred to in this prospectus as the “Exchangeable Notes”.
Upon initial issuance, the Class [EXCH] notes will have the respective Principal Balances (or, in the case of the respective classes of Exchangeable Notes, the maximum Principal Balances), shown below (in each case, subject to a variance of plus or minus [5%]):
Class | Initial Principal Balance |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
_____________________
| (1) | The Exchangeable Notes may be exchanged for Class [EXCH] notes, and Class [EXCH] notes may be exchanged for the Exchangeable Notes. |
| (2) | The initial Principal Balance of each class of Exchangeable Notes shown in the table on the cover page of this prospectus, in the table above and on the back cover of this prospectus represents the maximum Principal Balance of such class without giving effect to any issuance of Class [EXCH] notes. The initial Principal Balance of the Class [EXCH] notes shown in the table on the cover page of this prospectus, in the table above and on the back cover of this prospectus is equal to the aggregate of the maximum initial Principal Balances of the Exchangeable Notes, representing the maximum Principal Balance of the Class [EXCH] notes that could be issued in an exchange. The actual Principal Balance of any class of Exchangeable Notes issued on the closing date may be less than the maximum Principal Balance of that class and may be zero. The Principal Balances of the Exchangeable Notes to be issued on the closing date will be reduced, in required proportions, by an amount equal to the Principal Balance of the Class [EXCH] notes issued on the closing date. |
“Class [A] Percentage Interest” means the quotient of (x) the Principal Balance of the Class [A] Notes, divided by (y) the Principal Balance of the Class [A] Notes, assuming no exchange of Exchangeable Notes for Class [EXCH] notes has occurred. As of the closing date, the Class [A] Percentage Interest will be 100.0%.
“Class [A]-Exchange Percentage Interest” means 100.0% minus the Class [A] Percentage Interest. As of the closing date, the Class [A]-Exchange Percentage Interest will be 0.0%.
The “Principal Balance” of any class of notes outstanding at any time is the aggregate principal balance (without giving effect to any Deferred Interest Amounts) of such class outstanding at the date of determination, plus, in the case of the Class [__] notes, any Class [__] Deferred Interest Amount. On each Payment Date, the Principal Balance of each class of notes will be reduced by any payments of principal actually made on that class of notes on that Payment Date.
Exchanges of Exchangeable Notes
Exchanges
Groups of Exchangeable Notes (i.e., each of Class [A]. Class [B] and Class [C] notes) may be exchanged for Class [EXCH] notes and vice versa, in whole or in part, as described more fully below. This process may occur repeatedly. However, exchanges will no longer be permitted following the date when the then-current principal balance of the Class [A] notes are reduced to zero as a result of the payment in full of all interest and principal on that Note.
Following the closing date, Exchangeable Notes that collectively evidence a uniform Tranche Percentage Interest (such notes in the aggregate, an “Exchangeable Proportion”) will be exchangeable on the books of DTC for Class [EXCH] notes that represent the same Tranche Percentage Interest in each Exchangeable Note as the notes to be surrendered, and any Class [EXCH] notes will be exchangeable on the books of DTC for Exchangeable Notes that represent the same Tranche Percentage Interest as the Class [EXCH] notes to be surrendered. For these purposes, the “Tranche Percentage Interest” of any (i) Exchangeable Note is the ratio, expressed as a percentage, of (a) the principal balance of such Exchangeable Note to (b) the outstanding principal balance of such Exchangeable Note, assuming no exchange of Exchangeable Notes for Class [EXCH] notes has occurred, and (ii) Class [EXCH] note is the ratio, expressed as a percentage, of (a) the principal balance of such note to (b) the outstanding principal balance of such note, assuming the maximum exchange of Exchangeable Notes for Class [EXCH] notes has occurred.
For example, an investor that owns $[_______] of Class [A] notes, $[_______] of Class [B] notes, and $[_______] of Class [C] notes would be entitled to exchange such notes following the procedures described below for $[_________] of Class [EXCH] notes. Similarly, an investor that owns $[_________] of Class [EXCH] notes would be entitled to exchange such notes following the procedures described below for $[_______] of Class [A] notes, $[_______] of Class [B] notes, and $[_______] of Class [C] notes. Investors are permitted to exchange any lesser Principal Balance of such Exchangeable Notes for Class [EXCH] notes so long as such Exchangeable Notes are exchanged in the same relative proportions as described above.
There will be no limit on the number of exchanges authorized under the exchange provisions of the PSA. Subject to compliance with the exchange procedures described below under “—Procedures” and the requirement that a Noteholder is the beneficial owner of the requisite classes of notes in the required Exchange Proportion, there are no other conditions or limitations to the exchange of Exchangeable Notes. In all cases, however, an exchange may not occur if the face amount of the notes to be received in the exchange would not represent an authorized denomination for the relevant class as described under “—Delivery, Form, Transfer and Denomination” below. In addition, the depositor will have the right to make or cause exchanges on the closing date pursuant to instructions delivered to the note administrator on the closing date.
The various amounts distributable on the Class [EXCH] notes on each Payment Date in respect of Interest Payment Amounts, Principal Payment Amounts and yield maintenance charges allocated to any of the respective Tranche Percentage Interests in the Exchangeable Notes will be so distributed in a single, aggregate payment to the holders of the Class [EXCH] notes on such Payment Date. In addition, the Class [EXCH] notes will be allocated the aggregate amount of Defaulted Interest Amounts and other interest shortfalls (including those resulting from Appraisal Reduction Events) corresponding to the Tranche Percentage Interests in the Exchangeable Notes represented by the Class [EXCH] notes. See ”—Payments” below.
For a discussion of the federal income tax consequences of the acquisition, ownership and disposition of the Exchangeable Notes, see “Material Federal Income Tax Considerations—Taxation of Class [EXCH] and Exchangeable Notes”.
Procedures
If a Noteholder wishes to exchange Exchangeable Notes for Class [EXCH] notes, or Class [EXCH] notes for Exchangeable Notes, such Noteholder must notify the note administrator by e-mail at [____] no later than three business days prior to the proposed date of such exchange (the “Exchange Date”). The Exchange Date can be any business day other than the first or last business day of the month. In addition, the Noteholder must provide notice on the Noteholder’s letterhead, which notice must carry a medallion stamp guarantee and set forth the following information: the CUSIP numbers of the Exchangeable Notes to be exchanged and received, the original and outstanding Principal Balance of the Exchangeable Notes to be exchanged and received, the Noteholder’s DTC participant number and the proposed Exchange Date. The Noteholder and the note administrator will utilize the “deposit and
withdrawal system” at DTC to effect the exchange. In addition, the Noteholder will deliver an opinion of national tax counsel experienced in such matters and reasonably satisfactory to the note administrator, the depositor and the issuing entity that such exchange will not cause the issuing entity to fail to qualify as a Qualified REIT Subsidiary.
The aggregate principal and interest entitlements of the notes received must equal the aggregate entitlements of the notes surrendered. The notice of exchange will become irrevocable on the 2nd business day before the proposed Exchange Date.
The first payment on an Exchangeable Note or Class [EXCH] notes will be made in the month following the month of exchange to the Noteholder of record as of the applicable Record Date for such note. Neither the note administrator nor the depositor will have any obligation to ensure the availability of the applicable notes to accomplish any exchange.
Payments on the Notes
Method, Timing and Amount
Payments on the notes are required to be made by the note administrator, to the extent of available funds as described in this prospectus, on the [__] business day following each Determination Date (each, a “Payment Date”). The “Determination Date” will be the [__] day of each calendar month (or, if the [__] calendar day of that month is not a business day, then the next business day) commencing in [______].
All payments (other than the final payment on any note) are required to be made to the Noteholders in whose names the notes are registered at the close of business on each Record Date. With respect to any Payment Date, the “Record Date” will be the [last business day of the month preceding the month in which that Payment Date occurs]. These payments are required to be made by wire transfer in immediately available funds to the account specified by the Noteholder at a bank or other entity having appropriate facilities to accept such funds, if the Noteholder has provided the note administrator with written wiring instructions no less than five business days prior to the related Record Date (which wiring instructions may be in the form of a standing order applicable to all subsequent payments) or otherwise by check mailed to the Noteholder. The final payment on any note is required to be made in like manner, but only upon presentation and surrender of the note at the location that will be specified in a notice of the pendency of the final payment. All payments made with respect to a class of notes will be allocated pro rata among the outstanding notes of that class based on their respective Percentage Interests.
The “Percentage Interest” evidenced by any note will equal its initial denomination as of the closing date divided by the initial Principal Balance of the related class. For these purposes on any date of determination, the “initial denomination as of the closing date” of any Exchangeable Note or any Class [EXCH] note received in an exchange will be determined as if such note was part of the related class on the closing date, the “initial denomination as of the closing date” of any Exchangeable Note or any Class [EXCH] note surrendered in an exchange will be determined as if such note was not part of the related class on the closing date and the initial Principal Balance of the related class of Exchangeable Notes or Class [EXCH] notes will be determined as if such class consisted only of the notes composing the class on that date of determination and such notes had been outstanding as of the closing date.
The master servicer is authorized but not required to direct the investment of funds held in the Collection Account in U.S. government securities and other obligations that satisfy criteria established by the Rating Agencies (“Permitted Investments”). The master servicer will be entitled to retain any interest or other income earned on such funds and the master servicer will be required to bear any losses resulting from the investment of such funds, as provided in the ISA. The note administrator is authorized but not required to direct the investment of funds held in the Payment Account[, the Loan-Specific Payment Account,] Interest Reserve Account, the related companion payment account, the Excess Interest Payment Account and the Gain-on-Sale Reserve Account in Permitted Investments. The note administrator will be entitled to retain any interest or other income earned on such funds and the note administrator will be required to bear any losses resulting from the investment of such funds, as provided in the ISA.
Available Funds
The aggregate amount available for payment to holders of the notes (other than the [LOAN-SPECIFIC CLASS] notes) on each Payment Date (the “Available Funds”) will, in general, equal the sum of the following amounts (without duplication):
(a) the aggregate amount of all cash received on the Mortgage Loans (in the case of the Non-Serviced Mortgage Loan, only to the extent received by the issuing entity pursuant to the Non-Serviced Servicing Agreement) and any REO Property that is on deposit in the Collection Account (in each case, exclusive of any amount on deposit in or credited to any portion of the Collection Account that is held for the benefit of the holder of any related Companion Loan), as of the Remittance Date, exclusive of (without duplication):
| • | all scheduled payments of principal and/or interest and any balloon payments paid by the borrowers of a Mortgage Loan (the “Periodic Payments”), that are due on a Due Date after the end of the related Collection Period, excluding interest relating to periods prior to, but due after, the Cut-off Date; |
| • | all unscheduled payments of principal (including prepayments), unscheduled interest, net liquidation proceeds, net insurance proceeds and net condemnation proceeds and other unscheduled recoveries received subsequent to the related Determination Date (or, with respect to voluntary prepayments of principal of each Mortgage Loan with a Due Date occurring after the related Determination Date, subsequent to the related Due Date) allocable to the Mortgage Loans; |
| • | all amounts in the Collection Account that are due or reimbursable to any person other than the Noteholders (including any out-of-pocket fees and expenses of the issuing entity, the note administrator and the indenture trustee (including legal fees and expenses) incurred in connection with an acceleration of the notes following an Event of Default, including in connection with sale and liquidation of any of the Collateral in connection with such acceleration); |
| • | [with respect to each Actual/360 Loan and any Payment Date occurring in each February and in any January occurring in a year that is not a leap year (unless such Payment Date is a Redemption Date, the Stated Maturity Date or a Payment Date following an acceleration of the notes as a result of the occurrence and continuation of an Event of Default), the related Withheld Amount to the extent those funds are on deposit in the Collection Account;] |
| • | [all Excess Interest allocable to the Mortgage Loans (which is separately distributed to the Class [ARD] notes)]; |
| • | [all yield maintenance charges and prepayment premiums;] |
| • | all amounts deposited in the Collection Account in error; and |
| • | any late payment charges or accrued interest on a Mortgage Loan allocable to the default interest rate for such Mortgage Loan, to the extent permitted by law, excluding any interest calculated at the Mortgage Rate for the related Mortgage Loan; |
(b) if and to the extent not already included in clause (a), the aggregate amount transferred from the REO Account allocable to the Mortgage Loans to the Collection Account for such Payment Date;
(c) all Compensating Interest Payments made by the master servicer with respect to the Mortgage Loans with respect to such Payment Date and P&I Advances made by the master servicer or the indenture trustee, as applicable, with respect to the Payment Date (net of certain amounts that are due or reimbursable to persons other than the Noteholders); and
(d) [with respect to each Actual/360 Loan and any Payment Date occurring in each March (and any Redemption Date, the Stated Maturity Date or a Payment Date following an acceleration of the notes as a result of the occurrence and continuation of an Event of Default), the related Withheld Amounts as required to be deposited in the Payment Account pursuant to the ISA].
The “Collection Period” for each Payment Date and any Mortgage Loan (including any Companion Loan) will be the period commencing on the day immediately following the Due Date for such Mortgage Loan (including any Companion Loan) in the month preceding the month in which that Payment Date occurs or the date that would have been the Due Date if such Mortgage Loan (including any Companion Loan) had a Due Date in such preceding month and ending on and including the Due Date for such Mortgage Loan (including any related Companion Loan) occurring in the month in which that Payment Date occurs. Notwithstanding the foregoing, in the event that the last day of a Collection Period (or applicable grace period) is not a business day, any Periodic Payments received with respect to Mortgage Loans (including any Companion Loan) relating to such Collection Period on the business day immediately following such day will be deemed to have been received during such Collection Period and not during any other Collection Period.
“Due Date” means, with respect to each Mortgage Loan (including any Companion Loan), the date on which scheduled payments of principal, interest or both are required to be made by the related borrower.
Priority of Payments
On each Payment Date, the note administrator is required to apply amounts on deposit in the Payment Account [(excluding amounts relating to the Owned Subordinate Companion Loan)], to the extent of the Available Funds, in the following order of priority (the “Priority of Payments”):
First, to the [INTEREST-ONLY CLASS] notes, in respect of interest, up to an amount equal to the sum of (i) the Interest-Only Note Monthly Payment and (ii) any unpaid [INTEREST-ONLY CLASS] Defaulted Interest Amount;
Second, to the [APPLICABLE SENIOR CLASSES] notes, in respect of interest, up to an amount equal to, and pro rata in accordance with, the respective Interest Payment Amounts for those classes;
Third, to the [APPLICABLE SENIOR CLASSES] notes, in reduction of the Principal Balances of those classes, in the following priority:
(i) [INSERT PRINCIPAL PAYMENT PRIORITIES FOR THE SENIOR CLASSES]
Fourth, concurrently to (i) the Class [A] notes, in respect of interest, up to an amount equal to the Class [A] Percentage Interest multiplied by the aggregate Interest Payment Amount with respect to the Class [A] notes (assuming no exchange of Exchangeable Notes for Class [EXCH] notes has occurred), and (ii) the Class [EXCH] notes, in respect of interest, up to an amount equal to the Class [A]-Exchange Percentage Interest, multiplied by the aggregate Intrest Payment Amount with respect to the Class [A] notes (assuming no exchange of Exchangeable Notes for Class [EXCH] notes has occurred), pro rata in proportion to their respect percentage interests in such Interest Payment Amount;
Fifth, after the Principal Balances of the [APPLICABLE SENIOR CLASSES] have been reduced to zero, concurrently to (i) the Class [A] notes, in reduction of their Principal Balance, up to an amount equal to the Class [A] Percentage Interest multiplied by the Principal Payment Amount for such Payment Date, less the portion of such Principal Payment Amount distributed pursuant to all prior clauses, and (ii) the Class [EXCH] notes, in reduction of their Principal Balance, up to an amount equal to the Class [A]-Exchange Percentage Interest multiplied by the Principal Payment Amount for such Payment Date, less the portion of such Principal Payment Amount distributed pursuant to all prior clauses, pro rata in proportion to their respect percentage interests in such Principal Payment Amount, until the Principal Balance of each such class is reduced to zero;
Sixth, [ADD CLAUSES SIMILAR TO CLAUSES FOURTH AND FIFTH FOR OTHER EXCHANGEABLE CLASSES]
Seventh, to the Class [NON-DEFERRABLE INTEREST NOTES] notes, in respect of interest, up to an amount equal to the Interest Payment Amount of such class;
Eighth, to the Class [NON-DEFERRABLE INTEREST NOTES] notes, in reduction of the Principal Balance of such class, up to an amount equal to the Principal Payment Amount for such Payment Date, less the portion of such Principal Payment Amount distributed pursuant to all prior clauses, until the Principal Balance of such class is reduced to zero;
Ninth, to the Class [DEFERRABLE INTEREST NOTES] notes, in respect of interest, up to an amount equal to the Interest Payment Amount of such class;
Tenth, to the Class [DEFERRABLE INTEREST NOTES] notes, [in respect of interest,] in reduction of the Principal Balance of such class, up to an amount equal to the Deferred Interest Amount for such class;
Eleventh, to the Class [DEFERRABLE INTEREST NOTES] notes, in reduction of the Principal Balance of such class (including any Deferred Interest Amount), up to an amount equal to Principal Payment Amount for such Payment Date, less the portion of such Principal Payment Amount distributed pursuant to all prior clauses, until the Principal Balance of such class is reduced to zero;
Twelfth, [ADD CLAUSES SIMILAR TO CLAUSES SEVENTH, EIGHTH, NINTH, TENTH AND/OR ELEVENTH FOR OTHER SUBORDINATE CLASSES THAT ARE NOT EXCHANGEABLE CLASSES OTHER THAN THE MOST SUBORDINATE CLASS OF NOTES]; and
Thirteenth, to the Class [THE MOST SUBORDINATE CLASS OF NOTES] notes, any remaining amounts.
Interest Rates
The interest rate (the “Interest Rate”) applicable to each class of notes (other than the [LOAN-SPECIFIC CLASS] notes and the Class [ARD] notes) for any Payment Date will equal the rates set forth below:
The interest rate on the [IDENTIFY APPLICABLE CLASS] notes will be a per annum rate equal to [ ]%.
The Class [EXCH] notes will have an Interest Rate equal to the weighted average of the Interest Rate of each of the Exchangeable Notes, weighted in in proportion to their Tranche Percentage Interest.
The Class [MOST SUBORDINATE CLASS] notes will not have an Interest Rate. The holders of the Class [MOST SUBORDINATE CLASS] notes will be entitled to receive monthly payments on each Payment Date if and to the extent of any remaining Available Funds on deposit in the Payment Account after payments to the other notes in accordance with the Priority of Payments.
The Class [ARD] notes will not have an Interest Rate or be entitled to payments in respect of interest other than Excess Interest, if any, with respect to the ARD Loan.
[IF ANY CLASSES ARE FLOATING RATE CLASSES, INFORMATION WILL BE PROVIDED AS TO THE INDEX USED TO CALCULATE THE FLOATING RATE OF INTEREST, SUCH LIBOR, PRIME RATE, COMMERCIAL PAPER RATE, CONSTANT MATURITY TREASURY SECURITY RATE, FEDERAL FUNDS RATE, AND/OR TREASURY BILL RATE]
Interest Payment Amount
The “Interest Payment Amount” with respect to any Payment Date and each class of notes (other than the [LOAN-SPECIFIC CLASS] notes, the [INTEREST-ONLY CLASS] notes and the Class [ARD] notes) will equal the sum of (i) the Interest Accrual Amount with respect to such class for such Payment Date, (ii) with respect to each Class of Notes other than Deferrable Interest Notes, the Defaulted Interest Amount, if any, with respect to such class for such Payment Date, and (iii) with respect to each class of Deferrable Interest Notes (but only for so long as no class of notes more senior to such class of Deferrable Interest Notes remains outstanding), the Defaulted Interest Amount, if any, with respect to such class for such Payment Date.
The “Interest Accrual Amount” with respect to any Payment Date and any class of notes (other than the [LOAN-SPECIFIC CLASS] notes, the [INTEREST-ONLY CLASS] notes and the Class [ARD] notes) is equal to interest for the related Interest Accrual Period accrued at the Interest Rate for such class on the Principal Balance for such class immediately prior to that Payment Date. Calculations of interest for each Interest Accrual Period will be made on a [30/360 Basis], except that interest on the [LOAN-SPECIFIC CLASS] notes will be calculated on an [Actual/360 Basis]. [THERE MAY BE OTHER INTEREST CALCULATION CONVENTIONS, SUCH AS ACTUAL/365, AND ACTUAL/ACTUAL]
The “Interest Accrual Period” for each Payment Date will [be the calendar month prior to the month in which that Payment Date occurs][commence on the [__]th day of the calendar month preceding the Payment Date and end on the [__]th day of the calendar month including the Payment Date].
An “Defaulted Interest Amount” with respect to any Payment Date for any class of notes (other than the [LOAN-SPECIFIC CLASS] notes, [INTEREST-ONLY CLASS] notes and the Class [ARD] notes) is the sum of (a) the portion of the Interest Payment Amount for such class remaining unpaid as of the close of business on the preceding Payment Date, and (b) to the extent permitted by applicable law, one month’s interest on that amount remaining unpaid at the Interest Rate applicable to such class for the current Payment Date.
The [INTEREST-ONLY CLASS] notes will be entitled to a periodic payment of interest in the amount of $[____] (the “Interest-Only Note Monthly Payment”) on each Payment Date, commencing on the Payment Date in [DATE] through and including the Payment Date in [DATE].
Any shortfall in the payment of the [INTEREST-ONLY CLASS] Monthly Payment to the [INTEREST-ONLY CLASS] 'Notes on any Payment Date will be payable, together with interest thereon at the rate of [__]% per annum, [calculated on the basis of a year of 360 days consisting of twelve 30-day months] (the “[INTEREST-ONLY CLASS] Defaulted Interest Amount”) on one or more subsequent Payment Dates. The [INTEREST-ONLY CLASS] Defaulted Interest Amount will constitute interest on the [INTEREST-ONLY CLASS] Notes.
Principal Payment Amount
The “Principal Payment Amount” for any Payment Date will be equal to the sum of the following amounts:
(a) the Principal Shortfall for that Payment Date,
(b) the Scheduled Principal Payment Amount for that Payment Date, and
(c) the Unscheduled Principal Payment Amount for that Payment Date;
provided that the Principal Payment Amount for any Payment Date will be reduced, to not less than zero, by the amount of any reimbursements of:
(A) Nonrecoverable Advances (including any servicing advance with respect to the Non-Serviced Mortgage Loan under the Non-Serviced Servicing Agreement reimbursed out of general collections
on the Mortgage Loans), with interest on such Nonrecoverable Advances at the Reimbursement Rate, that are paid or reimbursed from principal collections on the Mortgage Loans in a period during which such principal collections would have otherwise been included in the Principal Payment Amount for such Payment Date, and
(B) Workout-Delayed Reimbursement Amounts paid or reimbursed from principal collections on the Mortgage Loans in a period during which such principal collections would have otherwise been included in the Principal Payment Amount for such Payment Date,
provided, further, that in the case of clauses (A) and (B) above, if any of the amounts that were reimbursed from principal collections on the Mortgage Loans (including REO Loans) are subsequently recovered on the related Mortgage Loan (or REO Loan), such recovery will increase the Principal Payment Amount for the Payment Date related to the period in which such recovery occurs.
The “Scheduled Principal Payment Amount” for each Payment Date will equal the aggregate of the principal portions of (a) all Periodic Payments (excluding balloon payments) with respect to the Mortgage Loans due during or, if and to the extent not previously received or advanced and distributed to Noteholders on a preceding Payment Date, prior to the related Collection Period and all Assumed Scheduled Payments with respect to the Mortgage Loans for the related Collection Period, in each case to the extent paid by the related borrower as of the related Determination Date (or, with respect to each Mortgage Loan with a Due Date occurring, or a grace period ending, after the related Determination Date, the related Due Date or, last day of such grace period, as applicable, to the extent received by the master servicer as of the business day preceding the Remittance Date) or advanced by the master servicer or the indenture trustee, as applicable, and (b) all balloon payments with respect to the Mortgage Loans to the extent received on or prior to the related Determination Date (or, with respect to each Mortgage Loan with a Due Date occurring, or a grace period ending, after the related Determination Date, the related Due Date or, last day of such grace period, as applicable, to the extent received by the master servicer as of the business day preceding the Remittance Date), and to the extent not included in clause (a) above. The Scheduled Principal Payment Amount from time to time will include all late payments of principal made by a borrower with respect to the Mortgage Loans, including late payments in respect of a delinquent balloon payment, received by the times described above in this definition, except to the extent those late payments are otherwise available to reimburse the master servicer or the indenture trustee, as the case may be, for prior Advances, as described above.
The “Unscheduled Principal Payment Amount” for each Payment Date will equal the aggregate of the following: (a) all prepayments of principal received on the Mortgage Loans as of the Determination Date; and (b) any other collections (exclusive of payments by borrowers) received on the Mortgage Loans and any REO Properties on or prior to the related Determination Date whether in the form of Liquidation Proceeds, Insurance and Condemnation Proceeds, net income, rents, and profits from REO Property or otherwise, that were identified and applied by the master servicer as recoveries of previously unadvanced principal of the related Mortgage Loan; provided that all such Liquidation Proceeds and Insurance and Condemnation Proceeds will be reduced by any unpaid Special Servicing Fees, Liquidation Fees, any amount related to the Loss of Value Payments to the extent that such amount was transferred into the Collection Account during the related collection period, accrued interest on Advances and other additional administrative expenses incurred in connection with the related Mortgage Loan, thus reducing the Unscheduled Principal Payment Amount.
The “Assumed Scheduled Payment” for any Collection Period and with respect to any Mortgage Loan (including the Non-Serviced Mortgage Loan) or Owned Subordinate Companion Loan, as the case may be, that is delinquent in respect of its balloon payment or any REO Loan (excluding, for purposes of any P&I Advances, the portion allocable to any related Companion Loan), is an amount equal to the sum of (a) the principal portion of the Periodic Payment that would have been due on such Mortgage Loan or REO Loan on the related Due Date based on the constant payment required by such related Mortgage Note or the original amortization schedule of the Mortgage Loan or Owned Subordinate Companion Loan, as the case may be (as calculated with interest at the related Mortgage Rate), if applicable, assuming the related balloon payment has not become due, after giving effect to any reduction in the principal balance occurring in connection with a modification, a default or a bankruptcy modification (or similar proceeding),
and (b) interest on the Stated Principal Balance of that Mortgage Loan, Owned Subordinate Companion Loan or REO Loan (excluding, for purposes of any P&I Advances, the portion allocable to any related Companion Loan) at its Mortgage Rate (net of interest at the applicable rate at which the Servicing Fee is calculated).
The “Principal Shortfall” for any Payment Date means the amount, if any, by which (1) the Principal Payment Amount for the prior Payment Date exceeds (2) the aggregate amount actually distributed on the preceding Payment Date in respect of such Principal Payment Amount.
Certain Calculations with Respect to Individual Mortgage Loans
The “Stated Principal Balance” of each Mortgage Loan and Owned Subordinate Companion Loan will initially equal its Cut-off Date Balance and, on each Payment Date, will be reduced by the amount of principal payments received on such Mortgage Loan or Owned Subordinate Companion Loan or advanced for such Payment Date. With respect to any Companion Loan on any date of determination, the Stated Principal Balance will equal the unpaid principal balance of such Companion Loan as of such date. With respect to any Whole Loan on any date of determination, the Stated Principal Balance of such Whole Loan will be the sum of the Stated Principal Balance of the related Mortgage Loan and each related Companion Loan on such date. The Stated Principal Balance of a Mortgage Loan, Whole Loan or Owned Subordinate Companion Loan may also be reduced in connection with any modification that reduces the principal amount due on such Mortgage Loan, Owned Subordinate Companion Loan or Whole Loan, as the case may be, or any forced reduction of its actual unpaid principal balance imposed by a court presiding over a bankruptcy proceeding in which the related borrower is the debtor. See “Certain Legal Aspects of Mortgage Loans”. If any Mortgage Loan, Whole Loan or Owned Subordinate Companion Loan is paid in full or the Mortgage Loan, Whole Loan or Owned Subordinate Companion Loan (or any Mortgaged Property acquired in respect of the Mortgage Loan, Whole Loan or Owned Subordinate Companion Loan) is otherwise liquidated, then, as of the first Payment Date that follows the end of the Collection Period in which that payment in full or liquidation occurred and notwithstanding that a loss may have occurred in connection with any liquidation, the Stated Principal Balance of the Mortgage Loan, Whole Loan or Owned Subordinate Companion Loan will be zero.
For purposes of calculating allocations of Notional Losses, as well as for purposes of calculating the Servicing Fee and Note Administrator/Indenture Trustee Fee payable each month, each REO Property (including any REO Property with respect to the Non-Serviced Mortgage Loan held pursuant to the Non-Serviced Servicing Agreement) will be treated as if there exists with respect to such REO Property an outstanding Mortgage Loan and, if applicable, each related Companion Loan (an “REO Loan”), and all references to Mortgage Loan or Companion Loan and pool of Mortgage Loans in this prospectus, when used in that context, will be deemed to also be references to or to also include, as the case may be, any REO Loans. Each REO Loan will generally be deemed to have the same characteristics as its actual predecessor Mortgage Loan (including related Companion Loan), including the same fixed Mortgage Rate and the same unpaid principal balance and Stated Principal Balance. Amounts due on the predecessor Mortgage Loan (including related Companion Loan) including any portion of it payable or reimbursable to the master servicer, the special servicer, the operating advisor, the asset representations reviewer, the note administrator or the indenture trustee, as applicable, will continue to be “due” in respect of the REO Loan; and amounts received in respect of the related REO Property, net of payments to be made, or reimbursement to the master servicer or special servicer for payments previously advanced, in connection with the operation and management of that property, generally will be applied by the master servicer as if received on the predecessor Mortgage Loan, Owned Subordinate Companion Loan or related Companion Loan.
With respect to each Serviced Whole Loan, no amounts relating to the related REO Property or REO Loan allocable to any related Companion Loan will be available for amounts due to the Noteholders or to reimburse the issuing entity, other than in the limited circumstances related to Servicing Advances, indemnification, Special Servicing Fees and other reimbursable expenses related to such Serviced Whole Loan incurred with respect to such Serviced Whole Loan in accordance with the ISA.
With respect to an AB Whole Loan, no amounts relating to the related REO Property or REO Loan allocable to the Subordinate Companion Loan will be available for amounts due to the holders of the Pooled Notes, other than indirectly in the limited circumstances related to reimbursement of Servicing Advances, indemnification, Special Servicing Fees and other reimbursable expenses related to an AB Whole Loan incurred with respect to an AB Whole Loan in accordance with the ISA.
Deferred Interest
[REFERENCES TO SPECIFIC CLASSES OF NOTES BELOW ARE PROVIDED FOR ILLUSTRATIVE PURPOSES]So long as any Class [A] notes are outstanding, any interest due on the Class [B] notes that is not paid as a result of the operation of the Priority of Payments on any Payment Date (any such interest, the “Class [B] Deferred Interest Amount”) will be deferred and added to the Principal Balance of the Class [B] notes, and will not be considered “due and payable” until the earliest of (i) the first Payment Date on which funds are available to pay such Class [B] Deferred Interest Amount in accordance with the Priority of Payments, (ii) the Redemption Date with respect to such class of notes, [and] (iii) the Stated Maturity Date (or the earlier date of maturity) with respect to such class of notes, [and (iv) the [ ][th][st] Payment Date following the initial Payment Date with respect to which such Class [B] Deferred Interest Amount began to accrue].
The “Deferrable Interest Notes” means the Class [B] and Class [ ] notes.
The “Deferred Interest Amount” means, (i) with respect to the Class [B] notes, the Class [B] Deferred Interest Amount, and (ii) with respect to the Class [ ] notes, the Class [ ] Deferred Interest Amount.
Excess Interest
On each Payment Date, the note administrator is required to distribute any Excess Interest received with respect to the ARD Loan on or prior to the related Determination Date to the holders of the Class [ARD] notes. Excess Interest will not be available to make payments to any other class of notes or to provide credit support for other classes of notes or offset any interest shortfalls or to pay any other amounts to any other party under the ISA.
Application Priority of Mortgage Loan Collections or Whole Loan Collections
Absent express provisions in the related Mortgage Loan documents (and, with respect to each Serviced Whole Loan, the related Intercreditor Agreement), all amounts collected by or on behalf of the issuing entity in respect of any Mortgage Loan in the form of payments from the related borrower, Liquidation Proceeds, condemnation proceeds or insurance proceeds (excluding, if applicable, in the case of each Serviced Whole Loan, any amounts payable to the holder of the related Companion Loan(s) pursuant to the related Intercreditor Agreement) will be deemed to be allocated for purposes of collecting amounts due under the Mortgage Loan, pursuant to the ISA, in the following order of priority:
First, as a recovery of any unreimbursed Advances (including any Workout-Delayed Reimbursement Amount) with respect to the related Mortgage Loan and unpaid interest at the Reimbursement Rate on such Advances and, if applicable, unreimbursed and unpaid expenses of the issuing entity;
Second, as a recovery of Nonrecoverable Advances and any interest on those Nonrecoverable Advances at the Reimbursement Rate, to the extent previously paid or reimbursed from principal collections on the Mortgage Loans (as described in the first proviso in the definition of Principal Payment Amount);
Third, to the extent not previously allocated pursuant to clause First, as a recovery of accrued and unpaid interest on such Mortgage Loan (exclusive of default interest and Excess Interest) to the extent of the excess of (i) accrued and unpaid interest on such Mortgage Loan at the related Mortgage Rate in effect from time to time through the end of the applicable mortgage interest accrual period, over (ii) the cumulative amount of the reductions (if any) in the amount of related P&I
Advances for such Mortgage Loan that have occurred in connection with related Appraisal Reduction Amounts (to the extent collections have not been allocated as recovery of accrued and unpaid interest pursuant to clause Fifth below on earlier dates);
Fourth, to the extent not previously allocated pursuant to clause First, as a recovery of principal of such Mortgage Loan then due and owing, including by reason of acceleration of such Mortgage Loan following a default thereunder (or, if the Mortgage Loan has been liquidated, as a recovery of principal to the extent of its entire remaining unpaid principal balance);
Fifth, as a recovery of accrued and unpaid interest on such Mortgage Loan to the extent of the cumulative amount of the reductions (if any) in the amount of related P&I Advances for such Mortgage Loan that have occurred in connection with related Appraisal Reduction Amounts (to the extent collections have not been allocated as recovery of accrued and unpaid interest pursuant to this clause Fifth on earlier dates);
Sixth, as a recovery of amounts to be currently allocated to the payment of, or escrowed for the future payment of, real estate taxes, assessments and insurance premiums and similar items relating to such Mortgage Loan;
Seventh, as a recovery of any other reserves to the extent then required to be held in escrow with respect to such Mortgage Loan;
Eighth, as a recovery of any yield maintenance charge or prepayment premium then due and owing under such Mortgage Loan;
Ninth, as a recovery of any late payment charges and default interest and Excess Interest then due and owing under such Mortgage Loan;
Tenth, as a recovery of any assumption fees and Modification Fees then due and owing under such Mortgage Loan;
Eleventh, as a recovery of any other amounts then due and owing under such Mortgage Loan other than remaining unpaid principal (if both consent fees and Operating Advisor Consulting Fees are due and owing, first, allocated to consent fees and then, allocated to Operating Advisor Consulting Fees);
Twelfth, as a recovery of any remaining principal of such Mortgage Loan to the extent of its entire remaining unpaid principal balance; and
Thirteenth, in the case of an ARD Loan after the related Anticipated Repayment Date, any accrued but unpaid Excess Interest.
Collections by or on behalf of the issuing entity in respect of any REO Property (exclusive of the amounts to be allocated to the payment of the costs of operating, managing, leasing, maintaining and disposing of such REO Property and, if applicable, in the case of each Serviced Whole Loan, exclusive of any amounts payable to the holder of the related Companion Loan(s), as applicable, pursuant to the related Intercreditor Agreement) will be deemed to be allocated for purposes of collecting amounts due under the Mortgage Loan, pursuant to the ISA, in the following order of priority:
First, as a recovery of any unreimbursed Advances (including any Workout-Delayed Reimbursement Amount) with respect to the related Mortgage Loan and interest at the Reimbursement Rate on all Advances and, if applicable, unreimbursed and unpaid expenses of the issuing entity with respect to the related Mortgage Loan;
Second, as a recovery of Nonrecoverable Advances and any interest on those Nonrecoverable Advances at the Reimbursement Rate, to the extent previously paid or reimbursed from principal collections on the Mortgage Loans (as described in the first proviso in the definition of Principal Payment Amount);
Third, to the extent not previously allocated pursuant to clause First, as a recovery of accrued and unpaid interest on such Mortgage Loan (exclusive of default interest and Excess Interest) to the extent of the excess of (i) accrued and unpaid interest on such Mortgage Loan at the applicable Mortgage Rate in effect from time to time through the end of the applicable mortgage interest accrual period, over (ii) the cumulative amount of the reductions (if any) in the amount of related P&I Advances for such Mortgage Loan that have occurred in connection with related Appraisal Reduction Amounts (to the extent collections have not been allocated as a recovery of accrued and unpaid interest pursuant to clause Fifth below on earlier dates);
Fourth, to the extent not previously allocated pursuant to clause First, as a recovery of principal of such Mortgage Loan to the extent of its entire unpaid principal balance;
Fifth, as a recovery of accrued and unpaid interest on such Mortgage Loan to the extent of the cumulative amount of the reductions (if any) in the amount of related P&I Advances for such Mortgage Loan that have occurred in connection with related Appraisal Reduction Amounts (to the extent collections have not been allocated as recovery of accrued and unpaid interest pursuant to this clause Fifth on earlier dates);
Sixth, as a recovery of any yield maintenance charge or prepayment premium then due and owing under such Mortgage Loan;
Seventh, as a recovery of any late payment charges and default interest and Excess Interest then due and owing under such Mortgage Loan;
Eighth, as a recovery of any assumption fees and Modification Fees then due and owing under such Mortgage Loan;
Ninth, as a recovery of any other amounts then due and owing under such Mortgage Loan other than remaining unpaid principal (if both consent fees and Operating Advisor Consulting Fees are due and owing, first, allocated to consent fees and then, allocated to Operating Advisor Consulting Fees); and
Tenth, in the case of an ARD Loan after the related Anticipated Repayment Date, any accrued but unpaid Excess Interest.
Allocation of Yield Maintenance Charges and Prepayment Premiums
On each Payment Date, yield maintenance charges, if any, collected in respect of the Mortgage Loans during the related Collection Period will be required to be distributed by the note administrator to the holders of each class of notes (excluding the [APPLICABLE CLASSES] notes) in the following manner: [SPECIFY ALLOCATION METHODOLOGY].
No yield maintenance charge will be distributed to the holders of the [APPLICABLE CLASSES] or Class [ARD] notes. After the Principal Balances of the [APPLICABLE CLASSES] notes have been reduced to zero, all yield maintenance charges with respect to the Mortgage Loans will be distributed to the holders of the Class [MOST SUBORDINATE] notes, regardless of whether the Principal Balance of such class of notes has been reduced to zero.
Any yield maintenance charges payable in respect of the Owned Subordinate Companion Loan will be distributed to the [LOAN-SPECIFIC CLASS] notes.
For a description of yield maintenance charges, see “Description of the Mortgage Pool—Certain Terms of the Mortgage Loans” and “Certain Legal Aspects of Mortgage Loans—Default Interest and Limitations on Prepayments”.
Prepayment Interest Shortfalls
If a borrower prepays a Mortgage Loan or Serviced Whole Loan in whole or in part, after the due date but on or before the Determination Date in any calendar month, the amount of interest (net of related Servicing Fees and any Excess Interest) accrued on such prepayment from such due date to, but not including, the date of prepayment (or any later date through which interest accrues) will, to the extent actually collected (without regard to any prepayment premium or yield maintenance charge actually collected) constitute a “Prepayment Interest Excess”. Conversely, if a borrower prepays a Mortgage Loan or Serviced Whole Loan (with such prepayment allocated between the related Mortgage Loan and Serviced Companion Loan in accordance with the related Intercreditor Agreement) in whole or in part after the Determination Date (or, with respect to each Mortgage Loan or Serviced Companion Loan, as applicable, with a due date occurring after the related Determination Date, the related Due Date) in any calendar month and does not pay interest on such prepayment through the following Due Date, then the shortfall in a full month’s interest (net of related Servicing Fees and any Excess Interest) on such prepayment will constitute a “Prepayment Interest Shortfall”. Prepayment Interest Shortfalls for each Payment Date with respect to the AB Whole Loan will generally be allocated first to the related Subordinate Companion Loan and then to the related Mortgage Loan. Prepayment Interest Excesses (to the extent not offset by Prepayment Interest Shortfalls or required to be paid as Compensating Interest Payments) collected on the Mortgage Loans (other than the Non-Serviced Mortgage Loan) and any related Serviced Companion Loan, will be retained by the master servicer as additional servicing compensation.
The master servicer will be required to deliver to the note administrator for deposit in the Payment Account (other than the portion of any Compensating Interest Payment described below that is allocable to a Serviced Companion Loan) on each Remittance Date, without any right of reimbursement thereafter, a cash payment (a “Compensating Interest Payment”) in an amount, with respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) and any related Serviced Pari Passu Companion Loan, equal to the lesser of:
| (i) | the aggregate amount of Prepayment Interest Shortfalls incurred in connection with voluntary principal prepayments received in respect of the Mortgage Loans (other than the Non-Serviced Mortgage Loan) and any related Serviced Pari Passu Companion Loan (in each case other than a Specially Serviced Loan or a Mortgage Loan or any related Serviced Pari Passu Companion Loan on which the special servicer allowed a prepayment on a date other than the applicable Due Date) for the related Payment Date, and |
| (ii) | the aggregate of (A) that portion of the master servicer’s Servicing Fees for the related Payment Date that is, in the case of each Mortgage Loan, Serviced Pari Passu Companion Loan and REO Loan for which such Servicing Fees are being paid in such Collection Period, calculated at a rate of [__]% per annum, (B) all Prepayment Interest Excesses received by the master servicer during such Collection Period with respect to the Mortgage Loans (and, so long as a Whole Loan is serviced under the ISA, any related Serviced Pari Passu Companion Loan) subject to such prepayment and (C) to the extent earned on principal prepayments, net investment earnings payable to the master servicer for such Collection Period received by the master servicer during such Collection Period with respect to the Mortgage Loan or any related Serviced Pari Passu Companion Loan, as applicable, subject to such prepayment. In no event will the rights of the Noteholders to the offset of the aggregate Prepayment Interest Shortfalls be cumulative. |
If a Prepayment Interest Shortfall occurs with respect to a Mortgage Loan as a result of the master servicer allowing the related borrower to deviate (a “Prohibited Prepayment”) from the terms of the related Mortgage Loan documents regarding principal prepayments (other than (w) the Non-Serviced Mortgage Loan, (x) subsequent to a default under the related Mortgage Loan documents or if the Mortgage Loan is a Specially Serviced Loan, (y) pursuant to applicable law or a court order or otherwise in such circumstances where the master servicer is required to accept such principal prepayment in accordance with the Servicing Standard or (z) in connection with the payment of any insurance proceeds or condemnation awards), then for purposes of calculating the Compensating Interest Payment for the
related Payment Date, master servicer will pay, without regard to clause (ii) above, the aggregate amount of Prepayment Interest Shortfalls with respect to such Mortgage Loan otherwise described in clause (i) above in connection with such Prohibited Prepayments.
With respect to the Owned Subordinate Companion Loan, the master servicer will be required to make Compensating Interest Payments in an amount equal to the lesser of: (A) the amount of Prepayment Interest Shortfall incurred in connection with voluntary principal prepayments received in respect of the Subordinate Companion Loan, so long as it is not a Specially Serviced Loan or the special servicer did not allow a prepayment on a date other than the applicable Due Date for the related Payment Date, and (B) the Servicing Fee for the Subordinate Companion Loan, and the related Payment Date (calculated at [___]% per annum).
Compensating Interest Payments with respect to the Serviced Whole Loans will be allocated among the related Mortgage Loan and the related Serviced Pari Passu Companion Loan in accordance with their respective principal amounts, and the master servicer will be required to pay the portion of such Compensating Interest Payments allocable to the related Serviced Pari Passu Companion Loan to the Non-Serviced Master Servicer.
Subordination
The rights of holders of the Subordinate Notes to receive payments of interest and principal, as applicable, will be subordinated, to the extent described in this prospectus, to such rights of the holders of the Senior Notes.
In particular:
| • | the rights of the holders of the [ALL CLASSES OF NOTES SUBORDINATE TO THE MOST SENIOR CLASS OF NOTES] notes to receive payments of interest and principal, as applicable, will be subordinated to such rights of the holders of the Senior Notes. |
| • | [PROVIDE SIMILAR DISCLOSURE FOR ALL CLASSES OF NOTES]. |
[No other form of credit support will be available for the benefit of the Offered Notes.] [IF OTHER CREDIT SUPPORT IS TO BE PROVIDED IN ADDITION TO OR IN LIEU OF SUBORDINATION, see “Description of the Derivative Instrument”.]
Allocation to the [APPLICABLE SENIOR CLASSES] notes, for so long as they are outstanding, of the entire Principal Payment Amount for each Payment Date will have the effect of reducing the aggregate Principal Balance of the [APPLICABLE CLASSES] notes at a proportionately faster rate than the rate at which the aggregate Stated Principal Balance of the pool of Mortgage Loans will decline. Therefore, as principal is distributed to the holders of the [APPLICABLE CLASSES] notes, the percentage interest in the issuing entity evidenced by the [APPLICABLE CLASSES] notes will be decreased (with a corresponding increase in the percentage interest in the issuing entity evidenced by the Subordinate Notes), thereby increasing, relative to their respective Principal Balances, the subordination afforded to the [APPLICABLE SENIOR CLASSES] notes by the Subordinate Notes.
Following retirement of the [SENIOR CLASSES] notes, the successive allocation on each Payment Date of the remaining Principal Payment Amount to the [SUBORDINATE CLASSES], in that order, for so long as they are outstanding, will provide a similar, but diminishing benefit to those notes (other than to Class [__] notes) as to the relative amount of subordination afforded by the outstanding classes of notes with later sequential designations.
A class of notes will be considered outstanding until its Principal Balance is reduced to zero, except that the Class [ARD] notes will be considered outstanding so long as holders of such notes are entitled to receive Excess Interest.
Redemption of Notes
[Tax Redemption
Subject to certain conditions described herein, the notes may be redeemed by the issuing entity, in whole but not in part, at the direction of holders of the notes evidencing a majority of the aggregate outstanding Principal Balance of the Class [MOST SUBORDINATE CLASS] notes, at their respective Redemption Prices, on the Payment Date following the occurrence of a Tax Event if the Tax Materiality Condition is satisfied (such redemption, a “Tax Redemption”).
A “Tax Event” will occur at any time that: (i) any borrower is, or on the next scheduled due date under any Mortgage Loan, will be, required to deduct or withhold from any payment under any Mortgage Loan to the issuing entity for or on account of any tax for whatever reason and such borrower is not required to pay to the issuing entity such additional amount as is necessary to ensure that the net amount actually received by the issuing entity (free and clear of taxes, whether assessed against such borrower or the issuing entity) will equal the full amount that the issuing entity would have received had no such deduction or withholding been required, (ii) any jurisdiction imposes net income, profits, or similar tax on the issuing entity or (iii) the issuing entity fails to maintain its status as a Qualified REIT Subsidiary or other disregarded entity of a REIT for U.S. federal tax purposes. Withholding taxes imposed under FATCA, if any, shall be disregarded in applying the definition of “Tax Event.”
The “Tax Materiality Condition” is a condition that will be satisfied if either (i) as a result of the occurrence of a Tax Event, a tax or taxes are imposed on the issuing entity or withheld from payments to the issuing entity and with respect to which the issuing entity receives less than the full amount that the issuing entity would have received had no such deduction occurred and such amount exceeds, in the aggregate, $1,000,000 during any 12-month period or (ii) the issuing entity fails to maintain its status as a Qualified REIT Subsidiary or other disregarded entity of a REIT for U.S. federal income tax purposes.]
[Optional Redemption
Subject to certain conditions described herein, the notes may be redeemed by the issuing entity, in whole but not in part, at the direction of holders of the notes evidencing a majority of the aggregate outstanding Principal Balance of the Class [MOST SUBORDINATE CLASS] notes, at their respective Redemption Prices, on any Payment Date after the end of the Non-call Period (such redemption, an “Optional Redemption”). “Non-call Period” means the period from the Closing Date to and including the business day immediately preceding the Payment Date in [NON-CALL PERIOD END DATE], during which the issuing entity is not permitted to exercise an Optional Redemption.]
[[INTEREST-ONLY CLASS] Special Redemption]
If (1) all Collateral is liquidated and all of the Notes are repaid prior to the Stated Maturity Date of the [INTEREST-ONLY CLASS] Notes, or (2) the aggregate outstanding Principal Balance of all of the notes as of the related Determination Date is less than 50% of the aggregate outstanding Principal Balance of all of the notes as of the Closing Date (a “[INTEREST-ONLY CLASS] Special Redemption”), the [INTEREST-ONLY CLASS] Notes will be redeemed in full and will be entitled on the related Payment Date to receive the sum of the [INTEREST-ONLY CLASS] Redemption Price and any unpaid [INTEREST-ONLY CLASS] Defaulted Interest Amount.
[Clean-up Call
The notes are redeemable by the issuing entity, in whole but not in part, at the direction of holders of the notes evidencing a majority of the aggregate outstanding Principal Balance of the Class [MOST SUBORDINATE CLASS—] notes, at a price equal to their respective Redemption Prices, on any Payment Date on or after which the aggregate outstanding Principal Balance of the Offered Notes (but excluding any deferred interest added to the aggregate outstanding Principal Balance of any class of
Deferrable Notes) has been reduced to [__]% or less of the aggregate outstanding Principal Balance of the Offered Notes on the Closing Date (such redemption, a “Clean-up Call”).]
[Tax Redemption, Optional Redemption and Clean-up Call Procedures
In connection with a Tax Redemption, an Optional Redemption or a Clean-up Call, the issuing entity, at the direction of the holders of the notes evidencing a majority of the aggregate outstanding Principal Balance of the Class [MOST SUBORDINATE CLASS—] notes, will notify the note administrator of such redemption and the applicable Redemption Date and will direct the indenture trustee, in writing, to sell, in the manner determined by the holders of the notes evidencing a majority of the aggregate outstanding Principal Balance of the Class [MOST SUBORDINATE CLASS—] notes, and in accordance with the ISA, any Mortgage Loan and upon any such sale the indenture trustee will release the lien on such Mortgage Loan pursuant to the ISA; provided, however, that the issuing entity may not direct the indenture trustee to sell (and the indenture trustee will not be obligated to release the lien on) any Mortgage Loan except in accordance with the procedures set forth in the ISA including, without limitation, the requirement that the Sale Proceeds anticipated from the disposition of the Mortgage Loan and other assets of the issuing entity will equal or exceed the following amounts: (A) the Redemption Prices of each class of notes plus (B) all administrative expenses of the issuing entity (without regard to any cap). The ISA will provide, among other things, that any sale or disposition of a Mortgage Loan by the indenture trustee in connection with a Tax Redemption, an Optional Redemption or a Clean-up Call will be performed by the Special Servicer on behalf of the issuing entity.
Notice of a redemption will be given by first class mail, postage prepaid, mailed at least ten (10) business days prior to the applicable Redemption Date to the indenture trustee, the master servicer, the special servicer, the Rating Agencies and each holder of notes to be redeemed at such holder’s address in the register maintained by the notes registrar under the ISA. If any notes are held in definitive form when called for redemption, such notes must be surrendered at the office of the note administrator.
Any such notice of an Tax Redemption, Optional Redemption or a Clean-up Call may be withdrawn by the issuing entity at the direction of holders of the notes evidencing a majority of the aggregate outstanding Principal Balance of the Class [MOST SUBORDINATE CLASS] notes up to the business day prior to the scheduled Redemption Date by written notice to the note administrator, the indenture trustee, the master servicer, the special servicer, each holder of notes to be redeemed and the Directing Holder.
As used herein, the “Redemption Date” means any Payment Date specified for a redemption of notes pursuant to, as applicable, a Tax Redemption, an Optional Redemption or a Clean-up Call.
The “Redemption Price” of a class of notes on a Redemption Date will be calculated as follows:
| • | Class [__] Notes. The redemption price for the Class [__] notes will be calculated on the related Determination Date and will equal the aggregate outstanding Principal Balance of the Class [__] notes to be redeemed [(including the Deferred Interest Amount for such class)], together with the Interest Payment Amount for such class (plus, [if Class [__] is the Senior Controlling Class,] any Defaulted Interest Amount for such class) due on the applicable Redemption Date. |
| • | [INTEREST-ONLY] Notes. The redemption price for the [INTEREST-ONLY] notes will be equal to the sum of the present value of each remaining related Interest-Only Note Monthly Payment, discounted monthly at a per annum rate of [__]% to the date of redemption. |
| • | [INSERT REDEMPTION PRICES FOR ADDITIONAL CLASSES OF NOTES] |
| • | Class [__] Notes. The redemption price for the Class [__] notes will be calculated on the related Determination Date and will equal the sum of all net proceeds from the sale of the Mortgage Loans and cash, if any, remaining after the redemption of the notes (other than the Class [__] notes) and payment of all other fees and expenses of the issuing entity. |
“Sale Proceeds” means all proceeds (including accrued interest) received with respect to sales of Mortgage Loans in accordance with the ISA, such as sales in connection with the exercise of a purchase option by a mezzanine lender or sales in connection with a repurchase for a material breach of a representation or warranty or material document defect, in each case, net of any reasonable out of pocket expenses of the indenture trustee, the note administrator or the master servicer in connection with any such sale.]
Reports to Noteholders; Certain Available Information
Note Administrator Reports
On each Payment Date, the note administrator will be required to provide or make available to each Noteholder of record a Payment Date statement in the form of Annex B and providing all information required under Regulation AB relating to payments made on that date for the relevant class and the recent status of the Mortgage Loans.
In addition, the note administrator will include (i) the identity of any Mortgage Loans permitting additional secured debt, identifying (A) the amount of any additional secured debt incurred during the related Collection Period, (B) the total debt service coverage ratio calculated on the basis of the mortgage loan and such additional secured debt and (C) the aggregate loan-to-value ratio calculated on the basis of the mortgage loan and the additional secured debt in each applicable Form 10-D filed on behalf of the issuing entity and (ii) the beginning and ending account balances for each of the Securitization Accounts (for the applicable period) in each Form 10-D filed on behalf of the issuing entity.
Within a reasonable period of time after the end of each calendar year, the note administrator is required to furnish to each person or entity who at any time during the calendar year was a holder of a note, a statement containing information (i) the amount of the payment on each Payment Date in reduction of the Principal Balance of the notes, and (ii) the amount of the payment on each Payment Date of the applicable Interest Accrual Amount, in each case, as to the applicable class, aggregated for the related calendar year or applicable partial year during which that person was a Noteholder, together with any other information that the note administrator deems necessary or desirable, or that a Noteholder or Note Owner reasonably requests, to enable Noteholders to prepare their tax returns for that calendar year. This obligation of the note administrator will be deemed to have been satisfied to the extent that substantially comparable information will be provided by the note administrator pursuant to any requirements of the Code as from time to time are in force.
In addition, the note administrator will provide or make available, to the extent received from the applicable person, on each Payment Date to each Privileged Person the following reports (other than clause (1) below, the “CREFC® Reports”) prepared by the master servicer, the note administrator or the special servicer, as applicable, substantially in the forms provided in the ISA (which forms are subject to change) and including substantially the following information:
(1) a report as of the close of business on the immediately preceding Determination Date, containing some categories of information regarding the Mortgage Loans provided in Annex B in the tables under the caption “Mortgage Pool Information”, calculated, where applicable, on the basis of the most recent relevant information provided by the borrowers to the master servicer and by the master servicer to the note administrator, and presented in a loan-by-loan and tabular format substantially similar to the formats utilized in Annex B;
(2) a Commercial Real Estate Finance Council (“CREFC®”) delinquent loan status report;
(3) a CREFC® historical loan modification and corrected loan report;
(4) a CREFC® advance recovery report;
(5) a CREFC® total loan report;
(6) a CREFC® operating statement analysis report;
(7) a CREFC® comparative financial status report;
(8) a CREFC® net operating income adjustment worksheet;
(9) a CREFC® real estate owned status report;
(10) a CREFC® servicer watch list;
(11) a CREFC® loan level reserve and letter of credit report;
(12) a CREFC® property file;
(13) a CREFC® financial file;
(14) a CREFC® loan setup file; and
(15) a CREFC® loan periodic update file.
The master servicer or the special servicer, as applicable, may omit any information from these reports that the master servicer or the special servicer regards as confidential, so long as such information is not required to be disclosed pursuant to Item 1125 of Regulation AB. Subject to any potential liability for willful misconduct, bad faith or negligence as described under “Indenture and Servicing Agreement—Limitation on Liability; Indemnification”, none of the master servicer, the special servicer, the indenture trustee or the note administrator will be responsible for the accuracy or completeness of any information supplied to it by a borrower or another party to the ISA or a party under an Non-Serviced Servicing Agreement that is included in any reports, statements, materials or information prepared or provided by it. Some information will be made available to Noteholders by electronic transmission as may be agreed upon between the depositor and the note administrator.
Before each Payment Date, the master servicer will deliver to the note administrator by electronic means:
| • | a CREFC® financial file; |
| • | a CREFC® loan setup file; and |
| • | a CREFC® loan periodic update file. |
In addition, the master servicer (with respect to a Mortgage Loan that is not a Specially Serviced Loan) or applicable special servicer (with respect to Specially Serviced Loans and REO Properties), as applicable, is also required to prepare the following for each Mortgaged Property and REO Property:
| • | Within 30 days after receipt of a quarterly operating statement, if any, commencing within 30 days of receipt of such quarterly operating statement for the quarter ending [__________], a CREFC® operating statement analysis report but only to the extent the related borrower is required by the Mortgage Loan documents to deliver and does deliver, or otherwise agrees to provide and does provide, that information, for the Mortgaged Property or REO Property as of the end of that calendar quarter, provided, however, that any analysis or report with respect to the first calendar quarter of each year will not be required to the extent provided in the then-current applicable CREFC® guidelines (it being understood that as of the date of this prospectus, the applicable CREFC® guidelines provide that such analysis or report with respect to the first calendar quarter (in each year) is not required for a Mortgaged Property unless such Mortgaged Property is analyzed on a trailing 12 month basis, or if the related Mortgage Loan (other than the Non-Serviced Mortgage Loan) is on the CREFC® Servicer Watch List). The master servicer (with |
respect to non-Specially Serviced Loans) or the special servicer (with respect to Specially Serviced Loans and REO Properties), as applicable, will deliver to the note administrator, the operating advisor and each holder of a Serviced Companion Loan by electronic means the operating statement analysis upon request.
| • | Within 30 days after receipt by the special servicer (with respect to Specially Serviced Loans and REO Properties) or the master servicer (with respect to a Mortgage Loan that is not a Specially Serviced Loan) of any annual operating statements or rent rolls commencing within 30 days of receipt of such annual operating statement for the calendar year ending December 31, [____], a CREFC® net operating income adjustment worksheet, but only to the extent the related borrower is required by the mortgage to deliver and does deliver, or otherwise agrees to provide and does provide, that information, presenting the computation made in accordance with the methodology described in the ISA to “normalize” the full year net operating income and debt service coverage numbers used by the master servicer to satisfy its reporting obligation described in clause (8) above. Such special servicer or the master servicer will deliver to the note administrator, the operating advisor and each holder of a related Serviced Companion Loan by electronic means the CREFC® net operating income adjustment worksheet upon request. |
Note Owners and any holder of a Serviced Companion Loan who are also Privileged Persons may also obtain access to any of the note administrator reports upon request and pursuant to the provisions of the ISA. Otherwise, until the time Definitive Notes are issued to evidence the notes, the information described above will be available to the related Note Owners only if DTC and its participants provide the information to the Note Owners.
“Privileged Person” includes the depositor and its designees, the initial purchasers, the underwriters, the mortgage loan sellers, the master servicer, the special servicer, the indenture trustee, the note administrator, any additional servicer designated by the master servicer or the special servicer, the Directing Holder (but only prior to the occurrence of a Consultation Termination Event), the operating advisor, any affiliate of the operating advisor designated by the operating advisor, the asset representations reviewer, any holder of a Companion Loan who provides an Investor Certification, any person who provides the note administrator with an Investor Certification and any nationally recognized statistical rating organization within the meaning of Section 3(a)(62) of the Exchange Act (“NRSRO”), including any Rating Agency, that delivers a NRSRO Certification to the note administrator, which Investor Certification and NRSRO Certification may be submitted electronically via the note administrator’s website; provided that in no event may a borrower, a manager of a Mortgaged Property, an affiliate, principal, partner, member, joint venture, limited partner, employee, representative, director, advisor or investor in any of the foregoing or an agent of any of the foregoing or a mezzanine lender for which an event has occurred that would permit acceleration or who has commenced foreclosure proceedings be considered a Privileged Person. In determining whether any person is an additional servicer or an affiliate of the operating advisor, the note administrator may rely on a certification by the master servicer, the special servicer, a mortgage loan seller or the operating advisor, as the case may be.
“Investor Certification” means a note, substantially in the form attached to the ISA, representing (i) that such person executing the note is a Noteholder, the Directing Holder (to the extent such person is not a Noteholder), a beneficial owner of a note, a Companion Loan Holder or a prospective purchaser of a note (or any investment advisor or manager of the foregoing), (ii) that such person is not a borrower, a manager of a Mortgaged Property, an affiliate of any of the foregoing or an agent, principal, partner, member, joint venturer, limited partner, employee, representative, director, indenture trustee, advisor of or investor in or of any of the foregoing or a mezzanine lender for which an event has occurred that would permit acceleration or who has commenced foreclosure proceedings, (iii) that such person has received a copy of the final prospectus and (iv) such person agrees to keep any Privileged Information confidential and will not violate any securities laws.
A “Noteholder” is the person in whose name a note is registered in the note register; provided, however, that solely for the purposes of giving any consent, approval, waiver or taking any action pursuant to the ISA, any note registered in the name of or beneficially owned by the master servicer, the
special servicer, the indenture trustee, the note administrator, the depositor, any mortgage loan seller, a manager of a Mortgaged Property, a borrower, a mezzanine lender for which an event has occurred that would permit acceleration or who has commenced foreclosure proceedings or any affiliate of any of such persons will be deemed not to be outstanding, and the Voting Rights to which it is entitled will not be taken into account in determining whether the requisite percentage of Voting Rights necessary to effect any such consent, approval, waiver or take any such action has been obtained; provided, however, that the foregoing restrictions will not apply in the case of the master servicer, the special servicer, the indenture trustee, the note administrator, the depositor, any mortgage loan seller or any affiliate of any of such persons unless such consent, approval or waiver sought from such party would in any way increase its compensation or limit its obligations in the named capacities under the ISA or waive a Servicer Termination Event or trigger an Asset Review with respect to such Mortgage Loan; provided, further, that [so long as there is no Servicer Termination Event with respect to the master servicer or the special servicer, the master servicer and the special servicer or such affiliate of either will be entitled to exercise such Voting Rights with respect to any issue which could reasonably be believed to adversely affect such party’s compensation or increase its obligations or liabilities under the ISA]; and provided, further, that such restrictions will not apply to (i) the exercise of the special servicer’s, the master servicer’s or any mortgage loan seller’s rights, if any, or any of their affiliates as a member of the Subordinate controlling class or (ii) any affiliate of the depositor, the master servicer, the special servicer, the indenture trustee or the note administrator that has provided an Investor Certification in which it has certified as to the existence of certain policies and procedures restricting the flow of information between it and the depositor, the master servicer, the special servicer, the indenture trustee or the note administrator, as applicable.
“NRSRO Certification” means a certification (a) executed by an NRSRO or (b) provided electronically and executed by such NRSRO by means of a “click-through” confirmation on the 17g-5 Information Provider’s website in favor of the 17g-5 Information Provider that states that such NRSRO is a Rating Agency as such term is defined in the ISA or that such NRSRO has provided the depositor with the appropriate certifications pursuant to paragraph (e) of Rule 17g-5 under the Exchange Act (“Rule 17g-5”), that such NRSRO has access to the depositor’s 17g-5 Information Provider’s website, and that such NRSRO will keep such information confidential except to the extent such information has been made available to the general public.
Under the ISA, with respect to a Subordinate Companion Loan, the master servicer or the special servicer, as applicable, is required to provide to the holder of such Subordinate Companion Loan or Loan-Specific Directing Holder, as applicable, certain other reports, copies and information relating to an AB Whole Loan. In addition, under the ISA, the master servicer or the special servicer, as applicable, is required to provide to the holders of any Companion Loan (or their designee including any master servicer or special servicer) certain other reports, copies and information relating to the related Serviced Whole Loan to the extent required under the related Intercreditor Agreement.
Certain information concerning the Mortgage Loans and the notes, including the Payment Date statements, CREFC® reports and supplemental notices with respect to such Payment Date statements and CREFC® reports, may be provided by the note administrator to certain market data providers, such as [__________], pursuant to the terms of the ISA.
[Upon the reasonable request of any Noteholder that has delivered an Investor Certification, the master servicer may provide (or forward electronically) at the expense of such Noteholder copies of any appraisals, operating statements, rent rolls and financial statements obtained by the master servicer; provided that in connection with such request, the master servicer may require a written confirmation executed by the requesting person substantially in such form as may be reasonably acceptable to the master servicer, generally to the effect that such person will keep such information confidential and will use such information only for the purpose of analyzing asset performance and evaluating any continuing rights the Noteholder may have under the ISA. Noteholders will not, however, be given access to or be provided copies of, any Mortgage Files or Diligence Files.]
Information Available Electronically
The note administrator will make available to any Privileged Person via the note administrator’s website (and will make available to the general public this prospectus, Payment Date statements, the ISA, the mortgage loan purchase agreements and the SEC EDGAR filings referred to below:
| • | the following “deal documents”: |
| o | the ISA, each sub-servicing agreement delivered to the note administrator from and after the closing date, if any, and the mortgage loan purchase agreements and any amendments and exhibits to those agreements; and |
| o | the CREFC® loan setup file delivered to the note administrator by the master servicer; |
| • | the following “SEC EDGAR filings”: |
| o | any reports on Forms 10-D, 10-K, 8-K and ABS-EE that have been filed by the note administrator with respect to the issuing entity through the SEC’s Electronic Data Gathering and Retrieval (EDGAR) system; |
| • | the following documents, which will be made available under a tab or heading designated “periodic reports”: |
| o | the Payment Date statements; |
| o | the CREFC® bond level files; |
| o | the CREFC® collateral summary files; |
| o | the CREFC® Reports, other than the CREFC® loan setup file (provided that they are received by the note administrator); and |
| o | the annual reports prepared by the operating advisor; |
| • | the following documents, which will be made available under a tab or heading designated “additional documents”: |
| o | the summary of any Final Asset Status Report as provided by the special servicer; and |
| o | any property inspection reports, any environmental reports and appraisals delivered to the note administrator in electronic format; |
| • | the following documents, which will be made available under a tab or heading designated “special notices”: |
| o | notice of any release based on an environmental release under the ISA; |
| o | notice of any waiver, modification or amendment of any term of any Mortgage Loan; |
| o | notice of final payment on the notes; |
| o | all notices of the occurrence of any Servicer Termination Event received by the note administrator or any notice to Noteholders of the termination of the master servicer or the special servicer; |
| o | any notice of resignation or termination of the master servicer or special servicer; |
| o | notice of resignation of the indenture trustee or the note administrator, and notice of the acceptance of appointment by the successor indenture trustee or the successor note administrator, as applicable; |
| o | any direction received by the note administrator from a majority of the senior controlling class or 66-2/3% of the notes for the termination of the note administrator or the indenture trustee pursuant to the ISA; |
| o | any notice of any request by requisite percentage of Noteholders for a vote to terminate the special servicer, the operating advisor or the asset representations reviewer; |
| o | any notice to Noteholders of the operating advisor’s recommendation to replace the special servicer and the related report prepared by the operating advisor in connection with such recommendation; |
| o | notice of resignation or termination of the operating advisor or the asset representations reviewer and notice of the acceptance of appointment by the successor operating advisor or the successor asset representations reviewer; |
| o | notice of the note administrator’s determination that an Asset Review Trigger has occurred and a copy of any Final Asset Status Report received by the note administrator; |
| o | any notice of the termination of a sub-servicer; |
| o | officer’s certificates supporting any determination that any Advance was (or, if made, would be) a Nonrecoverable Advance; |
| o | any notice of the termination of the issuing entity; |
| o | any notice that a Control Termination Event has occurred or is terminated or that a Consultation Termination Event has occurred; |
| o | any notice of the occurrence of an Operating Advisor Termination Event; |
| o | any notice of the occurrence of an Asset Reviewer Termination Event; |
| o | any Proposed Course of Action Notice; |
| o | any assessment of compliance delivered to the note administrator; |
| o | any Attestation Reports delivered to the note administrator; and |
| o | any “special notices” requested by a Noteholder to be posted on the note administrator’s website described under “—Noteholder Communication” below; |
| • | the “Investor Q&A Forum”; and |
| • | solely to Noteholders and Note Owners that are Privileged Persons, the “Investor Registry”. |
Any reports on Form 10-D filed by the note administrator will (i) contain the information required by Rule 15Ga-1(a) concerning all Mortgage Loans held by the issuing entity that were the subject of a demand to repurchase or replace due to a breach or alleged breach of one or more representations and warranties made by the related mortgage loan seller, (ii) contain a reference to the most recent Form ABS-15G filed by the depositor and the mortgage loan sellers, if applicable, and the SEC’s assigned “Central Index Key” for each such filer, (iii) contain certain account balances to the extent available to the note administrator, and (iv) incorporate the most recent Form ABS-EE filing by reference (which such Form ABS-EE will be filed by the note administrator on or prior to the filing of the applicable report on Form 10-D).
The note administrator will not make any representation or warranty as to the accuracy or completeness of any report, document or other information made available on the note administrator’s website and will assume no responsibility for any such report, document or other information, other than with respect to such reports, documents or other information prepared by the note administrator. In addition, the note administrator may disclaim responsibility for any information distributed by it for which it is not the original source.
In connection with providing access to the note administrator’s website (other than with respect to access provided to the general public in accordance with the ISA), the note administrator may require registration and the acceptance of a disclaimer, including an agreement to keep certain nonpublic information made available on the website confidential, as required under the ISA. The note administrator will not be liable for the dissemination of information in accordance therewith.
The note administrator will make the “Investor Q&A Forum” available to Privileged Persons via the note administrator’s website under a tab or heading designated “Investor Q&A Forum”, where (i) Noteholders and beneficial owners that are Privileged Persons may submit inquiries to (a) the note administrator relating to the Payment Date statements, (b) the master servicer or the special servicer relating to servicing reports, the Mortgage Loans (excluding the Non-Serviced Mortgage Loan) or the related Mortgaged Properties or (c) the operating advisor relating to annual or other reports prepared by the operating advisor or actions by the special servicer referenced in such reports, and (ii) Privileged Persons may view previously submitted inquiries and related answers. The note administrator will forward such inquiries to the appropriate person and, in the case of an inquiry relating to the Non-Serviced Mortgage Loan, to the applicable party under the Non-Serviced Servicing Agreement. The note administrator, the master servicer, the special servicer or the operating advisor, as applicable, will be required to answer each inquiry, unless such party determines (i) the question is beyond the scope of the topics detailed above, (ii) that answering the inquiry would not be in the best interests of the issuing entity and/or the Noteholders, (iii) that answering the inquiry would be in violation of applicable law, the ISA (including requirements in respect of non-disclosure of Privileged Information) or the Mortgage Loan documents, (iv) that answering the inquiry would materially increase the duties of, or result in significant additional cost or expense to, the note administrator, the master servicer, the special servicer or the operating advisor, as applicable, (v) that answering the inquiry would require the disclosure of Privileged Information (subject to the Privileged Information Exception) or (vi) that answering the inquiry is otherwise, for any reason, not advisable. In addition, no party will post or otherwise disclose any direct communications with the Directing Holder as part of its responses to any inquiries. In the case of an inquiry relating to the Non-Serviced Mortgage Loan, the note administrator is required to make reasonable efforts to obtain an answer from the applicable party under the Non-Serviced Servicing Agreement; provided that the note administrator will not be responsible for the content of such answer, or any delay or failure to obtain such answer. The note administrator will be required to post the inquiries and related answers, if any, on the Investor Q&A Forum, subject to and in accordance with the ISA. The Investor Q&A Forum may not reflect questions, answers and other communications that are not submitted through the note administrator’s website. Answers posted on the Investor Q&A Forum will be attributable only to the respondent, and will not be deemed to be answers from any of the depositor, the underwriters or any of their respective affiliates. None of the underwriters, depositor, any of their respective affiliates or any other person will certify as to the accuracy of any of the information posted in the Investor Q&A Forum and no such person will have any responsibility or liability for the content of any such information.
The note administrator will make the “Investor Registry” available to any Noteholder and beneficial owner that is a Privileged Person via the note administrator’s website. Noteholders and beneficial owners may register on a voluntary basis for the “Investor Registry” and obtain contact information for any other Noteholder or beneficial owner that has also registered, provided that they comply with certain requirements as provided for in the ISA.
The note administrator’s internet website will initially be located at “www.[______]”. Access will be provided by the note administrator to such persons upon receipt by the note administrator from such person of an Investor Certification or NRSRO Certification in the form(s) attached to the ISA, which form(s) will also be located on and submitted electronically via the note administrator’s internet website.
The parties to the ISA will not be required to provide that certification. In connection with providing access to the note administrator’s internet website, the note administrator may require registration and the acceptance of a disclaimer. The note administrator will not be liable for the dissemination of information in accordance with the terms of the ISA. The note administrator will make no representation or warranty as to the accuracy or completeness of such documents and will assume no responsibility for them. In addition, the note administrator may disclaim responsibility for any information distributed by the note administrator for which it is not the original source. Assistance in using the note administrator’s internet website can be obtained by calling the note administrator’s customer service desk at [________].
The note administrator is responsible for the preparation of tax returns on behalf of the issuing entity and the preparation of Distribution Reports on Form 10-D (based on information included in each monthly Payment Date statement and other information provided by other transaction parties) and Annual Reports on Form 10-K and certain other reports on Form 8-K that are required to be filed with the SEC on behalf of the issuing entity.
“17g-5 Information Provider” means the [note administrator].
The ISA will require the master servicer, subject to certain restrictions (including execution and delivery of a confidentiality agreement) set forth in the ISA, to provide certain of the reports or, in the case of the master servicer and the Subordinate controlling class Noteholder, access to the reports available as set forth above, as well as certain other information received by the master servicer, to any Privileged Person so identified by a Note Owner or an underwriter, that requests reports or information. However, the master servicer will be permitted to require payment of a sum sufficient to cover the reasonable costs and expenses of providing copies of these reports or information (which such amounts in any event are not reimbursable as additional administrative expenses), except that, other than for extraordinary or duplicate requests, prior to the occurrence of a Consultation Termination Event, the Directing Holder will be entitled to reports and information free of charge. Except as otherwise set forth in this paragraph, until the time definitive notes are issued, notices and statements required to be mailed to holders of notes will be available to Note Owners of notes only to the extent they are forwarded by or otherwise available through DTC and its Participants. Conveyance of notices and other communications by DTC to Participants, and by Participants to Note Owners, will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Except as otherwise set forth in this paragraph, the master servicer, the special servicer, the indenture trustee, the note administrator and the depositor are required to recognize as Noteholders only those persons in whose names the notes are registered on the books and records of the note registrar. The initial registered holder of the notes will be Cede & Co., as nominee for DTC.
Voting Rights
At all times during the term of the ISA, the voting rights for the notes (the “Voting Rights”) will be allocated among the respective classes of notes (other than the Class [ARD] notes or the [LOAN-SPECIFIC CLASS] notes) as follows:
(1) [__]% in the case of [INTEREST-ONLY CLASSES], allocated pro rata, based upon their respective Notional Amounts as of the date of determination, and
(2) in the case of any Principal Balance Notes, a percentage equal to the product of [___]% and a fraction, the numerator of which is equal to the aggregate Principal Balance (taking into account the application of any Notional Losses and (solely in connection with any votes relating to the replacement of the special servicer, the operating advisor or the asset representations reviewer as described in this prospectus) Appraisal Reduction Amounts allocated to the notes) of the class, in each case, determined as of the prior Payment Date immediately preceding such time, and the denominator of which is equal to the aggregate Principal Balance (taking into account the application of any Notional Losses and (solely in connection with any votes relating to the replacement of the special servicer, the operating advisor or the asset representations reviewer as described in this prospectus) Appraisal Reduction Amounts allocated to the notes) of the notes (or, if with respect to a vote of Non-Reduced Notes, the aggregate of the
Principal Balances of all classes of the Non-Reduced Notes), each determined as of the prior Payment Date..
The Voting Rights of any class of notes are required to be allocated among Noteholders of such class in proportion to their respective Percentage Interests.
None of the Class [ARD] notes or the [LOAN-SPECIFIC CLASS] notes will be entitled to any Voting Rights.
“Non-Reduced Notes” means, as of any date of determination, any class of notes (other than the Class [ARD] notes or the [LOAN-SPECIFIC CLASS] notes) then outstanding for which (a) (1) the initial Principal Balance of such class of notes minus (2) the sum (without duplication) of (x) any payments of principal (whether as principal prepayments or otherwise) previously distributed to the holders of such class of notes, and (y) any Appraisal Reduction Amounts and Notional Losses allocated to such class of notes to notionally reduce the Principal Balance of such class as of the date of determination, is equal to or greater than (b) 25% of the remainder of (i) the initial Principal Balance of such class of notes less (ii) any payments of principal (whether as principal prepayments or otherwise) previously distributed to the holders of such class of notes.
Delivery, Form, Transfer and Denomination
The Offered Notes will be issued, maintained and transferred in the book-entry form only in minimum denominations of $10,000 initial Principal Balance, and in multiples of $1 in excess of $10,000.
Book-Entry Registration
The Offered Notes will initially be represented by one or more global securities for each such class registered in the name of a nominee of The Depository Trust Company (“DTC”). The depositor has been informed by DTC that DTC’s nominee will be Cede & Co. No holder of an Offered Note will be entitled to receive a note issued in fully registered, definitive form (each, a “Definitive Note”) representing its interest in such class, except under the limited circumstances described under “―Definitive Notes” below. Unless and until Definitive Notes are issued, all references to actions by holders of the Offered Notes will refer to actions taken by DTC upon instructions received from holders of Offered Notes through its participating organizations (together with Clearstream Banking, Luxembourg (“Clearstream”) and Euroclear Bank, as operator of the Euroclear System (“Euroclear”) participating organizations, the “Participants”), and all references in this prospectus to payments, notices, reports, statements and other information to holders of Offered Notes will refer to payments, notices, reports and statements to DTC or Cede & Co., as the registered holder of the Offered Notes, for payment to holders of Offered Notes through its Participants in accordance with DTC procedures; provided, however, that to the extent that the party to the ISA responsible for distributing any report, statement or other information has been provided in writing with the name of the Notes Owner of such an Offered Note (or the prospective transferee of such Note Owner), such report, statement or other information will be provided to such Note Owner (or prospective transferee).
Until Definitive Notes are issued in respect of the Offered Notes, interests in the Offered Notes will be transferred on the book-entry records of DTC and its Participants. The note administrator will initially serve as note registrar for purposes of recording and otherwise providing for the registration of the Offered Notes.
Holders of Offered Notes may hold their notes through DTC (in the United States) or Clearstream or Euroclear (in Europe) if they are Participants of such system, or indirectly through organizations that are participants in such systems. Clearstream and Euroclear will hold omnibus positions on behalf of the Clearstream Participants and the Euroclear Participants, respectively, through customers’ securities accounts in Clearstream’s and Euroclear’s names on the books of their respective depositaries (collectively, the “Depositaries”), which in turn will hold such positions in customers’ securities accounts in the Depositaries’ names on the books of DTC. DTC is a limited purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions between Participants through electronic computerized book-entries, thereby eliminating the need for physical movement of notes. Participants (“DTC Participants”) include securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system also is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (“Indirect Participants”).
Transfers between DTC Participants will occur in accordance with DTC rules. Transfers between Clearstream Participants and Euroclear Participants will occur in accordance with the applicable rules and operating procedures of Clearstream and Euroclear.
Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly through Clearstream Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its Depositary; however, such cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its Depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream Participants and Euroclear Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Clearstream or Euroclear as a result of a transaction with a DTC Participant will be made during the subsequent securities settlement processing, dated the business day following the DTC settlement date, and such credits or any transactions in such securities settled during such processing will be reported to the relevant Clearstream Participant or Euroclear Participant on such business day. Cash received in Clearstream or Euroclear as a result of sales of securities by or through a Clearstream Participant or a Euroclear Participant to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of the business day following settlement in DTC.
The holders of Offered Notes in global form that are not Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interests in, such Offered Notes may do so only through Participants and Indirect Participants. In addition, holders of Offered Notes in global form (“Note Owners”) will receive all payments of principal and interest through the Participants who in turn will receive them from DTC. Under a book-entry format, holders of such Offered Notes may experience some delay in their receipt of payments, since such payments will be forwarded by the note administrator to Cede & Co., as nominee for DTC. DTC will forward such payments to its Participants, which thereafter will forward them to Indirect Participants or the applicable Note Owners. Note Owners will not be recognized by the indenture trustee, the note administrator, the note registrar, the operating advisor, the special servicer or the master servicer as holders of record of notes and Note Owners will be permitted to receive information furnished to Noteholders and to exercise the rights of Noteholders only indirectly through DTC and its Participants and Indirect Participants, except that Note Owners will be entitled to receive or have access to notices and information and to exercise certain rights as holders of beneficial interests in the notes through the note administrator and the indenture trustee to the extent described in “—Redemption of Notes,” “—Reports to Noteholders; Certain Available Information”, “—Noteholder Communication” and “—List of Noteholders” and “Indenture and Servicing Agreement—The Operating Advisor”, “—The Asset Representations Reviewer”, “—Replacement of Special Servicer Without Cause”, “—Limitation on Rights of Noteholders to Institute a Proceeding” and “—Resignation and Removal of the Indenture Trustee and the Note Administrator”.
Under the rules, regulations and procedures creating and affecting DTC and its operations (the “DTC Rules”), DTC is required to make book-entry transfers of Offered Notes in global form among Participants on whose behalf it acts with respect to such Offered Notes and to receive and transmit payments of
principal of, and interest on, such Offered Notes. Participants and Indirect Participants with which the Note Owners have accounts with respect to the Offered Notes similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective Note Owners. Accordingly, although the Note Owners will not possess the Offered Notes, the DTC Rules provide a mechanism by which Note Owners will receive payments on Offered Notes and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a holder of Offered Notes in global form to pledge such Offered Notes to persons or entities that do not participate in the DTC system, or to otherwise act with respect to such Offered Notes, may be limited due to the lack of a physical note for such Offered Notes.
DTC has advised the depositor that it will take any action permitted to be taken by a holder of an Offered Note under the ISA only at the direction of one or more Participants to whose accounts with DTC such note is credited. DTC may take conflicting actions with respect to other undivided interests to the extent that such actions are taken on behalf of Participants whose holdings include such undivided interests.
Clearstream is incorporated under the laws of Luxembourg and is a global securities settlement clearing house. Clearstream holds securities for its participating organizations (“Clearstream Participants”) and facilitates the clearance and settlement of securities transactions between Clearstream Participants through electronic book-entry changes in accounts of Clearstream Participants, thereby eliminating the need for physical movement of notes. Transactions may be settled in Clearstream in numerous currencies, including United States dollars. Clearstream provides to its Clearstream Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream interfaces with domestic markets in several countries. Clearstream is regulated as a bank by the Luxembourg Monetary Institute. Clearstream Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations and may include the underwriters. Indirect access to Clearstream is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Clearstream Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the Euroclear system (“Euroclear Participants”) and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of notes and any risk from lack of simultaneous transfers of securities and cash. Transactions may now be settled in any of numerous currencies, including United States dollars. The Euroclear system includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by Euroclear Bank S.A./N.V. (the “Euroclear Operator”). All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries and may include the underwriters. Indirect access to the Euroclear system is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator are governed by the Terms and Conditions Governing Use of Euroclear and the related operating procedures of the Euroclear System and applicable Belgian law (collectively, the “Terms and Conditions”). The Terms and Conditions govern transfers of securities and cash within the Euroclear system, withdrawal of securities and cash from the Euroclear system, and receipts of payments with respect to securities in the Euroclear system. All securities in the Euroclear system are held on a fungible basis without attribution of specific securities to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants and has no record of or relationship with persons holding through Euroclear Participants.
Although DTC, Euroclear and Clearstream have implemented the foregoing procedures in order to facilitate transfers of interests in book-entry securities among Participants of DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to comply with such procedures, and such procedures may be discontinued at any time. None of the depositor, the indenture trustee, the note administrator, the master servicer, the special servicer or the underwriters will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective direct or indirect Participants of their respective obligations under the rules and procedures governing their operations.
Definitive Notes
Owners of beneficial interests in book-entry notes of any class will note not be entitled to receive physical delivery of Definitive Notes unless: (i) DTC advises the note registrar in writing that DTC is no longer willing or able to discharge properly its responsibilities as depository with respect to the book-entry notes of such class or ceases to be a clearing agency, and the note administrator and the depositor are unable to locate a qualified successor within 90 days of such notice or (ii) the indenture trustee has instituted or has been directed to institute any judicial proceeding to enforce the rights of the Noteholders of such class and the indenture trustee has been advised by counsel that in connection with such proceeding it is necessary or appropriate for the indenture trustee to obtain possession of the notes of such class.
Noteholder Communication
Access to Noteholders’ Names and Addresses
Upon the written request of any Noteholder or Note Owner that has delivered an executed Investor Certification to the indenture trustee or the note administrator, the note registrar will promptly furnish or cause to be furnished to such requesting party a list of the names and addresses of the noteholders as of the most recent Record Date as they appear in the note register, at the expense of the requesting party.
Requests to Communicate
The ISA will require that the note administrator include in any Form 10–D any request received prior to the Payment Date to which the Form 10-D relates (and on or after the Payment Date preceding such Payment Date) from a Noteholder or Note Owner to communicate with other Noteholders or Note Owners related to Noteholders or Note Owners exercising their rights under the terms of the ISA. Any Form 10-D containing such disclosure regarding the request to communicate is required to include no more than the name of the Noteholder or Note Owner making the request, the date the request was received, a statement to the effect that note administrator has received such request, stating that such Noteholder or Note Owner is interested in communicating with other Noteholders or Note Owners with regard to the possible exercise of rights under the ISA, and a description of the method other Noteholders or Note Owners may use to contact the requesting Noteholder or Note Owner.
Any Noteholder or Note Owner wishing to communicate with other Noteholders and Note Owners regarding the exercise of its rights under the terms of the ISA (such party, a “Requesting Investor”) should deliver a written request (a “Communication Request”) signed by an authorized representative of the Requesting Investor to the note administrator at the address below:
[____________]
[____________]
[____________]
Any Communication Request must contain the method other Noteholders and Note Owners should use to contact the Requesting Investor, and, if the Requesting Investors is not the registered holder of a class of notes, then the Communication Request must contain (i) a written certification from the Requesting Investor that it is a beneficial owner of a class of notes, and (ii) one of the following forms of documentation evidencing its beneficial ownership in such class of notes: (A) a trade confirmation, (B) an
account statement, (C) a medallion stamp guaranteed letter from a broker or dealer stating the Requesting Investor is the beneficial owner, or (D) a document acceptable to the note administrator that is similar to any of the documents identified in clauses (A) through (C). Requesting Investors will be responsible for their own expenses in making any Communication Request, but will not be required to bear any expenses of the note administrator.
List of Noteholders
Upon the written request of any Noteholder, which is required to include a copy of the communication the Noteholder proposes to transmit, that has provided an Investor Certification, which request is made for purposes of communicating with other holders of notes of the same series with respect to their rights under the ISA or the notes, the note registrar or other specified person will, within 5 business days after receipt of such request afford such Noteholder (at such Noteholder’s sole cost and expense) access during normal business hours to the most recent list of Noteholders related to the class of notes.
Description of the Mortgage Loan Purchase Agreements
General
On the Closing Date, the depositor will acquire the Mortgage Loans and the Owned Subordinate Companion Loan from each mortgage loan seller pursuant to a separate mortgage loan purchase agreement (each, a “MLPA”), between the applicable mortgage loan seller and the depositor.
Under the applicable MLPA, the depositor will require each mortgage loan seller to deliver to [the note administrator], in its capacity as custodian, among other things, the following documents (except that the documents with respect to the Non-Serviced Whole Loan (other than the original promissory note) will be held by the custodian under the Non-Serviced Servicing Agreement) with respect to each Mortgage Loan and the Owned Subordinate Companion Loan sold by the mortgage loan seller (collectively, as to each Mortgage Loan, the “Mortgage File”):
(i) the original Mortgage Note, endorsed on its face or by allonge attached to the Mortgage Note, without recourse, to the order of the indenture trustee or in blank (or, if the original Mortgage Note has been lost, an affidavit to such effect from the applicable mortgage loan seller or another prior holder, together with a copy of the Mortgage Note and an indemnity properly assigned and endorsed to the indenture trustee);
(ii) the original or a certified copy of the Mortgage, together with an original or copy of any intervening assignments of the Mortgage, in each case with evidence of recording indicated thereon or certified to have been submitted for recording;
(iii) an original assignment of the Mortgage in favor of the indenture trustee or in blank and (subject to the completion of certain missing recording information and, if applicable, the assignee’s name) in recordable form (or, if the related mortgage loan seller is responsible for the recordation of that assignment, a copy of such assignment to be sent for recordation);
(iv) the original or a copy of any related assignment of leases and of any intervening assignments (if such item is a document separate from the Mortgage), with evidence of recording indicated thereon or certified to have been submitted for recording;
(v) an original assignment of any related assignment of leases (if such item is a document separate from the Mortgage) in favor of the indenture trustee or in blank and (subject to the completion of certain missing recording information and, if applicable, the assignee’s name) in recordable form (or, if the related mortgage loan seller is responsible for the recordation of that assignment, a copy of such assignment to be sent for recordation);
(vi) the original assignment of all unrecorded documents relating to the Mortgage Loan or a Serviced Whole Loan, if not already assigned pursuant to items (iii) or (v) above;
(vii) originals or copies of all modification, consolidation, assumption, written assurance and substitution agreements in those instances in which the terms or provisions of the Mortgage or Mortgage Note have been modified or the Mortgage Loan or the Owned Subordinate Companion Loan has been assumed or consolidated;
(viii) the original or a copy of the policy or certificate of lender’s title insurance issued on the date of the origination of such Mortgage Loan and the Owned Subordinate Companion Loan, or, if such policy has not been issued or located, an irrevocable, binding commitment (which may be a marked version of the policy that has been executed by an authorized representative of the title company or an agreement to provide the same pursuant to binding escrow instructions executed by an authorized representative of the title company) to issue such title insurance policy;
(ix) any filed copies (bearing evidence of filing) or evidence of filing of any Uniform Commercial Code financing statements, related amendments and continuation statements in the possession of the applicable mortgage loan seller;
(x) an original assignment in favor of the indenture trustee of any financing statement executed and filed in favor of the applicable mortgage loan seller in the relevant jurisdiction (or, if the related mortgage loan seller is responsible for the filing of that assignment, a copy of such assignment to be sent for filing);
(xi) any intercreditor agreement relating to permitted debt of the borrower, including any Intercreditor Agreement relating to a Serviced Whole Loan;
(xii) copies of any loan agreement, escrow agreement, security agreement or letter of credit relating to a Mortgage Loan or a Serviced Whole Loan;
(xiii) the original or copy of any ground lease, ground lessor estoppel, environmental insurance policy or guaranty relating to a Mortgage Loan or a Serviced Whole Loan;
(xiv) a copy of any property management agreement relating to a Mortgage Loan or a Serviced Whole Loan;
(xv) a copy of any franchise agreements and comfort letters or similar agreements relating to a Mortgage Loan or Serviced Whole Loan and, with respect to any franchise agreement, comfort letter or similar agreement, any assignment of such agreements or any notice to the franchisor of the transfer of a Mortgage Loan or Serviced Whole Loan and a request for confirmation that the issuing entity is a beneficiary of such comfort letter or other agreement, or for the issuance of a new comfort letter in favor of the issuing entity, as the case may be;
(xvi) a copy of any lock-box or cash management agreement relating to a Mortgage Loan or a Serviced Whole Loan;
(xvii) a copy of any related mezzanine intercreditor agreement;
(xviii) a copy of all related environmental reports that were received by the mortgage loan seller; and
(xix) a copy of all related environmental insurance policies.
In addition, the depositor will require each mortgage loan seller to deliver to the special servicer the Diligence File on the Closing Date.
[“Diligence File” means any documents (including copies of documents required to be part of the related Mortgage File) related to the origination and the servicing of the Mortgage Loans or Serviced
Whole Loans that were delivered by the applicable mortgage loan seller in connection with the transfer of the applicable Mortgage Loan to the issuing entity, including but not limited to appraisals, environmental reports, engineering reports, legal opinions, the applicable mortgage loan seller’s asset summary, copies of all property insurance policies for the mortgaged property, credit reports, surveys, zoning reports, tenant estoppel certificates, financial statements of borrower and any guarantor, operating statements for the mortgaged property or properties, UCC searches, litigation searches and bankruptcy searches, in each case, to the extent that the originator received such in connection with the origination of the Mortgage Loan; provided that no information that is proprietary to the related originator or mortgage loan seller or any draft documents, privileged or internal communications, credit underwriting or due diligence analysis will constitute part of the Diligence File.]
Each MLPA will contain certain representations and warranties of the applicable mortgage loan seller with respect to each Mortgage Loan [and the Owned Subordinate Companion Loan] sold by that mortgage loan seller. Those representations and warranties are set forth in Annex D-1, and will be made as of the Closing Date, or as of another date specifically provided in the representation and warranty, subject to certain exceptions to such representations and warranties as set forth in Annex D-2.
If any of the documents required to be included in the Mortgage File for any Mortgage Loan or the Owned Subordinate Companion Loan is missing from the Mortgage File or defective or if there is a breach of a representation or warranty relating to any Mortgage Loan or the Owned Subordinate Companion Loan, and, in either case, such omission, breach or defect materially and adversely affects the value of the related Mortgage Loan or the Owned Subordinate Companion Loan, the value of the related Mortgaged Property or the interests of any Noteholders in the Mortgage Loan, the Owned Subordinate Companion Loan or Mortgaged Property (a “Material Defect”), the applicable mortgage loan seller will be required to, no later than 90 days following such mortgage loan seller’s receipt of notice of the Material Defect from any party to the ISA (a “Breach Notice”)[; provided that the applicable mortgage loan seller may not repurchase the Owned Subordinate Companion Loan without repurchasing the related Mortgage Loan]; provided, however, that the applicable mortgage loan seller will generally have an additional 90-day period to cure such Material Defect (or, failing such cure, to repurchase the affected Mortgage Loan and the related Owned Subordinate Companion Loan or REO Loan or, if applicable, substitute a Qualified Substitute Mortgage Loan (other than with respect to the related Whole Loans, for which no substitution will be permitted), if it is diligently proceeding toward that cure, and has delivered to the master servicer, the special servicer, the note administrator (who will promptly deliver a copy of such officer’s certificate to the 17g-5 Information Provider), the indenture trustee, the operating advisor and, prior to the occurrence of a Consultation Termination Event, the Directing Holder, an officer’s certificate that describes the reasons that a cure was not effected within the initial 90-day period.
No delay in either the discovery of a Material Defect or in providing notice of such Material Defect will relieve the applicable mortgage loan seller of its obligation to repurchase the related Mortgage Loan and the related Owned Subordinate Companion Loan unless (i) the mortgage loan seller did not otherwise discover or have knowledge of such Material Defect and (ii) such delay is the result of the failure by a party to the ISA to promptly provide a Breach Notice as required by the terms of the MLPA or the ISA after such party has actual knowledge of such defect or breach (knowledge will not be deemed to exist by reason of the custodian’s exception report) and such delay precludes the mortgage loan seller from curing such Material Defect.
If there is a Material Defect with respect to one or more Mortgaged Properties with respect to a Mortgage Loan, the applicable mortgage loan seller will not be obligated to repurchase the Mortgage Loan if (i) the affected Mortgaged Property may be released pursuant to the terms of any partial release provisions in the related Mortgage Loan documents (and such Mortgaged Property is, in fact, released), and (ii) each applicable Rating Agency has provided a Rating Agency Confirmation.
[Notwithstanding the foregoing, in lieu of a mortgage loan seller repurchasing, substituting or curing such Material Defect, to the extent that the mortgage loan seller and the special servicer (with the consent of [the Directing Holder for so long as no Control Termination Event has occurred and is continuing][the Senior Controlling Class]) are able to agree upon a cash payment payable by the mortgage loan seller to the issuing entity that would be deemed sufficient to compensate the issuing entity for such Material
Defect (a “Loss of Value Payment”), the mortgage loan seller may elect, in its sole discretion, to pay such Loss of Value Payment. Upon its making such payment, the mortgage loan seller will be deemed to have cured such Material Defect in all respects.]
In addition, the MLPA provides that, with respect to the Non-Serviced Whole Loan, if a material document defect exists under the Non-Serviced Servicing Agreement, and the related seller repurchases the Non-Serviced Companion Loan from the Non-Serviced Issuing Entity, such seller is required to repurchase the Non-Serviced Mortgage Loan; provided, however, that no such repurchase obligation will apply to any material document defect related solely to the promissory notes for any Pari Passu Companion Loans owned by the Non-Serviced Issuing Entity.
With respect to any Mortgage Loan and the Owned Subordinate Companion Loan, “Purchase Price” equals to the sum of (1) the [outstanding principal balance of such Mortgage Loan [and the related Owned Subordinate Companion Loan] (or related REO Loan)], as of the date of purchase, (2) all accrued and unpaid interest on the Mortgage Loan [and the related Owned Subordinate Companion Loan] (or any related REO Loan) [at the related Mortgage Rate in effect from time to time], to, but not including, the due date immediately preceding or coinciding with the Determination Date for the Collection Period of purchase, (3) all related unreimbursed Servicing Advances plus accrued and unpaid interest on all related Advances at the Reimbursement Rate, Special Servicing Fees (whether paid or unpaid) and any other additional administrative expenses (except for Liquidation Fees) in respect of such Mortgage Loan and the related Owned Subordinate Companion Loan or related REO Loan, if any, (4) solely in the case of a repurchase or substitution by a mortgage loan seller, all reasonable out-of-pocket expenses reasonably incurred or to be incurred by the master servicer, the special servicer, the depositor, the note administrator, asset representations reviewer or the indenture trustee in respect of the omission, breach or defect giving rise to the repurchase or substitution obligation, including any expenses arising out of the enforcement of the repurchase or substitution obligation, including, without limitation, legal fees and expenses and any additional administrative expenses relating to such Mortgage Loan and the related Owned Subordinate Companion Loan (or related REO Loan); provided, however, that such out-of-pocket expenses will not include expenses incurred by investors in instituting an Asset Review Vote Election, in taking part in an Asset Review Vote or in utilizing the dispute resolution provisions described below under “—Dispute Resolution Provisions”, and (5) Liquidation Fees, if any, payable with respect to the affected Mortgage Loan and the related Owned Subordinate Companion Loan (or related REO Loan) (which will not include any Liquidation Fees if such affected Mortgage Loan is repurchased prior to the expiration of the additional 90-day period immediately following the initial 90-day period).
A “Qualified Substitute Mortgage Loan” is a substitute mortgage loan (other than with respect to the Whole Loans, for which no substitution will be permitted) replacing a Mortgage Loan with respect to which a material breach or document defect exists that must, on the date of substitution:
(a) have an outstanding principal balance, after application of all scheduled payments of principal and interest due during or prior to the month of substitution, whether or not received, not in excess of the Stated Principal Balance of the removed Mortgage Loan as of the due date in the calendar month during which the substitution occurs;
(b) have a Mortgage Rate not less than the Mortgage Rate of the removed Mortgage Loan (determined without regard to any prior modification, waiver or amendment of the terms of the removed Mortgage Loan);
(c) have the same due date and a grace period no longer than that of the removed Mortgage Loan;
(d) accrue interest on the same basis as the removed Mortgage Loan (for example, on the basis of a 360-day year consisting of twelve 30-day months);
(e) have a remaining term to stated maturity not greater than, and not more than two years less than, the remaining term to stated maturity of the removed Mortgage Loan;
(f) have a then-current loan-to-value ratio equal to or less than [the lesser of (i)] the loan-to-value ratio for the removed Mortgage Loan as of the Closing Date [and (ii) [__]%, in each case] using a “value” for the Mortgaged Property as determined using an appraisal conducted by a member of the Appraisal Institute (“MAI”) prepared in accordance with the requirements of the FIRREA;
(g) comply as of the date of substitution in all material respects with all of the representations and warranties set forth in the related MLPA;
(h) have an environmental report that indicates no material adverse environmental conditions with respect to the related Mortgaged Property and that will be delivered as a part of the related Mortgage File;
(i) have a then-current DSCR at least equal to [the greater of (i)] the original DSCR of the removed Mortgage Loan as of the Closing Date [and (ii) [___]x];
(j) not have a maturity date or an amortization period that extends to a date that is after the date two years prior to the Stated Maturity Date;
(k) have comparable prepayment restrictions to those of the removed Mortgage Loan;
(l) not be substituted for a removed Mortgage Loan unless the indenture trustee and the note administrator have received a Rating Agency Confirmation from each of the Rating Agencies (the cost, if any, of obtaining such Rating Agency Confirmation to be paid by the applicable mortgage loan seller);
(m) have been approved[, so long as a Control Termination Event has not occurred and is not continuing, by the Directing Holder][by the Senior Controlling Class];
(n) prohibit Defeasance within two years of the Closing Date;
(o) not be substituted for a removed Mortgage Loan if it would result in the issuing entity losing its status as a Qualified REIT Subsidiary or other disregarded entity of a REIT for U.S. federal income tax purposes;
(p) have an engineering report that indicates no material adverse property condition or deferred maintenance with respect to the related Mortgaged Property with respect to the related Mortgaged Property that will be delivered as a part of the related servicing file; and
(q) be current in the payment of all scheduled payments of principal and interest then due.
In the event that more than one Mortgage Loan is substituted for a removed Mortgage Loan or Mortgage Loans, then (x) the amounts described in clause (a) are required to be determined on the basis of aggregate principal balances and (y) each such proposed Qualified Substitute Mortgage Loan must individually satisfy each of the requirements specified in clauses (b) through (q) of the preceding sentence, except (z) the rates described in clause (b) above and the remaining term to stated maturity referred to in clause (e) above are required to be determined on a weighted average basis, provided that no individual Mortgage Rate (net of the Servicing Fee Rate, the Note Administrator/Indenture Trustee Fee Rate and the Operating Advisor Fee Rate) may be lower than the highest fixed Interest Rate of any class of notes having a principal balance then-outstanding. When a Qualified Substitute Mortgage Loan is substituted for a removed Mortgage Loan, the applicable mortgage loan seller will be required to certify that the Mortgage Loan meets all of the requirements of the above definition and send the certification to the indenture trustee, the note administrator and[, prior to the occurrence of a Consultation Termination Event, the Directing Holder][the Senior Controlling Class].
Subject to the dispute resolution provisions described under “Indenture and Servicing Agreement—Dispute Resolution Provisions”, the foregoing repurchase or substitution obligation or the obligation to pay the Loss of Value Payment will constitute the sole remedy available to the Noteholders and the indenture trustee under the ISA for any uncured breach of any mortgage loan seller’s representations and
warranties regarding the Mortgage Loans or any uncured document defect; provided, however, that if any breach pertains to a representation or warranty that the related Mortgage Loan documents or any particular Mortgage Loan document requires the related borrower to bear the costs and expenses associated with any particular action or matter under such Mortgage Loan document(s), then the applicable mortgage loan seller may cure such breach within the applicable cure period (as the same may be extended) by reimbursing the issuing entity (by wire transfer of immediately available funds) for (i) the reasonable amount of any such costs and expenses incurred by parties to the ISA or the issuing entity that are incurred as a result of such breach and have not been reimbursed by the related borrower and (ii) the amount of any fees and reimbursable expenses of the asset representations reviewer attributable to the Asset Review of such Mortgage Loan; provided, further, that in the event any such costs and expenses exceed $10,000, the applicable mortgage loan seller will have the option to either repurchase or substitute for the related Mortgage Loan as provided above or pay such costs and expenses. The applicable mortgage loan seller will remit the amount of these costs and expenses and upon its making such remittance, the applicable mortgage loan seller will be deemed to have cured the breach in all respects. The applicable mortgage loan seller will be the sole warranting party in respect of the Mortgage Loans sold by that mortgage loan seller to the depositor, and none of its affiliates and no other person will be obligated to repurchase or replace any affected Mortgage Loan or make a Loss of Value Payment in connection with a breach of any representation and warranty or in connection with a document defect if the applicable mortgage loan seller defaults on its obligation to do so.
Dispute Resolution Provisions
The mortgage loan seller will be subject to the dispute resolution provisions described under “Indenture and Servicing Agreement—Dispute Resolution Provisions” to the extent those provisions are triggered with respect to any mortgage loan sold to the depositor by the mortgage loan seller and will be obligated under the MLPA to comply with all applicable provisions and to take part in any mediation or arbitration proceedings that may result.
Asset Review Obligations
The mortgage loan seller will be obligated to perform its obligations described under “Indenture and Servicing Agreement—The Asset Representations Reviewer—Asset Review” relating to any Asset Reviews performed by the asset representations reviewer, and the mortgage loan seller will have the rights described under that heading.
Indenture and Servicing Agreement
General
The servicing and administration of the Mortgage Loans (other than the Non-Serviced Mortgage Loan), any related Serviced Companion Loans and any related REO Properties (including any interest of the holder of any Companion Loan in the REO Property acquired with respect to any Serviced Whole Loan) will be governed by the ISA and the related Intercreditor Agreement.
The Non-Serviced Mortgage Loan, the Non-Serviced Companion Loan and any related REO Properties (including the issuing entity’s interest in REO Property acquired with respect to the Non-Serviced Whole Loan) will be serviced by the Non-Serviced Master Servicer and the Non-Serviced Special Servicer under the Non-Serviced Servicing Agreement in accordance with such Non-Serviced Servicing Agreement and the related Intercreditor Agreement. Unless otherwise specifically stated and except where the context otherwise indicates (such as with respect to P&I Advances), discussions in this section or in any other section of this prospectus regarding the servicing and administration of the Mortgage Loans should be deemed to include the servicing and administration of the related Serviced Companion Loans but do not include the Non-Serviced Mortgage Loan, the Non-Serviced Companion Loan and any related REO Property.
The following summaries describe certain provisions of the ISA relating to the servicing and administration of the Mortgage Loans (excluding the Non-Serviced Mortgage Loan), the related Companion Loans and any related REO Properties. In the case of the Serviced Whole Loans, certain provisions of the related Intercreditor Agreement are described under “Description of the Mortgage Pool—The Whole Loans—The Serviced Pari Passu Whole Loan” and “—The Serviced AB Whole Loan”.
Certain provisions of the Non-Serviced Servicing Agreement relating to the servicing and administration of the Non-Serviced Mortgage Loan, the Non-Serviced Companion Loan and the related REO Properties and the related Intercreditor Agreement are summarized under “Description of the Mortgage Pool—The Whole Loans” and “—Servicing of the Non-Serviced Mortgage Loan” below.
Events of Default
An “Event of Default” is defined in the ISA as:
(a) a default in the payment of any interest on any Class [MOST SENIOR CLASSES OF NOTES THAT ARE NOT DEFERRABLE NOTES] note (or, if no Class [MOST SENIOR CLASSES OF NOTES THAT ARE NOT DEFERRABLE NOTES] are outstanding, any note of the most senior class of notes outstanding) when the same becomes due and payable and the continuation of any such default for three (3) business days after a responsible officer of the note administrator has actual knowledge or receives notice from any holder of notes of such payment default; provided that in the case of a failure to disburse funds due to an administrative error or omission by the note administrator or the indenture trustee, such failure continues for five (5) business days after a responsible officer of the note administrator receives written notice or has actual knowledge of such administrative error or omission; or
(b) a default in the payment of principal (or the related Redemption Price, if applicable) of any Class [MOST SENIOR CLASS OF NOTES] note when the same becomes due and payable, at its Stated Maturity Date or any Redemption Date; or if there are no Class MOST SENIOR CLASS OF NOTES] notes outstanding, a default in the payment of principal (or the related Redemption Price, if applicable) of any Class [NEXT MOST SENIOR CLASS OF NOTES] note when the same becomes due and payable at its Stated Maturity Date or any Redemption Date; or if there are no Class [MOST SENIOR CLASS OF NOTES] notes or Class [NEXT MOST SENIOR CLASS OF NOTES] notes outstanding, a default in the payment of principal (or the related Redemption Price, if applicable) of any Class [__] note when the same becomes due and payable at its Stated Maturity Date or any Redemption Date; provided, in each case, that in the case of a failure to disburse funds due to an administrative error or omission by the note administrator or the indenture trustee, such failure continues for five business days after a responsible officer of the note administrator receives written notice or has actual knowledge of such administrative error or omission; or
(c) the failure on any Payment Date to disburse amounts available in the Payment Account in accordance with the Priority of Payments set forth in the ISA (other than a default in payment described in clause (a) or (b) above), which failure continues for a period of three (3) business days or, in the case of a failure to disburse such amounts due to an administrative error or omission by the note administrator, which failure continues for five (5) business days; or
(d) either the issuing entity or the pool of collateral becomes an investment company required to be registered under the 1940 Act; or
(e) a default in any material respect in the performance, or breach, of any other covenant or other agreement of the issuing entity (other than the covenant to make the payments described in clauses (a), (b) or (c) above) or any representation or warranty of the issuing entity under the ISA or in any note or other writing delivered pursuant to the ISA or in connection therewith proves to be incorrect in any material respect when made, and the continuation of such default or breach for a period of thirty (30) days (or, if such default, breach or failure has an adverse effect on the validity, perfection or priority of the security interest granted under the ISA, fifteen (15) days) after the issuing entity has actual knowledge thereof or after notice thereof to the issuing entity by the indenture
trustee or to the issuing entity and the indenture trustee by the holders of the notes evidencing at least [25]% of the Senior Controlling Class; or
(f) the entry of a decree or order by a court having competent jurisdiction adjudging the issuing entity as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the issuing entity under the Bankruptcy Code or any bankruptcy, insolvency, reorganization or similar law enacted under any other applicable law, or appointing a receiver, liquidator, assignee, or sequestrator (or other similar official) of the issuing entity or of any substantial part of its property, respectively, or ordering the winding-up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days; or
(g) the institution by the issuing entity of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Bankruptcy Code, or any bankruptcy, insolvency, reorganization or similar law or any other similar applicable law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, indenture trustee or sequestrator (or other similar official) of the issuing entity or of any substantial part of its property, respectively, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of any action by the issuing entity in furtherance of any such action; or
(h) one or more final judgments being rendered against the issuing entity which exceed, in the aggregate, U.S. $1,000,000 and which remain unstayed, undischarged and unsatisfied for thirty (30) days after such judgment(s) becomes nonappealable, unless adequate funds have been reserved or set aside for the payment thereof, and unless (except as otherwise specified in writing by the Rating Agencies) a Rating Agency Confirmation has been received from the Rating Agencies; or
(i) the issuing entity loses its status as a Qualified REIT Subsidiary or other disregarded entity of 3650 Real Estate Investment Trust 2 LLC or another REIT for U.S. federal income tax purposes, unless (A) within ninety (90) days the issuing entity receives an amount from the holders of the Class [__] notes sufficient to discharge in full the amounts then due and unpaid on the notes in accordance with the Priority of Payments and all other amounts and expenses owed in accordance with the ISA or (B) all classes of the notes are subject to a Tax Redemption announced by the issuing entity in compliance with the ISA, and such redemption has not been rescinded.
If an Event of Default occurs and is continuing (other than the Event of Default specified in clauses (f) or (g) above), the indenture trustee may, and will at the direction of a majority, by outstanding principal amount, of each class of notes voting as a separate class (but excluding any notes held by the Sponsor or its affiliates), declare the principal of and accrued and unpaid interest on all the notes to be immediately due and payable. Upon any such declaration such principal, together with all accrued and unpaid interest thereon, and other amounts payable thereunder in accordance with the Priority of Payments will become immediately due and payable (except that in the case of an Event of Default described in clauses (f) or (g) above, such an acceleration will occur automatically and without any further action).
The “Senior Controlling Class” will be the Class [MOST SENIOR CLASS OF NOTES] notes, so long as any Class [MOST SENIOR CLASS OF NOTES] notes are outstanding, and then the Class [NEXT MOST SENIOR CLASS OF NOTES] notes, so long as any Class [NEXT MOST SENIOR CLASS OF NOTES] notes are outstanding. Any declaration of acceleration may under certain circumstances be rescinded as described in the ISA by the holders of the notes evidencing at least a majority of each and every class of notes.
If an Event of Default has occurred and is continuing when any of the notes are outstanding, the indenture trustee will (except as otherwise expressly permitted or required under the ISA) retain the collateral securing the notes, collect and cause the collection of the proceeds thereof and make and apply all payments and deposits and maintain all accounts in respect of the collateral and the notes in
accordance with the Priority of Payments and under the ISA, and will not sell or liquidate the collateral, unless either:
(i) The note administrator, pursuant to the ISA, determines (based upon information delivered to it in accordance with the ISA) that the anticipated proceeds of a sale or liquidation of the collateral (after deducting the reasonable expenses of such sale or liquidation) would be sufficient to discharge in full the amounts then due and unpaid on the notes and amounts due and payable to the master servicer or indenture trustee in respect of unreimbursed Interest Advances and Reimbursement Interest, and the holders of notes evidencing a majority of the Senior Controlling Class agrees with such determination; or
(ii) the holders of the notes evidencing at least [66-2/3]% of the aggregate outstanding Principal Balance of each class of notes (each voting as a separate class and excluding any notes held by the Sponsor or its affiliates), direct, subject to the provisions of the ISA, the sale and liquidation of all or a portion of the collateral.
In the event of a sale of a portion of the collateral pursuant to clause (ii) above, the Special Servicer will sell those collateral identified by the requisite Noteholders pursuant to a written direction in form and substance satisfactory to the indenture trustee and all proceeds of such sale will be distributed in the order set forth in “Description of the Notes—Payments on the Notes—Priority of Payments.” Subject to the preceding sentence, a majority of the Senior Controlling Class will have the right following the occurrence, and during the continuance of, an Event of Default to cause the institution of, and direct the time, method and place of conducting, any proceeding for any remedy available to the indenture trustee and to direct the exercise of any trust, right, remedy or power conferred upon the indenture trustee; provided, that (a) such direction must not conflict with any rule of law or with any express provision of the ISA, (b) the indenture trustee may take any other action deemed proper by the indenture trustee that is not inconsistent with such direction, (c) the indenture trustee has been provided with security or indemnity reasonably satisfactory to it, and (d) notwithstanding the foregoing, any direction to the indenture trustee to undertake a sale of collateral may be given only in accordance with the preceding paragraph, in connection with any sale and liquidation of a portion of the collateral, the preceding sentence, and, in all cases, the applicable provisions of the ISA.
The indenture trustee will have a lien upon the collateral, which lien is senior to the lien of the Noteholders, to secure the payment of amounts owed to it under the ISA in accordance with the Priority of Payments.
No holder of a note will have the right to institute any proceeding with respect to the ISA unless (i) such holder previously has given to the indenture trustee written notice of an Event of Default, (ii) except in the case of a default in the payment of principal or interest, the holders of the notes evidencing at least [25]% of the Senior Controlling Class have made a written request upon the indenture trustee to institute such proceedings in its own name as indenture trustee and such holders have offered the indenture trustee reasonable indemnity, (iii) the indenture trustee has for thirty (30) days failed to institute any such proceeding, and (iv) no direction inconsistent with such written request has been given to the indenture trustee during such [30-day] period by the holders of the notes evidencing a majority of the Senior Controlling Class. The right of a Noteholder to institute any proceeding with respect to the ISA is subject to any non-petition covenants set forth in the ISA.
If an Event of Default as described in clause (e) of the definition of Event of Default occurs and is continuing, the indenture trustee may, and at the request of the holders of the notes evidencing not less than [25]% of the Senior Controlling Class will, institute a proceeding solely to compel performance of the covenant or agreement or to cure the representation or warranty, the breach of which gave rise to such Event of Default, and enforce any equitable decree or order arising from such proceeding.
Upon any sale of any portion of the collateral in connection with an Event of Default pursuant to the ISA, whether made under the power of sale given under the ISA or by virtue of judicial proceedings, any holders of notes or the master servicer or any its affiliates may bid for and purchase the collateral or any part thereof and, upon compliance with the terms of such sale, may hold, retain, possess or dispose of
such property in its or their own absolute right without accountability; and any purchaser at any such sale may, in paying the purchase money, turn in any of the notes in lieu of cash equal to the amount which will, upon distribution of the net proceeds of such sale, be payable on the notes so turned in by such holder (taking into account the class of such notes). Such notes, in case the amounts so payable thereon will be less than the amount due thereon, will be returned to the holders thereof after proper notation has been made thereon to show partial payment or a new note shall be delivered to the holders reflecting the reduced interest thereon.
In determining whether the holders of the requisite percentage of notes have given any direction, notice or consent under the ISA, notes owned by the issuing entity or any affiliate thereof will be disregarded and deemed not to be outstanding except notes so owned that have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the note administrator the pledgee’s right so to act with respect to such notes and that the pledgee is not the issuing entity or any other obligor upon the notes or any affiliate of the issuing entity or such other obligor. The note administrator will be entitled to rely on certificates from Noteholders to determine any such affiliations.
Assignment of the Mortgage Loans
The depositor will purchase the Mortgage Loans and the Owned Subordinate Companion Loan to be included in the issuing entity on or before the Closing Date from each of the mortgage loan sellers pursuant to separate MLPAs. See “Transaction Parties—The Sponsors and Mortgage Loan Sellers” and “Description of the Mortgage Loan Purchase Agreements”.
On the Closing Date, the depositor will sell, transfer or otherwise convey, assign or cause the assignment of the Mortgage Loans and the Owned Subordinate Companion Loan, without recourse, together with the depositor’s rights and remedies against the mortgage loan sellers under the MLPAs, to the indenture trustee for the benefit of the holders of the notes. On or prior to the Closing Date, the depositor will require each mortgage loan seller to deliver to the note administrator, in its capacity as custodian, the Mortgage Notes and certain other documents and instruments with respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan. The custodian will hold such documents in the name of the issuing entity for the benefit of the holders of the notes. The custodian is obligated to review certain documents for each Mortgage Loan within [60] days of the Closing Date and report any missing documents or certain types of document defects to the parties to the ISA and the Directing Holder (so long as no Consultation Termination Event has occurred) and the related mortgage loan seller.
In addition, pursuant to the related MLPA, the depositor will require each mortgage loan seller to deliver the Diligence File to the special servicer on the Closing Date.
Pursuant to the ISA, the depositor will assign to the indenture trustee for the benefit of Noteholders the representations and warranties made by the mortgage loan sellers to the depositor in the MLPAs and any rights and remedies that the depositor has against the mortgage loan sellers under the MLPAs with respect to any Material Defect. See “—Enforcement of Mortgage Loan Seller’s Obligations Under the MLPA” below and “Description of the Mortgage Loan Purchase Agreements”.
Servicing Standard
The master servicer and the special servicer will each be required to diligently service and administer the Mortgage Loans (excluding the Non-Serviced Mortgage Loan), any related Serviced Companion Loans and the related REO Properties (other than any REO Property related to a Non-Serviced Mortgage Loan), for which it is responsible in accordance with applicable law, the terms of the ISA, the Mortgage Loan documents, and the related Intercreditor Agreements and, to the extent consistent with the foregoing, in accordance with the higher of the following standards of care: (1) the same manner in which, and with the same care, skill, prudence and diligence with which the master servicer or the special servicer, as the case may be, service and administer similar Mortgage Loans for other third-party portfolios, and (2) the same care, skill, prudence and diligence with which the master servicer or special
servicer, as the case may be, services and administers similar Mortgage Loans owned by the master servicer or the special servicer, as the case may be, with a view to; (A) the timely recovery of all payments or principal and interest under the Mortgage Loans or Serviced Whole Loans or (B) in the case of a Specially Serviced Loan or an REO Property, the maximization of timely recovery of principal and interest on a net present value basis on the Mortgage Loans and any related Serviced Companion Loans, and the best interests of the issuing entity and the noteholders (as a collective whole as if such Noteholders constituted a single lender) (and, in the case of any Whole Loan, the best interests of the issuing entity, the Noteholders and the holder of the related Companion Loan (as a collective whole as if such Noteholders and the holder or holders of the related Companion Loan constituted a single lender), taking into account the pari passu or subordinate nature of the related Companion Loan), as determined by the master servicer or the special servicer, as the case may be, in its reasonable judgment, in either case giving due consideration to the customary and usual standards of practice of prudent, institutional commercial, multifamily and manufactured housing community mortgage loan servicers, but without regard to any conflict of interest arising from:
(A) any relationship that the master servicer or the special servicer, as the case may be, or any of their respective affiliates, as the case may be, may have with any of the underlying borrowers, the sponsors, the mortgage loan sellers, the originators, any party to the ISA or any affiliate of the foregoing;
(B) the ownership of any note (or any interest in any Companion Loan, mezzanine loan or subordinate debt relating to a Mortgage Loan) by the master servicer or special servicer, as the case may be, or any of their respective affiliates;
(C) the obligation, if any, of the master servicer to make advances;
(D) the right of the master servicer or the special servicer, as the case may be, or any of its affiliates to receive compensation or reimbursement of costs under the ISA generally or with respect to any particular transaction;
(E) the ownership, servicing or management for others of (i) the Non-Serviced Mortgage Loan and the Non-Serviced Companion Loan or (ii) any other mortgage loans, subordinate debt, mezzanine loans or properties not covered by the ISA or held by the issuing entity by the master servicer or special servicer, as the case may be, or any of its affiliates;
(F) any debt that the master servicer or the special servicer, as the case may be, or any of its affiliates, has extended to any underlying borrower or an affiliate of any borrower (including, without limitation, any mezzanine financing);
(G) any option to purchase any Mortgage Loan or the related Companion Loan the master servicer or special servicer, as the case may be, or any of its affiliates, may have; and
(H) any obligation of the master servicer or the special servicer, or one of their respective affiliates, to repurchase or substitute for a Mortgage Loan as a mortgage loan seller (if the master servicer or the special servicer or one of their respective affiliates is a mortgage loan seller) (the foregoing, collectively referred to as the “Servicing Standard”).
All net present value calculations and determinations made under the ISA with respect to any Mortgage Loan, Mortgaged Property or REO Property (including for purposes of the definition of “Servicing Standard” set forth above) will be made in accordance with the Mortgage Loan documents or, in the event the Mortgage Loan documents are silent, by using a discount rate (i) for principal and interest payments on the Mortgage Loan or Serviced Companion Loan or sale of a Defaulted Loan, the highest of (1) the rate determined by the master servicer or special servicer, as applicable, that approximates the market rate that would be obtainable by the borrowers on similar non-defaulted debt of the borrowers as of such date of determination, (2) the Mortgage Rate and (3) the yield on 10-year U.S. treasuries as of such date of determination and (ii) for all other cash flows, including property cash flow, the “discount rate” set forth in the most recent appraisal (or updated appraisal) of the related Mortgaged Property.
In the case of the Non-Serviced Mortgage Loan, the master servicer and special servicer will be required to act in accordance with the Servicing Standard with respect to any action required to be taken regarding the Non-Serviced Mortgage Loan pursuant to their respective obligations under the ISA.
Subservicing
The master servicer and the special servicer may delegate and/or assign some or all of their respective servicing obligations and duties with respect to some or all of the Mortgage Loans (other than the Non-Serviced Mortgage Loan) and the Serviced Companion Loans to one or more third-party sub-servicers provided that the master servicer and the special servicer, as applicable, will remain obligated under the ISA. A sub-servicer may be an affiliate of the depositor, the master servicer or the special servicer. Notwithstanding the foregoing, the special servicer may not enter into any sub-servicing agreement which provides for the performance by third parties of any or all of its obligations under the ISA without, prior to the occurrence and continuance of a Control Termination Event, the consent of the Directing Holder, except to the extent necessary for the special servicer to comply with applicable regulatory requirements.
Each sub-servicing agreement between the master servicer or special servicer and a sub-servicer (a “Sub-Servicing Agreement”) will generally be required to provide that (i) if for any reason the master servicer or special servicer, as applicable, is no longer acting in that capacity (including, without limitation, by reason of a Servicer Termination Event), the indenture trustee or any successor master servicer or special servicer, as applicable, may assume or terminate such party’s rights and obligations under such Sub-Servicing Agreement and (ii) the sub-servicer will be in default under such Sub-Servicing Agreement and such Sub-Servicing Agreement will be terminated (following the expiration of any applicable grace period) if the sub-servicer fails (A) to deliver by the due date any Exchange Act reporting items required to be delivered to the master servicer pursuant to the ISA or such Sub-Servicing Agreement or to the master servicer under any other indenture and servicing agreement that the depositor is a party to, or (B) to perform in any material respect any of its covenants or obligations contained in such Sub-Servicing Agreement regarding creating, obtaining or delivering any Exchange Act reporting items required in order for any party to the ISA to perform its obligations under the ISA or under the Exchange Act reporting requirements of any other indenture and servicing agreement that the depositor is a party to. The master servicer or special servicer, as applicable, will be required to monitor the performance of sub-servicers retained by it and will have the right to remove a sub-servicer retained by it at any time it considers removal to be in the best interests of Noteholders. However, no sub-servicer will be permitted under any Sub-Servicing Agreement to make material servicing decisions, such as loan modifications or determinations as to the manner or timing of enforcing remedies under the Mortgage Loan documents, without the consent of the master servicer or special servicer, as applicable.
Generally, the master servicer will be solely liable for all fees owed by it to any sub-servicer retained by the master servicer, without regard to whether the master servicer’s compensation pursuant to the ISA is sufficient to pay those fees. Each sub-servicer will be required to be reimbursed by the master servicer for certain expenditures which such sub-servicer makes, generally to the same extent the master servicer would be reimbursed under the ISA.
Advances
P&I Advances
On the business day immediately preceding each Payment Date (the “Remittance Date”), except as otherwise described below, the master servicer will be obligated, unless determined to be non-recoverable as described below, to make advances (each, a “P&I Advance”) out of its own funds or, subject to the replacement of those funds as provided in the ISA, certain funds held in the Collection Account that are not required to be part of the Available Funds for that Payment Date, in an amount equal to (but subject to reduction as described below) the aggregate of:
(1) all Periodic Payments (net of any applicable Servicing Fees) that were due on the Mortgage Loans (including the Non-Serviced Mortgage Loan) and any REO Loan (other than any portion of an REO Loan related to a Companion Loan) during the related Collection Period and not received as of the business day preceding the Remittance Date; and
(2) in the case of each Mortgage Loan delinquent in respect of its balloon payment as of the Remittance Date (including any REO Loan (other than any portion of an REO Loan related to a Companion Loan) as to which the balloon payment would have been past due), an amount equal to its Assumed Scheduled Payment.
The master servicer’s obligations to make P&I Advances in respect of any Mortgage Loan (including the Non-Serviced Mortgage Loan) or REO Loan (other than any portion of an REO Loan related to a Companion Loan) will continue, except if a determination as to non-recoverability is made, through and up to liquidation of the Mortgage Loan or disposition of the REO Property, as the case may be. However, no interest will accrue on any P&I Advance made with respect to a Mortgage Loan unless the related Periodic Payment is received after the related Due Date has passed and any applicable grace period has expired or if the related Periodic Payment is received after the Determination Date but on or prior to the Remittance Date. To the extent that the master servicer fails to make a P&I Advance that it is required to make under the ISA, the indenture trustee will be required to make the required P&I Advance in accordance with the terms of the ISA.
If an Appraisal Reduction Amount has been made with respect to any Mortgage Loan (or, in the case of the Non-Serviced Whole Loan, an appraisal reduction has been made in accordance with the Non-Serviced Servicing Agreement and the master servicer has notice of such Appraisal Reduction Amount) and such Mortgage Loan experiences subsequent delinquencies, then the interest portion of any P&I Advance in respect of that Mortgage Loan for the related Payment Date will be reduced (there will be no reduction in the principal portion, if any, of such P&I Advance) to equal the product of (x) the amount of the interest portion of the P&I Advance for that Mortgage Loan for the related Payment Date without regard to this sentence, and (y) a fraction, expressed as a percentage, the numerator of which is equal to the [Stated Principal Balance] of that Mortgage Loan immediately prior to the related Payment Date, net of the related Appraisal Reduction Amount (or, in the case of any Whole Loan, the portion of such Appraisal Reduction Amount allocated to the related Mortgage Loan), if any, and the denominator of which is equal to the Stated Principal Balance of that Mortgage Loan immediately prior to the related Payment Date.
Neither the master servicer nor the indenture trustee will be required to make a P&I Advance for a balloon payment, default interest, late payment charges, yield maintenance charges, prepayment premiums or Excess Interest or with respect to any Companion Loan.
For the avoidance of doubt, the master servicer or the indenture trustee, as the case may be, will make P&I Advances on the basis of the original terms of any Mortgage Loan, including Mortgage Loans subject to forbearance agreements or other temporary deferrals or payment accommodations, unless (a) the terms of the Mortgage Loan have been permanently modified to reduce or forgive a monetary obligation or (b) such P&I Advance has been determined to be a Nonrecoverable Advance.
Servicing Advances
In addition to P&I Advances, except as otherwise described under “—Recovery of Advances” below and except in certain limited circumstances described below, the master servicer will also be obligated (subject to the limitations described in this prospectus), to make advances (“Servicing Advances” and, collectively with P&I Advances, “Advances”) in connection with the servicing and administration of any Mortgage Loan (other than the Non-Serviced Mortgage Loan) and related Companion Loan, as applicable, in respect of which a default, delinquency or other unanticipated event has occurred or is reasonably foreseeable, or, in connection with the servicing and administration of any Mortgaged Property or REO Property, in order to pay delinquent real estate taxes, assessments and hazard insurance premiums and to cover other similar costs and expenses necessary to preserve the priority of or enforce the related Mortgage Loan documents or to protect, lease, manage and maintain the related
Mortgaged Property. To the extent that the master servicer fails to make a Servicing Advance that it is required to make under the ISA and the indenture trustee has received notice or otherwise has actual knowledge of this failure, the indenture trustee will be required to make the required Servicing Advance in accordance with the terms of the ISA.
However, none of the master servicer, the special servicer or the indenture trustee will make any Servicing Advance in connection with the exercise of any cure rights or purchase rights granted to the holder of a Serviced Companion Loan or Owned Subordinate Companion Loan under the related Intercreditor Agreement or the ISA.
The special servicer will have no obligation to make any Servicing Advances. However, in an urgent or emergency situation requiring the making of a Servicing Advance, the special servicer may make such Servicing Advance, and the master servicer will be required to reimburse the special servicer for such Advance (with interest on that Advance) within a specified number of days as set forth in the ISA, unless such Advance is determined to be nonrecoverable by the master servicer in its reasonable judgment (in which case it will be reimbursed out of the collection account). Once the special servicer is reimbursed, the master servicer will be deemed to have made the special servicer’s Servicing Advance as of the date made by the special servicer, and will be entitled to reimbursement with interest on that Advance in accordance with the terms of the ISA.
No Servicing Advances will be made with respect to any Serviced Whole Loan if the related Mortgage Loan is no longer held by the issuing entity or if such Serviced Whole Loan is no longer serviced under the ISA and no Servicing Advances will be made for the Non-Serviced Whole Loan under the ISA. No Servicing Advances will be made with regard to a Subordinate Companion Loan if the related Mortgage Loan is no longer held by the issuing entity. Any requirement of the master servicer or the indenture trustee to make an Advance in the ISA is intended solely to provide liquidity for the benefit of the Noteholders and not as credit support or otherwise to impose on any such person the risk of loss with respect to one or more Mortgage Loans or the related Companion Loan.
The master servicer will also be obligated to make Servicing Advances with respect to Serviced Whole Loans. With respect to the Non-Serviced Whole Loan, the applicable servicer under the Non-Serviced Servicing Agreement will be obligated to make property protection advances with respect to such Non-Serviced Whole Loan. See “—Servicing of the Non-Serviced Mortgage Loan” below and “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan”.
Notwithstanding the foregoing, none of the master servicer, the special servicer or the indenture trustee will be obligated to make any Advance that it determines in its reasonable judgment would, if made, not be recoverable (including recovery of interest on the Advance) out of Related Proceeds (a “Nonrecoverable Advance”). In addition, the special servicer may, at its option (with respect to any specially-serviced Mortgage Loan, in consultation with, prior to the occurrence of a Consultation Termination Event, the Directing Holder) make a determination in accordance with the Servicing Standard that any P&I Advance or Servicing Advance, if made, would be a Nonrecoverable Advance, and if it makes such a determination, must deliver to the master servicer (and, with respect to a Serviced Pari Passu Mortgage Loan, to any master servicer or special servicer under the ISA governing any securitization into which the related Serviced Pari Passu Companion Loan is deposited, and, with respect to the Non-Serviced Mortgage Loan, the related master servicer under the Non-Serviced Servicing Agreement), the note administrator, the indenture trustee, the operating advisor and the 17g-5 Information Provider notice of such determination, which determination may be conclusively relied upon by, but will not be binding upon, the master servicer and the indenture trustee. The special servicer will have no such obligation to make an affirmative determination that any P&I Advance or Servicing Advance is, or would be, recoverable, and in the absence of a determination by the special servicer that such an Advance is non-recoverable, each such decision will remain with the master servicer or the indenture trustee, as applicable. If the special servicer makes a determination that only a portion, and not all, of any previously made or proposed P&I Advance or Servicing Advance is non-recoverable, the master servicer and the indenture trustee will have the right to make its own subsequent determination that any remaining portion of any such previously made or proposed P&I Advance or Servicing Advance is non-recoverable.
In making such non-recoverability determination, each person will be entitled to consider (among other things): (a) the obligations of the borrower under the terms of the related Mortgage Loan or Companion Loan, as applicable, as it may have been modified, (b) the related mortgaged properties in their “as-is” or then-current conditions and occupancies, as modified by such party’s assumptions regarding the possibility and effects of future adverse change with respect to such mortgaged properties, (c) estimated future expenses, and (d) estimated timing of recoveries, and will be entitled to give due regard to the existence of any Nonrecoverable Advances which, at the time of such consideration, the recovery of which are being deferred or delayed by the master servicer, in light of the fact that Related Proceeds are a source of recovery not only for the Advance under consideration but also a potential source of recovery for such delayed or deferred Advance. In addition, any such person may update or change its recoverability determinations (but not reverse any other person’s determination that an Advance is non-recoverable) at any time and may obtain at the expense of the issuing entity any analysis, appraisals or market value estimates or other information for such purposes. Absent bad faith, any non-recoverability determination described in this paragraph will be conclusive and binding on the Noteholders, and may be conclusively relied upon by, but is not binding upon, the master servicer and the indenture trustee. The master servicer and the indenture trustee will be entitled to rely conclusively on any non-recoverability determination of the special servicer. Nonrecoverable Advances will represent a portion of the losses to be borne by the Noteholders.
With respect to the Non-Serviced Whole Loan, if any servicer under the Non-Serviced Servicing Agreement determines that a P&I Advance with respect to the Non-Serviced Companion Loan, if made, would be non-recoverable, such determination will not be binding on the master servicer and the indenture trustee as it relates to any proposed P&I Advance with respect to the Non-Serviced Mortgage Loan. Similarly, with respect to the Non-Serviced Mortgage Loan, if the master servicer or the special servicer determines that any P&I Advance with respect to such Non-Serviced Mortgage Loan, if made, would be non-recoverable, such determination will not be binding on the related master servicer and related indenture trustee under the related Non-Serviced Servicing Agreement as such determination relates to any proposed P&I Advance with respect to the Non-Serviced Companion Loan (unless the Non-Serviced Servicing Agreement provides otherwise).
Recovery of Advances
The master servicer, the special servicer or the indenture trustee, as applicable, will be entitled to recover (a) any Servicing Advance made out of its own funds from any amounts collected in respect of a Mortgage Loan (or, consistent with the related Intercreditor Agreement, a Serviced Whole Loan) as to which such Servicing Advance was made, and (b) any P&I Advance made out of its own funds from any amounts collected in respect of a Mortgage Loan as to which such P&I Advance was made, whether in the form of late payments, insurance and condemnation proceeds, liquidation proceeds or otherwise from the related Mortgage Loan (“Related Proceeds”). Each of the master servicer, the special servicer and the indenture trustee will be entitled to recover any Advance by it that it subsequently determines to be a Nonrecoverable Advance out of general collections relating to the Mortgage Loans on deposit in the Collection Account (first from principal collections and then from any other collections). Amounts payable in respect of each Serviced Companion Loan pursuant to the related Intercreditor Agreement will not be available for payments on the notes or for the reimbursement of Nonrecoverable Advances of principal or interest with respect to the related Mortgage Loan, but will be available, in accordance with the ISA and related Intercreditor Agreement, for the reimbursement of any Servicing Advances with respect to the related Serviced Whole Loan. If a Servicing Advance by the master servicer or the special servicer (or indenture trustee, as applicable) on a Serviced Whole Loan becomes a Nonrecoverable Advance and the master servicer, the special servicer or the indenture trustee, as applicable, is unable to recover such amounts from related proceeds or the related Companion Loan, as applicable, the master servicer, the special servicer or the indenture trustee (as applicable) will be permitted to recover such Nonrecoverable Advance (including interest thereon) out of general collections on deposit in the Collection Account.
If the funds in the Collection Account relating to the Mortgage Loans allocable to principal on the Mortgage Loans are insufficient to fully reimburse the party entitled to reimbursement, then such party as an accommodation may elect, on a monthly basis, at its sole option and discretion to defer
reimbursement of the portion that exceeds such amount allocable to principal (in which case interest will continue to accrue on the unreimbursed portion of the advance) for a time as required to reimburse the excess portion from principal for a consecutive period up to 12 months (provided that any such deferral exceeding 6 months will require, prior to the occurrence and continuance of any Control Termination Event, the consent of the Directing Holder) and any election to so defer will be deemed to be in accordance with the Servicing Standard; provided that no such deferral may occur at any time to the extent that amounts otherwise distributable as principal are available for such reimbursement.
In connection with a potential election by the master servicer or the indenture trustee to refrain from the reimbursement of all or a portion of a particular Nonrecoverable Advance during the one month collection period ending on the related Determination Date for any Payment Date, the master servicer or the indenture trustee will be authorized to wait for principal collections on the Mortgage Loans to be received until the end of such collection period before making its determination of whether to refrain from the reimbursement of all or a portion of a particular Nonrecoverable Advance; provided, however, that if, at any time the master servicer or the indenture trustee, as applicable, elects, in its sole discretion, not to refrain from obtaining such reimbursement or otherwise determines that the reimbursement of a Nonrecoverable Advance during a one month collection period will exceed the full amount of the principal portion of general collections deposited in the Collection Account for such Payment Date, then the master servicer or the indenture trustee, as applicable, will be required to use its reasonable efforts to give the 17g-5 Information Provider 15 days’ notice of such determination for posting on the 17g-5 Information Provider’s website, unless extraordinary circumstances make such notice impractical, and thereafter will be required to deliver copies of such notice to the Rating Agencies. Notwithstanding the foregoing, failure to give such notice will in no way affect the master servicer’s or the indenture trustee’s election whether to refrain from obtaining such reimbursement.
Each of the master servicer, the special servicer and the indenture trustee will be entitled to recover any Advance that is outstanding at the time that a Mortgage Loan is modified but is not repaid in full by the borrower in connection with such modification but becomes an obligation of the borrower to pay such amounts in the future (such Advance, together with interest on that Advance, a “Workout-Delayed Reimbursement Amount”) out of principal collections on the Mortgage Loans in the Collection Account.
Any amount that constitutes all or a portion of any Workout-Delayed Reimbursement Amount may in the future be determined to constitute a Nonrecoverable Advance and thereafter will be recoverable as any other Nonrecoverable Advance.
In connection with its recovery of any Advance, each of the master servicer, the special servicer and the indenture trustee will be entitled to be paid, out of any amounts relating to the Mortgage Loans then on deposit in the Collection Account, interest at the Prime Rate (the “Reimbursement Rate”) accrued on the amount of the Advance from the date made to, but not including, the date of reimbursement. Neither the master servicer nor the indenture trustee will be entitled to interest on P&I Advances that accrues before the related due date has passed and any applicable grace period has expired. The “Prime Rate” will be the prime rate, for any day, set forth in The Wall Street Journal, New York edition.
See “—Servicing of the Non-Serviced Mortgage Loan” for reimbursements of servicing advances made in respect of the Non-Serviced Whole Loan under the Non-Serviced Servicing Agreement.
Advances
The master servicer is required to establish and maintain, or cause to be established and maintained, one or more accounts and subaccounts (collectively, the “Collection Account”) in its own name on behalf of the indenture trustee and for the benefit of the Noteholders. The master servicer is required to deposit in the Collection Account on a daily basis (and in no event later than the [2nd] business day following receipt in available funds) all payments and collections due after the Cut-off Date and other amounts received or advanced with respect to the Mortgage Loans and the Owned Subordinate Companion Loan (including, without limitation, all proceeds (the “Insurance and Condemnation Proceeds”) received under any hazard, title or other insurance policy that provides coverage with respect to a Mortgaged Property or the related Mortgage Loan or Owned Subordinate Companion Loan or in connection with the full or partial
condemnation of a Mortgaged Property (other than proceeds applied to the restoration of the Mortgaged Property or released to the related borrower in accordance with the Servicing Standard (or, if applicable, a special servicer) and/or the terms and conditions of the related Mortgage) and all other amounts received and retained in connection with the liquidation of any Mortgage Loan that is defaulted and any related defaulted Companion Loans or property acquired by foreclosure or otherwise (the “Liquidation Proceeds”)) together with the net operating income (less reasonable reserves for future expenses) derived from the operation of any REO Properties. Notwithstanding the foregoing, the collections on the Whole Loans will be limited to the portion of such amounts that are payable to the holder of the related Mortgage Loan pursuant to the related Intercreditor Agreement.
The master servicer will also be required to establish and maintain a segregated custodial account (the “Serviced Whole Loan Custodial Account” ) with respect to each Serviced Whole Loan, which may be a sub-account of the Collection Account, and deposit amounts collected in respect of each Serviced Whole Loan in the related Serviced Whole Loan Custodial Account. The issuing entity will only be entitled to amounts on deposit in a Serviced Whole Loan Custodial Account to the extent these funds are not otherwise payable to the holder of a related Serviced Companion Loan or payable or reimbursable to any party to the ISA. Any amounts in a Serviced Whole Loan Custodial Account to which the issuing entity is entitled will be transferred on a monthly basis to the Collection Account.
With respect to each Payment Date, the master servicer will be required to disburse from the Collection Account and remit to the note administrator for deposit into a segregated payment account (the “Payment Account”) in respect of the related Mortgage Loans, or a loan-specific payment account (the “Loan-Specific Payment Account”) in respect of the Owned Subordinate Companion Loan, to the extent of funds on deposit in the Collection Account, on the related Remittance Date, the Available Funds for such Payment Date and any yield maintenance charges or prepayment premiums received as of the related Determination Date. The note administrator is required to establish and maintain the Payment Account in its own name on behalf of the indenture trustee and for the benefit of the Noteholders (or for the benefit of the [LOAN-SPECIFIC CLASS] notes, in the case of the Loan-Specific Payment Account).
On each Payment Date, the note administrator is required to apply amounts on deposit in the Payment Account (which will include all funds that were remitted by the master servicer from the Collection Account (other than with respect to the Owned Subordinate Companion Loan), plus, among other things, any P&I Advances generally to (1) in the case of the Payment Account, make payments of interest and principal from Available Funds to the holders of the notes, as described under “Description of the Notes—Payments on the Notes”, and (2) to apply amounts on deposit in the Loan-Specific Payment Account (which will include all funds that were remitted by the master servicer from the Collection Account with respect to the Owned Subordinate Companion Loan) to make payments of interest and principal from the available funds for the [LOAN-SPECIFIC CLASS] notes to the holders of the [LOAN-SPECIFIC CLASS] notes.
The note administrator is also required to establish and maintain an account (the “Interest Reserve Account”) which may be a sub-account of the Payment Account, in its own name on behalf of the indenture trustee for the benefit of the Noteholders (other than the holders of the [LOAN-SPECIFIC CLASS] notes). On the Remittance Date occurring each February and on any Remittance Date occurring in any January which occurs in a year that is not a leap year (unless such Payment Date is a Redemption Date, the Stated Maturity Date or a Payment Date following an acceleration of the notes as a result of the occurrence and continuation of an Event of Default), the note administrator will be required to deposit amounts remitted by the master servicer or P&I Advances made on the related Mortgage Loans into the Interest Reserve Account during the related interest period, in respect of the Mortgage Loans that accrue interest on an Actual/360 Basis (collectively, the “Actual/360 Loans”), in an amount equal to one day’s interest at the Net Mortgage Rate for each such Actual/360 Loan on its Stated Principal Balance and as of the Payment Date in the month preceding the month in which the Remittance Date occurs, to the extent a Periodic Payment or P&I Advance or other deposit is made in respect of the Mortgage Loans (all amounts so deposited in any consecutive January (if applicable) and February, “Withheld Amounts”). On the Remittance Date occurring each March (and any Redemption Date, the Stated Maturity Date or a Payment Date following an acceleration of the notes as a result of the occurrence and continuation of an
Event of Default), the note administrator will be required to withdraw from the Interest Reserve Account an amount equal to the Withheld Amounts from the preceding January (if applicable) and February, if any, and deposit that amount into the Payment Account.
The note administrator is also required to establish and maintain an account (the “Excess Interest Payment Account”), which may be a sub-account of the Payment Account, in the name of the indenture trustee for the benefit of the holders of the Class [ARD] notes. Prior to the applicable Payment Date, the master servicer is required to remit to the note administrator for deposit into the Excess Interest Payment Account an amount equal to the Excess Interest received by the master servicer on or prior to the related Determination Date.
The note administrator may be required to establish and maintain an account (the “Gain-on-Sale Reserve Account”), which may be a sub-account of the Payment Account, in its own name on behalf of the indenture trustee for the benefit of the Noteholders. To the extent that any gains are realized on sales of Mortgaged Properties (or, with respect to any Whole Loan, the portion of such amounts that are payable on the related Mortgage Loan pursuant to the related Intercreditor Agreement), such gains will be applied on the applicable Payment Date as part of Available Funds to all amounts due and payable on the notes.
Other accounts to be established pursuant to the ISA are one or more segregated custodial accounts (the “REO Account”) for collections from REO Properties. Each REO Account will be maintained by the special servicer in its own name on behalf of the indenture trustee and for the benefit of the Noteholders.
The Collection Account, the Serviced Whole Loan Collection Account, the Payment Account, the Interest Reserve Account, the Gain-on-Sale Reserve Account and the REO Account are collectively referred to as the “Securitization Accounts” (but with respect to any Whole Loan, only to the extent of the issuing entity’s interest in the Whole Loan. Each of the foregoing accounts will be held at a depository institution or trust company meeting the requirements of the ISA.
Amounts on deposit in the foregoing accounts may be invested in certain United States government securities and other investments meeting the requirements of the ISA (“Permitted Investments”). Interest or other income earned on funds in the accounts maintained by the master servicer, the note administrator or the special servicer will be payable to each of them as additional compensation, and each of them will be required to bear any losses resulting from their investment of such funds.
The “Net Mortgage Rate” for each Mortgage Loan (including the Non-Serviced Mortgage Loan) is equal to the related Mortgage Rate then in effect (without regard to any increase in the interest rate of any ARD Loan after the related Anticipated Repayment Date), less the related Administrative Cost Rate; provided, however, that for purposes of calculating Withheld Amounts, the Net Mortgage Rate for any Mortgage Loan will be determined without regard to any modification, waiver or amendment of the terms of the related Mortgage Loan, whether agreed to by the master servicer, the special servicer or resulting from a bankruptcy, insolvency or similar proceeding involving the related borrower. Notwithstanding the foregoing, for Mortgage Loans that do not accrue interest on a 30/360 Basis, then, solely for purposes of calculating the interest rate on the notes, the Net Mortgage Rate of any Mortgage Loan for any one-month period preceding a related Due Date will be the annualized rate at which interest would have to accrue in respect of the Mortgage Loan on the basis of a 360-day year consisting of twelve 30-day months in order to produce the aggregate amount of interest actually required to be paid in respect of the Mortgage Loan during the one-month period at the related Net Mortgage Rate; provided, however, that with respect to each Actual/360 Loan, the Net Mortgage Rate for the one-month period (1) prior to the Due Dates in January and February in any year which is not a leap year or in February in any year which is a leap year (unless such Payment Date is a Redemption Date, the Stated Maturity Date or a Payment Date following an acceleration of the notes as a result of the occurrence and continuation of an Event of Default) will be determined exclusive of Withheld Amounts, and (2) prior to the Due Date in March (and any Redemption Date, the Stated Maturity Date or a Payment Date following an acceleration of the notes as a result of the occurrence and continuation of an Event of Default), will be determined inclusive of Withheld Amounts for the immediately preceding February and January, as applicable.
“Administrative Cost Rate” as of any date of determination will be a per annum rate equal to the sum of the Servicing Fee Rate, the Note Administrator/Indenture Trustee Fee Rate, the Operating Advisor Fee Rate and the CREFC® Intellectual Property Royalty License Fee Rate.
“Mortgage Rate” with respect to any Mortgage Loan (including the Non-Serviced Mortgage Loan) or any related Companion Loan or Owned Subordinate Companion Loan on or prior to its maturity date. is the per annum rate at which interest accrues on the Mortgage Loan, the related Companion Loan or Owned Subordinate Companion Loan as stated in the related Mortgage Note or the promissory note evidencing such Companion Loan without giving effect to any default rate or Revised Rate.
Withdrawals from the Collection Account
The master servicer may, from time to time, make withdrawals from the Collection Account (or the applicable subaccount of the Collection Account[, exclusive of the Serviced Whole Loan Custodial Account that may be a subaccount of the Collection Account]) for any of the following purposes, in each case only to the extent permitted under the ISA and with respect to the Serviced Whole Loan, subject to the terms of the related Intercreditor Agreement, without duplication (the order set forth below not constituting an order of priority for such withdrawals):
(i) to remit on each Remittance Date (A) to the note administrator for deposit into the Payment Account [(or the Loan-Specific Payment Account in respect of the Owned Subordinate Companion Loan)] certain portions of the Available Funds [and any prepayment premiums or yield maintenance charges] attributable to the Mortgage Loans on the related Payment Date, or (B) to the note administrator for deposit into the Interest Reserve Account an amount required to be withheld as described above under “—Accounts”;
(ii) to pay or reimburse the master servicer, the special servicer and the indenture trustee, as applicable, pursuant to the terms of the ISA for Advances made by any of them and interest on Advances (the master servicer’s, special servicer’s or the indenture trustee’s respective right, as applicable, to reimbursement for items described in this clause (ii) being limited as described above under “—Advances”) (provided that with respect to each Serviced Whole Loan, such reimbursements are subject to the terms of the related Intercreditor Agreement);
(iii) to pay to the master servicer and the special servicer, as compensation, the aggregate unpaid servicing compensation;
(iv) to pay to the operating advisor the Operating Advisor Consulting Fee (but only to the extent actually received from the related borrower) or the Operating Advisor Fee;
(v) to pay to the asset representations reviewer the Asset Representations Reviewer Fee (to the extent such fee is to be paid by the issuing entity);
(vi) to reimburse the indenture trustee, the special servicer and the master servicer, as applicable, for certain Nonrecoverable Advances or Workout-Delayed Reimbursement Amounts;
(vii) to reimburse the master servicer, the special servicer or the indenture trustee, as applicable, for any unreimbursed expenses reasonably incurred with respect to each related Mortgage Loan [or related Owned Subordinate Companion Loan] that has been repurchased or substituted by such person pursuant to the ISA or otherwise;
(viii) to reimburse the master servicer or the special servicer for any unreimbursed expenses reasonably incurred by such person in connection with the enforcement of the applicable mortgage loan seller’s obligations under the applicable section of the related MLPA;
(ix) to pay for any unpaid costs and expenses incurred by the issuing entity;
(x) to pay the master servicer and the special servicer, as applicable, as additional servicing compensation, (A) interest and investment income earned in respect of amounts relating to the issuing entity held in the Collection Account and the companion loan payment account (but only to the extent of the net investment earnings during the applicable one month period ending on the related Payment Date) and (B) certain penalty charges and default interest;
(xi) to recoup any amounts deposited in the Collection Account in error;
(xii) to the extent not reimbursed or paid pursuant to any of the above clauses, to reimburse or pay the master servicer, the special servicer, the operating advisor, the asset representations reviewer, the depositor or any of their respective directors, officers, members, managers, employees and agents, unpaid additional administrative expenses of the issuing entity and certain other unreimbursed expenses incurred by such person pursuant to and to the extent reimbursable under the ISA and to satisfy any indemnification obligations of the issuing entity under the ISA;
(xiii) to pay for the cost of the opinions of counsel or the cost of obtaining any extension to the time in which the issuing entity is permitted to hold REO Property;
(xiv) to pay any applicable taxes and filing fees (including any registered office and governmental fees) owed by the issuing entity, if any;
(xv) to pay the CREFC® Intellectual Property Royalty License Fee;
(xvi) to reimburse the note administrator out of general collections on the Mortgage Loans, the Owned Subordinate Companion Loan and REO Properties for legal expenses incurred by and reimbursable to it by the issuing entity of any administrative or judicial proceedings related to an examination or audit by any governmental taxing authority;
(xvii) to pay the applicable mortgage loan seller or any other person, with respect to each Mortgage Loan, if any (or the related Owned Subordinate Companion Loan, if applicable), previously purchased or replaced by such person pursuant to the ISA, all amounts received thereon subsequent to the date of purchase or replacement relating to periods after the date of purchase or replacement;
(xviii) to remit to the note administrator for deposit in the Interest Reserve Account the amounts required to be deposited in the Interest Reserve Account pursuant to the ISA;
(xix) to remit to the companion paying agent for deposit into the companion payment account the amounts required to be deposited pursuant to the ISA; and
(xx) to clear and terminate the Collection Account pursuant to a plan for termination and liquidation of the issuing entity.
[Certain of the foregoing withdrawals of items specifically related to an AB Whole Loan will be made out of the Collection Account, first, from amounts on deposit allocated to the related Subordinate Companion Loan, second, from amounts on deposit allocated to the related Mortgage Loan and then from general collections in respect of all other Mortgage Loans.]
No amounts payable or reimbursable to the parties to the ISA out of general collections that do not specifically relate to a Serviced Whole Loan may be reimbursable from amounts that would otherwise be payable to the related Companion Loan.
Certain costs and expenses (such as a pro rata share of any related Servicing Advances) allocable to the Mortgage Loan (other than the Non-Serviced Mortgage Loan) that is part of a Serviced Whole Loan may be paid or reimbursed out of payments and other collections on the other Mortgage Loans, subject to the issuing entity’s right to reimbursement from future payments and other collections on the related Companion Loan or from general collections with respect to the securitization of the related Companion
Loan. If the master servicer makes, with respect to any Serviced Whole Loan, any reimbursement or payment out of the Collection Account to cover the related Serviced Companion Loan’s share of any cost, expense, indemnity, Servicing Advance or interest on such Servicing Advance, or fee with respect to such Serviced Whole Loan, then the master servicer (with respect to non-Specially Serviced Loans) and the special servicer (with respect to Specially Serviced Loans) must use efforts consistent with the Servicing Standard to collect such amount out of collections on such Serviced Companion Loan or, if and to the extent permitted under the related Intercreditor Agreement, from the holder of the related Serviced Companion Loan.
The master servicer will also be entitled to make withdrawals, from time to time, from the Collection Account of amounts necessary for the payments or reimbursements required to be paid to the parties to the applicable Non-Serviced Servicing Agreement, pursuant to the applicable Non-Serviced Intercreditor Agreement and the applicable Non-Serviced Servicing Agreement. See “—Servicing of the Non-Serviced Mortgage Loan”.
If a P&I Advance is made with respect to any Mortgage Loan (other than the Non-Serviced Mortgage Loan) that is part of a Whole Loan, then that P&I Advance, together with interest on such P&I Advance, may only be reimbursed out of future payments and collections on that Mortgage Loan or, as and to the extent described under “—Advances” above, on other Mortgage Loans, but not out of payments or other collections on the related Serviced Companion Loan. Likewise, the Note Administrator/Indenture Trustee Fee and the Operating Advisor Fee that accrue with respect to any Mortgage Loan (other than the Non-Serviced Mortgage Loan) that is part of a Whole Loan and any other amounts payable to the operating advisor may only be paid out of payments and other collections on such Mortgage Loan and/or the Mortgage Pool generally, but not out of payments or other collections on the related Serviced Companion Loan.
Servicing and Other Compensation and Payment of Expenses
General
The parties to the ISA other than the depositor will be entitled to payment of certain fees as compensation for services performed under the ISA. Below is a summary of the fees payable to the parties to the ISA from amounts that the issuing entity is entitled to receive. In addition, CREFC® will be entitled to a license fee for use of their names and trademarks, including the CREFC® Investor Reporting Package. Certain additional fees and costs payable by the related borrowers are allocable to the parties to the ISA other than the depositor, but such amounts are not payable from amounts that the issuing entity is entitled to receive. [THE TABLE BELOW AND RELATED DISCLOSURE WILL BE UPDATED TO DISCLOSE ANY ADDITIONAL FEES OR EXPENSES PAID TO THE TRANSACTION PARTIES, INCLUDING ANY RETAINER FEE OR SIMILAR FEE PAID TO THE ASSET REPRESENTATIONS REVIEWER.]
The amounts available for payment on the notes on any Payment Date will generally be net of the following amounts:
Type/Recipient(1) | Amount(1) | Source(1) | Frequency |
| Fees | | | |
Master Servicing Fee /
Master Servicer | With respect to the Mortgage Loans and the related Serviced Companion Loans, the product of the monthly portion of the related annual Servicing Fee Rate calculated on the Stated Principal Balance of such Mortgage Loan and Serviced Companion Loan. | Out of recoveries of interest with respect to the related Mortgage Loan (and the related Serviced Companion Loans) or if unpaid after final recovery on the related Mortgage Loan, out of general collections on deposit in the Collection Account with respect to the other Mortgage Loans. | Monthly |
| Special Servicing Fee / Special Servicer | With respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) and the related Serviced Companion Loan that are a Specially Serviced Loan, the product of the monthly portion of the related annual Special Servicing Fee Rate calculated on the Stated Principal Balance of such Specially Serviced Loan. | First, from liquidation proceeds, insurance and condemnation proceeds, and collections in respect of the related Mortgage Loan (and the related Serviced Companion Loans), and then from general collections on deposit in the Collection Account with respect to the other Mortgage Loans. | Monthly |
Workout Fee /
Special Servicer(2) | With respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) and the related Serviced Companion Loan that are a Corrected Loan, the Workout Fee Rate multiplied by all payments of interest and principal received on such Mortgage Loan and the related Serviced Companion Loan for so long as they remain a Corrected Loan. | Out of each collection of interest, principal, [and prepayment consideration] received on the related Mortgage Loan (and each related Serviced Companion Loan) and then from general collections on deposit in the Collection Account with respect to the other Mortgage Loans. | Time to time |
Liquidation Fee /
Special Servicer(2) | With respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) and the related Serviced Companion Loan that are a Specially Serviced Loan for which the special servicer obtains a full, partial or discounted payoff or any liquidation proceeds, insurance proceeds and condemnation proceeds an amount calculated by application of a Liquidation Fee Rate to the related payment or proceeds (exclusive of default interest). | From any liquidation proceeds, insurance proceeds, condemnation proceeds and any other revenues received with respect to the related Mortgage Loan (and each related Serviced Companion Loan) and then from general collections on deposit in the Collection Account with respect to the other Mortgage Loans. | Time to time |
| Additional Servicing Compensation / Master Servicer and/or Special Servicer(3) | All modification fees, assumption application fees, defeasance fees, assumption, waiver, consent and earnout | Related payments made by borrowers with respect to the related Mortgage Loans and related Serviced Companion | Time to time |
Type/Recipient(1) | Amount(1) | Source(1) | Frequency |
| | fees, late payment charges, default interest and other processing fees actually collected on the Mortgage Loans (other than the Non-Serviced Mortgage Loan) and related Serviced Companion Loans. | Loans. | |
| Note Administrator/Indenture Trustee Fee/Note Administrator | With respect to each Payment Date, an amount equal to the product of the monthly portion of the annual Note Administrator/Indenture Trustee Fee Rate multiplied by the Stated Principal Balance of each Mortgage Loan and the Owned Subordinate Companion Loan. | Out of general collections on deposit in the Collection Account or the Payment Account. | Monthly |
| Note Administrator/Indenture Trustee Fee/Indenture Trustee | With respect to each Payment Date, an amount equal to the monthly portion of the annual Note Administrator/Indenture Trustee Fee | Out of general collections on deposit in the Collection Account or the Payment Account. | Monthly |
| Operating Advisor Fee / Operating Advisor | With respect to each Payment Date, an amount equal to the product of the monthly portion of the annual Operating Advisor Fee Rate multiplied by the Stated Principal Balance of each Mortgage Loan. | First, out of recoveries of interest with respect to the related Mortgage Loan and then, if the related Mortgage Loan has been liquidated, out of general collections on deposit in the Collection Account with respect to the other Mortgage Loans. | Monthly |
| Operating Advisor Consulting Fee / Operating Advisor | $[______] for each Major Decision made with respect to a Mortgage Loan or such lesser amount as the related borrower agrees to pay with respect to such Mortgage Loan. | From the related borrower. | Time to time |
| Asset Representations Reviewer Fee/Asset Representations Reviewer | Upon the completion of any Asset Review with respect to a Delinquent Loan, the Asset Representations Reviewer Fee. | [Out of general collections on deposit in the Collection Account with respect to the other Mortgage Loans.] | Time to time |
| Servicing Advances / Master Servicer, Special Servicer or Indenture Trustee | To the extent of funds available, the amount of any Servicing Advances. | First, from funds collected with respect to the related Mortgage Loan (and the related Serviced Companion Loans), and with respect to any Nonrecoverable Advance or a Workout Delayed Reimbursement Amount, then out of general collections on deposit in the Collection Account, subject to certain limitations. | Time to time |
Interest on Servicing
Advances / Master Servicer, Special Servicer or Indenture | At a rate per annum equal to the Reimbursement Rate calculated on the number of | First, out of late payment charges and default interest on the related Mortgage Loan (and | Time to time |
Type/Recipient(1) | Amount(1) | Source(1) | Frequency |
| Trustee | days the related Advance remains unreimbursed. | the related Serviced Companion Loans), and then, after or at the same time that advance is reimbursed, out of any other amounts then on deposit in the Collection Account, subject to certain limitations. | |
P&I Advances /
Master Servicer and Indenture Trustee | To the extent of funds available, the amount of any P&I Advances. | First, from funds collected with respect to the related Mortgage Loan and then, with respect to a Nonrecoverable Advance or a Workout Delayed Reimbursement Amount, out of general collections on deposit in the Collection Account. | Time to time |
| Interest on P&I Advances / Master Servicer and Indenture Trustee | At a rate per annum equal to Reimbursement Rate calculated on the number of days the related Advance remains unreimbursed. | First, out of default interest and late payment charges on the related Mortgage Loan and then, after or at the same time that advance is reimbursed, out of general collections then on deposit in the Collection Account with respect to the other Mortgage Loans. | Monthly |
Indemnification Expenses /
Indenture Trustee, Note Administrator, Depositor, Master Servicer, Operating Advisor, Asset Representations Reviewer or Special Servicer and any director, officer, employee or agent of any of the foregoing parties | Amount to which such party is entitled for indemnification under the ISA. | Out of general collections on deposit in the Collection Account or the Payment Account (and, under certain circumstances, from collections on Serviced Companion Loans) | Time to time |
| CREFC® Intellectual Property Royalty License Fee / CREFC® | With respect to each Payment Date, an amount equal to the product of the CREFC® Intellectual Property Royalty License Fee Rate multiplied by the outstanding principal amount of each Mortgage Loan. | Out of general collections on deposit in the Collection Account. | Monthly |
| Expenses of the issuing entity not advanced (which may include reimbursable expenses incurred by the Operating Advisor or Asset Representations Reviewer, expenses relating to environmental remediation or appraisals, expenses of operating REO Property and expense incurred by any independent contractor hired to operate REO Property) | Based on third party charges. | First from collections on the related Mortgage Loan (income on the related REO Property), if applicable, and then from general collections in the Collection Account (and custodial account with respect to a Serviced Companion Loan, if applicable), subject to certain limitations. | |
_____________________
| (1) | With respect to any Mortgage Loan and any related Serviced Companion Loan (or any Specially Serviced Loan) in respect of which an REO Property was acquired, and all references to Mortgage Loan, Companion Loan, Specially Serviced Loan in this table will be deemed to also be references to or to also include any REO Loans. |
With respect to the Non-Serviced Mortgage Loan, the related master servicer, special servicer, note administrator, indenture trustee, operating advisor and/or asset representations reviewer under the Non-Serviced Servicing Agreement governing the servicing of the Non-Serviced Mortgage Loan will be entitled to receive similar fees and reimbursements with respect to the Non-Serviced Mortgage Loan in amounts, from sources and at frequencies that are similar, but not necessarily identical, to those described above and, in certain cases (for example, with respect to unreimbursed special servicing fees and servicing advances with respect to the Non-Serviced Whole Loan), such amounts may be reimbursable from general collections on the other Mortgage Loans to the extent not recoverable from the Non-Serviced Whole Loan.
In connection with the servicing and administration of each Serviced Whole Loan pursuant to the terms of the ISA and the related Intercreditor Agreement, the master servicer and special servicer will be entitled to servicing compensation, without duplication, with respect to the related Serviced Companion Loan as well as the related Mortgage Loan to the extent consistent with the ISA and not prohibited by the related Intercreditor Agreement.
| (2) | Subject to certain offsets as described below. Circumstances as to when a Liquidation Fee is not payable are set forth in this “Indenture and Servicing Agreement—Servicing and Other Compensation and Payment of Expenses” section. |
| (3) | Allocable between the master servicer and the special servicer as provided in the ISA. |
Master Servicing Compensation
The fee of the master servicer including the fee of any primary or other sub-servicer (the “Servicing Fee”) will be payable monthly from amounts allocable in respect of interest received in respect of each Mortgage Loan or Serviced Whole Loan (to the extent not prohibited under the related Intercreditor Agreement), and will accrue at a rate (the “Servicing Fee Rate”) on the [Stated Principal Balance] of such Mortgage Loan or Whole Loan, equal to a per annum rate ranging from [_____] % to [______] %. The Servicing Fee payable to the master servicer with respect to each Serviced Companion Loan will be payable, subject to the terms of the related Intercreditor Agreement, from amounts payable in respect of the related Companion Loan.
In addition to the Servicing Fee, the master servicer will be entitled to retain, as additional servicing compensation (other than with respect to the Non-Serviced Mortgage Loan), the following amounts to the extent collected from the related borrower:
| • | [__]% of Excess Modification Fees related to any modifications, waivers, extensions or amendments of any Mortgage Loans (other than the Non-Serviced Mortgage Loan) that are not Specially Serviced Loans and any related Serviced Companion Loan to the extent not prohibited by the related Intercreditor Agreement; provided that with respect to such transactions, the consent of and/or processing by the special servicer is not required for the related transaction and, in the event that the special servicer’s consent and/or processing is required, then the master servicer will be entitled to 50% of such fees; |
| • | [__]% of all assumption application fees received on any Mortgage Loans that are not Specially Serviced Loans (including any related Serviced Companion Loan to the extent not prohibited by the related Intercreditor Agreement) (whether or not the consent of the special servicer is required) and 100% of all defeasance fees; |
| • | [__]% of assumption, waiver, consent and earnout fees and other processing fees pursuant to the ISA on any Mortgage Loans that are not Specially Serviced Loans (including any related Serviced Companion Loan to the extent not prohibited by the related Intercreditor Agreement), provided that with respect to such transactions, the consent of the special servicer is not required to take such actions; |
| • | [__]% of all assumption, waiver, consent and earnout fees and other processing fees (other than assumption application and defeasance fees), in each case, with respect to all Mortgage Loans that are not Specially Serviced Loans (including any related Serviced Companion Loan to the extent not prohibited by the related Intercreditor Agreement) for which the special servicer’s processing, consent or approval is required and only to the extent that all amounts then due and payable with respect to the related Mortgage Loan have been paid; and |
| • | late payment charges and default interest paid by the borrowers (that were accrued while the related Mortgage Loans (other than the Non-Serviced Mortgage Loan) or any related Serviced Companion Loan (to the extent not prohibited by the related Intercreditor Agreement) were not Specially Serviced Loans), but only to the extent such late payment charges and default interest are not needed to pay interest on Advances or certain additional administrative expenses incurred with respect to the related Mortgage Loan or, if provided under the related Intercreditor Agreement, any related Serviced Companion Loan since the Closing Date. |
In addition, the master servicer also is authorized but not required to invest or direct the investment of funds held in the Collection Account in Permitted Investments, and the master servicer will be entitled to retain any interest or other income earned on those funds and will bear any losses resulting from the investment of these funds, except as set forth in the ISA. The master servicer also is entitled to retain any interest earned on any servicing escrow account to the extent the interest is not required to be paid to the related borrowers.
[See “—Modifications, Waivers and Amendments”.]
“Excess Modification Fees” means, with respect to any Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan, the sum of (A) the excess, if any, of (i) any and all Modification Fees with respect to a modification, waiver, extension or amendment of any of the terms of such Mortgage Loan or Serviced Whole Loan, over (ii) all unpaid or unreimbursed additional administrative expenses (including, without limitation, reimbursement of Advances and interest on Advances to the extent not otherwise paid or reimbursed by the borrower but excluding Special Servicing Fees, Workout Fees and Liquidation Fees) outstanding or previously incurred on behalf of the issuing entity with respect to the related Mortgage Loan or Serviced Whole Loan, and reimbursed from such Modification Fees and (B) expenses previously paid or reimbursed from Modification Fees as described in the preceding clause (A), which expenses have been recovered from the related borrower or otherwise.
“Modification Fees” means, with respect to any Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Companion Loans, any and all fees with respect to a modification, extension, waiver or amendment that modifies, extends, amends or waives any term of such Mortgage Loan documents and/or related Serviced Companion Loan documents (as evidenced by a signed writing) agreed to by the master servicer or the special servicer, as applicable (other than all assumption fees, assumption application fees, consent fees, defeasance fees, Special Servicing Fees, Liquidation Fees or Workout Fees).
With respect to each of the master servicer and special servicer, the Excess Modification Fees collected and earned by such person from the related borrower (taken in the aggregate with any other Excess Modification Fees collected and earned by such person from the related borrower within the prior 12-months of the collection of the current Excess Modification Fees) will be subject to a cap of the greater of (a) [__]% of the outstanding principal balance of the related Mortgage Loan or Serviced Whole Loan on the closing date of the related modification, extension, waiver or amendment (after giving effect to such modification, extension, waiver or amendment) with respect to any Mortgage Loan or Serviced Whole Loan and (b) $[__][INSERT ANY APPLICABLE MINIMUM FEE LANGUAGE].
The Servicing Fee is calculated on the Stated Principal Balance of each Mortgage Loan (including the Non-Serviced Mortgage Loan) and each related Serviced Companion Loan in the same manner as interest is calculated on such Mortgage Loans and Serviced Companion Loans. The Servicing Fee for each Mortgage Loan is included in the Administrative Cost Rate listed for that Mortgage Loan on Annex
A-1. Any Servicing Fee Rate calculated on an Actual/360 Basis will be recomputed on 30/360 Basis for purposes of calculating the Net Mortgage Rate.
[Pursuant to the terms of the ISA, [NAME OF MASTER SERVICER] will be entitled to retain a portion of the Servicing Fee with respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) and, to the extent provided for in the related Intercreditor Agreement, each Serviced Companion Loan notwithstanding any termination or resignation of [NAME OF MASTER SERVICER] as master servicer; provided that [NAME OF MASTER SERVICER] may not retain any portion of the Servicing Fee to the extent that portion of the Servicing Fee is required to appoint a successor master servicer. In addition, [NAME OF MASTER SERVICER] will have the right to assign and transfer its rights to receive that retained portion of its Servicing Fee to another party.]
The master servicer will be required to pay its overhead and any general and administrative expenses incurred by it in connection with its servicing activities under the ISA. The master servicer will be entitled to reimbursement for any expenses incurred by it except as expressly provided in the ISA. The master servicer will be responsible for all fees payable to any sub-servicers. See “Description of the Notes—Payments on the Notes—Method, Timing and Amount”.
[With respect to the Non-Serviced Mortgage Loan, the master servicer (or primary servicer) will be entitled to a primary servicing fee accruing at a rate equal to [ [_____] % per annum with respect to the Non-Serviced Mortgage Loan][LIST PRIMARY SERVICING FEE RATE FOR NON-SERVICED MORTGAGE LOAN].]
Special Servicing Compensation
The principal compensation to be paid to the special servicer in respect of its special servicing activities will be the Special Servicing Fee, the Workout Fee and the Liquidation Fee.
The “Special Servicing Fee” will accrue with respect to each Specially Serviced Loan and each REO Loan (other than a Non-Serviced Mortgage Loan) on a loan-by-loan basis at a rate equal to a per annum rate of [______]% [INSERT CAPS OR MINIMUMS] (the “Special Servicing Fee Rate”) calculated on the basis of the Stated Principal Balance of the related Mortgage Loan (including any REO Loan), Companion Loan and the Owned Subordinate Companion Loan, as applicable, and in the same manner as interest is calculated on the Specially Serviced Loans, and will be payable monthly, first from Liquidation Proceeds, Insurance and Condemnation Proceeds, and collections in respect of the related REO Property or Specially Serviced Loan and then from general collections on all the Mortgage Loans (other than the Non-Serviced Mortgage Loan) and any REO Properties. The Non-Serviced Whole Loan will be subject to a similar special servicing fee pursuant to the Non-Serviced Servicing Agreement. For further detail, see “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan”.
The “Workout Fee” will generally be payable with respect to each Corrected Loan and will be calculated by application of a “Workout Fee Rate” of the lesser of (a) [______]% to each collection (other than penalty charges) of interest and principal (other than any amount for which a Liquidation Fee would be paid) (including scheduled payments, prepayments, balloon payments, and payments at maturity or anticipated repayment date) received on the Corrected Loan for so long as it remains a Corrected Loan and (b) [INSERT MAXIMUM/MINIMUM FEES][; provided that no Workout Fee will be payable by the issuing entity with respect to any Corrected Loan if and to the extent that the Corrected Loan became a Specially Serviced Loan under clause (5) or clause (7) of the definition of “Specially Serviced Loan” (and no other clause of that definition) and no event of default actually occurs, unless the related Mortgage Loan or Serviced Whole Loan is modified by the special servicer in accordance with the terms of the ISA]. The Non-Serviced Whole Loan will be subject to a similar workout fee pursuant to the Non-Serviced Servicing Agreement. For further details, see “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan” and “Indenture and Servicing Agreement—Servicing of the Non-Serviced Mortgage Loan”.
The Workout Fee with respect to any Corrected Loan will cease to be payable if the Corrected Loan again becomes a Specially Serviced Loan but will become payable again if and when the Mortgage Loan (including a Serviced Companion Loan again becomes a Corrected Loan. The Workout Fee with respect to any Specially Serviced Loan that becomes a Corrected Loan will be reduced by any Excess Modification Fees paid by or on behalf of the related borrower with respect to a related Mortgage Loan or REO Loan and received by the special servicer as compensation within the prior [18] months, but only to the extent those fees have not previously been deducted from a Workout Fee or Liquidation Fee [INSERT MAXIMUM/MINIMUM FEES].
If the special servicer is terminated (other than for cause) or resigns, it will retain the right to receive any and all Workout Fees payable with respect to a Mortgage Loan, Serviced Companion Loan that became a Corrected Loan during the period that it acted as special servicer and remained a Corrected Loan at the time of that termination or resignation, except that such Workout Fees will cease to be payable if the Corrected Loan again becomes a Specially Serviced Loan. The successor special servicer will not be entitled to any portion of those Workout Fees. If the special servicer resigns or is terminated (other than for cause), it will receive any Workout Fees payable on Specially Serviced Loans for which the resigning or terminated special servicer had determined to grant a forbearance or cured the event of default through a modification, restructuring or workout negotiated by the special servicer and evidenced by a signed writing, but which had not as of the time the special servicer resigned or was terminated become a Corrected Loan solely because the borrower had not made three consecutive timely Periodic Payments and which subsequently becomes a Corrected Loan as a result of the borrower making such three consecutive timely Periodic Payments.
A “Liquidation Fee” will be payable to the special servicer with respect to each Specially Serviced Loan or REO Property (except with respect to the Non-Serviced Mortgage Loan) as to which the special servicer receives (a) a full, partial or discounted payoff from the related borrower or (b) any Liquidation Proceeds or Insurance and Condemnation Proceeds (including the related Companion Loan, if applicable) or REO Property. The Liquidation Fee for each Specially Serviced Loan (and each related Serviced Companion Loan) and REO Property will be payable from, and will be calculated by application of a “Liquidation Fee Rate” of the lesser of (a) [___]% to the related payment or proceeds and (b) [INSERT MAXIMUM/MINIMUM FEES]; provided that the Liquidation Fee with respect to any Specially Serviced Loan will be reduced by the amount of any Excess Modification Fees paid by or on behalf of the related borrower with respect to the related Mortgage Loan (including a Serviced Companion Loan or REO Property and received by the special servicer as compensation within the prior [18] months, but only to the extent those fees have not previously been deducted from a Workout Fee or Liquidation Fee.
Notwithstanding anything to the contrary described above, no Liquidation Fee will be payable based upon, or out of, Liquidation Proceeds received in connection with:
(i) (A) the repurchase of, or substitution for, any Mortgage Loan, Serviced Companion Loan or Owned Subordinate Companion Loan by a mortgage loan seller for a breach of representation or warranty or for defective or deficient Mortgage Loan documentation within the time period (or extension of such time period) provided for such repurchase or substitution if such repurchase or substitution occurs prior to the termination of such extended period, or (B) the payment of a Loss of Value Payment in connection with any such breach or document defect,
(ii) the purchase of (A) any Specially Serviced Loan that is an AB Whole Loan or related REO Property by the holders of the Subordinate Companion Loan or the [LOAN-SPECIFIC CLASS] notes or (B) any Specially Serviced Loan or an REO Property that is subject to mezzanine indebtedness by the holder of the related mezzanine loan, in each case described in clause (ii)(A) or (B) above, within 90 days of such holder’s purchase option first becoming exercisable during the period prior to such Mortgage Loan becoming a Corrected Loan,
(iii) the purchase of all of the Mortgage Loans and REO Properties and, if applicable, the Owned Subordinate Companion Loan, in connection with an optional termination of the issuing entity,
(iv) with respect to a [Serviced Pari Passu Companion Loan], (A) a repurchase of such Serviced Pari Passu Companion Loan by the applicable mortgage loan seller for a breach of representation or warranty or for defective or deficient Mortgage Loan documentation under the indenture and servicing agreement for the securitization holding such Serviced Pari Passu Companion Loan within the time period (or extension of such time period) provided for such repurchase if such repurchase occurs prior to the termination of such extended period provided in such indenture and servicing agreement or (B) a purchase of such Serviced Pari Passu Companion Loan by an applicable party to an indenture and servicing agreement pursuant to a clean-up call or similar liquidation of another securitization entity,
(v) the purchase of any Specially Serviced Loan by the special servicer or its affiliate (except if such affiliate purchaser is the Directing Holder or its affiliate; provided, however, that if no Control Termination Event has occurred and is continuing, such affiliated Directing Holder or its affiliate purchases any Specially Serviced Loan within 90 days after the special servicer delivers to such Directing Holder for approval the initial asset status report with respect to such Specially Serviced Loan, the special servicer will not be entitled to a liquidation fee in connection with such purchase by the Directing Holder or its affiliates) or
(vi) if a Mortgage Loan or the Serviced Whole Loan becomes a Specially Serviced Loan only because of an event described in clause (1) of the definition of “Specially Serviced Loan” under the heading “Indenture and Servicing Agreement—General” and the related Liquidation Proceeds are received within 90 days following the related maturity date as a result of the related Mortgage Loan or the Serviced Whole Loan being refinanced or otherwise repaid in full. Notwithstanding the foregoing, in the event that a liquidation fee is not payable due to the application of any of clauses (i) through (v) above, the special servicer may still collect and retain a liquidation fee and similar fees from the related borrower to the extent provided for in, or not prohibited by, the related Mortgage Loan documents. The Non-Serviced Whole Loan will be subject to a similar liquidation fee pursuant to the Non-Serviced Servicing Agreement. For further detail, see “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan”.
The special servicer will also be entitled to additional servicing compensation in the form of:
(i) [____]% of Excess Modification Fees related to modifications, waivers, extensions or amendments of any Specially Serviced Loans,
(ii) [____]% of assumption application fees and assumption fees and other related fees as further described in the ISA, received with respect to the Specially Serviced Loans,
(iii) [____]% of waiver, consent and earnout fees on any Specially Serviced Loan or certain other similar fees paid by the related borrower, and
(iv) [____]% of all Excess Modification Fees and assumption fees, consent fees and earnout fees received with respect to all Mortgage Loans (including the Serviced Companion Loans, to the extent not prohibited by the related Intercreditor Agreements, if applicable) (excluding the Non-Serviced Mortgage Loan) and Subordinate Companion Loan that are not Specially Serviced Loans and for which the special servicer’s processing, consent or approval is required.
The special servicer will also be entitled to late payment charges and default interest paid by the borrowers and accrued while the related Mortgage Loans (including the related Companion Loan, if applicable, and to the extent not prohibited by the related Intercreditor Agreement) and Subordinate Companion Loan were Specially Serviced Loans and that are not needed to pay interest on Advances or certain additional administrative expenses with respect to the related Mortgage Loan (including the related Companion Loan, if applicable, to the extent not prohibited by the related Intercreditor Agreement) and Subordinate Companion Loan since the Closing Date. The special servicer also is authorized but not required to invest or direct the investment of funds held in the REO Account in Permitted Investments, and the special servicer will be entitled to retain any interest or other income earned on those funds and will bear any losses resulting from the investment of these funds, except as set forth in the ISA.
The Non-Serviced Mortgage Loan is serviced under the Non-Serviced Servicing Agreement (including those occasions under the Non-Serviced Servicing Agreement when the servicing of the Non-Serviced Mortgage Loan has been transferred from the Non-Serviced Master Servicer to the Non-Serviced Special Servicer). Accordingly, in its capacity as the special servicer under the ISA, the special servicer will not be entitled to receive any special servicing compensation for the Non-Serviced Mortgage Loan. Only the Non-Serviced Special Servicer will be entitled to special servicing compensation on the Non-Serviced Mortgage Loan and only the Non-Serviced Special Servicer will be entitled to special servicing compensation on the Non-Serviced Whole Loan.
Disclosable Special Servicer Fees
The ISA will provide that the special servicer and its affiliates will be prohibited from receiving or retaining any Disclosable Special Servicer Fees in connection with the disposition, workout or foreclosure of any Mortgage Loan and Serviced Companion Loan, the management or disposition of any REO Property, or the performance of any other special servicing duties under the ISA. The ISA will also provide that, with respect to each Payment Date, the special servicer must deliver or cause to be delivered to the master servicer within two (2) business days following the Determination Date, and the master servicer must deliver, to the extent it has received, to the note administrator, without charge and on the same day as the master servicer is required to deliver the CREFC® Investor Reporting Package for such Payment Date, an electronic report which discloses and contains an itemized listing of any Disclosable Special Servicer Fees received by the special servicer or any of its affiliates with respect to such Payment Date, provided that no such report will be due in any month during which no Disclosable Special Servicer Fees were received.
“Disclosable Special Servicer Fees” means, with respect to any Mortgage Loan and related Serviced Companion Loan (including any related REO Property), any compensation and other remuneration (including, without limitation, in the form of commissions, brokerage fees, rebates, or as a result of any other fee-sharing arrangement) received or retained by the special servicer or any of its affiliates that is paid by any person (including, without limitation, the issuing entity, any mortgagor, any manager, any guarantor or indemnitor in respect of such Mortgage Loan or Serviced Companion Loan and any purchaser of any Mortgage Loan or Serviced Companion Loan or REO Property) in connection with the disposition, workout or foreclosure of any Mortgage Loan, the management or disposition of any REO Property, and the performance by the special servicer or any such affiliate of any other special servicing duties under the ISA, other than (1) any Permitted Special Servicer/Affiliate Fees and (2) any compensation to which the special servicer is entitled pursuant to the ISA.
“Permitted Special Servicer/Affiliate Fees” means any commercially reasonable treasury management fees, banking fees, title agency fees, insurance commissions or fees and appraisal fees received or retained by the special servicer or any of its affiliates in connection with any services performed by such party with respect to any Mortgage Loan and Serviced Companion Loan (including any related REO Property) in accordance with the ISA.
The special servicer will be required to pay its overhead and any general and administrative expenses incurred by it in connection with its servicing activities under the ISA. The special servicer will not be entitled to reimbursement for any expenses incurred by it except as expressly provided in the ISA. See “Description of the Notes—Payments on the Notes—Method, Timing and Amount.
Note Administrator and Indenture Trustee Compensation
As compensation for the performance of its routine duties, the indenture trustee and the note administrator will be paid a fee (collectively, the “Note Administrator/Indenture Trustee Fee”); provided that the Note Administrator/Indenture Trustee Fee includes the indenture trustee fee, and the note administrator will pay the indenture trustee fee to the indenture trustee in an amount equal to $[___] per month. The Note Administrator/Indenture Trustee Fee will be payable monthly from amounts received in respect of the mortgage loans and will be equal to the product of a rate equal to [______]% per annum (the “Note Administrator/Indenture Trustee Fee Rate”) and the Stated Principal Balance of the Mortgage
Loans and any REO Loans and will be calculated in the same manner as interest is calculated on such Mortgage Loans. The Note Administrator/Indenture Trustee Fee includes the indenture trustee fee.
Operating Advisor Compensation
The fee of the operating advisor (the “Operating Advisor Fee”) will be payable monthly from amounts received in respect of each Mortgage Loan (including the Owned Subordinate Companion Loan and the Non-Serviced Mortgage Loan, but not the Companion Loan) and REO Loan, and will accrue at a rate (the “Operating Advisor Fee Rate”), equal to a per annum rate of [________]%,and the Stated Principal Balance of the Mortgage Loans and any REO Loans and will be calculated in the same manner as interest is calculated on such Mortgage Loans.
An “Operating Advisor Consulting Fee” will be payable to the operating advisor with respect to each Major Decision on which the operating advisor has consultation obligations and performed its duties with respect to that Major Decision. The Operating Advisor Consulting Fee will be a fee for each such Major Decision equal to $[_____] (or such lesser amount as the related borrower agrees to pay) with respect to any Mortgage Loan (other than the Non-Serviced Mortgage Loan); provided that the operating advisor may in its sole discretion reduce the Operating Advisor Consulting Fee with respect to any Major Decision.
Each of the Operating Advisor Fee and the Operating Advisor Consulting Fee will be payable from funds on deposit in the Collection Account out of amounts otherwise available to make payments on the Offered Notes as described in “Description of the Notes—Payments on the Notes”, but with respect to the Operating Advisor Consulting Fee, only as and to the extent that such fee is actually received from the related borrower. If the operating advisor has consultation rights with respect to a Major Decision, the ISA will require the master servicer or the special servicer, as applicable, to use commercially reasonable efforts consistent with the Servicing Standard to collect the applicable Operating Advisor Consulting Fee from the related borrower in connection with such Major Decision, but only to the extent not prohibited by the related Mortgage Loan documents. The master servicer or special servicer, as applicable, will each be permitted to waive or reduce the amount of any such Operating Advisor Consulting Fee payable by the related borrower if it determines that such full or partial waiver is in accordance with the Servicing Standard but in no event will it take any enforcement action with respect to the collection of such Operating Advisor Consulting Fee other than requests for collection; provided that the master servicer or the special servicer, as applicable, will be required to consult, on a non-binding basis, with the operating advisor prior to any such waiver or reduction.
In addition to the Operating Advisor Fee and the Operating Advisor Consulting Fee, the operating advisor will be entitled to reimbursement of Operating Advisor Expenses in accordance with the terms of the ISA. “Operating Advisor Expenses” for each Payment Date will equal any unreimbursed indemnification amounts or additional expenses payable to the operating advisor pursuant to the ISA (other than the Operating Advisor Fee and the Operating Advisor Consulting Fee).
Asset Representations Reviewer Compensation
With respect to each Delinquent Loan reviewed, the asset representations reviewer is required to be paid a fee of $[_________] (the “Asset Representations Reviewer Fee”). Additionally, the asset representations reviewer is required to be paid or reimbursed for its reasonable out-of-pocket costs and expenses (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) to the extent such payments are “unanticipated expenses”, except any such expense or disbursement as may arise from its negligence, bad faith or willful misconduct. [Similar fees and/or fee provisions to those described above will be (or are expected to be) payable to the applicable asset representations reviewer under the Non-Serviced Servicing Agreement with respect to the Non-Serviced Mortgage Loan, although there may be differences in the calculations of such fees.]
The Asset Representations Reviewer Fee and such costs and expenses will be payable from funds on deposit in the Collection Account out of amounts otherwise available to make payments on the notes
as described above in “—Withdrawals from the Collection Account”, except that the Asset Representations Reviewer Fee and any related costs and expenses with respect to a Delinquent Loan is required to be included in the Purchase Price for any Mortgage Loan that was the subject of a completed Asset Review and that is repurchased by a mortgage loan seller.
CREFC® Intellectual Property Royalty License Fee
CREFC® Intellectual Property Royalty License Fee will be paid to CREFC® on a monthly basis.
“CREFC® Intellectual Property Royalty License Fee” with respect to each Mortgage Loan, REO Loan (other than the portion of an REO Loan related to any Serviced Companion Loan) and Owned Subordinate Companion Loan and for any Payment Date is the amount accrued during the related Interest Accrual Period at the CREFC® Intellectual Property Royalty License Fee Rate on the Stated Principal Balance of such Mortgage Loan, REO Loan or Owned Subordinate Companion Loan as of the close of business on the Payment Date in such Interest Accrual Period; provided that such amounts will be computed for the same period and on the same interest accrual basis respecting which any related interest payment due or deemed due on the related Mortgage Loan, REO Loan or Owned Subordinate Companion Loan is computed and will be prorated for partial periods. The CREFC® Intellectual Property Royalty License Fee is a fee payable to CREFC® for a license to use the CREFC® Investor Reporting Package in connection with the servicing and administration, including delivery of periodic reports to the Noteholders, of the issuing entity pursuant to the ISA. No CREFC® Intellectual Property Royalty License Fee will be paid on any Companion Loan.
“CREFC® Intellectual Property Royalty License Fee Rate” with respect to each Mortgage Loan and Owned Subordinate Companion Loan is a rate equal to 0.0005% per annum.
Appraisal Reduction Amounts
After an Appraisal Reduction Event has occurred with respect to a Mortgage Loan (other than the Non-Serviced Mortgage Loan) or a Serviced Whole Loan, an Appraisal Reduction Amount is required to be calculated. An “Appraisal Reduction Event” will occur on the earliest of:
| (1) | 120 days after an uncured delinquency (without regard to the application of any grace period), other than any uncured delinquency in respect of a balloon payment, occurs in respect of the Mortgage Loan, a related Companion Loan or Subordinate Companion Loan, as applicable; |
| (2) | the date on which a reduction in the amount of Periodic Payments on the Mortgage Loan or related Subordinate Companion Loan or Companion Loan, as applicable, or a change in any other material economic term of the Mortgage Loan or the related Subordinate Companion Loan or Companion Loan, as applicable, (other than an extension of its maturity), becomes effective as a result of a modification of the related Mortgage Loan or the related Subordinate Companion Loan or Companion Loan, as applicable, by the special servicer; |
| (3) | 30 days after the date on which a receiver has been appointed for the Mortgaged Property; |
| (4) | 30 days after the date on which a borrower or the tenant at a single tenant property declares bankruptcy (and not otherwise dismissed within such time); |
| (5) | 60 days after the date on which an involuntary petition of bankruptcy is filed with respect to the borrower if not dismissed within such time; |
| (6) | 90 days after an uncured delinquency occurs in respect of a balloon payment with respect to such Mortgage Loan or related Subordinate Companion Loan or Companion Loan, except where a refinancing is anticipated within 120 days after the maturity date of the Mortgage Loan and related Companion Loan in which case 120 days after such uncured delinquency; and |
| (7) | immediately after a Mortgage Loan or related Companion Loan becomes an REO Loan; provided, however, that the 30-day period referenced in clauses (3) and (4) above will not apply if the related Mortgage Loan is a Specially Serviced Loan. |
No Appraisal Reduction Event may occur at any time when the Principal Balances of all classes of Subordinate Notes have been reduced to zero.
The “Appraisal Reduction Amount” for any Payment Date and for any Mortgage Loan (other than any Non-Serviced Mortgage Loan) or any Serviced Whole Loan as to which any Appraisal Reduction Event has occurred, will be an amount, calculated by the special servicer (prior to the occurrence of a Consultation Termination Event, in consultation with the Directing Holder and, after the occurrence and during the continuance of a Control Termination Event, in consultation with the Directing Holder and the operating advisor and, after the occurrence and during the continuance of a Consultation Termination Event, in consultation with the operating advisor), as of the first Determination Date that is at least 10 business days following the date the special servicer receives an appraisal or conducts a valuation described below equal to the excess of
(a) the Stated Principal Balance of that Mortgage Loan or the Stated Principal Balance of the applicable Serviced Whole Loan, as the case may be, over
(b) the excess of
1. the sum of
| a) | 90% of the appraised value of the related Mortgaged Property as determined (A) by one or more MAI appraisals obtained by the special servicer with respect to that Mortgage Loan (together with any other Mortgage Loan cross-collateralized with such Mortgage Loan) or Serviced Whole Loan with an outstanding principal balance equal to or in excess of [$2,000,000] (the costs of which will be paid by the master servicer as an Advance), or (B) by an internal valuation performed by the special servicer with respect to any Mortgage Loan (together with any other Mortgage Loan cross-collateralized with such Mortgage Loan) or Serviced Whole Loan with an outstanding principal balance less than [$2,000,000], minus with respect to any MAI appraisals such downward adjustments as the special servicer may make (without implying any obligation to do so) based upon its review of the appraisals and any other information it deems relevant, and |
| b) | all escrows, letters of credit and reserves in respect of that Mortgage Loan or Serviced Whole Loan as of the date of calculation; over |
2. the sum as of the Due Date occurring in the month of the date of determination of
| a) | to the extent not previously advanced by the master servicer or the indenture trustee, all unpaid interest due on that Mortgage Loan or Serviced Whole Loan at a per annum rate equal to the Mortgage Rate (and any accrued and unpaid interest on any Subordinate Companion Loan), |
| b) | all P&I Advances on the related Mortgage Loan and all Servicing Advances on the related Mortgage Loan or Serviced Whole Loan not reimbursed from the proceeds of such Mortgage Loan or Serviced Whole Loan and interest on those Advances at the Reimbursement Rate in respect of that Mortgage Loan or Serviced Whole Loan, and |
| c) | all currently due and unpaid real estate taxes and assessments, insurance premiums and ground rents, unpaid Special Servicing Fees and all other amounts due and unpaid (including any capitalized interest whether or not then due and payable) with respect to such Mortgage Loan, Serviced Whole Loan (which tax, premiums, ground |
rents and other amounts have not been the subject of an Advance by the master servicer, the special servicer or the indenture trustee, as applicable).
[Each Serviced Whole Loan will be treated as a single Mortgage Loan for purposes of calculating an Appraisal Reduction Amount with respect to the Mortgage Loan and Companion Loan(s) (or Owned Subordinate Companion Loan), as applicable, that comprise such Serviced Whole Loan (or Owned AB Whole Loan, as applicable). Any Appraisal Reduction Amount in respect of any Serviced Pari Passu Mortgage Loan will be allocated, pro rata, between the related Serviced Pari Passu Mortgage Loan and the related Serviced Pari Passu Companion Loan based upon their respective Stated Principal Balances. Any Appraisal Reduction Amount in respect of an AB Whole Loan will be allocated, first, to the Subordinate Companion Loan (or Owned Subordinate Companion Loan, as applicable) (until its principal balance is notionally reduced to zero by such related Appraisal Reduction Amounts) and second, to the related Mortgage Loan (or Owned Mortgage Loan, as applicable). For a summary of the provisions in the Non-Serviced Servicing Agreement relating to appraisal reductions, see “—Servicing of the Non-Serviced Mortgage Loan” below.
The special servicer will be required to order an appraisal or conduct a valuation, promptly upon the occurrence of an Appraisal Reduction Event (other than with respect to the Non-Serviced Whole Loan). On the first Determination Date occurring on or after the tenth business day following the receipt of the MAI appraisal or the completion of the valuation, the special servicer will be required to calculate and report to the master servicer, the indenture trustee, the note administrator, the operating advisor and, prior to the occurrence of any Consultation Termination Event, the Directing Holder, the Appraisal Reduction Amount, taking into account the results of such appraisal or valuation and receipt of information requested by the special servicer from the master servicer reasonably necessary to calculate the Appraisal Reduction Amount. Such report will also be forwarded by the master servicer (or the special servicer if the related Mortgage Loan is a Specially Serviced Loan), to the extent the related Serviced Companion Loan has been included in a securitization transaction, to the master servicer of such securitization into which the related Serviced Companion Loan has been sold, or to the holder of any related Serviced Companion Loan by the master servicer (or the special servicer if the related Mortgage Loan is a Specially Serviced Loan).
In the event that the special servicer has not received any required MAI appraisal within 60 days after the Appraisal Reduction Event (or, in the case of an appraisal in connection with an Appraisal Reduction Event described in clauses (1) and (6) of the definition of Appraisal Reduction Event above, within 120 days (in the case of clause (1)) or 90 or 120 days (in the case of clause (6)), respectively, after the initial delinquency for the related Appraisal Reduction Event), the Appraisal Reduction Amount will be deemed to be an amount equal to 25% of the current Stated Principal Balance of the related Mortgage Loan (or Serviced Whole Loan) until an MAI appraisal is received by the special servicer. The Appraisal Reduction Amount is calculated as of the first Determination Date that is at least ten (10) business days after the special servicer’s receipt of such MAI appraisal. The master servicer will provide (via electronic delivery) the special servicer with any information in its possession that is reasonably required to determine, redetermine, calculate or recalculate any Appraisal Reduction Amount pursuant to its definition using reasonable efforts to deliver such information within four business days of the special servicer’s reasonable request (which request is required to be made promptly, but in no event later than ten (10) business days, after the special servicer’s receipt of the applicable appraisal or preparation of the applicable internal valuation); provided, however, that the special servicer’s failure to timely make such a request will not relieve the master servicer of its obligation to use reasonable efforts to provide such information to the special servicer within four (4) business days following the special servicer’s reasonable request. The master servicer will not calculate Appraisal Reduction Amounts.
With respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) and each Serviced Whole Loan as to which an Appraisal Reduction Event has occurred (unless the Mortgage Loan or Serviced Whole Loan has remained current for three consecutive Periodic Payments, and with respect to which no other Appraisal Reduction Event has occurred with respect to that Mortgage Loan during the preceding three months (for such purposes taking into account any amendment or modification of such Mortgage Loan, any related Serviced Companion Loan or Serviced Whole Loan)), the special servicer is
required (i) within 30 days of each anniversary of the related Appraisal Reduction Event and (ii) upon its determination that the value of the related Mortgaged Property has materially changed, to notify the master servicer of the occurrence of such anniversary or determination and to order an appraisal (which may be an update of a prior appraisal), the cost of which will be paid by the master servicer as a Servicing Advance (or to the extent it would be a Nonrecoverable Advance, an expense of the issuing entity paid out of the Collection Account), or to conduct an internal valuation, as applicable. Based upon the appraisal or valuation and receipt of information reasonably requested by the special servicer from the master servicer necessary to calculate the Appraisal Reduction Amount, the special servicer is required to determine or redetermine, as applicable, and report to the master servicer, the indenture trustee, the note administrator, the operating advisor and, prior to the occurrence of a Consultation Termination Event, the Directing Holder, the calculated or recalculated amount of the Appraisal Reduction Amount with respect to the Mortgage Loan or Serviced Whole Loan, as applicable. Such report will also be forwarded to the holder of any related Companion Loan by the master servicer (or the special servicer if the related Mortgage Loan is a Specially Serviced Loan). Prior to the occurrence of a Consultation Termination Event, the special servicer will consult with the Directing Holder, with respect to any appraisal, valuation or downward adjustment in connection with an Appraisal Reduction Amount. Notwithstanding the foregoing, the special servicer will not be required to obtain an appraisal or valuation with respect to a Mortgage Loan or Serviced Whole Loan that is the subject of an Appraisal Reduction Event to the extent the special servicer has obtained an appraisal or valuation with respect to the related Mortgaged Property within the 12-month period prior to the occurrence of the Appraisal Reduction Event. Instead, the special servicer may use the prior appraisal or valuation in calculating any Appraisal Reduction Amount with respect to the Mortgage Loan or Serviced Whole Loan, provided that the special servicer is not aware of any material change to the Mortgaged Property that has occurred that would affect the validity of the appraisal or valuation.
The Non-Serviced Mortgage Loan is subject to provisions in the Non-Serviced Servicing Agreement relating to appraisal reductions that are similar, but not necessarily identical, to the provisions described above. The existence of an appraisal reduction under the Non-Serviced Servicing Agreement in respect of the Non-Serviced Mortgage Loan will proportionately reduce the master servicer’s or the indenture trustee’s, as the case may be, obligation to make P&I Advances on the Non-Serviced Mortgage Loan and will generally have the effect of reducing the amount otherwise available for payments to the Noteholders. Pursuant to the Non-Serviced Servicing Agreement, the Non-Serviced Mortgage Loan will be treated, together with each related Non-Serviced Companion Loan, as a single mortgage loan for purposes of calculating an appraisal reduction amount with respect to the loans that comprise the Non-Serviced Whole Loan. Any appraisal reduction calculated with respect to the Non-Serviced Whole Loan will generally be allocated to the Non-Serviced Mortgage Loan and the Non-Serviced Pari Passu Companion Loan, on a pro rata basis based upon their respective Stated Principal Balances.
If any Mortgage Loan (other than the Non-Serviced Mortgage Loan) or any related Serviced Companion Loan or Owned Subordinate Companion Loan and any Serviced Whole Loan or Owned AB Whole Loan, as applicable, previously subject to an Appraisal Reduction Amount that becomes a Corrected Loan, and with respect to which no other Appraisal Reduction Event has occurred and is continuing, the Appraisal Reduction Amount and the related Appraisal Reduction Event will cease to exist.
As a result of calculating one or more Appraisal Reduction Amounts (and, in the case of any Whole Loan, to the extent allocated in the related Mortgage Loan), the amount of any required P&I Advance will be reduced, which will have the effect of reducing the amount of interest available to the most subordinate class of notes then-outstanding (i.e., first, to Class [__] notes, second, to the Class [__] notes, third, to the Class [__] notes), and finally, pro rata based on their respective interest entitlements, to the Senior Notes). See “—Advances”.
For purposes of determining the Non-Reduced Notes, the Subordinate Controlling Class and whether a Control Termination Event or Consultation Termination Event is continuing, Appraisal Reduction Amounts allocated to a related Mortgage Loan will be allocated to each class of notes in reverse sequential order to notionally reduce their Principal Balances until the Principal Balances of each such
class is notionally reduced to zero (i.e., first, to Class [__] notes, second, to the Class [__] notes, and finally, pro rata based on their respective interest entitlements, to the Senior Notes). With respect to any Appraisal Reduction Amount calculated for purposes of determining the Non-Reduced Notes, the Subordinate Controlling Class or whether a Control Termination Event or Consultation Termination Event is continuing, the appraised value of the related Mortgaged Property will be determined on an “as-is” basis.
Any class of Control Eligible Notes, the Principal Balance of which (taking into account the application of any Appraisal Reduction Amounts to notionally reduce the Principal Balance of such class) has been reduced to less than 25% of its initial Principal Balance, is referred to as an “Appraised-Out Class”. The holders of the majority (by Principal Balance) of an Appraised-Out Class will have the right, at their sole expense, to require the special servicer to order a second appraisal of any Mortgage Loan (or Serviced Whole Loan) for which an Appraisal Reduction Event has occurred (such holders, the “Requesting Holders”). The special servicer will use its reasonable best efforts to ensure that such appraisal is delivered within 30 days from receipt of the Requesting Holders’ written request and will ensure that such appraisal is prepared on an “as-is” basis by an MAI appraiser. Upon receipt of such supplemental appraisal, the special servicer will be required to determine, in accordance with the Servicing Standard, whether, based on its assessment of such supplemental appraisal, any recalculation of the applicable Appraisal Reduction Amount is warranted and, if so warranted will recalculate such Appraisal Reduction Amount based upon such supplemental appraisal and receipt of information requested by the special servicer from the master servicer as described above. If required by any such recalculation, the applicable Appraised-Out Class will be reinstated as the Subordinate Controlling Class and each other Appraised-Out Class will, if applicable, have its related Principal Balance notionally restored to the extent required by such recalculation of the Appraisal Reduction Amount.
Any Appraised-Out Class for which the Requesting Holders are challenging the special servicer’s Appraisal Reduction Amount determination may not exercise any direction, control, consent and/or similar rights of the Subordinate Controlling Class until such time, if any, as such class is reinstated as the Subordinate Controlling Class; the rights of the Subordinate Controlling Class will be exercised by the most senior Control Eligible Notes, if any, during such period.
[With respect to the Non-Serviced Mortgage Loan, the Non-Serviced Directing Holder will be subject to provisions similar to those described above. See “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan” and “Indenture and Servicing Agreement—Servicing of the Non-Serviced Mortgage Loan”.]
[With respect to an AB Whole Loan, the holder of the related Subordinate Companion Loan (or, in the case of the Owned Subordinate Companion Loan, the Loan-Specific Directing Holder) may in certain circumstances post collateral to avoid a change of control as described in “Description of the Mortgage Pool—The Whole Loans—The Serviced AB Whole Loan”.]
Maintenance of Insurance
To the extent permitted by the related Mortgage Loan and required by the Servicing Standard, the master servicer (with respect to the Mortgage Loans and any related Serviced Companion Loan, but excluding the Non-Serviced Mortgage Loan) will be required to use efforts consistent with the Servicing Standard to cause each borrower to maintain, and the special servicer (with respect to REO Properties other than the Mortgaged Property securing the Non-Serviced Whole Loan and subject to the conditions set forth in the following sentence) will maintain, for the related Mortgaged Property all insurance coverage required by the terms of the related Mortgage Loan documents; provided, however, that the master servicer (with respect to Mortgage Loans and Serviced Companion Loans) will not be required to cause the borrower to maintain and the special servicer (with respect to REO Properties) will not be required to maintain terrorism insurance to the extent that the failure of the related borrower to do so is an Acceptable Insurance Default (as defined below) or if the indenture trustee does not have an insurable interest. Insurance coverage is required to be in the amounts (which, in the case of casualty insurance, is generally equal to the lesser of the outstanding principal balance of the related Mortgage Loan and the
replacement cost of the related Mortgaged Property), and from an insurer meeting the requirements, set forth in the related Mortgage Loan documents. If the borrower does not maintain such coverage, the master servicer (with respect to such Mortgage Loans and any related Serviced Companion Loan) or the special servicer (with respect to REO Properties other than a Mortgaged Property securing the Non-Serviced Whole Loan), as the case may be, will be required to maintain such coverage to the extent such coverage is available at commercially reasonable rates and the indenture trustee has an insurable interest, as determined by the master servicer (with respect to the Mortgage Loans and any related Serviced Companion Loan) or special servicer (with respect to REO Properties other than a Mortgaged Property securing the Non-Serviced Whole Loan), as applicable, in accordance with the Servicing Standard; provided that the master servicer will be obligated to use efforts consistent with the Servicing Standard to cause the borrower to maintain (or to itself maintain) insurance against property damage resulting from terrorist or similar acts unless the borrower’s failure is an Acceptable Insurance Default as determined by the special servicer with (unless a Control Termination Event has occurred and is continuing) the consent of the Directing Holder. See “Description of the Mortgage Pool—Certain Terms of the Mortgage Loans” and “Risk Factors—Risks Relating to the Mortgage Loans—Terrorism Insurance May Not Be Available for All Mortgaged Properties”.
Notwithstanding any contrary provision above, the master servicer will not be required to maintain, and will not be in default for failing to obtain, any earthquake or environmental insurance on any Mortgaged Property unless (other than with respect to a Mortgaged Property securing the Non-Serviced Mortgage Loan) such insurance was required at the time of origination of the related Mortgage Loan, the indenture trustee has an insurable interest and is currently available at commercially reasonable rates. In addition, the master servicer and special servicer will be entitled to rely on insurance consultants (at the applicable servicer’s expense) in determining whether any insurance is available at commercially reasonable rates. After the master servicer determines that a Mortgaged Property other than the Mortgaged Property securing the Non-Serviced Mortgage Loan is located in an area identified as a federally designated special flood hazard area (and flood insurance has been made available), the master servicer will be required to use efforts consistent with the Servicing Standard (1) to cause each borrower to maintain (to the extent required by the related Mortgage Loan documents), and (2) if the borrower does not so maintain, to itself maintain to the extent the indenture trustee, as mortgagee, has an insurable interest in the Mortgaged Property and is available at commercially reasonable rates (as determined by the master servicer in accordance with the Servicing Standard) a flood insurance policy in an amount representing coverage not less than the lesser of (x) the outstanding principal balance of the related Mortgage Loan (and any related Serviced Companion Loan) and (y) the maximum amount of insurance which is available under the National Flood Insurance Act of 1968, as amended, plus such additional excess flood coverage with respect to the Mortgaged Property, if any, in an amount consistent with the Servicing Standard, but only to the extent that the related Mortgage Loan permits the lender to require the coverage and maintaining coverage is consistent with the Servicing Standard.
Notwithstanding the foregoing, with respect to the Mortgage Loans (other than the Non-Serviced Mortgage Loan) and any related Serviced Companion Loan, that either (x) require the borrower to maintain “all-risk” property insurance (and do not expressly permit an exclusion for terrorism) or (y) contain provisions generally requiring the applicable borrower to maintain insurance in types and against such risks as the holder of such Mortgage Loan and any related Serviced Companion Loan reasonably requires from time to time in order to protect its interests, the master servicer will be required to, consistent with the Servicing Standard, (A) monitor in accordance with the Servicing Standard whether the insurance policies for the related Mortgaged Property contain exclusions in addition to those customarily found in insurance policies for mortgaged properties similar to the Mortgaged Properties on or prior to September 11, 2001 (“Additional Exclusions”), (B) request the borrower to either purchase insurance against the risks specified in the Additional Exclusions or provide an explanation as to its reasons for failing to purchase such insurance, and (C) notify the special servicer if it has knowledge that any insurance policy contains Additional Exclusions or if it has knowledge that any borrower fails to purchase the insurance requested to be purchased by the master servicer pursuant to clause (B) above. If the special servicer determines in accordance with the Servicing Standard that such failure is not an Acceptable Insurance Default, the special servicer will be required to notify the master servicer and the master servicer will be required to use efforts consistent with the Servicing Standard to cause such
insurance to be maintained. If the special servicer determines that such failure is an Acceptable Insurance Default, it will be required to promptly deliver such conclusions in writing to the 17g-5 Information Provider for posting to the 17g-5 Information Provider’s website for those Mortgage Loans that (i) have one of the ten (10) highest outstanding principal balances of the Mortgage Loans then included in the issuing entity or (ii) comprise more than 5% of the outstanding principal balance of the Mortgage Loans then included in the issuing entity.
“Acceptable Insurance Default” means, with respect to any Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan, a default under the related Mortgage Loan documents arising by reason of (i) any failure on the part of the related borrower to maintain with respect to the related Mortgaged Property specific insurance coverage with respect to, or an all-risk casualty insurance policy that does not specifically exclude, terrorist or similar acts, and/or (ii) any failure on the part of the related borrower to maintain with respect to the related Mortgaged Property, insurance coverage with respect to damages or casualties caused by terrorist or similar acts upon terms not materially less favorable than those in place as of the Closing Date, in each case, as to which default the master servicer and the special servicer may forbear taking any enforcement action; provided that, subject to the consent or consultation rights of the Directing Holder or the holder of any Companion Loan (or in the case of an AB Whole Loan, the Loan-Specific Directing Holder) as described under “—The Directing Holder—Major Decisions”, the special servicer has determined in its reasonable judgment based on inquiry consistent with the Servicing Standard that either (a) such insurance is not available at commercially reasonable rates and that such hazards are not at the time commonly insured against for properties similar to the related Mortgaged Property and located in or around the region in which such related Mortgaged Property is located, or (b) such insurance is not available at any rate.
During the period that the special servicer is evaluating the availability of such insurance, or waiting for a response from the Directing Holder, neither the master servicer nor the special servicer will be liable for any loss related to its failure to require the borrower to maintain such insurance and neither will be in default of its obligations as a result of such failure unless the master servicer or the special servicer is required to take any immediate action pursuant to the Servicing Standard and other servicing requirements under the ISA as described under “—The Directing Holder—Control Termination Event and Consultation Termination Event” and “—Servicing Override”.
The master servicer or the special servicer will be required to maintain (or cause to be maintained), fire and hazard insurance on each REO Property (other than any REO Property with respect to the Non-Serviced Mortgage Loan), to the extent obtainable at commercially reasonable rates and the indenture trustee has an insurable interest, in an amount that is at least equal to the lesser of (1) the full replacement cost of the improvements on the REO Property, and (2) the outstanding principal balance owing on the related Mortgage Loan and any related Serviced Companion Loan or REO Loan, as applicable, and in any event, the amount necessary to avoid the operation of any co-insurance provisions. In addition, if the REO Property is located in an area identified as a federally designated special flood hazard area, the special servicer will be required to cause to be maintained, to the extent available at commercially reasonable rates (as determined by the special servicer (prior to the occurrence and continuance of a Control Termination Event, with the consent of the Directing Holder) in accordance with the Servicing Standard), a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration in an amount representing coverage not less than the maximum amount of insurance that is available under the National Flood Insurance Act of 1968, as amended.
The ISA provides that the master servicer may satisfy its obligation to cause each borrower to maintain a hazard insurance policy and the master servicer or special servicer may satisfy their respective obligation to maintain hazard insurance by maintaining a blanket or master single interest or force-placed policy insuring against hazard losses on the Mortgage Loans and related Serviced Companion Loan and REO Properties (other than the Mortgaged Property securing the Non-Serviced Whole Loan), as applicable. Any losses incurred with respect to Mortgage Loans (and any related Serviced Companion Loan) or REO Properties due to uninsured risks (including earthquakes, mudflows and floods) or insufficient hazard insurance proceeds may adversely affect payments to noteholders. Any cost incurred by the master servicer or special servicer in maintaining a hazard insurance policy, if the borrower
defaults on its obligation to do so, will be advanced by the master servicer as a Servicing Advance and will be charged to the related borrower. Generally, no borrower is required by the Mortgage Loan documents to maintain earthquake insurance on any Mortgaged Property and the special servicer will not be required to maintain earthquake insurance on any REO Properties. Any cost of maintaining that kind of required insurance or other earthquake insurance obtained by the special servicer will be paid out of the REO Account or advanced by the master servicer as a Servicing Advance.
The costs of the insurance may be recovered by the master servicer or the indenture trustee, as the case may be, from reimbursements received from the borrower or, if the borrower does not pay those amounts, as a Servicing Advance as set forth in the ISA. All costs and expenses incurred by the special servicer in maintaining the insurance described above on REO Properties will be paid out of the related REO Account or, if the amount in such account is insufficient, such costs and expenses will be advanced by the master servicer to the special servicer as a Servicing Advance to the extent that such Servicing Advance is not determined to be a Nonrecoverable Advance.
No pool insurance policy, special hazard insurance policy, bankruptcy bond, repurchase bond or certificate guarantee insurance will be maintained with respect to the Mortgage Loans, nor will any Mortgage Loan be subject to FHA insurance.
Modifications, Waivers and Amendments
Except as otherwise set forth in this paragraph, the special servicer (or, with respect to certain non-material modifications, waivers and amendments that are not Major Decisions, the master servicer) may not waive, modify or amend (or consent to waive, modify or amend) any provision of a Mortgage Loan, Serviced Companion Loan and/or Owned Subordinate Companion Loan that is not in default or as to which default is not reasonably foreseeable except for the waiver of any due-on-sale clause or due-on-encumbrance clause to the extent permitted in the ISA. The master servicer will not be permitted under the ISA to agree to any modifications, waivers and amendments that constitute Major Decisions without the consent of the special servicer (which such consent may be deemed received by the master servicer if the special servicer does not respond within ten (10) business days of delivery to the special servicer of the analysis and all information reasonably requested by the special servicer in order to grant or withhold such consent, plus the time provided to the Directing Holder or other relevant party under the ISA and, if applicable, any time period provided to a holder of a Companion Loan under a related intercreditor agreement), except certain non-material consents and waivers described in the ISA and as permitted under the Mortgage Loan documents.
If, and only if, the special servicer determines that a modification, waiver or amendment (including the forgiveness or deferral of interest or principal or the substitution of collateral pursuant to the terms of the Mortgage Loan (other than any Non-Serviced Mortgage Loan), Owned Subordinate Companion Loan and/or related Serviced Companion Loan or otherwise or release of collateral or the pledge of additional collateral) of the terms of a Specially Serviced Loan with respect to which a payment default or other material default has occurred or a payment default or other material default is, in the special servicer’s judgment, reasonably foreseeable (as evidenced by an officer’s certificate of the Special Servicer), is reasonably likely to produce a greater recovery on a net present value basis (the relevant discounting to be performed at the related Mortgage Rate) to the issuing entity and, if applicable, the holders of any applicable Companion Loan or Owned Subordinate Companion Loan, as applicable, than liquidation of such Specially Serviced Loan, then the special servicer may, but is not required to, agree to a modification, waiver or amendment of the Specially Serviced Loan, subject to (w) the restrictions and limitations described below, (x) with respect to any Mortgage Loan or Owned Subordinate Companion Loan, prior to the occurrence and continuance of a Control Termination Event, the approval of the Directing Holder (or after the occurrence and continuance of a Control Termination Event, but prior to a Consultation Termination Event upon consultation with the Directing Holder) as provided in the ISA and described in this prospectus, (y) with respect to an AB Whole Loan, subject to any rights of the related holder of the Subordinate Companion Loan (or in the case of the Owned Subordinate Companion Loan, the Loan-Specific Directing Holder) to consent to such modification, waiver or amendment and (z) with respect to a Serviced Whole Loan, the rights of the holder of the related Serviced Companion Loan, as
applicable, to advise or consult with the special servicer with respect to, or consent to, such modification, waiver or amendment, in each case, pursuant to the terms of the related intercreditor agreement and, with respect to a Mortgage Loan (other than any Non-Serviced Mortgage Loan) that has mezzanine debt, the rights of the mezzanine lender to consent to such modification, waiver or amendment, in each case, pursuant to the terms of the related intercreditor agreement or mezzanine intercreditor agreement, as applicable.
The special servicer is required to use its reasonable efforts to the extent reasonably possible to fully amortize a modified Mortgage Loan prior to the Stated Maturity Date. The special servicer may not agree to a modification, waiver or amendment of any term of any Specially Serviced Loan if that modification, waiver or amendment would:
(1) extend the maturity date of the Specially Serviced Loan to a date occurring later than the earlier of (A) five years prior to the Stated Maturity Date and (B) if the Specially Serviced Loan is secured solely or primarily by a leasehold estate and not the related fee interest, the date occurring twenty years or, to the extent consistent with the Servicing Standard giving due consideration to the remaining term of the ground lease and, prior to the occurrence and continuance of a Control Termination Event, with the consent of the Directing Holder, ten years, prior to the end of the current term of the ground lease, plus any options to extend exercisable unilaterally by the borrower; or
(2) provide for the deferral of interest unless interest accrues on the Mortgage Loan or the Serviced Whole Loans, generally, at the related Mortgage Rate.
If the special servicer gives notice of any modification, waiver or amendment of any term of any Mortgage Loan (other than the Non-Serviced Whole Loan) or related Companion Loan, the special servicer will be required to notify the master servicer, the Directing Holder (other than following the occurrence of a Consultation Termination Event), the applicable companion loan holder (unless, with respect to a holder of an AB Subordinate Companion Loan, an AB Control Appraisal Period has occurred, if applicable), the related Subordinate Loan-Specific Directing Holder (unless, with respect to the Owned Subordinate Companion Loan, an AB Control Appraisal Period has occurred, if applicable), the applicable mortgage loan seller (so long as such mortgage loan seller is not a master servicer or sub-servicer of such Mortgage Loan or the Directing Holder), the operating advisor (after the occurrence and during the continuance of a Control Termination Event), the note administrator, the indenture trustee, the Directing Holder (unless a Consultation Termination Event has occurred), and the 17g-5 Information Provider, who will thereafter post any such notice to the 17g-5 Information Provider’s website. If the master servicer gives notice of any modification, waiver or amendment of any term of any such Mortgage Loan or related Companion Loan, the master servicer will be required to notify in writing the note administrator, the indenture trustee, the special servicer (and, unless a Consultation Termination Event has occurred, the special servicer will be required to forward any such notice to the Directing Holder), the related mortgage loan seller (so long as such mortgage loan seller is not a master servicer or sub-servicer of such Mortgage Loan or the Directing Holder), the holder of any related Companion Loan and the 17g-5 Information Provider, who will be required to thereafter post any such notice to the 17g-5 Information Provider’s website. The party providing notice will be required to deliver to the custodian for deposit in the related Mortgage File, an original counterpart of the agreement related to the modification, waiver or amendment, promptly following the execution of that agreement, and if required, a copy to the master servicer and to the holder of any related Companion Loan, all as set forth in the ISA. Copies of each agreement whereby the modification, waiver or amendment of any term of any Mortgage Loan is effected are required to be available for review during normal business hours at the offices of the custodian. See “Description of the Notes—Reports to Noteholders; Certain Available Information”.
The modification, waiver or amendment of a Serviced Whole Loan or a Mortgage Loan that has a related mezzanine loan will be subject to certain limitations set forth in the related intercreditor agreement. See “Risk Factors—Risks Relating to the Mortgage Loans—Other Financings or Ability to Incur Other Indebtedness Entails Risk”.
Enforcement of “Due-on-Sale” and “Due-on-Encumbrance” Provisions
The special servicer will determine, in a manner consistent with the Servicing Standard, whether (a) to exercise any right it may have with respect to a Mortgage Loan (other than the Non-Serviced Mortgage Loan) and any related Serviced Companion Loan or Owned Subordinate Companion Loan containing a “due-on-sale” clause (1) to accelerate the payments on that Mortgage Loan and any related Companion Loan or Owned Subordinate Companion Loan, as applicable, or (2) to withhold its consent to any sale or transfer, consistent with the Servicing Standard or (b) to waive its right to exercise such rights; provided, however, that (i) with respect to such waiver of rights prior to the occurrence and continuance of any Control Termination Event, the special servicer has obtained the prior written consent (or deemed consent) of the Directing Holder (or the Loan-Specific Directing Holder prior to the occurrence and continuance of an AB Control Appraisal Period, as applicable) (or after the occurrence and continuance of a Control Termination Event, but prior to a Consultation Termination Event, upon consultation with the Directing Holder) and (ii) with respect to any Mortgage Loan [that is [DESCRIBE CRITERIA FOR A RATING AGENCY CONFIRMATION REQUIREMENT], a Rating Agency Confirmation is received by the master servicer or the special servicer, as the case may be, from each Rating Agency and a confirmation of any applicable rating agency that such action will not result in the downgrade, withdrawal or qualification of its then-current ratings of any class of securities backed, wholly or partially, by any Serviced Pari Passu Companion Loan (if any).
With respect to a Mortgage Loan (other than the Non-Serviced Mortgage Loan) and any related Serviced Companion Loan with a “due-on-encumbrance” clause, the special servicer will determine, in a manner consistent with the Servicing Standard, whether (a) to exercise any right it may have with respect to a Mortgage Loan containing a “due-on-encumbrance” clause (1) to accelerate the payments thereon, or (2) to withhold its consent to the creation of any additional lien or other encumbrance, consistent with the Servicing Standard or (b) to waive its right to exercise such rights, provided, however, that (i) with respect to such waiver of rights prior to the occurrence and continuance of a Control Termination Event, the special servicer has obtained the consent of the Directing Holder [(or, with respect to an AB Whole Loan prior to the occurrence and continuance of an AB Control Appraisal Period, the prior consent of the Loan-Specific Directing Holder, to the extent required by the terms of the related Intercreditor Agreement)] (or after the occurrence and continuance of a Control Termination Event, but prior to a Consultation Termination Event, has consulted with the Directing Holder) and (ii) the special servicer has received a Rating Agency Confirmation from each Rating Agency and a confirmation of any applicable rating agency that such action will not result in the downgrade, withdrawal or qualification of its then-current ratings of any class of securities backed, wholly or partially, by any Serviced Pari Passu Companion Loan (if any) if such Mortgage Loan is [INSERT CRITERIA FOR RATING AGENCY CONFIRMATION REQUIREMENT].
Any modification, extension, waiver or amendment of the payment terms of the Non-Serviced Whole Loan will be required to be structured so as to be consistent with the Servicing Standard and the allocation and payment priorities in the related loan documents and the related Intercreditor Agreement, such that neither the issuing entity as holder of such Non-Serviced Mortgage Loan nor any holder of the related Companion Loan gains a priority over the other holder that is not reflected in the related loan documents and the related Intercreditor Agreement.
Inspections; Collection of Operating Information
The master servicer will be required to perform (at its own expense) or cause to be performed (at its own expense), physical inspections of each Mortgaged Property relating to a Mortgage Loan (other than the Mortgaged Property securing the Non-Serviced Mortgage Loan, which is subject to inspection pursuant to the Non-Serviced Servicing Agreement, and other than a Specially Serviced Loan) with a Stated Principal Balance of (A) $[2,000,000] or more at least once every 12 months and (B) less than $[2,000,000] at least once every [24] months, in each case commencing in the calendar year 20[__] unless a physical inspection has been performed by the special servicer within the previous [12] months and the master servicer has no knowledge of a material change in the Mortgaged Property since such physical inspection; provided, further, however, that if any scheduled payment becomes more than [60]
days delinquent on the related Mortgage Loan, the special servicer is required to inspect or cause to be inspected the related Mortgaged Property as soon as practicable after the Mortgage Loan becomes a Specially Serviced Loan and annually thereafter for so long as the Mortgage Loan remains a Specially Serviced Loan (the cost of which inspection, to the extent not paid by the related borrower, will be reimbursed first from default interest and late charges constituting additional compensation of the special servicer on the related Mortgage Loan (but with respect to a Serviced Whole Loan, only amounts available for such purpose under the related Intercreditor Agreement) and then from the Collection Account as an expense of the issuing entity, and in the case of a Serviced Whole Loan, as an expense of the holders of the related Serviced Pari Passu Mortgage Loan and Serviced Pari Passu Companion Loan, pro rata and pari passu, to the extent provided in the related Intercreditor Agreement. With respect to an AB Whole Loan, the costs will be allocated, first, as an expense of the holder of the Subordinate Companion Loan, and second, as an expense of the holders of the related Mortgage Loan to the extent provided in the related Intercreditor Agreement. The special servicer or the master servicer, as applicable, will be required to prepare or cause to be prepared a written report of the inspection describing, among other things, the condition of and any damage to the Mortgaged Property to the extent evident from the inspection and specifying the existence of any vacancies in the Mortgaged Property of which it has knowledge and deems material, of any sale, transfer or abandonment of the Mortgaged Property of which it has knowledge or that is evident from the inspection, of any adverse change in the condition of the Mortgaged Property of which the preparer of such report has knowledge or that is evident from the inspection, and that the preparer of such report deems material, or of any material waste committed on the Mortgaged Property to the extent evident from the inspection.
Copies of the inspection reports referred to above that are delivered to the note administrator will be posted to the note administrator’s website for review by Privileged Persons pursuant to the ISA. See “Description of the Notes—Reports to Noteholders; Certain Available Information”.
Collection of Operating Information
With respect to each Mortgage Loan that requires the borrower to deliver operating statements, the special servicer or the master servicer, as applicable, is also required to use reasonable efforts to collect and review the annual operating statements beginning with calendar year end 20[__] of the related Mortgaged Property. Most of the Mortgage Loan documents obligate the related borrower to deliver annual property operating statements. However, we cannot assure you that any operating statements required to be delivered will in fact be delivered, nor is the special servicer or the master servicer likely to have any practical means of compelling the delivery in the case of an otherwise performing Mortgage Loan.
Special Servicing Transfer Event
The Mortgage Loans (other than the Non-Serviced Mortgage Loan), any related Companion Loans and any related REO Properties will be serviced by the special servicer under the ISA in the event that the servicing responsibilities of the master servicer are transferred to the special servicer as described below. Such Mortgage Loans and related Companion Loans (including those loans that have become REO Properties) serviced by the special servicer are referred to in this prospectus collectively as the “Specially Serviced Loans”. The master servicer will be required to transfer its servicing responsibilities to the special servicer with respect to any Mortgage Loan (including any related Companion Loan) for which the master servicer is responsible for servicing:
(1) as to which a payment default has occurred at its original maturity date, or, if the original maturity date has been extended, at its extended maturity date; and in the case of a balloon payment, if the balloon payment is delinquent and the related borrower has not provided the special servicer, within [60] days after the related maturity date, with a written and fully executed (subject only to customary final closing conditions) written commitment for refinancing from an acceptable lender reasonably satisfactory in form and substance to the special servicer (and the special servicer will promptly forward such commitment to the master servicer), which provides that such refinancing will occur within [120] days of such related maturity date, provided that such Mortgage Loan and any
related Companion Loan will become a Specially Serviced Loan immediately if the related borrower fails to diligently pursue such financing or to pay any Assumed Scheduled Payment on the related due date (subject to any applicable grace period) at any time before the refinancing or, if such refinancing does not occur, such Mortgage Loan and any related Companion Loan at the end of such 120-day period (or for such shorter period beyond the date on which the related balloon payment was due within which the refinancing is scheduled to occur pursuant to the commitment for refinancing or on which such commitment terminates);
(2) as to which any Periodic Payment is more than [60] days delinquent (unless, prior to such Periodic Payment becoming more than [60] days delinquent, in the case of a Mortgage Loan with an associated mezzanine loan, the holder of the related Companion Loan (or in the case of the Owned Subordinate Companion Loan, the Loan-Specific Directing Holder) or the holder of the related mezzanine debt, as applicable, cures such delinquency);
(3) as to which the borrower has entered into or consented to bankruptcy, appointment of a receiver or conservator or a similar insolvency proceeding, or the borrower has become the subject of a decree or order for that proceeding [provided that if the appointment, decree or order is stayed or discharged, or the case dismissed within [60] days, that Mortgage Loan and any related Companion Loan will not be considered a Specially Serviced Loan during that period)], or the related borrower has admitted in writing its inability to pay its debts generally as they become due;
(4) as to which the master servicer or special servicer has received notice of the foreclosure or proposed foreclosure of any lien other than the Mortgage on the Mortgaged Property;
(5) as to which, in the judgment of the master servicer or special servicer (and, in the case of the special servicer, unless a Control Termination Event has occurred and is continuing, with the consent of the Directing Holder), as applicable, a payment default is imminent or reasonably foreseeable and is not likely to be cured by the borrower within [60] days;
(6) as to which a default that the master servicer or special servicer has notice (other than a failure by the related borrower to pay principal or interest) and which the master servicer or special servicer (and, in the case of the special servicer, unless a Control Termination Event has occurred and is continuing, with the consent of the Directing Holder) determines, in its good faith reasonable judgment, may materially and adversely affect the interests of the Noteholders (and, with respect to any Whole Loan, the interest of the Noteholders and the holders of the related Companion Loan, as a collective whole (taking into account the subordinate or pari passu nature of any Companion Loan, as applicable), has occurred and remains unremediated for the applicable grace period specified in the Mortgage Loan or related Companion Loan documents, other than in certain circumstances the failure to maintain terrorism insurance (or if no grace period is specified for events of default that are capable of cure, [60] days); or
(7) as to which the master servicer or special servicer (and, in the case of the special servicer, unless a Control Termination Event has occurred and is continuing, with the consent of the Directing Holder) determines that (i) a default (other than as described in clause (5) above) under the Mortgage Loan or related Companion Loan is imminent or reasonably foreseeable, (ii) such default will materially impair the value of the corresponding Mortgaged Property as security for the Mortgage Loan or related Companion Loan or otherwise materially adversely affect the interests of Noteholders (and, with respect to a Whole Loan, the interest of the Noteholders and the holders of the related Companion Loan as a collective whole (taking into account the pari passu nature of any Companion Loans), and (iii) the default will continue unremedied for the applicable cure period under the terms of the Mortgage Loan or related Companion Loan, or, if no cure period is specified and the default is capable of being cured, for 30 days (provided that such 30-day grace period does not apply to a default that gives rise to immediate acceleration without application of a grace period under the terms of the Mortgage Loan, related Companion Loan); provided that any determination that a special servicing transfer event has occurred under this clause (7) with respect to any Mortgage Loan, related Companion Loan solely by reason of the failure (or imminent failure) of the related borrower to maintain or cause to be maintained insurance coverage against damages or losses arising from acts
of terrorism may only be made by the special servicer (and unless a Control Termination Event has occurred and is continuing, with the consent of the Directing Holder) as described under “—Maintenance of Insurance” [above].
However, the master servicer will be required to continue to (x) receive payments on the Mortgage Loans [(and any related Serviced Companion Loan)] (including amounts collected by the special servicer), (y) make certain calculations with respect to the Mortgage Loans [and any related Serviced Companion Loan] and (z) make remittances and prepare certain reports to the Noteholders with respect to the Mortgage Loans and any related Serviced Companion Loan. Additionally, the master servicer will continue to receive the Servicing Fee in respect of the Mortgage Loans (and any related Serviced Companion Loan) at the Servicing Fee Rate.
If the related Mortgaged Property is acquired in respect of any Mortgage Loan (and any related Serviced Companion Loan) (upon acquisition, an “REO Property”) whether through foreclosure, deed-in-lieu of foreclosure or otherwise, the special servicer will continue to be responsible for its operation and management. If any Serviced Companion Loan becomes specially serviced, then the related Mortgage Loan will also become a Specially Serviced Loan. If any Mortgage Loan becomes a Specially Serviced Loan, then the related Serviced Companion Loan will also become a Specially Serviced Loan. The master servicer will have no responsibility for the performance by the special servicer of its duties under the ISA. Any Mortgage Loan (excluding the Non-Serviced Mortgage Loan), that is or becomes a cross-collateralized Mortgage Loan and is cross-collateralized with a Specially Serviced Loan will become a Specially Serviced Loan.
If any Specially Serviced Loan, in accordance with its original terms or as modified in accordance with the ISA, becomes performing for at least three consecutive Periodic Payments (provided that no additional event of default is foreseeable in the reasonable judgment of the special servicer and no other event or circumstance exists that causes such Mortgage Loan or related Companion Loan to otherwise constitute a Specially Serviced Loan), the special servicer will be required to transfer servicing of such Specially Serviced Loan (a “Corrected Loan”) to the master servicer.
Asset Status Report
The special servicer will be required to prepare a report (an “Asset Status Report”) for each Mortgage Loan (other than the Non-Serviced Mortgage Loan) and, if applicable, any Serviced Whole Loan that becomes a Specially Serviced Loan not later than [60] days after the servicing of such Mortgage Loan is transferred to the special servicer. Each Asset Status Report will be required to be delivered in electronic form to:
| • | the Directing Holder (but only prior to the occurrence of a Consultation Termination Event and, in the case of an AB Whole Loan, only prior to the occurrence of a Consultation Termination Event and during an AB Control Appraisal Period with respect to the related Subordinate Companion Loan); |
| • | with respect to an AB Whole Loan, to the extent the related Subordinate Companion Loan is not subject to an AB Control Appraisal Period, the Loan-Specific Directing Holder or the holder of the related Subordinate Companion Loan; |
| • | with respect to any related Serviced Companion Loan, to the extent the related Serviced Companion Loan has been included in a securitization transaction, to the master servicer of such securitization into which the related Serviced Companion Loan has been sold or to the holder of the related Serviced Companion Loan; |
| • | the operating advisor [(but only after the occurrence and during the continuance of a Control Termination Event][EXCLUDE FOR TRANSACTIONS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]); |
| • | the note administrator, the master servicer, the indenture trustee; and |
| • | the 17g-5 Information Provider, which will be required to post such report to the 17g-5 Information Provider’s website. |
An Asset Status Report prepared for each Specially Serviced Loan will be required to include, among other things, the following information:
| • | summary of the status of such Specially Serviced Loan and any negotiations with the related borrower; |
| • | a discussion of the legal and environmental considerations reasonably known to the special servicer, consistent with the Servicing Standard, that are applicable to the exercise of remedies and to the enforcement of any related guaranties or other collateral for the related Specially Serviced Loan and whether outside legal counsel has been retained; |
| • | the most current rent roll and income or operating statement available for the related Mortgaged Property; |
| • | (A) the special servicer’s recommendations on how such Specially Serviced Loan might be returned to performing status (including the modification of a monetary term, and any workout, restructure or debt forgiveness) and returned to the master servicer for regular servicing or foreclosed or otherwise realized upon (including any proposed sale of a Defaulted Loan or REO Property), (B) a description of any such proposed or taken actions, and (C) the alternative courses of action that were or are being considered by the special servicer in connection with the proposed or taken actions; |
| • | the status of any foreclosure actions or other proceedings undertaken with respect to the Specially Serviced Loan, any proposed workouts and the status of any negotiations with respect to such workouts, and an assessment of the likelihood of additional defaults under the related Mortgage Loan or Serviced Whole Loan; |
| • | a description of any amendment, modification or waiver of a material term of any ground lease (or any space lease or air rights lease, if applicable) or franchise agreement; |
| • | the decision that the special servicer made, or intends or proposes to make, including a narrative analysis setting forth the special servicer’s rationale for its proposed decision, including its rejection of the alternatives; |
| • | an analysis of whether or not taking such proposed action is reasonably likely to produce a greater recovery on a present value basis than not taking such action, setting forth (x) the basis on which the special servicer made such determination and (y) the net present value calculation and all related assumptions; |
| • | the appraised value of the related Mortgaged Property (and a copy of the last obtained appraisal of such Mortgaged Property) together with a description of any adjustments to the valuation of such Mortgaged Property made by the special servicer together with an explanation of those adjustments; and |
| • | such other information as the special servicer deems relevant in light of the Servicing Standard. |
If no Control Termination Event has occurred and is continuing, the Directing Holder will have the right to disapprove the Asset Status Report prepared by the special servicer with respect to a Specially Serviced Loan within 10 business days after receipt of the Asset Status Report. If the Directing Holder does not disapprove an Asset Status Report within 10 business days or if the special servicer makes a determination, in accordance with the Servicing Standard, that the disapproval by the Directing Holder (communicated to the special servicer within ten business days) is not in the best interest of all the
holders, the special servicer will be required to implement the recommended action as outlined in the Asset Status Report. If the Directing Holder disapproves the Asset Status Report within the 10 business day period and the special servicer has not made the affirmative determination described above, the special servicer will be required to revise the Asset Status Report as soon as practicable thereafter, but in no event later than 30 days after the disapproval. The special servicer will be required to continue to revise the Asset Status Report until the Directing Holder fails to disapprove the revised Asset Status Report or until the special servicer makes a determination, in accordance with the Servicing Standard, that the disapproval is not in the best interests of the Noteholders; provided that, if the Directing Holder has not approved the Asset Status Report for a period of 60 business days following the first submission of an Asset Status Report, the special servicer may act upon the most recently submitted form of Asset Status Report, if consistent with the Servicing Standard.
[If a Control Termination Event [(or, with respect to the AB Whole Loan, if both a Control Termination Event has occurred and is continuing and an AB Control Appraisal Period is in effect)]] [EXCLUDE FOR TRANSACTIONS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST], the special servicer will be required to promptly deliver each Asset Status Report prepared in connection with a Specially Serviced Loan to the operating advisor (and so long as no Consultation Termination Event has occurred, the Directing Holder). The operating advisor will be required to provide comments to the special servicer in respect of the Asset Status Report, if any, within ten (10) business days following the later of (i) receipt of such Asset Status Report or (ii) such related additional information reasonably requested by the operating advisor, and propose possible alternative courses of action to the extent it determines such alternatives to be in the best interest of the Noteholders (including any Noteholders that are holders of the Control Eligible Notes), as a collective whole. The special servicer will be obligated to consider such alternative courses of action and any other feedback provided by the operating advisor (and so long as no Consultation Termination Event has occurred, the Directing Holder) in connection with the special servicer’s preparation of any Asset Status Report. The special servicer will revise the Asset Status Report as it deems necessary to take into account any input and/or comments from the operating advisor (and so long as no Consultation Termination Event has occurred, the Directing Holder), to the extent the special servicer determines that the operating advisor’s and/or Directing Holder’s input and/or recommendations are consistent with the Servicing Standard and in the best interest of the Noteholders as a collective whole (or, with respect to a Serviced Whole Loan, the best interest of the Noteholders and the holders of the related Companion Loan, as a collective whole (taking into account the pari passu or subordinate nature of such Companion Loan)).
The special servicer will not be required to take or to refrain from taking any action because of an objection or comment by the operating advisor or a recommendation of the operating advisor.
[After the occurrence and during the continuance of a Control Termination Event but prior to the occurrence of a Consultation Termination Event, each of the Directing Holder and the operating advisor will be entitled to consult with the special servicer and propose alternative courses of action and provide other feedback in respect of any Asset Status Report. After the occurrence of a Consultation Termination Event, the Directing Holder will have no right to consult with the special servicer with respect to Asset Status Reports and the special servicer will only be obligated to consult with the operating advisor with respect to any Asset Status Report as described above. The special servicer may choose to revise the Asset Status Report as it deems reasonably necessary in accordance with the Servicing Standard to take into account any input and/or recommendations of the operating advisor or the Directing Holder during the applicable periods described above, but is under no obligation to follow any particular recommendation of the operating advisor or the Directing Holder.] [APPLICABLE TO OFFERINGS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH METHODS OTHER THAN A THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]
[After the occurrence and during the continuance of a Control Termination Event but prior to the occurrence of a Consultation Termination Event, the Directing Holder, and after the occurrence and during the continuance of an Operating Advisor Consultation Event, the operating advisor, will be entitled to consult with the special servicer and propose alternative courses of action and provide other feedback
in respect of any Asset Status Report. After the occurrence of a Consultation Termination Event, the Directing Holder will have no right to consult with the special servicer with respect to Asset Status Reports and the special servicer will only be obligated to consult with the operating advisor with respect to any Asset Status Report as described above. The special servicer may choose to revise the Asset Status Report as it deems reasonably necessary in accordance with the Servicing Standard to take into account any input and/or recommendations of the operating advisor or the Directing Holder during the applicable periods described above, but is under no obligation to follow any particular recommendation of the operating advisor or the Directing Holder.] [APPLICABLE TO OFFERINGS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]
[Notwithstanding the foregoing, with respect to a Subordinate Companion Loan and prior to the occurrence and continuance of an AB Control Appraisal Period, the special servicer will prepare an Asset Status Report for an AB Whole Loan within [60] days after it becomes a Specially Serviced Loan in accordance with the terms of the ISA and any applicable provisions of the related Intercreditor Agreement and the Directing Holder will have no approval rights over any such Asset Status Report. See “Description of the Mortgage Pool—The Whole Loans—The Serviced AB Whole Loan”.]
[With respect to the Non-Serviced Mortgage Loan, the Non-Serviced Directing Holder will have approval and consultation rights with respect to any asset status report prepared by the Non-Serviced Special Servicer with respect to the Non-Serviced Whole Loan under the Non-Serviced Servicing Agreement that are substantially similar to the approval and consultation rights of the Directing Holder with respect to the Mortgage Loans and the Serviced Whole Loans. See “—Servicing of the Non-Serviced Mortgage Loan”.]
Realization Upon Mortgage Loans
If a payment default or material non-monetary default on a Mortgage Loan (other than the Non-Serviced Mortgage Loan) has occurred, then, pursuant to the ISA, the special servicer, on behalf of the indenture trustee, may, in accordance with the terms and provisions of the ISA, at any time institute foreclosure proceedings, exercise any power of sale contained in the related Mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to the related Mortgaged Property, by operation of law or otherwise. The special servicer is not permitted, however, to cause the indenture trustee to acquire title to any Mortgaged Property, have a receiver of rents appointed with respect to any Mortgaged Property or take any other action with respect to any Mortgaged Property that would cause the indenture trustee, for the benefit of the Noteholders, or any other specified person to be considered to hold title to, to be a “mortgagee-in-possession” of, or to be an “owner” or an “operator” of such Mortgaged Property within the meaning of certain federal environmental laws, unless the special servicer has determined in accordance with the Servicing Standard, based on an updated environmental assessment report prepared by a person who regularly conducts environmental audits and performed within six months prior to any such acquisition of title or other action (which report will be an expense of the issuing entity subject to the terms of the ISA) that:
(a) such Mortgaged Property is in compliance with applicable environmental laws or, if not, after consultation with an environmental consultant, that it would be in the best economic interest of the Noteholders (and with respect to any Serviced Whole Loan, the holders of the Serviced Companion Loan), as a collective whole as if such Noteholders and, if applicable, the holders of the Serviced Companion Loan constituted a single lender, to take such actions as are necessary to bring such Mortgaged Property in compliance with such laws, and
(b) there are no circumstances present at such Mortgaged Property relating to the use, management or disposal of any hazardous materials for which investigation, testing, monitoring, containment, clean-up or remediation could be required under any currently effective federal, state or local law or regulation, or that, if any such hazardous materials are present for which such action could be required, after consultation with an environmental consultant, it would be in the best economic interest of the Noteholders (and with respect to any Serviced Whole Loan, the holders of
the Serviced Companion Loan), as a collective whole as if such Noteholders and, if applicable, holders of the Serviced Companion Loan constituted a single lender, to take such actions with respect to the affected Mortgaged Property.
Such requirement precludes enforcement of the security for the related Mortgage Loan until a satisfactory environmental site assessment is obtained (or until any required remedial action is taken), but will decrease the likelihood that the issuing entity will become liable for a material adverse environmental condition at the Mortgaged Property. However, we cannot assure you that the requirements of the ISA will effectively insulate the issuing entity from potential liability for a materially adverse environmental condition at any Mortgaged Property.
Under the ISA, the special servicer is required to establish and maintain one or more REO Accounts, to be held on behalf of the indenture trustee for the benefit of the Noteholders and with respect to a Serviced Whole Loan, the holder of the Serviced Companion Loan, for the retention of revenues and insurance proceeds derived from each REO Property. The special servicer is required to use the funds in the REO Account to pay for the proper operation, management, maintenance and disposition of any REO Property, but only to the extent of amounts on deposit in the REO Account relate to such REO Property. To the extent that amounts in the REO Account in respect of any REO Property are insufficient to make such payments, the master servicer is required to make a Servicing Advance, unless it determines such Servicing Advance would be nonrecoverable. Within one business day following the end of each Collection Period, the special servicer is required to deposit all amounts received in respect of each REO Property during such Collection Period, net of any amounts withdrawn to make any permitted disbursements, to the Collection Account; provided that the special servicer may retain in the REO Account permitted reserves.
Sale of Defaulted Loans and REO Properties
If the special servicer determines in accordance with the Servicing Standard that it would be in the best economic interests of the Noteholders or, in the case of a Serviced Whole Loan, Noteholders and any holder of the related Serviced Companion Loan (as a collective whole as if such Noteholders and holder of the Serviced Companion Loan constituted a single lender) to attempt to sell a Defaulted Loan (other than the Non-Serviced Mortgage Loan) and any related Serviced Companion Loan as described below, the special servicer will be required to use reasonable efforts to solicit offers for each Defaulted Loan on behalf of the Noteholders and the holder of any related Serviced Companion Loan in such manner as will be reasonably likely to realize a fair price. [In the case of the Non-Serviced Mortgage Loan, under certain limited circumstances permitted under the related Intercreditor Agreement, to the extent that such Non-Serviced Mortgage Loan is not sold together with the Non-Serviced Companion Loan by the special servicer for the Non-Serviced Whole Loan, the special servicer will be entitled to sell (with the consent of the Directing Holder if no Control Termination Event has occurred and is continuing) such Non-Serviced Mortgage Loan if it determines in accordance with the Servicing Standard that such action would be in the best interests of the Noteholders.] The special servicer is required to accept the first cash offer received from any person that constitutes a fair price for the Defaulted Loan. If multiple offers are received during the period designated by the special servicer for receipt of offers, the special servicer is required to select the highest offer. The special servicer is required to give the indenture trustee, the note administrator, the master servicer, the operating advisor and the Directing Holder 10 business days’ prior written notice of its intention to sell any such Defaulted Loan. Neither the indenture trustee nor any of its affiliates may make an offer for or purchase any Defaulted Loan. [“Defaulted Loan” means a Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan (A) (i) that is delinquent at least 60 days in respect of its Periodic Payments or delinquent in respect of its balloon payment, if any, in either case such delinquency to be determined without giving effect to any grace period permitted by the related Mortgage or Mortgage Note and without regard to any acceleration of payments under the related Mortgage and Mortgage Note or (ii) as to which the master servicer or special servicer has, by written notice to the related borrower, accelerated the maturity of the indebtedness evidenced by the related Mortgage Note.]
The special servicer will be required to determine whether any cash offer constitutes a fair price for any Defaulted Loan if the highest offeror is a person other than an Interested Person. In determining whether any offer from a person other than an Interested Person constitutes a fair price for any Defaulted Loan, the special servicer will be required to take into account (in addition to the results of any appraisal, updated appraisal or narrative appraisal that it may have obtained pursuant to the ISA within the prior 9 months), among other factors, the period and amount of the occupancy level and physical condition of the related Mortgaged Property and the state of the local economy.
If the offeror is an Interested Person (provided that the indenture trustee may not be a offeror), then the indenture trustee will be required to determine whether the cash offer constitutes a fair price [unless (i) the offer is equal to or greater than the applicable Purchase Price, (ii) the offer is the highest offer received and (iii) at least two other offers are received from independent third parties; provided, however, that no offer from an Interested Person will constitute a fair price unless (A) it is the highest offer received and (B) at least two other offers are received from independent third parties]. In determining whether any offer received from an Interested Person represents a fair price for any such Defaulted Loan, the indenture trustee will be supplied with and will be required to rely on the most recent appraisal or updated appraisal conducted in accordance with the ISA within the preceding 9-month period or, in the absence of any such appraisal, on a new appraisal. Except as provided in the following paragraph, the cost of any appraisal will be covered by, and will be reimbursable as, a Servicing Advance.
Notwithstanding anything contained in the preceding paragraph to the contrary, if the indenture trustee is required to determine whether a cash offer by an Interested Person constitutes a fair price, the indenture trustee may (at its option and at the expense of the Interested Person) designate an independent third party expert in real estate or commercial mortgage loan matters with at least 5 years’ experience in valuing or investing in loans similar to the subject Mortgage Loan or Serviced Whole Loan, as the case may be, that has been selected with reasonable care by the indenture trustee to determine if such cash offer constitutes a fair price for such Mortgage Loan or Serviced Whole Loan. If the indenture trustee designates such a third party to make such determination, the indenture trustee will be entitled to rely conclusively upon such third party’s determination. The reasonable costs of all appraisals, inspection reports and broker opinions of value incurred by any such third party pursuant to this paragraph will be covered by, and will be reimbursable by the Interested Person; provided that the indenture trustee will not engage a third party expert whose fees exceed a commercially reasonable amount as determined by the indenture trustee.
The special servicer is required to use reasonable efforts to solicit offers for each REO Property on behalf of the Noteholders and the related Companion Loan Holder(s) (if applicable) and to sell each REO Property in the same manner as with respect to a Defaulted Loan.
Notwithstanding any of the foregoing paragraphs, the special servicer will not be required to accept the highest cash offer for a Defaulted Loan or REO Property if the special servicer determines (in consultation with the Directing Holder (unless a Consultation Termination Event exists) and, in the case of a Serviced Whole Loan or an REO Property related to a Serviced Whole Loan, the related Companion Loan Holder(s)), in accordance with the Servicing Standard, that rejection of such offer would be in the best interests of the Noteholders and, in the case of a sale of a Serviced Whole Loan or an REO Property related to a Serviced Whole Loan, the related Companion Loan Holder(s) (as a collective whole as if such Noteholders and, if applicable, the related Companion Loan Holder(s) constituted a single lender (and with respect to any AB Whole Loan, taking into account the subordinate nature of the related Owned Subordinate Companion Loan)), and the special servicer may accept a lower offer (from any person other than itself or an affiliate) if it determines, in its reasonable and good faith judgment, that acceptance of such offer would be in the best interests of the Noteholders and, in the case of a Serviced Whole Loan or an REO Property related to a Serviced Whole Loan, the related Companion Loan Holder(s) (as a collective whole as if such Noteholders and, if applicable, the related Companion Loan Holder(s) constituted a single lender and with respect to any AB Whole Loan, taking into account the subordinate nature of the related Owned Subordinate Companion Loan)).
An “Interested Person” is the depositor, the master servicer, the special servicer, the operating advisor, the asset representations reviewer, the note administrator, the indenture trustee, the Directing
Holder, any sponsor, any borrower, any holder of a related mezzanine loan, any manager of a Mortgaged Property, any independent contractor engaged by the special servicer or any known affiliate of any of the preceding entities, and, with respect to a Whole Loan if it is a Defaulted Loan, the depositor, the master servicer, the special servicer (or any independent contractor engaged by such special servicer), or the indenture trustee for the securitization of a Companion Loan, and each related Companion Loan Holder or its representative, any holder of a related mezzanine loan, or any known affiliate of any such party described above.
With respect to each Serviced Whole Loan, pursuant to the terms of the related Intercreditor Agreement(s), if such Serviced Whole Loan becomes a Defaulted Loan, and if the special servicer determines to sell the related Mortgage Loan in accordance with the discussion in this “—Sale of Defaulted Loans and REO Properties” section, then the special servicer will be required to sell the related Pari Passu Companion Loan together with such Mortgage Loan as one whole loan. The special servicer will not be permitted to sell the related Mortgage Loan together with the related Pari Passu Companion Loan if such Serviced Whole Loan becomes a Defaulted Loan without the consent of the holder of the related Pari Passu Companion Loan, unless the special servicer complies with certain notice and delivery requirements set forth in the ISA. See “Description of the Mortgage Pool—The Whole Loans—The Serviced AB Whole Loan”.
[In connection with any such sale involving an AB Whole Loan, the special servicer will also have the right, but not the obligation, to sell the related Owned Subordinate Companion Loan, provided that such sale will require the consent of the Loan-Specific Directing Holder. A related Companion Loan Holder (or its representative) or a holder of any mezzanine debt relating to a Defaulted Loan will be permitted to submit an offer at any sale of such Defaulted Loan or related REO Property or may have the option to purchase such Defaulted Loan or related REO Property, as applicable, under the related Intercreditor Agreement (and such purchase price is subject to the terms of such Intercreditor Agreement).] See “Description of the Mortgage Pool—Additional Indebtedness—Mezzanine Indebtedness” and “—The Whole Loans—The Serviced AB Whole Loan”.
In addition, with respect to the Non-Serviced Mortgage Loan, if such Mortgage Loan has become a defaulted Mortgage Loan under the related Non-Serviced Servicing Agreement, the Non-Serviced Special Servicer will generally have the right to sell such Mortgage Loan together with the related Companion Loan as notes evidencing one whole loan. [The issuing entity, as the holder of the Non-Serviced Mortgage Loan, will have the right to consent to such sale if the required notices and information regarding such sale are not provided to the special servicer in accordance with the related Intercreditor Agreement. The Directing Holder will be entitled to exercise such consent right so long as a Control Termination Event has not occurred and is not continuing, and if a Control Termination Event has occurred and is continuing, the special servicer will exercise such consent rights.] See “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan”.
To the extent that Liquidation Proceeds collected with respect to any Mortgage Loan are less than the sum of (1) the outstanding principal balance of the Mortgage Loan, (2) interest accrued on the Mortgage Loan and (3) the aggregate amount of outstanding reimbursable expenses (including any (i) unpaid servicing compensation, (ii) unreimbursed Servicing Advances, (iii) accrued and unpaid interest on all Advances and (iv) additional expenses of the issuing entity) incurred with respect to the Mortgage Loan, the issuing entity will realize a loss in the amount of the shortfall. The indenture trustee, the master servicer and/or the special servicer will be entitled to reimbursement out of the Liquidation Proceeds recovered on any Mortgage Loan, prior to the payment of those Liquidation Proceeds to Noteholders, of any and all amounts that represent unpaid servicing compensation in respect of the related Mortgage Loan, certain unreimbursed expenses incurred with respect to the Mortgage Loan and any unreimbursed Advances (including interest on Advances) made with respect to the Mortgage Loan. In addition, amounts otherwise distributable on the notes will be further reduced by interest payable to the master servicer, the special servicer or indenture trustee on these Advances.
Transfers to Permitted Subsidiaries
Notwithstanding any other provision of the Indenture and Servicing Agreement, the Issuing Entity will be permitted to sell or otherwise transfer (including as a contribution), to one or more wholly-owned, single-purpose entities established exclusively for the purpose of taking title to any mortgage, real estate or any Sensitive Asset in connection, in each case, with the exercise of remedies or otherwise (such entities, “Permitted Subsidiaries”), at any time any Sensitive Asset. The custodian will be required to, upon receipt of an issuer order certifying that the sale of a Sensitive Asset is being made in accordance with satisfaction of all requirements of the Indenture, release such Sensitive Asset and deliver such Sensitive Asset as specified in such issuer order.
The Directing Holder
General
Subject to the rights of the holder of the related Companion Loan and the Loan-Specific Directing Holder under the related Intercreditor Agreement as described under “—Rights of Holders of Companion Loans and Loan-Specific Directing Holder” below, for so long as a Control Termination Event has not occurred and is not continuing, the Directing Holder will be entitled to advise (1) the special servicer, with respect to all Specially Serviced Loans or (2) the special servicer, with respect to non-Specially Serviced Loans, as to all matters for which the master servicer must obtain the consent or deemed consent of the special servicer (e.g., the Major Decisions) and will have the right to replace the special servicer with or without cause and have certain other rights under the ISA, each as described below. Upon the occurrence and continuance of a Control Termination Event, the Directing Holder will have certain consultation rights only, and upon the occurrence of a Consultation Termination Event, the Directing Holders will not have any consent or consultation rights, as further described below.
The “Directing Holder” will be [the Subordinate Controlling Class Noteholder (or its representative) selected by more than [__]% of the Subordinate Controlling Class Noteholders, by Principal Balance, as determined by the note registrar from time to time[; provided, however, that
(1) absent that selection, or
(2) until a Directing Holder is so selected, or
(3) upon receipt of a notice from a majority of the Subordinate Controlling Class Noteholders, by Principal Balance, that a Directing Holder is no longer designated, the Subordinate Controlling Class Noteholder that owns the largest aggregate Principal Balance of the Subordinate Controlling Class (or its representative) will be the Directing Holder;
provided, however, that (i) in the case of this clause (3), in the event no one holder owns the largest aggregate Principal Balance of the Subordinate Controlling Class, then there will be no Directing Holder until appointed in accordance with the terms of the ISA, and (ii) the note administrator and the other parties to the ISA will be entitled to assume that the identity of the Directing Holder has not changed until such parties receive written notice of a replacement of the Directing Holder from a party holding the requisite interest in the Subordinate Controlling Class, or the resignation of the then-current Directing Holder.][DEFINITION OF DIRECTING HOLDER MAY BE MODIFIED.]
The initial Directing Holder is expected to be [NAME OF DIRECTING HOLDER] or another affiliate of [NAME OF B-PIECE BUYER].
A “Subordinate Controlling Class Noteholder” is each holder (or Note Owner, if applicable) of a note of the Subordinate Controlling Class as determined by the note registrar from time to time, upon request by any party to the ISA.
The “Subordinate Controlling Class” will be, as of any time of determination, the most subordinate class of Control Eligible Notes then-outstanding that has an aggregate Principal Balance (as notionally
reduced by any Appraisal Reduction Amounts and Notional Losses allocable to such class) at least equal to 25% of the initial Principal Balance of that class. The Subordinate Controlling Class as of the Closing Date will be [THE MOST SUBORDINATE CLASS AMONG CONTROL ELIGIBLE NOTES].
The “Control Eligible Notes” will be any of the [SPECIFY SUBORDINATE CLASSES].
The master servicer, the special servicer, the operating advisor, the note administrator, the indenture trustee or any noteholder may request that the note registrar determine which class of notes is the then-current Subordinate Controlling Class and the note registrar must thereafter provide such information to the requesting party. The depositor, the indenture trustee, the master servicer, the special servicer, the operating advisor and, for so long as no Consultation Termination Event has occurred, the Directing Holder, may request that the note administrator provide, and the note administrator must so provide, a list of the holders (or Note Owners, if applicable) of the Subordinate Controlling Class. The indenture trustee, the note administrator, the master servicer, the special servicer and the operating advisor may each rely on any such list so provided.
In the event that no Directing Holder has been appointed or identified to the master servicer or the special servicer, as applicable, and the master servicer or special servicer, as applicable, has attempted to obtain such information from the note administrator and no such entity has been identified to the master servicer or the special servicer, as applicable, then until such time as the new Directing Holder is identified, the master servicer or the special servicer, as applicable, shall have no duty to consult with, provide notice to, or seek the approval or consent of any such Directing Holder as the case may be.
[THE MOST SENIOR CLASS AMONG CONTROL ELIGIBLE CLASS NOTES] noteholders that are the Subordinate Controlling Class Noteholders may waive its rights as the Subordinate Controlling Class Noteholders as described in “—Control Termination Event and Consultation Termination Event” below.
Major Decisions
Except as otherwise described under “—Control Termination Event and Consultation Termination Event” and “—Servicing Override” below and subject to the rights of the holder of the related Companion Loan (or in the case of an AB Whole Loan, the Loan-Specific Directing Holder) under the related Intercreditor Agreement as described under “—Rights of Holders of Companion Loans and Loan-Specific Directing Holder” below, (a) the master servicer will not be permitted to take any of the following actions unless it has obtained the consent of the special servicer and (b) prior to the occurrence and continuance of a Control Termination Event, the special servicer will not be permitted to take any of the following actions and the special servicer will not be permitted to consent to the master servicer’s taking any of the following actions, as to which the Directing Holder has objected in writing within ten business days (or [thirty (30)] days with respect to clause (x) below) after receipt of the written analysis (provided that if such written objection has not been received by the special servicer within such ten-business-day (or [30]-day) period, the Directing Holder will be deemed to have approved such action).
Each of the following, a “Major Decision”:
(i) any proposed or actual foreclosure upon or comparable conversion (which may include acquisition of an REO Property) of the ownership of properties securing such of the Mortgage Loans [(other than the Non-Serviced Mortgage Loan)] or Serviced Whole Loans as come into and continue in default;
(ii) any modification, consent to a modification or waiver of any monetary term (other than late fees and default interest) or material non-monetary term (including, without limitation, the timing of payments and acceptance of discounted payoffs) of a Mortgage Loan [(other than the Non-Serviced Mortgage Loan)] or Serviced Whole Loan or any extension of the maturity date of such Mortgage Loan;
(iii) any sale of a Defaulted Loan [(that is not the Non-Serviced Mortgage Loan)] or REO Property (other than in connection with the redemption of all of the notes as described under
“Description of the Notes—Redemption of Notes”) [or a Defaulted Loan that is the Non-Serviced Mortgage Loan that the special servicer is permitted to sell in accordance with the ISA], in each case for less than the applicable Purchase Price;
(iv) any determination to bring an REO Property into compliance with applicable environmental laws or to otherwise address hazardous material located at an REO Property;
(v) requests for property releases or substitutions, other than (i) grants of easements or rights of way that do not materially affect the use or value of a Mortgaged Property or the borrower’s ability to make any payments with respect to a Mortgage Loan [(other than the Non-Serviced Mortgage Loan)] or any Serviced Whole Loan, (ii) release of non-material parcels of a Mortgaged Property (including, without limitation, any such releases (A) to which the related Mortgage Loan documents expressly require the mortgagee thereunder to make such releases upon the satisfaction of certain conditions (and the conditions to the release that are set forth in the related Mortgage Loan documents do not include the approval of the lender or the exercise of lender discretion (other than confirming the satisfaction of the other conditions to the release set forth in the related Mortgage Loan documents that do not include any other approval or exercise)) and such release is made as required by the related Mortgage Loan documents or (B) that are related to any condemnation action that is pending, or threatened in writing, and would affect a non-material portion of the Mortgaged Property), or (iii) the release of collateral securing any Mortgage Loan in connection with a defeasance of such collateral;
(vi) any waiver of a “due-on-sale” or “due-on-encumbrance” clause with respect to a Mortgage Loan (other than the Non-Serviced Mortgage Loan) or a Serviced Whole Loan or any consent to such a waiver or consent to a transfer of the Mortgaged Property or interests in the borrower or consent to the incurrence of additional debt, other than any such transfer or incurrence of debt as may be effected without the consent of the lender under the related loan agreement;
(vii) any property management company changes (with respect to a Mortgage Loan with a principal balance greater than $[2,500,000]) or franchise changes (with respect to a Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan for which the lender is required to consent or approve under the Mortgage Loan documents);
(viii) releases of any material amounts from any escrows, reserve accounts or letters of credit held as performance escrows or reserves, other than those required pursuant to the specific terms of the related Mortgage Loan (other than the Non-Serviced Mortgage Loan) or a Serviced Whole Loan and for which there is no lender discretion;
(ix) any acceptance of an assumption agreement or any other agreement permitting a transfer of interests in a borrower or guarantor releasing a borrower or guarantor from liability under a Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan other than pursuant to the specific terms of such Mortgage Loan or Serviced Whole Loan and for which there is no lender discretion;
(x) any determination of an Acceptable Insurance Default;
(xi) [any exercise of a material remedy with respect to a Mortgage Loan (other than the Non-Serviced Mortgage Loan) or a Serviced Whole Loan following a default or event of default of such Mortgage Loan or Serviced Whole Loan];
(xii) any modification, consent to a modification or waiver of any material term of any intercreditor or similar agreement related to a Mortgage Loan, or any action to enforce rights with respect to the Mortgage Loan; and
(xiii) any consent to incurrence of additional debt by a borrower or mezzanine debt by a direct or indirect parent of a borrower, to the extent the mortgagee’s approval is required under the related Mortgage Loan documents; [LIST OF MAJOR DECISION MAY BE MODIFIED].
Asset Status Report
So long as a Control Termination Event has not occurred and is not continuing, the Directing Holder will have the right to disapprove the Asset Status Report prepared by the special servicer with respect to a Specially Serviced Loan. If a Consultation Termination Event has occurred, the Directing Holder will have no right to consult with the special servicer with respect to the Asset Status Reports. See “—Asset Status Report” above.
Notwithstanding the foregoing, with respect to a Subordinate Companion Loan and prior to the occurrence and continuance of an AB Control Appraisal Period, the special servicer will prepare an Asset Status Report for the related AB Whole Loan within 60 days after it becomes a Specially Serviced Loan in accordance with the terms of the ISA and any applicable provisions of the related intercreditor agreement and the Directing Holder will have no approval rights over any such Asset Status Report.
Replacement of Special Servicer
So long as a Control Termination Event has not occurred and is not continuing, the Directing Holder will have the right to replace the special servicer with or without cause as described under “—Replacement of Special Servicer Without Cause” and “—Termination of Servicer and Special Servicer for Cause—Servicer Termination Events” below.
Control Termination Event and Consultation Termination Event
If a Control Termination Event has occurred and is continuing, but for so long as no Consultation Termination Event has occurred, the special servicer will not be required to obtain the consent of the Directing Holder with respect to any of the Major Decisions or Asset Status Reports, but will be required to consult with the Directing Holder in connection with any Major Decision or Asset Status Report (or any other matter for which the consent of the Directing Holder would have been required or for which the Directing Holder would have the right to direct the master servicer or the special servicer if no Control Termination Event had occurred and was continuing) and to consider alternative actions recommended by the Directing Holder in respect of such Major Decision or Asset Status Report (or such other matter). Such consultation will not be binding on the special servicer. In the event the special servicer receives no response from the Directing Holder within 10 business days following its written request for input on any required consultation, the special servicer will not be obligated to consult with the Directing Holder on the specific matter; provided, however, that the failure of the Directing Holder to respond will not relieve the special servicer from consulting with the Directing Holder on any future matters with respect to the applicable Mortgage Loan or Serviced Whole Loan or any other Mortgage Loan.
In addition, if a [Control Termination Event—INCLUDE FOR TRANSACTIONS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH METHODS OTHER THAN A THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST] [Operating Advisor Consultation Event—INCLUDE FOR TRANSACTIONS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST] has occurred and is continuing, the special servicer will also be required to consult with the operating advisor in connection with any Major Decision (and such other matters that are subject to consultation rights of the operating advisor pursuant to the ISA) and to consider alternative actions recommended by the operating advisor in respect of such Major Decision; provided that such consultation is on a non-binding basis. In the event the special servicer receives no response from the operating advisor within 10 business days following the later of (i) its written request for input on any required consultation and (ii) delivery of all such additional information reasonably requested by the operating advisor related to the subject matter of such consultation, the special servicer will not be obligated to consult with the operating advisor on the specific matter; provided, however, that the failure of the operating advisor to respond will not relieve the special servicer from
consulting with the operating advisor on any future matters with respect to the applicable Mortgage Loan or Serviced Whole Loan or any other Mortgage Loan.
If a Consultation Termination Event has occurred, no class of notes will act as the Subordinate Controlling Class, and the Directing Holder will have no consultation or consent rights under the ISA and will have no right to receive any notices, reports or information (other than notices, reports or information required to be delivered to all Noteholders) or any other rights as Directing Holder under the ISA. The special servicer will nonetheless be required to consult with only the operating advisor in connection with Major Decisions, asset status reports and other material special servicing actions to the extent set forth in the ISA, and no Subordinate Controlling Class Noteholder will be recognized or have any right to approve or be consulted with respect to asset status reports or material special servicer actions.
On each Payment Date, immediately following the payments to be made to the Noteholders on that date, the note administrator is required to calculate the amount, if any, by which (i) the aggregate Stated Principal Balance (for purposes of this calculation only, the aggregate Stated Principal Balance will not be reduced by the amount of principal payments received on the Mortgage Loans that were used to reimburse the master servicer, the special servicer or the indenture trustee from general collections of principal on the Mortgage Loans for Workout-Delayed Reimbursement Amounts, to the extent those amounts are not otherwise determined to be Nonrecoverable Advances) of the Mortgage Loans, including any REO Loans (but in each case, excluding any Companion Loan or Subordinate Companion Loan) expected to be outstanding immediately following that Payment Date is less than (ii) the then aggregate Principal Balance of the notes after giving effect to payments of principal on that Payment Date (any such deficit, a “Notional Loss”). For purposes of determining the Non-Reduced Notes, the Subordinate Controlling Class and whether a Control Termination Event or Consultation Termination Event is continuing, the note administrator will be required to allocate any Notional Losses among the respective classes of notes in reverse sequential order to notionally reduce their Principal Balances, until the Principal Balance of each such class is notionally reduced to zero (i.e., first, to Class [__] notes, second, to the Class [__] notes, third, to the Class [__] notes, and finally, pro rata based on their respective interest entitlements, to the Senior Notes).
In general, Notional Losses could result from the occurrence of: (1) losses and other shortfalls on or in respect of the Mortgage Loans, including as a result of defaults and delinquencies on the related Mortgage Loans, Nonrecoverable Advances made in respect of the Mortgage Loans, the payment to the special servicer of any compensation as described in “Indenture and Servicing Agreement—Servicing and Other Compensation and Payment of Expenses”, and the payment of interest on Advances and certain servicing expenses; and (2) certain unanticipated, non-Mortgage Loan specific expenses of the issuing entity, including certain reimbursements to the note administrator or indenture trustee as described under “Transaction Parties—The Indenture Trustee” or “—The Note Administrator”, and certain federal, state and local taxes, and certain tax-related expenses, payable out of the issuing entity, as described under “Material Federal Income Tax Considerations”.
A “Control Termination Event” will occur when (i) the [THE MOST SENIOR CLASS AMONG CONTROL ELIGIBLE NOTES] notes have a Principal Balance (taking into account the application of any Appraisal Reduction Amounts and Notional Losses to notionally reduce the Principal Balance of such class) of less than 25% of the initial Principal Balance of that class or (ii) a holder of the [THE MOST SENIOR CLASS AMONG CONTROL ELIGIBLE NOTES] notes is the majority Subordinate Controlling Class Noteholder and has irrevocably waived its right, in writing, to exercise any of the rights of the Subordinate Controlling Class Noteholder and such rights have not been reinstated to a successor subordinate controlling class noteholder as described below.
A “Consultation Termination Event” will occur when (i) there is no class of Control Eligible Notes that has a then-outstanding Principal Balance (taking into account the application of any Notional Losses to notionally reduce the Principal Balance of such class, but without regard to the application of any Appraisal Reduction Amounts) at least equal to 25% of the initial Principal Balance of that class; or (ii) a holder of the [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES] is the majority Subordinate Controlling Class Noteholder and has irrevocably waived its right, in writing, to exercise any of the rights of the Subordinate Controlling Class Noteholder and such rights have not been reinstated to
a successor subordinate controlling class noteholder pursuant to the terms of the ISA; provided that no Consultation Termination Event resulting solely from the operation of clause (ii) will be deemed to have existed or be in continuance with respect to a successor holder of [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES] that has not irrevocably waived its right to exercise any of the rights of the Subordinate Controlling Class Noteholder.
At any time that the Subordinate Controlling Class Noteholder is the holder of a majority of the [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES] notes and the [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES] notes are the Subordinate Controlling Class, it may waive its right (a) to appoint the Directing Holder and (b) to exercise any of the Directing Holder’s rights set forth in the ISA by irrevocable written notice delivered to the depositor, note administrator, master servicer, special servicer and operating advisor. During such time, the special servicer will be required to consult with only the operating advisor in connection with asset status reports and material special servicing actions to the extent set forth in the ISA, and no Subordinate Controlling Class Noteholder will be recognized or have any right to replace the special servicer or approve or be consulted with respect to asset status reports or material special servicer actions. Any such waiver will remain effective until such time as the Subordinate Controlling Class Noteholder sells or transfers all or a portion of its interest in the notes to an unaffiliated third party if such unaffiliated third party then holds the majority of the Subordinate Controlling Class after giving effect to such transfer. Following any such sale or transfer of [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES], the successor Class [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES] Noteholder that is the Subordinate Controlling Class Noteholder will be reinstated as, and will again have the rights of, the Subordinate Controlling Class Noteholder without regard to any prior waiver by the predecessor noteholder that was the Subordinate Controlling Class Noteholder. The successor [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES] noteholder that is the Subordinate Controlling Class Noteholder will also have the right to irrevocably waive its right to appoint the Directing Holder and to exercise any of the rights of the Subordinate Controlling Class Noteholder. In the event of any transfer of the [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES] by a Subordinate Controlling Class Noteholder that had irrevocably waived its rights as described in this paragraph, the successor Subordinate Controlling Class Noteholder that purchased such [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES], even if it does not waive its rights as described in the preceding sentence, will not have any consent rights with respect to any Mortgage Loan that became a Specially Serviced Loan prior to such successor Subordinate Controlling Class Noteholder’s purchase of [THE MOST SENIOR CLASS AMONG THE CONTROL ELIGIBLE NOTES] and had not become a Corrected Loan prior to such purchase until such Mortgage Loan becomes a Corrected Loan.]
For a description of certain restrictions on any modification, waiver or amendment to the Mortgage Loan documents, see “—Modifications, Waivers and Amendments” above.
Servicing Override
In the event that the master servicer or the special servicer, as applicable, determines that immediate action with respect to any Major Decision (or any other matter requiring consent of the Directing Holder prior to the occurrence and continuance of a Control Termination Event in the ISA (or any matter requiring consultation with the Directing Holder or the operating advisor)) is necessary to protect the interests of the Noteholders (and, with respect to a Serviced Whole Loan, the interest of the Noteholders and the holders of the related Serviced Companion Loan), as a collective whole (taking into account the subordinate or pari passu nature of any Companion Loans), the master servicer or the special servicer, as the case may be, may take any such action without waiting for the Directing Holder’s response (or without waiting to consult with the Directing Holder or the operating advisor, as the case may be); provided that the special servicer or master servicer, as applicable provides the Directing Holder (or the operating advisor, if applicable) with prompt written notice following such action including a reasonably detailed explanation of the basis for such action.
[Similarly, in the event that the master servicer or the special servicer, as applicable, determines that immediate action with respect to any AB Major Decision (or any other matter requiring consent of the
Loan-Specific Directing Holder prior to the occurrence and continuance of a AB Control Appraisal Period (or any matter requiring consultation with the Loan-Specific Directing Holder) is necessary to protect the interests of the Noteholders, as a collective whole (taking into account the subordinate nature of the related Subordinate Companion Loan), the master servicer or the special servicer, as the case may be, may take any such action without waiting for the Loan-Specific Directing Holder’s response [(or without waiting to consult with the Loan-Specific Directing Holder)]; provided that the special servicer or master servicer, as applicable provides the Loan-Specific Directing Holder (or the operating advisor, if applicable) with prompt written notice following such action including a reasonably detailed explanation of the basis for such action.]
In addition, neither the master servicer nor the special servicer (i) will be required to take or refrain from taking any action pursuant to instructions or objections from the Directing Holder or the Loan-Specific Directing Holder or (ii) may follow any advice or consultation provided by the Directing Holder or the holder of a Serviced Pari Passu Companion Loan (or its representative) that would (1) cause it to violate any applicable law, the related Mortgage Loan documents, any related Intercreditor Agreement or the ISA, including the Servicing Standard, (2) expose the master servicer, the special servicer, the note administrator, the operating advisor, the asset representations reviewer, the issuing entity or the indenture trustee to liability, (3) materially expand the scope of responsibilities of the master servicer or the special servicer, as applicable, under the ISA or (4) cause the master servicer or the special servicer, as applicable, to act, or fail to act, in a manner which in the reasonable judgment of the master servicer or the special servicer, as applicable, is not in the best interests of the Noteholders (and, with respect to a Serviced Whole Loan, subject to the rights of the holders of the related Companion Loan, as described under “Description of the Mortgage Pool—The Whole Loans”).
Rights of Holders of Companion Loans and Loan-Specific Directing Holder
With respect to the Non-Serviced Whole Loan, the Directing Holder will not be entitled to exercise the rights described above, but such rights, or rights substantially similar to those rights, will be exercisable by [the Non-Serviced Directing Holder]. The issuing entity, as the holder of the Non-Serviced Mortgage Loan, has consultation rights with respect to certain major decisions relating to the Non-Serviced Whole Loan, and so long as a Control Termination Event has not occurred and is not continuing, the Directing Holder will be entitled to exercise such consultation rights of the issuing entity pursuant to the terms of the related Intercreditor Agreement. [In addition, so long as a Control Termination Event has not occurred and is not continuing, the Directing Holder may have [certain consent rights] in connection with a sale of the Non-Serviced Whole Loan that has become a Defaulted Loan under certain circumstances described under “—Sale of Defaulted Loans and REO Properties”.] See also “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan” and “Indenture and Servicing Agreement—Servicing of the Non-Serviced Mortgage Loan”.
With respect to a Serviced Pari Passu Mortgage Loan that is subject to a Pari Passu Companion Loan, the holder of the Pari Passu Companion Loan has consultation rights with respect to certain major decisions. See “See “Description of the Mortgage Pool—The Whole Loans—The Serviced Pari Passu Whole Loan”.
With respect to an AB Whole Loan, prior to the occurrence of an AB Control Appraisal Period with respect to the related Subordinate Companion Loan, the Directing Holder will not be entitled to exercise the above described rights, and those rights will be held by the Subordinate Companion Loan holder (or Loan-Specific Directing Holder in the case of the Owned Subordinate Companion Loan) in accordance with the ISA and the related Intercreditor Agreement. Prior to the occurrence and continuance of an AB Control Appraisal Period, the consent of the Subordinate Companion Loan holder (or Loan-Specific Directing Holder in the case of the Owned Subordinate Companion Loan) is required to be obtained by the special servicer for any AB Major Decision (rather than any Major Decision). However, during an AB Control Appraisal Period with respect to an AB Whole Loan, the Directing Holder will have the same rights (including the rights described above) with respect to an AB Whole Loan as it does for the other Mortgage Loans in the issuing entity. See “Description of the Mortgage Pool—The Whole Loans—The Serviced AB Whole Loan”.
Limitation on Liability of Directing Holder
The Directing Holder will not be liable to the issuing entity or the Noteholders for any action taken, or for refraining from the taking of any action, or for errors in judgment. However, the Directing Holder will not be protected against any liability to the Subordinate Controlling Class Noteholders that would otherwise be imposed by reason of willful misconduct, bad faith or negligence in the performance of duties or by reason of reckless disregard of obligations or duties owed to the Subordinate Controlling Class Noteholders.
Each Noteholder will acknowledge and agree, by its acceptance of its notes, that the Directing Holder:
(a) may have special relationships and interests that conflict with those of holders of one or more classes of notes;
(b) may act solely in the interests of the holders of the Subordinate Controlling Class;
(c) does not have any liability or duties to the holders of any class of notes other than the Subordinate Controlling Class;
(d) may take actions that favor the interests of the holders of the Subordinate Controlling Class over the interests of the holders of one or more other classes of notes; and
(e) will have no liability whatsoever (other than to a Subordinate Controlling Class Noteholder) for having so acted as set forth in (a) – (d) above, and no Noteholder may take any action whatsoever against the Directing Holder or any director, officer, employee, agent or principal of the Directing Holder for having so acted.
The taking of, or refraining from taking, any action by the master servicer or the special servicer in accordance with the direction of or approval of the Directing Holder, which does not violate the terms of any Mortgage Loan, any law or the accepted servicing practices or the provisions of the ISA or the related Intercreditor Agreement, will not result in any liability on the part of the master servicer or the special servicer.
Each noteholder will acknowledge and agree, by its acceptance of its notes, that the Loan-Specific Directing Holder and the holders of the Non-Serviced Companion Loan or their respective designees (e.g. the Non-Serviced Directing Holder under the Non-Serviced Servicing Agreement) will have limitations on liability with respect to actions taken in connection with the related Mortgage Loan similar to the limitations of the Directing Holder described above pursuant to the terms of the related Intercreditor Agreement and the Non-Serviced Servicing Agreement. See “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan”.
The Operating Advisor
General
The operating advisor will act solely as a contracting party to the extent, and in accordance with the standard of care, set forth in the ISA, and will have no fiduciary duty to any party. The operating advisor’s duties will be limited to its specific duties under the ISA, and the operating advisor will have no duty or liability to any particular class of notes or any Noteholder. The operating advisor is not the special servicer or a sub-servicer and will not be charged with changing the outcome on any particular Specially Serviced Loan. By purchasing a note, potential investors acknowledge and agree that there could be multiple strategies to resolve any Specially Serviced Loan and that the goal of the operating advisor’s participation is to provide additional input relating to the special servicer’s compliance with the Servicing Standard in making its determinations as to which strategy to execute.
Potential investors should note that the operating advisor is not an “advisor” for any purpose other than as specifically set forth in the ISA and is not an advisor to any person, including without limitation any Noteholder. For the avoidance of doubt, the operating advisor is not an “investment adviser” within the meaning of the Investment Advisers Act of 1940, as amended. See “Risk Factors—Other Risks Relating to the Notes—Your Lack of Control Over the Issuing Entity Can Adversely Impact Your Investment”.
Notwithstanding the foregoing, the operating advisor will generally have no obligations or consultation rights under the ISA for this transaction with respect to the Non-Serviced Whole Loan (each of which will be serviced pursuant to the Non-Serviced Servicing Agreement) or any related REO Properties. However, [NAME OF OPERATING ADVISOR] is also the operating advisor under the [NAME OF NON-SERVICED SERVICING AGREEMENT] and, in that capacity, will have certain obligations and consultation rights with respect to the Non-Serviced Special Servicer pursuant to the [NAME OF NON-SERVICED SERVICING AGREEMENT], that are substantially similar to those of the operating advisor under the ISA. See “—Servicing of the Non-Serviced Mortgage Loan” below.
[THE FOLLOWING SECTIONS ARE APPLICABLE TO OFFERINGS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]:
[Duties of Operating Advisor While No Control Termination Event Has Occurred and Is Continuing
With respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan, unless a Control Termination Event has occurred and is continuing, the operating advisor’s obligations will be limited to the following, and generally will not involve an assessment of specific actions of the special servicer:
(a) promptly reviewing information available to Privileged Persons on the note administrator’s website that is relevant to the operating advisor’s obligations under the ISA;
(b) promptly reviewing each Final Asset Status Report; and
(c) reviewing any Appraisal Reduction Amount and net present value calculations used in the special servicer’s determination of what course of action to take in connection with the workout or liquidation of a Specially Serviced Loan (after they have been finalized); however the operating advisor may not opine on, or otherwise call into question, such Appraisal Reduction Amount calculations and/or net present value calculations (except that if the operating advisor discovers a mathematical error contained in such calculations, then the operating advisor will be required to notify the special servicer and the Directing Holder of such error).
The operating advisor will have no specific involvement with respect to collateral substitutions, assignments, workouts, modifications, consents, waivers, insurance policies, borrower substitutions, lease changes and other similar actions that the special servicer may perform under the ISA and will have no obligations with respect to the Non-Serviced Mortgage Loan.
The operating advisor’s review of information (other than a Final Asset Status Report and information accompanying such report) or interaction with the special servicer related to any specific Specially Serviced Loan is only to provide background information to support the operating advisor’s duties following a servicing transfer, if needed, or to allow more meaningful interaction with the special servicer.
A “Final Asset Status Report”, with respect to any Specially Serviced Loan, means each related Asset Status Report, together with such other data or supporting information provided by the special servicer to the Directing Holder which does not include any communication (other than the related Asset Status Report) between the special servicer and Directing Holder with respect to such Specially Serviced Loan; provided that, so long as a Control Termination Event has not occurred and is not continuing, no Asset Status Report will be considered to be a Final Asset Status Report unless the Directing Holder, has either finally approved of and consented to the actions proposed to be taken in connection therewith, or has
exhausted all of its rights of approval or consent or has been deemed to have approved or consented to such action or the Asset Status Report is otherwise implemented by the special servicer in accordance with the terms of the ISA.]
Duties of Operating Advisor While a Control Termination Event Has Occurred and Is Continuing
With respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan, while a Control Termination Event has occurred and is continuing [(or, with respect to an AB Whole Loan, after the occurrence and during the continuance of both a Control Termination Event and an AB Control Appraisal Period)], the operating advisor’s obligations will consist of the following:
(a) the operating advisor will be required to consult (on a non-binding basis) with the special servicer in respect of the Asset Status Reports [in accordance with the Operating Advisor Standard], as described under “—Asset Status Report”;
(b) the operating advisor will be required to consult (on a non-binding basis) with the special servicer [in accordance with the Operating Advisor Standard] with respect to Major Decisions as described under “—The Directing Holder—Major Decisions”;
(c) the operating advisor will be required to prepare an annual report (if any Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan was a Specially Serviced Loan during the prior calendar year) in the form attached to this prospectus as Annex C, to be provided to the indenture trustee, the master servicer, the Rating Agencies, the note administrator (and made available through the note administrator’s website) and the 17g-5 Information Provider (and made available through the 17g-5 Information Provider’s website) in accordance with the Operating Advisor Standard, as described below under “—Annual Report”; and
(d) the operating advisor will be required to promptly recalculate and verify the accuracy of the mathematical calculations and the corresponding application of the non-discretionary portion of the applicable formulas required to be utilized in connection with: (1) any Appraisal Reduction Amount or (2) net present value calculations used in the special servicer’s determination of what course of action to take in connection with the workout or liquidation of a Specially Serviced Loan prior to utilization by the special servicer.
In connection with the performance of the duties described in clause (d) above:
(i) after the calculation but prior to the utilization by the special servicer, the special servicer will be required to deliver the foregoing calculations together with information and support materials (including such additional information reasonably requested by the operating advisor to confirm the mathematical accuracy of such calculations, but not including any Privileged Information) to the operating advisor;
(ii) if the operating advisor does not agree with the mathematical calculations or the application of the applicable non-discretionary portions of the formula required to be utilized for such calculation, the operating advisor and special servicer will be required to consult with each other in order to resolve any inaccuracy in the mathematical calculations or the application of the non-discretionary portions of the related formula in arriving at those mathematical calculations or any disagreement; and
(iii) if the operating advisor and special servicer are not able to resolve such matters, the operating advisor will be required to promptly notify the note administrator and the note administrator will be required to examine the calculations and supporting materials provided by the special servicer and the operating advisor and determine which calculation is to apply.
[The “Operating Advisor Standard” means the requirement that the operating advisor must act solely on behalf of the issuing entity and in the best interest of, and for the benefit of, the Noteholders and, with
respect to any Serviced Whole Loan for the benefit of the holders of the related Companion Loan (as a collective whole as if such Noteholders and Companion Loan Holders constituted a single lender), and not to holders of any particular class of note (as determined by the operating advisor in the exercise of its good faith and reasonable judgment), but without regard to any conflict of interest arising from any relationship that the operating advisor or any of its affiliates may have with any of the underlying borrowers, any sponsor, the mortgage loan seller, the depositor, the master servicer, the special servicer, the asset representations reviewer, the Directing Holder, or any of their affiliates.]
Annual Report.
After the occurrence and during the continuance of a Control Termination Event, based on the operating advisor’s review of any Assessment of Compliance report, Attestation Report, Asset Status Report and other information (other than any communications between the Directing Holder and the special servicer that would be Privileged Information) delivered to the operating advisor by the special servicer, including each Asset Status Report delivered during the prior calendar year, the operating advisor will (if any Mortgage Loans were Specially Serviced Loans in the prior calendar year) prepare an annual report in the form attached to this prospectus as Annex C to be provided to the 17g-5 Information Provider (and made available through the 17g-5 Information Provider’s website) and the note administrator for the benefit of the Noteholders (and made available through the note administrator’s website) within 120 days of the end of the prior calendar year for which a Control Termination Event was continuing as of December 31 and setting forth its assessment of the special servicer’s performance of its duties under the ISA during the prior calendar year on a “platform-level basis” with respect to the resolution and liquidation of Specially Serviced Loans that the special servicer is responsible for servicing under the ISA; provided, however, that in the event the special servicer is replaced, the operating advisor’s annual report will only relate to the entity that was acting as special servicer as of December 31 in the prior calendar year and is continuing in such capacity through the date of such annual report. Only as used in connection with the operating advisor’s annual report, the term “platform-level basis” refers to the special servicer’s performance of its duties as they relate to the resolution and liquidation of Specially Serviced Loans, taking into account the special servicer’s specific duties under the ISA as well as the extent to which those duties were performed in accordance with the Servicing Standard, with reasonable consideration by the operating advisor of any Assessment of Compliance report, Attestation Report, Asset Status Report and other information delivered to the operating advisor by the special servicer (other than any communications between the Directing Holder and the special servicer that would be Privileged Information) pursuant to the ISA.
[Notwithstanding the foregoing, with respect to an AB Whole Loan, no annual report prepared by the operating advisor will be permitted to include an analysis of the special servicer’s performance in respect of an AB Whole Loan until after the occurrence and continuance of a related AB Control Appraisal Period under the related Intercreditor Agreement.]
The special servicer must be given an opportunity to review any annual report produced by the operating advisor at least five (5) business days prior to its delivery to the note administrator and the 17g-5 Information Provider; provided that the operating advisor will have no obligation to adopt any comments to such annual report that are provided by the special servicer.
In each annual report, the operating advisor will identify any material deviations (i) from the Servicing Standard and (ii) from the special servicer’s obligations under the ISA with respect to the resolution or liquidation of Specially Serviced Loans or REO Properties that the special servicer is responsible for servicing under the ISA (other than with respect to any REO Property related to the Non-Serviced Mortgage Loan) based on the limited review required in the ISA. Each annual report will be required to comply with the confidentiality requirements, subject to certain exceptions, each as described in this prospectus and as provided in the ISA regarding Privileged Information.
Recommendation of the Replacement of the Special Servicer
After the occurrence of a Consultation Termination Event, if the operating advisor determines that the special servicer is not performing its duties as required under the ISA or is otherwise not acting in
accordance with the Servicing Standard, the operating advisor may recommend the replacement of the special servicer in the manner described in “—Replacement of Special Servicer Without Cause”.
[THE FOLLOWING SECTIONS ARE APPLICABLE TO OFFERINGS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]
[Duties of Operating Advisor In General]
With respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan, the operating advisor’s obligations will generally consist of the following:
(a) reviewing the actions of the special servicer;
(b) reviewing all reports made available to Privileged Persons on the note administrator’s website and each Final Asset Status Report;
(c) promptly recalculating and verifying the accuracy of the mathematical calculations and the corresponding application of the non-discretionary portion of the applicable formulas required to be utilized in connection with: (1) any Appraisal Reduction Amount or (2) net present value calculations used in the special servicer’s determination of what course of action to take in connection with the workout or liquidation of a Specially Serviced Loan prior to utilization by the special servicer; and
(d) preparing an annual report (if any Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan was a Specially Serviced Loan during the prior calendar year) in the form attached to this prospectus as Annex C to be provided to the indenture trustee, the master servicer, the Rating Agencies, the note administrator (and made available through the note administrator’s website) and the 17g-5 Information Provider (and made available through the 17g-5 Information Provider’s website) in accordance with the Operating Advisor Standard, as described below under “—Annual Report” below.
In connection with the performance of the duties described in clause (c) above:
(i) after the calculation but prior to the utilization by the special servicer, the special servicer will be required to deliver the foregoing calculations together with information and support materials (including such additional information reasonably requested by the operating advisor to confirm the mathematical accuracy of such calculations, but not including any Privileged Information) to the operating advisor;
(ii) if the operating advisor does not agree with the mathematical calculations or the application of the applicable non-discretionary portions of the formula required to be utilized for such calculation, the operating advisor and special servicer will be required to consult with each other in order to resolve any inaccuracy in the mathematical calculations or the application of the non-discretionary portions of the related formula in arriving at those mathematical calculations or any disagreement; and
(iii) if the operating advisor and special servicer are not able to resolve such matters, the operating advisor will be required to promptly notify the note administrator and the note administrator will be required to examine the calculations and supporting materials provided by the special servicer and the operating advisor and determine which calculation is to apply.
The operating advisor will have no specific involvement with respect to collateral substitutions, assignments, workouts, modifications, consents, waivers, insurance policies, borrower substitutions, lease changes and other similar actions that the special servicer may perform under the ISA and will have no obligations with respect to the Non-Serviced Mortgage Loan.
[The operating advisor’s review of information (other than a Final Asset Status Report and information accompanying such report) or interaction with the special servicer related to any specific Specially Serviced Loan is only to provide background information to support the operating advisor’s duties following a servicing transfer, if needed, or to allow more meaningful interaction with the special servicer.]
A “Final Asset Status Report”, with respect to any Specially Serviced Loan, means each related Asset Status Report, together with such other data or supporting information provided by the special servicer to the Directing Holder which does not include any communication (other than the related Asset Status Report) between the special servicer and Directing Holder with respect to such Specially Serviced Loan; provided that, so long as a Control Termination Event has not occurred and is not continuing, no Asset Status Report will be considered to be a Final Asset Status Report unless the Directing Holder, has either finally approved of and consented to the actions proposed to be taken in connection therewith, or has exhausted all of its rights of approval or consent or has been deemed to have approved or consented to such action or the Asset Status Report is otherwise implemented by the special servicer in accordance with the terms of the ISA.]
[The “Operating Advisor Standard” means the requirement that the operating advisor must act solely on behalf of the issuing entity and in the best interest of, and for the benefit of, the Noteholders and, with respect to any Serviced Whole Loan for the benefit of the holders of the related Companion Loan (as a collective whole as if such Noteholders and Companion Loan Holders constituted a single lender), and not to holders of any particular class of notes (as determined by the operating advisor in the exercise of its good faith and reasonable judgment), but without regard to any conflict of interest arising from any relationship that the operating advisor or any of its affiliates may have with any of the underlying borrowers, any sponsor, the mortgage loan seller, the depositor, the master servicer, the special servicer, the asset representations reviewer, the Directing Holder, or any of their affiliates.]
Annual Report.
Based on the operating advisor’s review of any Assessment of Compliance report, Attestation Report, Asset Status Report and other information (other than any communications between the Directing Holder and the special servicer that would be Privileged Information) delivered to the operating advisor by the special servicer or made available to the operating advisor on the note administrator’s website, including each Asset Status Report delivered during the prior calendar year, the operating advisor will (if any Mortgage Loans were Specially Serviced Loans in the prior calendar year) prepare an annual report in the form attached to this prospectus as Annex C to be provided to the 17g-5 Information Provider (and made available through the 17g-5 Information Provider’s website) and the note administrator for the benefit of the Noteholders (and made available through the note administrator’s website) within 120 days of the end of the prior calendar year and setting forth its assessment of the special servicer’s performance of its duties under the ISA during the prior calendar year [on a “platform-level basis”] with respect to the resolution and liquidation of Specially Serviced Loans that the special servicer is responsible for servicing under the ISA; provided, however, that in the event the special servicer is replaced, the operating advisor’s annual report will only relate to the entity that was acting as special servicer as of December 31 in the prior calendar year and is continuing in such capacity through the date of such annual report. Only as used in connection with the operating advisor’s annual report, the term “platform-level basis” refers to the special servicer’s performance of its duties as they relate to the resolution and liquidation of Specially Serviced Loans, taking into account the special servicer’s specific duties under the ISA as well as the extent to which those duties were performed in accordance with the Servicing Standard, with reasonable consideration by the operating advisor of any Assessment of Compliance report, Attestation Report, Asset Status Report and other information delivered to the operating advisor by the special servicer (other than any communications between the Directing Holder and the special servicer that would be Privileged Information) pursuant to the ISA.
The special servicer must be given an opportunity to review any annual report produced by the operating advisor at least five (5) business days prior to its delivery to the note administrator and the 17g-5 Information Provider; provided that the operating advisor will have no obligation to adopt any comments to such annual report that are provided by the special servicer.
In each annual report, the operating advisor will identify any material deviations (i) from the Servicing Standard and (ii) from the special servicer’s obligations under the ISA with respect to the resolution or liquidation of Specially Serviced Loans or REO Properties that the special servicer is responsible for servicing under the ISA (other than with respect to any REO Property related to the Non-Serviced Mortgage Loan) based on the limited review required in the ISA. Each annual report will be required to comply with the confidentiality requirements, subject to certain exceptions, each as described in this prospectus and as provided in the ISA regarding Privileged Information.
Additional Duties of Operating Advisor While an Operating Advisor Consultation Event Has Occurred and Is Continuing
With respect to each Mortgage Loan (other than the Non-Serviced Mortgage Loan) or Serviced Whole Loan, while an Operating Advisor Consultation Event has occurred and is continuing, in addition to the duties described above, the operating advisor will be required to perform the following duties:
| • | to consult (on a non-binding basis) with the special servicer in respect of the Asset Status Reports [in accordance with the Operating Advisor Standard], as described under “—Asset Status Report”; and |
| • | to consult (on a non-binding basis) with the special servicer [in accordance with the Operating Advisor Standard] with respect to Major Decisions as described under “—The Directing Holder—Major Decisions”. |
An “Operating Advisor Consultation Event” will occur when the Principal Balances of the [HORIZONTAL RESIDUAL INTEREST CLASSES ] in the aggregate (taking into account the application of any Appraisal Reduction Amounts and Notional Losses to notionally reduce the Principal Balances of such classes) is less than 25% of the initial Principal Balances of such classes in the aggregate.
Recommendation of the Replacement of the Special Servicer
If the operating advisor determines, in its sole discretion exercised in good faith, that (1) special servicer is not performing its duties as required under the ISA or is otherwise not acting in accordance with the Servicing Standard, and (2) the replacement of the special servicer would be in the best interest of the Noteholders as a collective whole, then the operating advisor may recommend the replacement of the special servicer and deliver a report supporting such recommendation in the manner described in “—Replacement of Special Servicer Without Cause”.
[EXCEPT AS OTHERWISE INDICATED BELOW, THE FOLLOWING SECTIONS ARE APPLICABLE TO ALL OFFERINGS]
Eligibility of Operating Advisor
The operating advisor will be required to be an Eligible Operating Advisor at all times during the term of the ISA. “Eligible Operating Advisor” means an institution:
(i) that is a special servicer or operating advisor on a commercial mortgage-backed securities transaction rated by [NAMES OF RATING AGENCIES] (including, in the case of the operating advisor, this transaction) but has not been special servicer or operating advisor on a transaction for which any Rating Agency has qualified, downgraded or withdrawn its rating or ratings of, one or more classes of notes for such transaction citing servicing concerns with the special servicer or operating advisor as the sole or a material factor in such rating action;
(ii) that can and will make the representations and warranties of the operating advisor set forth in the ISA;
(iii) that is (and is not affiliated with) not the depositor, the indenture trustee, the note administrator, the master servicer, the special servicer, a mortgage loan seller, the Directing
Holder, or a depositor, a indenture trustee, a note administrator, a master servicer or special servicer with respect to the securitization of a Companion Loan, or any of their respective affiliates;
(iv) that has not been paid by any special servicer or successor special servicer any fees, compensation or other remuneration (x) in respect of its obligations under the ISA or (y) for the appointment or recommendation for replacement of a successor special servicer to become the special servicer[; and
(v) that does not directly or indirectly, through one or more affiliates or otherwise, own any interest in any notes, any Mortgage Loans, any Companion Loan or any securities backed by a Companion Loan or otherwise have any financial interest in the securitization transaction to which the ISA relates, other than in fees from its role as operating advisor and except as set forth in the ISA.] [APPLICABLE TO OFFERINGS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]
Other Obligations of Operating Advisor
At all times, subject to the Privileged Information Exception, the operating advisor will be obligated to keep confidential any Privileged Information received from the special servicer or Directing Holder in connection with the Directing Holder’s exercise of any rights under the ISA (including, without limitation, in connection with any Asset Status Report) or otherwise in connection with the transaction, except under the circumstances described below. As used in this prospectus, “Privileged Information” means (i) any correspondence between the Directing Holder and the special servicer related to any Specially Serviced Loan or the exercise of the Directing Holder’s consent or consultation rights under the ISA, (ii) any strategically sensitive information that the special servicer has reasonably determined could compromise the issuing entity’s position in any ongoing or future negotiations with the related borrower or other interested party and (iii) information subject to attorney-client privilege.
The operating advisor is required to keep all Privileged Information confidential and may not disclose such Privileged Information to any person (including Noteholders other than the Directing Holder), other than (1) to the extent expressly required by the ISA, to the other parties to the ISA with a notice indicating that such information is Privileged Information or (2) pursuant to a Privileged Information Exception. Each party to the ISA that receives Privileged Information from the operating advisor with a notice stating that such information is Privileged Information may not disclose such Privileged Information to any person without the prior written consent of the special servicer and, unless a Consultation Termination Event has occurred, the Directing Holder (with respect to any Mortgage Loan other than the Non-Serviced Whole Loan) other than pursuant to a Privileged Information Exception.
“Privileged Information Exception” means, with respect to any Privileged Information, at any time (a) such Privileged Information becomes generally available and known to the public other than as a result of a disclosure directly or indirectly by the party restricted from disclosing such Privileged Information (the “Restricted Party” ), (b) it is reasonable and necessary for the Restricted Party to disclose such Privileged Information in working with legal counsel, auditors, taxing authorities or other governmental agencies, (c) such Privileged Information was already known to such Restricted Party and not otherwise subject to a confidentiality obligation and/or (d) the Restricted Party is (in the case of the master servicer, the special servicer, the operating advisor, the asset representations reviewer, the note administrator and the indenture trustee, as evidenced by an opinion of counsel (which will be an additional expense of the issuing entity) delivered to each of the master servicer, the special servicer, the Directing Holder, the operating advisor, the asset representations reviewer, the note administrator and the indenture trustee), required by law, rule, regulation, order, judgment or decree to disclose such information.
Neither the operating advisor nor any of its affiliates may make any investment in any class of notes; provided, however, that such prohibition will not apply to (i) riskless principal transactions effected by a broker dealer affiliate of the operating advisor or (ii) investments by an affiliate of the operating advisor if the operating advisor and such affiliate maintain policies and procedures that (A) segregate personnel involved in the activities of the operating advisor under the ISA from personnel involved in such affiliate’s
investment activities and (B) prevent such affiliate and its personnel from gaining access to information regarding the issuing entity and the operating advisor and its personnel from gaining access to such affiliate’s information regarding its investment activities.
Delegation of Operating Advisor’s Duties
[The operating advisor may delegate its duties to agents or subcontractors in accordance with the ISA however, the operating advisor will remain obligated and primarily liable for any actions required to be performed by it under the ISA without diminution of such obligation or liability or related obligation or liability by virtue of such delegation or arrangements or by virtue of indemnification from any person acting as its agents or subcontractor to the same extent and under the same terms and conditions as if the operating advisor alone were performing its obligations under the ISA.]
Termination of the Operating Advisor With Cause
[The following constitute operating advisor termination events under the ISA (each, an “Operating Advisor Termination Event”), whether any such event is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body:
(a) any failure by the operating advisor to observe or perform in any material respect any of its covenants or agreements or the material breach of any of its representations or warranties under the ISA, which failure continues unremedied for a period of 30 days after the date on which written notice of such failure is given to the operating advisor by any party to the ISA or to the operating advisor, the note administrator and the indenture trustee by the holders of notes having greater than 25% of the aggregate Voting Rights; provided that with respect to any such failure which is not curable within such 30 day period, the operating advisor will have an additional cure period of 30 days to effect such cure so long as it has commenced to cure such failure within the initial 30 day period and has provided the indenture trustee and the note administrator with an officer’s certificate certifying that it has diligently pursued, and is continuing to pursue, such cure;
(b) any failure by the operating advisor to perform in accordance with the Operating Advisor Standard which failure continues unremedied for a period of 30 days;
(c) any failure by the operating advisor to be an Eligible Operating Advisor, which failure continues unremedied for a period of 30 days;
(d) a decree or order of a court or agency or supervisory authority having jurisdiction in the premises in an involuntary case under any present or future federal or state bankruptcy, insolvency or similar law for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding up or liquidation of its affairs, shall have been entered against the operating advisor, and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days;
(e) the operating advisor consents to the appointment of a conservator or receiver or liquidator or liquidation committee in any insolvency, readjustment of debt, marshaling of assets and liabilities, voluntary liquidation, or similar proceedings of or relating to the operating advisor or of or relating to all or substantially all of its property; or
(f) the operating advisor admits in writing its inability to pay its debts generally as they become due, files a petition to take advantage of any applicable insolvency or reorganization statute, makes an assignment for the benefit of its creditors, or voluntarily suspends payment of its obligations.]
Upon receipt by the note administrator of notice of the occurrence of any Operating Advisor Termination Event, the note administrator will be required to promptly provide written notice to all Noteholders electronically by posting such notice on its internet website and by mail, unless the note administrator has received notice that such Operating Advisor Termination Event has been remedied.
Rights Upon Operating Advisor Termination Event
After the occurrence of an Operating Advisor Termination Event, the indenture trustee may, and upon the written direction of Noteholders representing at least [25]% of the Voting Rights (taking into account the application of any Appraisal Reduction Amounts and Notional Losses to notionally reduce the Principal Balance of the classes of notes), the indenture trustee will, promptly terminate the operating advisor for cause and appoint a replacement operating advisor that is an Eligible Operating Advisor; provided that no such termination will be effective until a successor operating advisor has been appointed and has assumed all of the obligations of the operating advisor under the ISA. The indenture trustee may rely on a certification by the replacement operating advisor that it is an Eligible Operating Advisor. If the note administrator is unable to find a replacement operating advisor that is an Eligible Operating Advisor within 30 days of the termination of the operating advisor, the depositor will be permitted to find a replacement.
Upon any termination of the operating advisor and appointment of a successor operating advisor, the indenture trustee will, as soon as possible, be required to give written notice of the termination and appointment to the special servicer, the master servicer, the note administrator, the depositor, the Directing Holder (but only for so long as no Consultation Termination Event has occurred), any Companion Loan noteholder, the Noteholders and the 17g-5 Information Provider (and made available through the 17g-5 Information Provider’s website).
Waiver of Operating Advisor Termination Event
[The holders of notes representing at least [__]% of the Voting Rights affected by any Operating Advisor Termination Event may waive such Operating Advisor Termination Event within twenty (20) days of the receipt of notice from the note administrator of the occurrence of such Operating Advisor Termination Event. Upon any such waiver of an Operating Advisor Termination Event, such Operating Advisor Termination Event shall cease to exist and shall be deemed to have been remedied. Upon any such waiver of an Operating Advisor Termination Event by Noteholders, the indenture trustee and the note administrator will be entitled to recover all costs and expenses incurred by it in connection with enforcement action taken with respect to such Operating Advisor Termination Event prior to such waiver from the issuing entity.]
Termination of the Operating Advisor Without Cause
After the occurrence of a Consultation Termination Event, the operating advisor may be removed upon (i) the written direction of Noteholders evidencing not less than [25]% of the Voting Rights (taking into account the application of Appraisal Reduction Amounts and Notional Losses to notionally reduce the Principal Balances of the classes of notes) requesting a vote to replace the operating advisor with a replacement operating advisor that is an Eligible Operating Advisor selected by such Noteholders, (ii) payment by such requesting holders to the note administrator of all reasonable fees and expenses to be incurred by the note administrator in connection with administering such vote and (iii) receipt by the indenture trustee of the Rating Agency Confirmation with respect to such removal.
The note administrator will be required to promptly provide written notice to all Noteholders of such request by posting such notice on its internet website, and by mail, and conduct the solicitation of votes of all notes in such regard.
Upon the vote or written direction of holders of at least 75% of the Voting Rights (taking into account the application of Appraisal Reduction Amounts and Notional Losses to notionally reduce the Principal Balances of the classes of notes), the indenture trustee will immediately replace the operating advisor with the replacement operating advisor.
[In addition, in the event there are no classes of notes outstanding other than the Control Eligible Notes, then all of the rights and obligations of the operating advisor under the ISA will terminate without payment of any penalty or termination fee (other than any rights or obligations that accrued prior to the date of such termination (including accrued and unpaid compensation) and other than indemnification
rights arising out of events occurring prior to such termination). If the operating advisor is terminated pursuant to the foregoing sentence, then no replacement operating advisor will be appointed.] [APPLICABLE TO OFFERINGS OTHER THAN THOSE THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]
Resignation of the Operating Advisor
The operating advisor may resign upon 30 days’ prior written notice to the depositor, master servicer, special servicer, indenture trustee, note administrator, the asset representations reviewer and the Directing Holder, if the operating advisor has secured a replacement operating advisor that is an Eligible Operating Advisor and such replacement operating advisor has accepted its appointment as the replacement operating advisor. If no successor operating advisor has been so appointed and accepted the appointment within 30 days after the notice of resignation, the resigning operating advisor may petition any court of competent jurisdiction for the appointment of a successor operating advisor that is an Eligible Operating Advisor. The resigning operating advisor must pay all costs and expenses associated with the transfer of its duties.
Operating Advisor Compensation
Certain fees will be payable to the operating advisor, and the operating advisor will be entitled to be reimbursed for certain expenses, as described under “Transaction Parties—The Operating Advisor”.
In the event the operating advisor resigns or is terminated for any reason it will remain entitled to any accrued and unpaid fees and reimbursement of Operating Advisor Expenses and any rights to indemnification provided under the ISA with respect to the period for which it acted as operating advisor.
The operating advisor will be entitled to reimbursement of certain expenses incurred by the operating advisor in the event that the operating advisor is terminated without cause. See “—Termination of the Operating Advisor Without Cause” above.
The Asset Representations Reviewer
Asset Review
Asset Review Trigger.
On or prior to each Payment Date, based on the CREFC® Delinquent Loan Status Report delivered by the master servicer for such Payment Date, the [note administrator] will be required to determine if an Asset Review Trigger has occurred. If an Asset Review Trigger is determined to have occurred, the note administrator will be required to promptly provide notice to all Noteholders by posting a notice of its determination on its internet website and by mailing to the Noteholders’ addresses appearing in the note register. On each Payment Date after providing such notice to Noteholders, the note administrator, based on information provided to it by the master servicer or the special servicer, will be required to determine whether (1) any additional Mortgage Loan has become a Delinquent Loan, (2) any Mortgage Loan ceases to be a Delinquent Loan and (3) whether an Asset Review Trigger has ceased to exist, and deliver such information within two business days to the master servicer, the special servicer, the operating advisor and the asset representations reviewer. With respect to any determination of whether to commence an Asset Review, an “Asset Review Trigger” will occur when either (1) Mortgage Loans with an aggregate outstanding principal balance of [__]% or more of the aggregate outstanding principal balance of all of the Mortgage Loans (including any REO Loans (or a portion of any REO Loan in the case of a Whole Loan) held by the issuing entity as of the end of the applicable Collection Period are Delinquent Loans or (2) at least [__][insert number that is [__]% by initial number of Mortgage Loans as of the Closing Date] Mortgage Loans are Delinquent Loans as of the end of the applicable Collection Period and the outstanding principal balance of such Delinquent Loans in the aggregate constitutes at least [__]% of the aggregate outstanding principal balance of all of the Mortgage Loans (including any REO Loans (or a portion of any REO Loan in the case of a Whole Loan)) held by the issuing entity as of the end of the
applicable Collection Period. The ISA will require that the note administrator include in the Distribution Report on Form 10-D relating to the payment period in which the Asset Review Trigger occurred a description of the events that caused the Asset Review Trigger to occur.
We believe this Asset Review Trigger is appropriate considering the unique characteristics of pools of Mortgage Loans underlying CMBS. While we do not believe static pool information is relevant to CMBS transactions as a general matter, as a point of relative context, with respect to prior pools of commercial mortgage loans for which 3650 REIT (or its predecessors) was a sponsor and its affiliate was the depositor in a public offering of CMBS with a securitization closing date on or after [INSERT DATE NO MORE THAN TEN YEARS PRIOR TO THE CALENDAR QUARTER IN WHICH THE SECURITIZATION OCCURS], the highest percentage of loans, based on the aggregate outstanding principal balance of delinquent mortgage loans in an individual CMBS transaction, that were delinquent at least 60 days at the end of any reporting period between [INSERT DATE FIVE YEARS EARLIER THAN CALENDAR QUARTER IN WHICH THE SECURITIZATION OCCURS] and [INSERT DATE NO LATER THAN 135 DAYS PRIOR TO THE DATE OF THE FIRST USE OF THE PROSPECTUS] was approximately [__]%.
This pool of Mortgage Loans is not homogeneous or granular, and there are individual Mortgage Loans that each represent a significant percentage, by outstanding principal balance, of the Mortgage Pool. For example, the three (3) largest Mortgage Loans in the pool represent [__]% of the Initial Pool Balance. Given this mortgage pool composition and the fact that CMBS pools as a general matter include a small relative number of larger mortgage loans, we believe it would not be appropriate for the delinquency of the three (3) largest Mortgage Loans, in the case of this mortgage pool, to cause the Asset Review Trigger to be met, as that would not necessarily be indicative of the overall quality of the Mortgage Pool. As a result, the percentage based on outstanding principal balance in clause (1) of the definition of Asset Review Trigger was set to exceed the portion of the Initial Pool Balance represented by the three (3) largest Mortgage Loans in the pool. On the other hand, a significant number of Delinquent Loans by loan count, but representing a smaller percentage of the aggregate outstanding principal balance of the Mortgage Loans than the percentage set forth in clause (1) of the definition of Asset Review Trigger, could indicate an issue with the quality of the Mortgage Pool. As a result, we believe it would be appropriate to have an alternative test as set forth in clause (2) of the definition of Asset Review Trigger, namely to have the Asset Review Trigger be met if a specified percentage of Mortgage Loans by loan count are Delinquent Loans, provided those Mortgage Loans meet a minimum principal balance threshold.
CMBS as an asset class has historically not had a large number of claims for, or repurchases based on, breaches of representations and warranties. While the Asset Review Trigger we have selected is less than this historical peak, we feel it remains at a level that avoids a trigger based on market variability while providing an appropriate threshold to capture delinquencies that may have resulted from an underlying deficiency in one or more mortgage loan seller’s Mortgage Loans that could be the basis for claims against those mortgage loan sellers based on breaches of the representations and warranties.
“Delinquent Loan” means a Mortgage Loan that is delinquent at least sixty days in respect of its Periodic Payments or balloon payment, if any, in either case such delinquency to be determined without giving effect to any grace period.
Asset Review Vote.
If Noteholders evidencing not less than 5% of the Voting Rights deliver to the note administrator, within 90 days after the filing of the Form 10-D reporting the occurrence of an Asset Review Trigger, a written direction requesting a vote to commence an Asset Review (an “Asset Review Vote Election”), the note administrator will be required to promptly provide written notice of such direction to the Asset Representations Reviewer and to all Noteholders, and to conduct a solicitation of votes of Noteholders to authorize an Asset Review (an “Asset Review Vote”). Upon the affirmative vote to authorize an Asset Review of Noteholders evidencing at least a majority of an Asset Review Quorum within 150 days of the receipt of the Asset Review Vote Election (an “Affirmative Asset Review Vote”), the note administrator will
be required to promptly provide written notice of such Affirmative Asset Review Vote to all parties to the ISA, the underwriters, the mortgage loan sellers, the Directing Holder and the Noteholders. In the event an Affirmative Asset Review Vote has not occurred within such 150-day period following the receipt of the Asset Review Vote Election, no Noteholder may request a vote or cast a vote for an Asset Review and the asset representations reviewer will not be required to review any Delinquent Loan unless and until (A) an additional Mortgage Loan has become a Delinquent Loan after the expiration of such 150-day period, (B) an Asset Review Trigger has occurred as a result or otherwise is in effect, (C) the note administrator has received any Asset Review Vote Election after the occurrence of the events described in clauses (A) and (B) above and (D) an Affirmative Asset Review Vote has occurred within 150 days after the Asset Review Vote Election described in clause (C) above. After the occurrence of any Asset Review Vote Election or an Affirmative Asset Review Vote, no Noteholder may make any additional Asset Review Vote Election except as described in the immediately preceding sentence. [Any reasonable out-of-pocket expenses incurred by the note administrator in connection with administering such vote will be paid as an expense of the issuing entity from the Collection Account.]
An “Asset Review Quorum” means, in connection with any solicitation of votes to authorize an Asset Review as described above, the holders of notes evidencing at least 5% of the aggregate Voting Rights.
Review Materials.
Upon receipt of notice from the note administrator of an Affirmative Asset Review Vote (the “Asset Review Notice”), the custodian (with respect to clauses (i) – (v) for non-Specially Serviced Loans), the master servicer (with respect to clauses (vi) and (vii) for non-Specially Serviced Loans) and the special servicer (with respect to clauses (vi) and (vii) for Specially Serviced Loans), in each case to the extent in such party’s possession, will be required to promptly, but in no event later than [10] business days (except with respect to clause (vii)) after receipt of such notice from the note administrator, provide the following materials to the asset representations reviewer (collectively, with the Diligence Files, a copy of the prospectus, a copy of each related MLPA and a copy of the ISA posted by the note administrator to the secure data room, the “Review Materials”):
(i) a copy of an assignment of the Mortgage in favor of the indenture trustee, with evidence of recording thereon, for each Delinquent Loan that is subject to an Asset Review;
(ii) a copy of an assignment of any related assignment of leases (if such item is a document separate from the Mortgage) in favor of the indenture trustee, with evidence of recording thereon, related to each Delinquent Loan that is subject to an Asset Review;
(iii) a copy of the assignment of all unrecorded documents relating to each Delinquent Loan that is subject to an Asset Review, if not already covered pursuant to items (i) or (ii) above;
(iv) a copy of all filed copies (bearing evidence of filing) or evidence of filing of any UCC financing statements related to each Delinquent Loan that is subject to an Asset Review;
(v) a copy of an assignment in favor of the indenture trustee of any financing statement executed and filed in the relevant jurisdiction related to each Delinquent Loan that is subject to an Asset Review;
(vi) a copy of any notice previously delivered to the applicable mortgage loan seller by the master servicer or the special servicer, as applicable, of any alleged defect or breach with respect to any Delinquent Loan; and
(vii) any other related documents or agreements that are reasonably requested by the asset representations reviewer to be delivered by the master servicer or the special servicer, as applicable, in the time frames and as otherwise described below.
In the event that, as part of an Asset Review of such Mortgage Loan, the asset representations reviewer determines that the Review Materials provided to it with respect to such Mortgage Loan are
missing any document or agreement that is required to be part of the Review Materials or that was entered into or delivered in connection with the origination or a modification of such Mortgage Loan and, in either case, that are necessary in connection with its completion of any such Asset Review, the asset representations reviewer will promptly, but in no event later than [__] business days after receipt of the Review Materials, notify the master servicer (with respect to non-Specially Serviced Loans) or the special servicer (with respect to Specially Serviced Loans), as applicable, of such missing documents and agreements, and request that the master servicer or the special servicer, as applicable, promptly, but in no event later than 10 business days after receipt of such notification from the asset representations reviewer, deliver to the asset representations reviewer such missing documents and agreements to the extent in its possession. In the event any missing documents or agreements are not provided by the master servicer or special servicer, as applicable, within such 10-business day period, the asset representations reviewer will request such documents or agreements from the related mortgage loan seller. The mortgage loan seller will be required to deliver such additional documents and agreements only to the extent such additional documents and agreements are in the possession of such mortgage loan seller.
The asset representations reviewer may, but is under no obligation to, consider and rely upon information furnished to it by a person that is not a party to the ISA or the related mortgage loan seller, and will do so only if such information can be independently verified (without unreasonable effort or expense to the asset representations reviewer) and is determined by the asset representations reviewer in its good faith and sole discretion to be relevant to the Asset Review (any such information, “Unsolicited Information”), as described below.
Asset Review.
Upon its receipt of the Asset Review Notice and access to the Review Materials with respect to a Delinquent Loan, the asset representations reviewer, as an independent contractor, is required to commence a review of the compliance of each Delinquent Loan with the representations and warranties related to that Delinquent Loan (such review, the “Asset Review”). An Asset Review of each Delinquent Loan will consist of the application of a set of pre-determined review procedures (the “Tests”) for each representation and warranty made by the mortgage loan seller with respect to such Delinquent Loan. Once an Asset Review of a Mortgage Loan is completed, no further Asset Review will be required of that Mortgage Loan notwithstanding that such Mortgage Loan may continue to be a Delinquent Loan or become a Delinquent Loan again at the time when a new Asset Review Trigger occurs and a new Affirmative Asset Review Vote is obtained subsequent to the occurrence of such Asset Review Trigger, except to the extent such Delinquent Loan is subject to any representation or warranty made after the completion of the previous Asset Review or to the extent the Asset Representations Reviewer has reason to believe, without any obligation to investigate, that the previous Asset Review was conducted in a manner that would not have ascertained compliance with a specific representation or warranty.
“Asset Review Standard” means the performance of the asset representations reviewer of its duties under the ISA in good faith subject to the express terms of the ISA. All determinations or assumptions made by the asset representations reviewer in connection with an Asset Review are required to be made in the asset representations reviewer’s good faith discretion and judgment based on the facts and circumstances known to it at the time of such determination or assumption.
No Noteholder will have the right to change the scope of the asset representations reviewer’s review, and the asset representations reviewer will not be permitted to review any information other than (i) the Review Materials posted in the secure data room, or (ii) Unsolicited Information.
The asset representations reviewer may, absent manifest error and subject to the Asset Review Standard, (i) assume, without independent investigation or verification, that the Review Materials are accurate and complete in all material respects and (ii) conclusively rely on such Review Materials.
In the event that the asset representations reviewer determines that the Review Materials are insufficient to complete a Test and such missing information and documentation is not posted by the special servicer within [__] days upon request as described above, the asset representations reviewer will
list such missing documents in its preliminary report setting forth the preliminary results of the application of the Tests and the reasons why such missing documents are necessary to complete a Test and whether the absence of such documents will be deemed to be a failure of such Test. The asset representations reviewer will provide such preliminary report to the special servicer, who will promptly provide such results to the applicable mortgage loan seller. If the preliminary report indicates one of the representations and warranties fails or is deemed to fail any Test, the mortgage loan seller will have [__] days (the “Cure/Contest Period”) to remedy or otherwise refute the failure. Any documents provided or explanations given to support a conclusion that the representation and warranty has not failed a Test will be sent to the special servicer, and the special servicer will be required to promptly post to the secure data room any documents received from the mortgage loan seller or explanations given to support the mortgage loan seller’s claim that the representation and warranty has not failed a Test or any missing documents in the Review Materials are not required to complete a Test.
The asset representations reviewer will be required to, within [___] days after the date of receipt of the related Diligence File or within the [___] days after the expiration of the Cure/Contest Period (whichever is later), complete an Asset Review with respect to each Delinquent Loan and deliver (i) a report to each party to the ISA and the applicable mortgage loan seller for each Delinquent Loan setting forth the results of the application of the Tests in connection with such Asset Review (a “Asset Review Report”). The period of time by which the Asset Review Report must be completed and delivered may be extended by up to an additional [___] days, upon written notice to the parties to the ISA and the applicable mortgage loan seller, if the asset representations reviewer determines pursuant to the Asset Review Standard that such additional time is required due to the characteristics of the Mortgage Loan and/or the Mortgaged Property or Mortgaged Properties. Such Asset Review Report will be required to include (i) a summary of the asset representations reviewer’s findings and conclusions as to whether or not it has determined there is any evidence of a failure of any Test in the information and documentation reviewed by the asset representations reviewer, and (ii) a statement that the asset representations reviewer’s conclusions set forth in the Asset Review Report were not influenced by any third party. In no event will the asset representations reviewer be required to determine whether any Test failure constitutes a Material Defect, or whether the issuing entity should enforce any rights it may have against the applicable mortgage loan seller, which, in each such case, will be the responsibility of the special servicer. See “—Enforcement of Mortgage Loan Seller’s Obligations Under the MLPA” below. In addition, in the event that the asset representations reviewer does not receive any information or documentation that it requested from the special servicer prior to the date by which the asset representations reviewer is required to deliver an Asset Review Report, the asset representations reviewer will be required to prepare the Asset Review Report solely based on the information received by the asset representations reviewer with respect to the related Delinquent Loan, and the asset representations reviewer will have no responsibility to independently obtain any such information from any party to the ISA. The ISA will require that the note administrator (i) include in the payment report on Form 10–D relating to the payment period in which the Asset Review Report was received, a summary of the asset representations reviewer’s conclusions included in such Asset Review Report, and (ii) post such summary to the note administrator’s website not later than [two] business days after receipt of such Asset Review Report from the asset representations reviewer.
Eligibility of Asset Representations Reviewer
[The asset representations reviewer will be required to represent and warrant in the ISA that it is an Eligible Asset Reviewer. The asset representations reviewer is required to at all times be an Eligible Asset Reviewer. If the asset representations reviewer ceases to be an Eligible Asset Reviewer, the asset representations reviewer is required to immediately notify the master servicer, the special servicer, the indenture trustee, the operating advisor, the note administrator and the Directing Holder of such disqualification and immediately resign under the ISA as described under the “—Resignation of Asset Representations Reviewer” below].
[An “Eligible Asset Reviewer” is an institution that (i) is the special servicer, operating advisor or asset representations reviewer on a transaction rated by any of [APPLICABLE RATING AGENCIES] and that has not been a special servicer, operating advisor or asset representations reviewer on a transaction for
which [APPLICABLE RATING AGENCIES] has qualified, downgraded or withdrawn its rating or ratings of, one or more classes of notes for such transaction citing servicing or other relevant concerns with the special servicer, the operating advisor or the asset representations reviewer, as applicable, as the sole or material factor in such rating action, (ii) can and will make certain representations and warranties with respect to the asset representations reviewer set forth in the ISA, (iii) is not (and is not affiliated with) any sponsor, any mortgage loan seller, the master servicer, the special servicer, the depositor, the note administrator, the indenture trustee, the Directing Holder or any of their respective affiliates, (iv) has not performed (and is not affiliated with any party hired to perform) any due diligence or similar services with respect to any Mortgage Loan or any related Companion Loan prior to the Closing Date for or on behalf of any sponsor, any mortgage loan seller, any underwriter or the Directing Holder or any of their respective affiliates, or have been paid any fees, compensation or other remuneration by any of them in connection with any such services and (v) that does not directly or indirectly, through one or more affiliates or otherwise, own any interest in any notes, any Mortgage Loans, any Companion Loan or any securities backed by a Companion Loan or otherwise have any financial interest in the securitization transaction to which the ISA relates, other than in fees from its role as asset representations reviewer and except as set forth in the ISA.]
Other Obligations of Asset Representations Reviewer
[Subject to the Privileged Information Exception, the asset representations reviewer is required to keep confidential any Privileged Information received from any party to the ISA or any sponsor under the ISA (including, without limitation, in connection with the review of the Mortgage Loans) and not disclose such Privileged Information to any person (including Noteholders), other than (1) to the extent expressly required by the ISA in an Asset Review Report or otherwise, to the other parties to the ISA with a notice indicating that such information is Privileged Information or (2) pursuant to a Privileged Information Exception. Each party to the ISA that receives Privileged Information from the asset representations reviewer with a notice stating that such information is Privileged Information may not disclose such Privileged Information to any person without the prior written consent of the special servicer other than pursuant to a Privileged Information Exception.]
Neither the asset representations reviewer nor any of its affiliates may make any investment in any class of notes; provided, however, that such prohibition will not apply to (i) riskless principal transactions effected by a broker dealer affiliate of the asset representations reviewer or (ii) investments by an affiliate of the asset representations reviewer if the asset representations reviewer and such affiliate maintain policies and procedures that (A) segregate personnel involved in the activities of the asset representations reviewer under the ISA from personnel involved in such affiliate’s investment activities and (B) prevent such affiliate and its personnel from gaining access to information regarding the issuing entity and the asset representations reviewer and its personnel from gaining access to such affiliate’s information regarding its investment activities.
Delegation of Asset Representations Reviewer’s Duties
The asset representations reviewer may delegate its duties to agents or subcontractors in accordance with the ISA, however, the asset representations reviewer will remain obligated and primarily liable for any Asset Review required in accordance with the provisions of the ISA without diminution of such obligation or liability or related obligation or liability by virtue of such delegation or arrangements or by virtue of indemnification from any person acting as its agents or subcontractor to the same extent and under the same terms and conditions as if the asset representations reviewer alone were performing its obligations under the ISA.
Asset Representations Reviewer Termination Events
The following constitute asset representations reviewer termination events under the ISA (each, an “Asset Reviewer Termination Event”) whether any such event is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body:
(i) any failure by the asset representations reviewer to observe or perform in any material respect any of its covenants or agreements or the material breach of any of its representations or warranties under the ISA, which failure continues unremedied for a period of 30 days after the date on which written notice of such failure is given to the asset representations reviewer by the indenture trustee or to the asset representations reviewer and the indenture trustee by the holders of notes evidencing at least [25]% of the Voting Rights;
(ii) any failure by the asset representations reviewer to perform its obligations set forth in the ISA in accordance with the Asset Review Standard in any material respect, which failure continues unremedied for a period of 30 days;
(iii) any failure by the asset representations reviewer to be an Eligible Asset Reviewer, which failure continues unremedied for a period of 30 days;
(iv) a decree or order of a court or agency or supervisory authority having jurisdiction in the premises in an involuntary case under any present or future federal or state bankruptcy, insolvency or similar law for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, has been entered against the asset representations reviewer, and such decree or order has remained in force undischarged or unstayed for a period of 60 days;
(v) the asset representations reviewer consents to the appointment of a conservator or receiver or liquidator or liquidation committee in any insolvency, readjustment of debt, marshaling of assets and liabilities, voluntary liquidation, or similar proceedings of or relating to the asset representations reviewer or of or relating to all or substantially all of its property; or
(vi) the asset representations reviewer admits in writing its inability to pay its debts generally as they become due, files a petition to take advantage of any applicable insolvency or reorganization statute, makes an assignment for the benefit of its creditors, or voluntarily suspends payment of its obligations.
Upon receipt by the note administrator of notice of the occurrence of any Asset Reviewer Termination Event, the note administrator will be required to promptly provide written notice to all Noteholders electronically by posting such notice on its internet website and by mail, unless the note administrator has received notice that such Asset Reviewer Termination Event has been remedied.
Rights Upon Asset Reviewer Termination Event
If an Asset Reviewer Termination Event occurs, and in each and every such case, so long as such Asset Reviewer Termination Event has not been remedied, then either the indenture trustee (i) may or (ii) upon the written direction of Noteholders evidencing at least [25]% of the Voting Rights will be required to, terminate all of the rights and obligations of the asset representations reviewer under the ISA, other than rights and obligations accrued prior to such termination and other than indemnification rights (arising out of events occurring prior to such termination), by written notice to the asset representations reviewer. The asset representations reviewer is required to bear all reasonable costs and expenses of each other party to the ISA in connection with its termination for cause.
Termination of the Asset Representations Reviewer Without Cause
Upon (i) the written direction of Noteholders evidencing not less than [25]% of the Voting Rights requesting a vote to terminate and replace the asset representations reviewer with a proposed successor asset representations reviewer that is an Eligible Asset Reviewer, and (ii) payment by such holders to the note administrator of the reasonable fees and expenses to be incurred by the note administrator in connection with administering such vote, the note administrator will promptly provide notice to all Noteholders and the asset representations reviewer of such request by posting such notice on its internet website, and by mailing to all Noteholders and the asset representations reviewer. Upon the written
direction of Noteholders evidencing at least [75]% of a Noteholder Quorum, the indenture trustee will terminate all of the rights and obligations of the asset representations reviewer under the ISA (other than any rights or obligations that accrued prior to the date of such termination and other than indemnification rights (arising out of events occurring prior to such termination)) by written notice to the asset representations reviewer, and the proposed successor asset representations reviewer will be appointed.
[In the event that holders of the notes entitled to at least 75% of the Voting Rights elect to remove the asset representations reviewer without cause and appoint a successor, the successor asset representations reviewer will be responsible for all expenses necessary to effect the transfer of responsibilities from its predecessor.]
Resignation of Asset Representations Reviewer
The asset representations reviewer may at any time resign by giving written notice to the other parties to the ISA. In addition, the asset representations reviewer will at all times be, and will be required to resign if it fails to be an Eligible Asset Reviewer by giving written notice to the other parties. Upon such notice of resignation, the depositor is required to promptly appoint a successor asset representations reviewer that is an Eligible Asset Reviewer. No resignation of the asset representations reviewer will be effective until a successor asset representations reviewer that is an Eligible Asset Reviewer has been appointed and accepted the appointment. If no successor asset representations reviewer has been so appointed and accepted the appointment within 30 days after the notice of resignation, the resigning asset representations reviewer may petition any court of competent jurisdiction for the appointment of a successor asset representations reviewer that is an Eligible Asset Reviewer. The resigning asset representations reviewer must pay all costs and expenses associated with the transfer of its duties.
Asset Representations Reviewer Compensation
Certain fees will be payable to the asset representations reviewer, and the asset representations reviewer will be entitled to be reimbursed for certain expenses, as described under “Indenture and Servicing Agreement—Servicing and Other Compensation and Payment of Expenses”.
Replacement of Special Servicer Without Cause
Except as limited by certain conditions described below and subject to the rights of the holder of the related Companion Loan (or in the case of an AB Whole Loan, the Loan-Specific Directing Holder) under the related Intercreditor Agreement, the special servicer may generally be replaced, prior to the occurrence and continuance of a Control Termination Event, at any time and without cause, by the Directing Holder so long as, among other things, the Directing Holder provides a replacement special servicer that meets the requirements of the ISA, including that the indenture trustee and the note administrator receive a Rating Agency Confirmation from each Rating Agency and that such replacement special servicer may not be the asset representations reviewer or any of its affiliates. The reasonable fees and out-of-pocket expenses of any such termination incurred by the Directing Holder without cause (including the costs of obtaining a Rating Agency Confirmation) will be paid by the holders of the Subordinate Controlling Class.
After the occurrence and during the continuance of a Control Termination Event, upon (i) the written direction of holders of notes evidencing not less than 25% of the Voting Rights (taking into account the application of any Appraisal Reduction Amounts and Notional Losses to notionally reduce the Principal Balances of the classes of notes) of the notes) requesting a vote to replace the special servicer with a new special servicer, (ii) payment by such holders to the note administrator of the reasonable fees and expenses (including any legal fees and any Rating Agency fees and expenses) to be incurred by the note administrator in connection with administering such vote (which fees and expenses will not be additional expenses), and (iii) delivery by such holders to the note administrator and the indenture trustee of Rating Agency Confirmation from each Rating Agency (such Rating Agency Confirmation will be obtained at the expense of those holders of notes requesting such vote), the note administrator will be required to post notice of the same on the note administrator’s website and concurrently by mail and conduct the
solicitation of votes of all notes in such regard, which such vote must occur within 180 days of the posting of such notice. Upon the written direction of (a) holders of notes evidencing at least 75% of a Noteholder Quorum or (b) holders of Non-Reduced Notes evidencing more than 50% of the Voting Rights of each class of Non-Reduced Notes, the indenture trustee will be required to terminate all of the rights and obligations of the special servicer under the ISA and appoint the successor special servicer (which must be a Qualified Replacement Special Servicer) designated by such Noteholders; provided that such successor special servicer is a Qualified Replacement Special Servicer, subject to indemnification, right to outstanding fees, reimbursement of Advances and other rights set forth in the ISA, which survive such termination. The note administrator will include on each Payment Date statement a statement that each Noteholder may access such notices via the note administrator’s website and that each Noteholder may register to receive electronic mail notifications when such notices are posted thereon.
A “Noteholder Quorum” means, in connection with any solicitation of votes in connection with the replacement of the special servicer described above, the holders of notes evidencing at least 75% of the aggregate Voting Rights of all notes on an aggregate basis.
A “Qualified Replacement Special Servicer” is a replacement special servicer that [(i) satisfies all of the eligibility requirements applicable to special servicers in the ISA, (ii) is not the operating advisor, the asset representations reviewer or an affiliate of the operating advisor or the asset representations reviewer, (iii) is not obligated to pay the operating advisor (x) any fees or otherwise compensate the operating advisor in respect of its obligations under the ISA, or (y) for the appointment of the successor special servicer or the recommendation by the operating advisor for the replacement special servicer to become the special servicer, (iv) is not entitled to receive any compensation from the operating advisor other than compensation that is not material and is unrelated to the operating advisor’s recommendation that such party be appointed as the replacement special servicer, (v) is not entitled to receive any fee from the operating advisor for its appointment as successor special servicer, in each case, unless expressly approved by 100% of the Noteholders, [(vi) is not a special servicer that has been cited by [NAME OF RATING AGENCY] as having servicing concerns as the sole or material factor in any qualification, downgrade or withdrawal of the ratings (or placement on “watch status” in contemplation of a ratings downgrade or withdrawal) of securities in a transaction serviced by the applicable servicer prior to the time of determination, (vii) currently has a special servicer rating of at least [SPECIFIC MINIMUM RATING] from [NAME OF RATING AGENCY] and (viii) is not a special servicer that has been cited by [NAME OF RATING AGENCY] as having servicing concerns as the sole or a material factor in any qualification, downgrade or withdrawal of the ratings (or placement on “watch status” in contemplation of a ratings downgrade or withdrawal) of securities in a transaction serviced by the applicable servicer prior to the time of determination].
[THE FOLLOWING TWO PARAGRAPHS ARE APPLICABLE TO OFFERINGS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH METHODS OTHER THAN A THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]
[In addition, after the occurrence of a Consultation Termination Event, if the operating advisor determines that the special servicer is not performing its duties as required under the ISA or is otherwise not acting in accordance with the Servicing Standard, the operating advisor will have the right to recommend the replacement of the special servicer. In such event, the operating advisor will be required to deliver to the indenture trustee and the note administrator, with a copy to the special servicer, a written recommendation detailing the reasons supporting its position (along with relevant information justifying its recommendation) and recommending a suggested replacement special servicer (which must be a Qualified Replacement Special Servicer). The note administrator will be required to notify each Noteholder of the recommendation and post it on the note administrator’s internet website, and to conduct the solicitation of votes with respect to such recommendation.
The operating advisor’s recommendation to replace the special servicer must be confirmed by an affirmative vote of holders of notes evidencing at least a majority of the aggregate Voting Rights (taking into account the application of any Appraisal Reduction Amounts and Notional Losses and Notional Losses to notionally reduce the respective Principal Balances of the classes of notes) of all notes on an aggregate basis. In the event the holders of such notes elect to remove and replace the special servicer,
the note administrator will be required to receive a Rating Agency Confirmation from each of the Rating Agencies at that time. In the event the note administrator receives a Rating Agency Confirmation from each of the Rating Agencies (and the successor special servicer agrees to be bound by the terms of the ISA), the indenture trustee will then be required to terminate all of the rights and obligations of the special servicer under the ISA and to appoint the successor special servicer approved by the Noteholders, provided that such successor special servicer is a Qualified Replacement Special Servicer, subject to the terminated special servicer’s rights to indemnification, payment of outstanding fees, reimbursement of Advances and other rights set forth in the ISA that survive termination. The reasonable out-of-pocket costs and expenses (including reasonable legal fees and expenses of outside counsel) associated with obtaining such Rating Agency Confirmations and administering the vote of the applicable holders of the notes and the operating advisor’s identification of a Qualified Replacement Special Servicer will be an additional administrative expense. [Notwithstanding the foregoing, the operating advisor will not be permitted to recommend the replacement of the special servicer with respect to an AB Whole Loan unless an AB Control Appraisal Period has occurred and is continuing with respect to an AB Whole Loan under the related Intercreditor Agreement.] [See “Description of the Mortgage Pool—The Whole Loans—The Serviced AB Whole Loan”.]]
[THE FOLLOWING TWO PARAGRAPHS ARE APPLICABLE TO OFFERINGS THAT SATISFY RISK RETENTION REQUIREMENTS THROUGH THIRD PARTY PURCHASER OF HORIZONTAL RESIDUAL INTEREST]
[In addition, if the operating advisor determines, in its sole discretion exercised in good faith, that (1) the special servicer is not performing its duties as required under the ISA or is otherwise not acting in accordance with the Servicing Standard and (2) the replacement of the special servicer would be in the best interest of the noteholders as a collective whole, then the operating advisor will have the right to recommend the replacement of the special servicer. In such event, the operating advisor will be required to deliver to the indenture trustee and the note administrator, with a copy to the special servicer, a written report detailing the reasons supporting its recommendation (along with relevant information justifying its recommendation) and recommending a suggested replacement special servicer (which must be a Qualified Replacement Special Servicer). The note administrator will be required to notify each Noteholder of the recommendation and post the related report on the note administrator’s internet website, and to conduct the solicitation of votes with respect to such recommendation.
The operating advisor’s recommendation to replace the special servicer must be confirmed by an affirmative vote of holders of notes evidencing at least a majority of a quorum of noteholders (which, for this purpose, is the holders of notes that (i) evidence at least 20% of the Voting Rights (taking into account the application of any Appraisal Reduction Amounts and Notional Losses to notionally reduce the respective Principal Balances of the classes of notes) of all notes on an aggregate basis, and (ii) consist of at least three Noteholders or Note Owners that are not affiliated with each other). In the event the holders of such notes elect to remove and replace the special servicer, the note administrator will be required to receive a Rating Agency Confirmation from each of the Rating Agencies at that time. In the event the note administrator receives a Rating Agency Confirmation from each of the Rating Agencies (and the successor special servicer agrees to be bound by the terms of the ISA), the indenture trustee will then be required to terminate all of the rights and obligations of the special servicer under the ISA and to appoint the successor special servicer approved by the Noteholders, provided that such successor special servicer is a Qualified Replacement Special Servicer, subject to the terminated special servicer’s rights to indemnification, payment of outstanding fees, reimbursement of Advances and other rights set forth in the ISA that survive termination. The reasonable out-of-pocket costs and expenses associated with obtaining such Rating Agency Confirmations and administering the vote of the applicable holders of the notes and the operating advisor’s identification of a Qualified Replacement Special Servicer will be an additional administrative expense. [Notwithstanding the foregoing, the operating advisor will not be permitted to recommend the replacement of the special servicer with respect to an AB Whole Loan unless an AB Control Appraisal Period has occurred and is continuing with respect to an AB Whole Loan under the related Intercreditor Agreement.] [See “Description of the Mortgage Pool—The Whole Loans—The Serviced AB Whole Loan”.]]
In any case, the indenture trustee will notify the outgoing special servicer promptly of the effective date of its termination. Any replacement special servicer recommended by the operating advisor must be a Qualified Replacement Special Servicer.
No appointment of a special servicer will be effective until the depositor or the depositor for the securitization of a Companion Loan has filed any required Exchange Act filings related to the removal and replacement of the special servicer.
Notwithstanding the foregoing, the Noteholders’ direction to replace the special servicer will not apply to an AB Whole Loan unless an AB Control Appraisal Period has occurred and is continuing with respect to an AB Whole Loan under the related Intercreditor Agreement. The Subordinate Companion Loan holder (or Loan-Specific Directing Holder in the case of the Owned Subordinate Companion Loan), will have the right, prior to the occurrence and continuance of an AB Control Appraisal Period, to replace the special servicer solely with respect to an AB Whole Loan. See “Description of the Mortgage Pool—The Whole Loans—The Serviced AB Whole Loan”.
With respect to the Non-Serviced Whole Loan, the related Non-Serviced Special Servicer may be removed, and a successor special servicer appointed at any time by the Non-Serviced Directing Holder appointed under the Non-Serviced Servicing Agreement (and not by the Directing Holder for this transaction) to the extent set forth in the Non-Serviced Servicing Agreement and the related Intercreditor Agreement for such Non-Serviced Whole Loan. See “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan” and “—Servicing of the Non-Serviced Mortgage Loan” below.
Termination of Servicer and Special Servicer for Cause
Servicer Termination Events
A “Servicer Termination Event” under the ISA with respect to the master servicer or the special servicer, as the case may be, will include, without limitation:
(a) (i) any failure by the master servicer to make a required deposit to the Collection Account or remit to the companion paying agent for deposit into the related companion loan payment account on the day and by the time such deposit or remittance was first required to be made, which failure is not remedied within one business day, or (ii) any failure by the master servicer to deposit into, or remit to the note administrator for deposit into, the Payment Account any amount required to be so deposited or remitted, which failure is not remedied by 11:00 a.m. New York City time on the relevant Payment Date;
(b) any failure by the special servicer to deposit into the REO Account within one business day after the day such deposit is required to be made, or to remit to the master servicer for deposit in the Collection Account, or any other account required under the ISA, any such deposit or remittance required to be made by the special servicer pursuant to, and at the time specified by, the ISA;
(c) any failure by the master servicer or the special servicer duly to observe or perform in any material respect any of its other covenants or obligations under the ISA, which failure continues unremedied for [30] days (or (i) with respect to any year that a report on Form 10-K is required to be filed, five business days in the case of the master servicer’s or special servicer’s, as applicable, obligations regarding Exchange Act reporting required under the ISA and compliance with Regulation AB, (ii) [15] days in the case of the master servicer’s failure to make a Servicing Advance or (iii) [15] days in the case of a failure to pay the premium for any property insurance policy required to be maintained under the ISA) after written notice of the failure has been given to the master servicer or the special servicer, as the case may be, by any other party to the ISA, or to the master servicer or the special servicer, as the case may be, with a copy to each other party to the related ISA, by Noteholders of any class, evidencing as to that class, Percentage Interests aggregating not less than [25]% or, with respect to a Serviced Whole Loan, by the holder of the related Serviced Companion Loan; provided, however, that if that failure is capable of being cured and the master servicer or the special servicer, as the case may be, is diligently pursuing that cure, that [30]-day period will be
extended an additional [30] days; provided, further, however, that such extended period will not apply to the obligations regarding Exchange Act reporting;
(d) any breach on the part of the master servicer or the special servicer of any representation or warranty in the ISA that materially and adversely affects the interests of any class of Noteholders or holders of any Serviced Companion Loan and that continues unremedied for a period of [30] days after the date on which notice of that breach, requiring the same to be remedied, will have been given to the master servicer or the special servicer, as the case may be, by the depositor, the note administrator or the indenture trustee, or to the master servicer, the special servicer, the depositor, the note administrator and the indenture trustee by the Noteholders of any class, evidencing as to that class, Percentage Interests aggregating not less than [25]% or, with respect to a Serviced Whole Loan, by the holder of the related Serviced Companion Loan; provided, however, that if that breach is capable of being cured and the master servicer or the special servicer, as the case may be, is diligently pursuing that cure, that [30]-day period will be extended an additional [30] days;
(e) certain events of insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings in respect of or relating to the master servicer or the special servicer, and certain actions by or on behalf of the master servicer or the special servicer indicating its insolvency or inability to pay its obligations;
(f) either of [NAME OF RATING AGENCY] or [NAME OF RATING AGENCY] (i) has qualified, downgraded or withdrawn its rating or ratings of one or more classes of notes, or (ii) has placed one or more classes of notes on “watch status” in contemplation of a ratings downgrade or withdrawal (and in the case of clause (i) and (ii), such action has not been withdrawn by [NAME OF RATING AGENCY] or [NAME OF RATING AGENCY] within 60 days of such actual knowledge by the master servicer or the special servicer, as the case may be) and, in the case of either of clauses (i) or (ii), cited servicing concerns with the master servicer or the special servicer, as the case may be, as the sole or a material factor in such action; or
(g) the master servicer or the special servicer is no longer rated at least [INSERT MINIMUM RATING] or [INSERT MINIMUM RATING], respectively, by [NAME OF RATING AGENCY] and such master servicer or special servicer is not reinstated to at least that rating within [60] days of the delisting.
Rights Upon Servicer Termination Event
If a Servicer Termination Event occurs with respect to the master servicer or the special servicer under the ISA, then, so long as the Servicer Termination Event remains unremedied, the depositor or the indenture trustee will be authorized, and at the written direction of Noteholders entitled to a majority of the Voting Rights or, for so long as a Control Termination Event has not occurred and is not continuing, the Directing Holder (solely with respect to the special servicer), the indenture trustee will be required to terminate all of the rights and obligations of the defaulting party as master servicer or the special servicer, as the case may be (other than certain rights in respect of indemnification and certain items of servicing compensation), under the ISA. The indenture trustee will then succeed to all of the responsibilities, duties and liabilities of the defaulting party as master servicer or special servicer, as the case may be, under the ISA and will be entitled to similar compensation arrangements. If the indenture trustee is unwilling or unable to so act, it may (or, at the written request of Noteholders entitled to a majority of the Voting Rights, or, for so long as a Control Termination Event has not occurred and is not continuing, the Directing Holder, it will be required to) appoint, or petition a court of competent jurisdiction to appoint, a loan servicing institution or other entity, [subject to the indenture trustee’s receipt of a Rating Agency Confirmation from each of the Rating Agencies] and, for so long as a Control Termination Event has not occurred and is not continuing, that has been approved by the Directing Holder, which approval may not be unreasonably withheld. In addition, the asset representations reviewer or any of its affiliates may not be appointed as a successor master servicer or special servicer.
Notwithstanding anything to the contrary contained in the section described above, if a Servicer Termination Event on the part of the special servicer remains unremedied and affects the holder of a
Serviced Pari Passu Companion Loan, and the special servicer has not otherwise been terminated, the holder of such Serviced Pari Passu Companion Loan (or, if applicable, the related indenture trustee, acting at the direction of the related directing holder (or similar entity)) will be entitled to direct the indenture trustee to terminate the special servicer solely with respect to the related Serviced Pari Passu Mortgage Loan. The appointment (or replacement) of a special servicer with respect to a Serviced Whole Loan will in any event be subject to Rating Agency Confirmation from each Rating Agency. A replacement special servicer will be selected by the indenture trustee or, prior to a Consultation Termination Event, by the Directing Holder; provided, however, that any successor special servicer appointed to replace the special servicer with respect to a Serviced Pari Passu Mortgage Loan cannot at any time be the person (or an affiliate of such person) that was terminated at the direction of the holder of the related Serviced Pari Passu Companion Loan, without the prior written consent of such holder of the related Serviced Pari Passu Companion Loan.
Notwithstanding anything to the contrary contained in the section described above, if a servicer termination event on the part of the special servicer under the Non-Serviced Servicing Agreement entered into in connection with the securitization of the Non-Serviced Companion Loan (the special servicer, the Non-Serviced Special Servicer remains unremedied and affects the holder of the Non-Serviced Mortgage Loan, and the Non-Serviced Special Servicer has not otherwise been terminated, the indenture trustee, acting at the direction of the Directing Holder, will be entitled to direct the Non-Serviced Indenture Trustee to terminate the Non-Serviced Special Servicer solely with respect to the Non-Serviced Whole Loan, and a successor will be appointed in accordance with the Non-Serviced Servicing Agreement.
In addition, notwithstanding anything to the contrary contained in the section described above, if the master servicer receives notice of termination solely due to a Servicer Termination Event described in clauses [(f)] or [(g)] under “—Termination of Servicer and Special Servicer for Cause—Servicer Termination Events” above, and prior to being replaced as described in the second preceding paragraph, the master servicer will have 45 days after receipt of the notice of termination to find, and sell its rights and obligations to, a successor master servicer that meets the requirements of a master servicer under the ISA; provided that the Rating Agencies have each provided a Rating Agency Confirmation. The termination of the master servicer will be effective when such successor master servicer has succeeded the terminated master servicer, as successor master servicer and such successor master servicer has assumed the terminated master servicer’s servicing obligations and responsibilities under the ISA. If a successor has not entered into the ISA as successor master servicer within 45 days after notice of the termination of the master servicer, the master servicer will be replaced by the indenture trustee as described above.
Notwithstanding the foregoing, (1) if any Servicer Termination Event on the part of the master servicer affects a Serviced Companion Loan, the related holder of a Serviced Companion Loan or the rating on any class of notes backed, wholly or partially, by any Serviced Companion Loan, and if the master servicer is not otherwise terminated, or (2) if a Servicer Termination Event on the part of the master servicer affects only a Serviced Companion Loan, the related holder of a Serviced Companion Loan or the rating on any class of notes backed, wholly or partially, by any Serviced Companion Loan, then the master servicer may not be terminated by or at the direction of the related holder of such Serviced Companion Loan or the holders of any notes backed, wholly or partially, by such Serviced Companion Loan, but upon the written direction of the related holder of such Serviced Companion Loan, the master servicer will be required to appoint a sub-servicer that will be responsible for servicing the related Serviced Whole Loan.
It is understood and intended, and expressly covenanted by each Noteholder with every other Noteholder and the indenture trustee, that no one or more Noteholders will have any right in any manner whatsoever by virtue of any provision of the ISA or the notes to affect, disturb or prejudice the rights of the holders of any other of such notes, or to obtain or seek to obtain priority over or preference to any other such Noteholder, which priority or preference is not otherwise provided for in the ISA, or to enforce any right under the ISA or the notes, except in the manner provided in the ISA or the notes and for the equal, ratable and common benefit of all Noteholders.
Further, if replaced as a result of a Servicer Termination Event, the master servicer or special servicer, as the case may be, will be responsible for the costs and expenses associated with the transfer of its duties.
Waiver of Servicer Termination Event
The Noteholders representing at least [25]% of the Voting Rights allocated to notes affected by any Servicer Termination Event may waive such Servicer Termination Event within twenty (20) days of the receipt of notice from the note administrator of the occurrence of such Servicer Termination Event; provided, however, that a Servicer Termination Event under clause (i) of the definition of “Servicer Termination Event” may be waived only by all of the Noteholders of the affected classes and a Servicer Termination Event under clause (c) of the definition of “Servicer Termination Event” may be waived only with the consent of the Noteholders. Upon any such waiver of a Servicer Termination Event, such Servicer Termination Event shall cease to exist and shall be deemed to have been remedied. Upon any such waiver of a Servicer Termination Event by Noteholders, the indenture trustee and the note administrator will be entitled to recover all costs and expenses incurred by it in connection with enforcement action taken with respect to such Servicer Termination Event prior to such waiver from the issuing entity.
Resignation of the Master Servicer and Special Servicer
The ISA permits the master servicer and the special servicer to resign from their respective obligations only upon (a) the appointment of, and the acceptance of the appointment by, a successor and receipt by the note administrator and the indenture trustee of a Rating Agency Confirmation from each of the Rating Agencies and confirmation of the applicable rating agencies that such action will not result in the downgrade, withdrawal or qualification of its then-current ratings of any securities related to a Serviced Companion Loan (provided that such rating agency confirmation may be considered satisfied in the same manner as any Rating Agency Confirmation required under the ISA may be considered satisfied with respect to the notes as described in this prospectus); and, as to the special servicer only, for so long as a Control Termination Event has not occurred and is not continuing, the approval of such successor by the Directing Holder, which approval will not be unreasonably withheld or (b) a determination that their respective obligations are no longer permissible with respect to the master servicer or the special servicer, as the case may be, under applicable law. In the event that the master servicer or special servicer resigns as a result of the determination that their respective obligations are no longer permissible under applicable law, the indenture trustee will then succeed to all of the responsibilities, duties and liabilities of the defaulting party as master servicer or special servicer, as the case may be, under the ISA and will be entitled to similar compensation arrangements. If the indenture trustee is unwilling or unable to so act, it may appoint, or petition a court of competent jurisdiction to appoint, a loan servicing institution or other entity, [subject to the indenture trustee’s receipt of a Rating Agency Confirmation from each of the Rating Agencies.]
No resignation will become effective until the indenture trustee or other successor has assumed the obligations and duties of the resigning master servicer or special servicer, as the case may be, under the ISA. Further, the resigning master servicer or special servicer, as the case may be, must pay all costs and expenses associated with the transfer of its duties. Other than as described under “—Termination of Servicer and Special Servicer for Cause—Servicer Termination Events” above, in no event will the master servicer or the special servicer have the right to appoint any successor master servicer or special servicer if such master servicer or special servicer, as applicable, is terminated or removed pursuant to the ISA. In addition, the ISA will prohibit the appointment of the asset representations reviewer, the operating advisor or one of their respective affiliates as successor to the master servicer or the special servicer.
Limitation on Liability; Indemnification
The ISA will provide that none of the master servicer (including in its capacity as the paying agent for any Companion Loan), the special servicer, the depositor, the operating advisor, the asset representations reviewer or any partner, shareholder, member, manager, director, officer, employee or
agent of any of them will be under any liability to the issuing entity, Noteholders or holders of the related Companion Loan, as applicable, for any action taken, or not taken, in good faith pursuant to the ISA or for errors in judgment; provided, however, that none of the master servicer (including in its capacity as the paying agent for any Companion Loan), the special servicer, the depositor, the operating advisor, the asset representations reviewer or similar person will be protected against any breach of a representation or warranty made by such party, as applicable, in the ISA or any liability that would otherwise be imposed by reason of willful misconduct, bad faith or negligence in the performance of obligations or duties under the ISA or by reason of negligent disregard of such obligations and duties. The ISA will also provide that the master servicer (including in its capacity as the paying agent for any Companion Loan), the special servicer, the depositor, the operating advisor, the asset representations reviewer and their respective affiliates and any partner, shareholder, member, manager, director, officer, employee or agent of any of them will be entitled to indemnification by the issuing entity against any claims, losses, penalties, fines, forfeitures, reasonable legal fees and related costs, judgments, and other costs, liabilities, fees and expenses incurred in connection with any legal action or claim that relates to the ISA, the Mortgage Loans, any related Companion Loan or the notes; provided, however, that the indemnification will not extend to any loss, liability or expense incurred in connection with any breach of a representation or warranty made by such party, as applicable, in the ISA or incurred by reason of willful misconduct, bad faith or negligence in the performance of obligations or duties under the ISA, by reason of negligent disregard of such party’s obligations or duties, or in the case of the depositor and any of its partners, shareholders, directors, officers, members, managers, employees and agents, any violation by any of them of any state or federal securities law. In addition, absent actual fraud (as determined by a final non-appealable court order), neither the indenture trustee nor the note administrator will be liable for special, punitive, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the indenture trustee or the note administrator has been advised of the likelihood of such loss or damage and regardless of the form of action. The ISA will also provide that any related master servicer, depositor, special servicer, operating advisor (or the equivalent), asset representations reviewer or indenture trustee under the Non-Serviced Servicing Agreement with respect to the Non-Serviced Companion Loan and any partner, director, officer, shareholder, member, manager, employee or agent of any of them will be entitled to indemnification by the issuing entity and held harmless against the issuing entity’s pro rata share of any and all claims, losses, penalties, fines, forfeitures, legal fees and related costs, judgments and any other costs, liabilities, fees and expenses incurred in connection with servicing and administration of such Non-Serviced Mortgage Loan and the non-serviced Mortgaged Property under the Non-Serviced Servicing Agreement or the ISA (as and to the same extent the securitization trust formed under the Non-Serviced Servicing Agreement is required to indemnify such parties in respect of other Mortgage Loans in the securitization trust formed under the Non-Serviced Servicing Agreement pursuant to the terms of the Non-Serviced Servicing Agreement).
In addition, the ISA will provide that none of the master servicer (including in its capacity as the paying agent for any Companion Loans), the special servicer, the depositor or operating advisor will be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its respective responsibilities under the ISA or that in its opinion may involve it in any expense or liability not reimbursed by the issuing entity. However, each of the master servicer, the special servicer, the depositor and the operating advisor will be permitted, in the exercise of its discretion, to undertake any action that it may deem necessary or desirable with respect to the enforcement and/or protection of the rights and duties of the parties to the ISA and the interests of the Noteholders (and, in the case of a Serviced Whole Loan, the rights of the Noteholders and the holders of the related Serviced Companion Loan (as a collective whole), taking into account the subordinate or pari passu nature of such Serviced Companion Loan) under the ISA; provided, however, that if a Serviced Whole Loan and/or the holder of the related Companion Loan are involved, such expenses, costs and liabilities will be payable out of funds related to such Serviced Whole Loan in accordance with the related Intercreditor Agreement and will also be payable out of the other funds in the Collection Account if amounts on deposit with respect to such Serviced Whole Loan are insufficient therefor. If any such expenses, costs or liabilities relate to a Mortgage Loan, Companion Loan, then any subsequent recovery on that Mortgage Loan or Companion Loan, as applicable, will be used to reimburse the issuing entity for any amounts advanced for the payment of such expenses, costs or liabilities. In that event, the legal expenses and costs of the action, and any liability resulting from the action, will be expenses, costs and liabilities of the issuing entity, and
the master servicer (including in its capacity as the paying agent for any Companion Loans), the special servicer, the depositor, the asset representations reviewer or the operating advisor, as the case may be, will be entitled to be reimbursed out of the Collection Account for the expenses.
Pursuant to the ISA, the master servicer and the special servicer will each be required to maintain a fidelity bond and errors and omissions policy or their equivalent that provides coverage against losses that may be sustained as a result of an officer’s or employee’s misappropriation of funds or errors and omissions, subject to certain limitations as to amount of coverage, deductible amounts, conditions, exclusions and exceptions permitted by the ISA. Notwithstanding the foregoing, the master servicer and the special servicer will be allowed to self-insure with respect to an errors and omissions policy and a fidelity bond so long as certain conditions set forth in the ISA are met.
Any person into which the master servicer, the special servicer, the depositor, operating advisor, asset representations reviewer may be merged or consolidated, or any person resulting from any merger or consolidation to which the master servicer, the special servicer, the depositor, operating advisor or asset representations reviewer is a party, or any person succeeding to the business of the master servicer, the special servicer, the depositor, operating advisor or asset representations reviewer, will be the successor of the master servicer, the special servicer, the depositor, operating advisor or asset representations reviewer, as the case may be, under the ISA. The master servicer, the special servicer, the operating advisor and the asset representations reviewer may have other normal business relationships with the depositor or the depositor’s affiliates.
The indenture trustee and the note administrator make no representations as to the validity or sufficiency of the ISA (other than as to it being a valid obligation of the indenture trustee and the note administrator), the notes, the Mortgage Loans, this prospectus (other than as to the accuracy of the information provided by the indenture trustee and the note administrator as set forth above) or any related documents and will not be accountable for the use or application by or on behalf of the master servicer or the special servicer of any funds paid to the master servicer or any special servicer in respect of the notes or the Mortgage Loans, or any funds deposited into or withdrawn from the Collection Account or any other account by or on behalf of the master servicer or any special servicer. The ISA provides that no provision of such agreement will be construed to relieve the indenture trustee and the note administrator from liability for their own negligent action, their own negligent failure to act or their own willful misconduct or bad faith.
The ISA provides that neither the indenture trustee nor the note administrator, as applicable, will be liable for an error of judgment made in good faith by a responsible officer of the indenture trustee or the note administrator, unless it is proven that the indenture trustee or the note administrator, as applicable, was negligent in ascertaining the pertinent facts. In addition, neither the indenture trustee nor the note administrator, as applicable, will be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of holders of notes entitled to greater than 25% of the percentage interest of each affected class, or of the aggregate Voting Rights of the notes, relating to the time, method and place of conducting any proceeding for any remedy available to the indenture trustee and the note administrator, or exercising any trust or power conferred upon the indenture trustee and the note administrator, under the ISA (unless a higher percentage of Voting Rights is required for such action).
The indenture trustee and the note administrator and any director, officer, employee, representative or agent of the indenture trustee and the note administrator, will be entitled to indemnification by the issuing entity, to the extent of amounts held in the Collection Account [or the Loan-Specific Payment Account] from time to time, for any loss, liability, damages, claims or unanticipated expenses (including reasonable attorneys’ fees and expenses) arising out of or incurred by the indenture trustee or the note administrator in connection with their participation in the transaction and any act or omission of the indenture trustee or the note administrator relating to the exercise and performance of any of the powers and duties of the indenture trustee and the note administrator (including in any capacities in which they serve, e.g., paying agent, authenticating agent, custodian, note registrar and 17g-5 Information Provider) under the ISA. However, the indemnification will not extend to any loss, liability or expense that constitutes a specific liability imposed on the indenture trustee or the note administrator pursuant to the
ISA, or to any loss, liability or expense incurred by reason of willful misconduct, bad faith or negligence on the part of the indenture trustee or the note administrator in the performance of their obligations and duties under the ISA, or by reason of their negligent disregard of those obligations or duties, or as may arise from a breach of any representation or warranty of the indenture trustee or the note administrator made in the ISA.
Enforcement of Mortgage Loan Seller’s Obligations Under the MLPA
In the event any party to the ISA receives a request or demand from a Requesting Investor to the effect that a Mortgage Loan should be repurchased or replaced due to a Material Defect, or if such party to the ISA determines that a Mortgage Loan should be repurchased or replaced due to a Material Defect, that party to the ISA will be required to promptly forward such request or demand to the master servicer and the special servicer, and the master servicer or the special servicer, as applicable, will be required to promptly forward it to the applicable mortgage loan seller. The master servicer (in the case of Mortgage Loans that are not Specially Serviced Loans) or the special servicer (in the case of Specially Serviced Loans) will be required to enforce the obligations of the mortgage loan sellers under the MLPAs pursuant to the terms of the ISA and the MLPAs. These obligations include obligations resulting from a Material Defect. Subject to the provisions of the applicable MLPA relating to the dispute resolutions as described under “Description of the Mortgage Loan Purchase Agreements—Dispute Resolution Provisions”, such enforcement, including, without limitation, the legal prosecution of claims, if any, will be required to be carried out in such form, to such extent and at such time as the master servicer or the special servicer, as applicable, would require were it, in its individual capacity, the owner of the affected Mortgage Loan or Owned Subordinate Companion Loan.
Within [__] days after receipt of an Asset Review Report with respect to any Mortgage Loan, the special servicer will be required to determine, based on the Servicing Standard, whether there exists a Material Defect with respect to such Mortgage Loan. If the special servicer determines that a Material Defect exists, the special servicer will be required to enforce the obligations of the applicable mortgage loan seller under the MLPA with respect to such Material Defect as discussed in the preceding paragraph. See “—The Asset Representations Reviewer—Asset Review” above.
Any costs incurred by the master servicer or the special servicer with respect to the enforcement of the obligations of a mortgage loan seller under the applicable MLPA will be deemed to be Servicing Advances, to the extent not recovered from the mortgage loan seller or the Requesting Investor. See “Description of the Mortgage Loan Purchase Agreements—Dispute Resolution Provisions”.
Dispute Resolution Provisions
Noteholder’s Rights When a Repurchase Request is Initially Delivered By a Noteholder
In the event an Initial Requesting Noteholder delivers a written request to a party to the ISA that a Mortgage Loan be repurchased by the applicable mortgage loan seller alleging the existence of a Material Defect with respect to such Mortgage Loan and setting forth the basis for such allegation (a “Repurchase Request”), the receiving party will be required to promptly forward that Repurchase Request to the related mortgage loan seller and each other party to the ISA. An “Initial Requesting Noteholder” is the first Noteholder or Note Owner to deliver a Repurchase Request as described above with respect to a Mortgage Loan, and there may not be more than one Initial Requesting Noteholder with respect to any Mortgage Loan. Subject to the provisions described below under this heading “—Dispute Resolution Provisions”, the master servicer (with respect to non-specially serviced loans) and the special servicer (with respect to specially serviced loans) (the “Enforcing Servicer”) will be the Enforcing Party with respect to the Repurchase Request.
An “Enforcing Party” is the person obligated to, or that elects pursuant to the terms of the ISA to, enforce the rights of the issuing entity against the related mortgage loan seller with respect to the Repurchase Request.
In the event the Repurchase Request is not Resolved within 180 days after the mortgage loan seller receives the Repurchase Request (a “Resolution Failure”), then the provisions described below under “—Resolution of a Repurchase Request” will apply. Receipt of the Repurchase Request will be deemed to occur [two] business days after the Repurchase Request is sent to the related mortgage loan seller. “Resolved” means, with respect to a Repurchase Request, (i) that the related Material Defect has been cured, (ii) the related Mortgage Loan has been repurchased in accordance with the related MLPA, (iii) a mortgage loan has been substituted for the related Mortgage Loan in accordance with the related MLPA, (iv) the applicable mortgage loan seller has paid the Loss of Value Payment, (v) a contractually binding agreement is entered into between the Enforcing Servicer, on behalf of the issuing entity, and the related mortgage loan seller that settles the related mortgage loan seller’s obligations under the related MLPA or (vi) the related Mortgage Loan is no longer property of the issuing entity as a result of a sale or other disposition in accordance with the ISA.
Noteholder’s Rights When a Repurchase Request is Delivered by Another Party to the ISA
In the event that a party to the ISA identifies a Material Defect with respect to a Mortgage Loan, that party will be required to deliver prompt written notice of such Material Defect to each other party to the ISA and the related mortgage loan seller identifying the applicable Mortgage Loan and setting forth the basis for such allegation. The Enforcing Servicer will be required to act as the Enforcing Party and enforce the rights of the issuing entity against the related mortgage loan seller with respect to the Repurchase Request. However, if a Resolution Failure occurs with respect to the Repurchase Request, the provisions described below under
“—Resolution of a Repurchase Request” will apply.
Resolution of a Repurchase Request
After a Resolution Failure occurs with respect to a Repurchase Request regarding a Mortgage Loan (whether the Repurchase Request was initiated by an Initial Requesting Noteholder or by a party to the ISA), the Enforcing Servicer will be required to send a notice (a “Proposed Course of Action Notice”) to the Initial Requesting Noteholder, if any, to the address specified in the Initial Requesting Noteholder’s Repurchase Request, and to the note administrator who will make such notice available to all other Noteholders and Note Owners (by posting such notice on the note administrator’s website) indicating the Enforcing Servicer’s intended course of action with respect to the Repurchase Request (the “Proposed Course of Action”). Such notice will be required to include a request to Noteholders to indicate their agreement with or dissent from such Proposed Course of Action, notice that in the event any Noteholder disagrees with the Proposed Course of Action, the Enforcing Servicer will be compelled to follow the course of action agreed to and/or proposed by the majority of the responding Noteholders that involves referring the matter to mediation or arbitration, as the case may be, a statement that responding Noteholders will be required to certify their holdings in connection with such response, a statement that only responses clearly marked “agree” or “disagree” with such Proposed Course of Action will be taken into consideration and instructions for responding Noteholders to send their responses to the applicable Enforcing Servicer and the note administrator. If (a) the Enforcing Servicer’s intended course of action with respect to the Repurchase Request does not involve pursuing further action to exercise rights against the applicable mortgage loan seller with respect to the Repurchase Request but the Initial Requesting Noteholder, if any, or any other Noteholder or Note Owner wishes to exercise its right to refer the matter to mediation (including nonbinding arbitration) or arbitration, as discussed below under “—Mediation and Arbitration Provisions”, or (b) the Enforcing Servicer’s intended course of action is to pursue further action to exercise rights against the applicable mortgage loan seller with respect to the Repurchase Request but the Initial Requesting Noteholder, if any, or any other Noteholder or Note Owner does not agree with the dispute resolution method selected by the Enforcing Servicer, then the Initial Requesting Noteholder, if any, or such other Noteholder or Note Owner may deliver to the Enforcing Servicer a written notice (a “Preliminary Dispute Resolution Election Notice”) within [30] days from the date the Proposed Course of Action Notice is posted on the note administrator’s website (the “Dispute Resolution Cut-off Date”) indicating its intent to exercise its right to refer the matter to either mediation or arbitration. In the event any Noteholder or Note Owner delivers a Preliminary Dispute Resolution Election Notice, and the Enforcing Servicer has also received responses from other Noteholders or Note Owners
supporting the Enforcing Servicer’s initial Proposed Course of Action, such responses will be considered Preliminary Dispute Resolution Election Notices supporting the Proposed Course of Action.
The note administrator will within [three (3)] business days after the expiration of the [30]-day response period, tabulate the responses received from the Noteholders and share the results with the Enforcing Servicer. The note administrator will only count responses timely received and clearly indicating agreement or dissent with the related Proposed Course of Action and additional verbiage or qualifying language will not be taken into consideration for purposes of determining whether the related Noteholder agrees or disagrees with the Proposed Course of Action. The note administrator will be under no obligation to answer any questions from Noteholders regarding such Proposed Course of Action. For the avoidance of doubt, the note administrator’s obligations in connection with this heading “—Resolution of a Repurchase Request” will be limited solely to tabulating Noteholder responses of “agree” or “disagree” to the Proposed Course of Action, and such obligation will not be construed to impose any enforcement obligation on the note administrator. The Enforcing Servicer may conclusively rely (without investigation) on the note administrator’s tabulation of the majority of the responding Noteholders.
If neither the Initial Requesting Noteholder, if any, nor any other Noteholder or Note Owner delivers a Preliminary Dispute Resolution Election Notice prior to the Dispute Resolution Cut-off Date, no Noteholder or Note Owner will have the right to refer the Repurchase Request to mediation or arbitration, and the Enforcing Servicer, as the Enforcing Party, will be the sole party entitled to enforce the issuing entity’s rights against the related mortgage loan seller, subject to any consent or consultation rights of the Directing Holder.
[Promptly and in any event within [__] business days following receipt of a Preliminary Dispute Resolution Election Notice from (i) the Initial Requesting Noteholder, if any, or (ii) any other Noteholder or Note Owner (each of clauses (i) and (ii), a “Requesting Noteholder”), the Enforcing Servicer will be required to consult with each Requesting Noteholder regarding such Requesting Noteholder’s intention to elect either mediation (including nonbinding arbitration) or arbitration as the dispute resolution method with respect to the Repurchase Request (the “Dispute Resolution Consultation”) so that such Requesting Noteholder may consider the views of the Enforcing Servicer as to the claims underlying the Repurchase Request and possible dispute resolution methods, such discussions to occur and be completed no later than [10] business days following the Dispute Resolution Cut-off Date. The Enforcing Servicer will be entitled to establish procedures the Enforcing Servicer deems in good faith to be in accordance with the Servicing Standard relating to the timing and extent of such consultations.] No later than [5] business days after completion of the Dispute Resolution Consultation, a Requesting Noteholder may provide a final notice to the Enforcing Servicer indicating its decision to exercise its right to refer the matter to either mediation or arbitration (“Final Dispute Resolution Election Notice”).
If, following the Dispute Resolution Consultation, no Requesting Noteholder timely delivers a Final Dispute Resolution Election Notice to the Enforcing Servicer, then the Enforcing Servicer will continue to act as the Enforcing Party and remain obligated under the ISA to enforce the rights of the issuing entity with respect to the Repurchase Request and no Noteholder or Note Owner will have any further right to elect to refer the matter to mediation or arbitration.
If a Requesting Noteholder timely delivers a Final Dispute Resolution Election Notice to the Enforcing Servicer, then such Requesting Noteholder will become the Enforcing Party and must promptly submit the matter to mediation (including nonbinding arbitration) or arbitration. If there are more than one Requesting Noteholder that timely deliver a Final Dispute Resolution Election Notice, then such Requesting Noteholders will collectively become the Enforcing Party, and the holder or holders of a majority of the Voting Rights among such Requesting Noteholders will be entitled to make all decisions relating to such mediation or arbitration. If, however, no Requesting Noteholder commences arbitration or mediation pursuant to the terms of the ISA within [30] days after delivery of its Final Dispute Resolution Election Notice to the Enforcing Servicer, then (i) the rights of a Requesting Noteholder to act as the Enforcing Party will terminate and no Noteholder or Note Owner will have any further right to elect to refer the matter to mediation or arbitration, (ii) if the Proposed Course of Action Notice indicated that the Enforcing Servicer will take no further action with respect to the Repurchase Request, then the related Material Defect will be deemed waived for all purposes under the ISA and related MLPA, and (iii) if the
Proposed Course of Action Notice had indicated a course of action other than the course of action under clause (ii), then the Enforcing Servicer will again become the Enforcing Party and, as such, will be the sole party entitled to enforce the issuing entity’s rights against the related mortgage loan seller.
Notwithstanding the foregoing, the dispute resolution provisions described under this heading “—Resolution of a Repurchase Request” will not apply, and the Enforcing Servicer will remain the Enforcing Party, if the Enforcing Servicer has commenced litigation with respect to the Repurchase Request, or determines in accordance with the Servicing Standard that it is in the best interest of Noteholders to commence litigation with respect to the Repurchase Request to avoid the running of any applicable statute of limitations.
In the event a Requesting Noteholder becomes the Enforcing Party, the Enforcing Servicer, on behalf of the issuing entity, will remain a party to any proceedings against the related mortgage loan seller.
The Requesting Noteholder is entitled to elect either mediation or arbitration in its sole discretion; however, the Requesting Noteholder may not elect to then utilize the alternative method in the event that the initial method is unsuccessful.
Mediation and Arbitration Provisions
If the Enforcing Party elects mediation (including nonbinding arbitration) or arbitration, the mediation or arbitration will be administered by a nationally recognized arbitration or mediation organization selected by the mortgage loan seller. A single mediator or arbitrator will be selected by the mediation or arbitration organization from a list of neutrals maintained by it according to its mediation or arbitration rules then in effect. The mediator or arbitrator must be impartial, [an attorney admitted to practice in the State of New York] and have at least [__] years of experience in commercial litigation and, if possible, commercial real estate finance or commercial mortgage-backed securitization matters.
The expenses of any mediation will be allocated among the parties to the mediation, as mutually agreed by the parties as part of the mediation.
In any arbitration, the arbitrator will be required to resolve the dispute in accordance with the MLPA and ISA, and may not modify or change those agreements in any way or award remedies not consistent with those agreements. The arbitrator will not have the power to award punitive or consequential damages. In its final determination, the arbitrator will determine and award the costs of the arbitration to the parties to the arbitration in its reasonable discretion. In the event a Requesting Noteholder is the Enforcing Party, the Requesting Noteholder will be required to pay any expenses allocated to the Enforcing Party in the arbitration proceedings or any expenses that the Enforcing Party agrees to bear in the mediation proceedings.
The final determination of the arbitrator will be final and non-appealable, except for actions to confirm or vacate the determination permitted under federal or state law, and may be entered and enforced in any court with jurisdiction over the parties and the matter. By selecting arbitration, the Enforcing Party would be waiving its right to sue in court, including the right to a trial by jury.
In the event a Requesting Noteholder is the Enforcing Party, the agreement with the arbitrator or mediator, as the case may be, will be required under the ISA to contain an acknowledgment that the issuing entity, or the Enforcing Servicer on its behalf, will be a party to any arbitration or mediation proceedings solely for the purpose of being the beneficiary of any award in favor of the Enforcing Party. All amounts recovered by the Enforcing Party will be required to be paid to the issuing entity, or the Enforcing Servicer on its behalf, and deposited in the Collection Account. The agreement with the arbitrator or mediator, as the case may be, will provide that in the event a Requesting Noteholder is allocated any related costs and expenses pursuant to the terms of the arbitrator’s decision or the agreement reached in mediation, neither the issuing entity nor the Enforcing Servicer acting on its behalf will be responsible for any such costs and expenses allocated to the Requesting Noteholder.
The issuing entity (or the indenture trustee or the Enforcing Servicer, acting on its behalf), the depositor or any mortgage loan seller will be permitted to redact any personally identifiable customer information included in any information provided for purposes of any mediation or arbitration. Each party to the proceedings will be required to agree to keep confidential the details related to the Repurchase Request and the dispute resolution identified in connection with such proceedings; provided, however, that the Noteholders will be permitted to communicate prior to the commencement of any such proceedings to the extent described under “Description of the Notes—Noteholder Communication”.
For avoidance of doubt, in no event will the exercise of any right of a Requesting Noteholder to refer a Repurchase Request to mediation or arbitration affect in any manner the ability of the Enforcing Servicer to perform its obligations with respect to a Mortgage Loan or the exercise of any rights of a Directing Holder.
Servicing of the Non-Serviced Mortgage Loan
[THE DISCLOSURE IN THIS SUBSECTION WILL BE MODIFIED FOR EACH NON-SERVICED MORTGAGE LOAN INCLUDED IN THE ISSUING ENTITY BASED ON THE TERMS OF THE RELATED NON-SERVICED SERVICING AGREEMENT.]
The Non-Serviced Mortgage Loan and any related REO Properties are being serviced and administered under the Non-Serviced Servicing Agreement. Accordingly, the Non-Serviced Master Servicer (or, if it fails to do so, the Non-Serviced Indenture Trustee) will (and, in certain urgent or emergency situations, the Non-Serviced Special Servicer may) generally make servicing advances, unless it is determined in accordance with the Non-Serviced Servicing Agreement that such servicing advance would not be recoverable from related collections. However, no such party will make a P&I advance with respect to the Non-Serviced Mortgage Loan. The Non-Serviced Master Servicer will generally also remit collections on the Non-Serviced Mortgage Loan to or on behalf of the issuing entity for this securitization. However, the master servicer for this securitization will generally be obligated to compile reports that include information on the Non-Serviced Mortgage Loan, and, to the extent required by the Servicing Standard, to enforce the rights of the issuing entity as the holder of the Non-Serviced Mortgage Loan under the terms of the related Intercreditor Agreement and make P&I Advances with respect to the Non-Serviced Mortgage Loan, subject to any non-recoverability determination. The Non-Serviced Servicing Agreement and the ISA both address similar servicing matters, including, but not limited to: collection of payments; establishment of accounts to hold such payments; investment of funds in those accounts; maintenance of insurance coverage on the mortgaged properties; enforcement of due-on-sale and due-on-encumbrance provisions; property inspections; collection of operating statements; loan assumptions; realization upon and sale of defaulted Mortgage Loans; acquisition, operation, maintenance and disposition of REO Properties; servicing compensation; modifications, waivers, amendments and consents with respect to the serviced Mortgage Loans; servicing reports; servicer liability and indemnification; servicer resignation; servicer termination events; and the ability of certain parties to terminate a particular servicer in connection with a servicer termination event or otherwise. In addition, the securitization transaction governing the servicing of the Non-Serviced Whole Loan is a rated commercial mortgage-backed securitization transaction with the same rating agencies as this securitization transaction. Nonetheless, the servicing arrangements under the Non-Serviced Servicing Agreement differ in certain respects from the servicing arrangements under the ISA. For example, the provisions of the Non-Serviced Servicing Agreement and the ISA differ with respect to, among other things, time periods and timing matters, terminology, allocation of duties between multiple servicers and other service providers, the specifics of particular servicer termination events, notices to and communications with applicable rating agencies and rating confirmation requirements. Below are certain matters regarding the servicing of the Non-Serviced Mortgage Loan for your consideration:
| • | The master servicer, the special servicer, the note administrator and the indenture trustee under the ISA will have no obligation or authority to (a) supervise the Non-Serviced Master Servicer, the Non-Serviced Special Servicer, or any of the indenture trustee, note administrator or operating advisor under the Non-Serviced Servicing Agreement or (b) make Servicing Advances with respect to the Non-Serviced Mortgage Loan. The obligation of the master servicer for this |
securitization to provide information and collections and make P&I Advances to the note administrator for the benefit of the Noteholders with respect to the Non-Serviced Mortgage Loan is dependent on its receipt of the corresponding information and/or collections from the Non-Serviced Master Servicer or the Non-Serviced Special Servicer.
| • | Any advances made by the Non-Serviced Master Servicer and the Non-Serviced Indenture Trustee in respect of a monthly payment on the Non-Serviced Companion Loan may only be reimbursed out of future payments and collections on the Non-Serviced Companion Loan or, as and to the extent permitted under the Non-Serviced Servicing Agreement, on other loans included in the Non-Serviced Securitization Trust but not out of payments or other collections on the Mortgage Loans. |
| • | Pursuant to the Non-Serviced Servicing Agreement, the liquidation fee, the special servicing fee and the workout fee with respect to the Non-Serviced Mortgage Loan will be generally similar to the corresponding fee payable under the ISA. |
| • | The master servicer for this securitization will be required to make P&I Advances with respect to the Non-Serviced Mortgage Loan, unless it has determined that such Advance would not be recoverable from collections on the Non-Serviced Mortgage Loan. |
| • | The Non-Serviced Master Servicer is obligated to make servicing advances with respect to the Non-Serviced Whole Loan. If the Non-Serviced Master Servicer determines that a servicing advance it made with respect to the Non-Serviced Whole Loan or the related Mortgaged Property is nonrecoverable, it will be entitled to be reimbursed first from collections on, and proceeds of, the Non-Serviced Mortgage Loan and the Non-Serviced Companion Loan, on a pro rata basis (based on each such loan’s outstanding principal balance), and then from general collections on the mortgage loans in the Non-Serviced Securitization Trust. |
| • | With respect to the Non-Serviced Mortgage Loan, prior to the occurrence and continuance of any control event under the Non-Serviced Servicing Agreement, the Non-Serviced Directing Holder will have the right to terminate the Non-Serviced Special Servicer, with or without cause, and appoint itself or an affiliate or another person as the successor Non-Serviced Special Servicer. |
| • | In addition, with respect to the Non-Serviced Mortgage Loan, after the occurrence and during the continuance of any control termination event under the Non-Serviced Servicing Agreement, at the written direction of holders of notes under the Non-Serviced Servicing Agreement evidencing not less than 25% of the voting rights of such notes (taking into account the application of any appraisal reduction amounts to notionally reduce the principal balances of those notes), a request can be made to vote to terminate the Non-Serviced Special Servicer and appoint a successor Non-Serviced Special Servicer. |
| • | In addition, with respect to the Non-Serviced Mortgage Loan, following the occurrence of a consultation termination event under the Non-Serviced Servicing Agreement, if the operating advisor under the Non-Serviced Servicing Agreement determines that the Non-Serviced Special Servicer is not performing its duties under the Non-Serviced Servicing Agreement or is otherwise not acting in accordance with the related servicing standard, the operating advisor under the Non-Serviced Servicing Agreement will have the right to recommend the replacement of the Non-Serviced Special Servicer. |
| • | If the Non-Serviced Mortgage Loan becomes a defaulted mortgage loan, then (subject to, in each case if and when applicable, the consent/consultation rights of the Non-Serviced Directing Holder, the consultation rights of the issuing entity) the Non-Serviced Special Servicer will be required to take one of the following actions in response: (i) foreclose upon or otherwise comparably convert ownership of the related Mortgaged Properties; (ii) negotiate a workout with the related borrower; or (iii) sell the Non-Serviced Whole Loan in its entirety. The issuing entity, as the holder of the Non-Serviced Mortgage Loan, will have the right to consent to a sale of a defaulted Mortgage |
loan in the event that the Non-Serviced Special Servicer fails to provide certain notices and information regarding such sale in accordance with the terms of the related Intercreditor Agreement. See “—Sale of Defaulted Loans and REO Properties” above and “Description of the Mortgage Pool—The Whole Loans—The Non-Serviced Whole Loan—Sale of Defaulted Loan”.
| • | With respect to the Non-Serviced Mortgage Loan, the servicing provisions relating to performing inspections and collecting operating information are substantially similar to those of the ISA. |
| • | The Non-Serviced Master Servicer and Non-Serviced Special Servicer (a) have substantially similar rights related to resignation and (b) are subject to servicer termination events substantially similar to those in the ISA. |
Rating Agency Confirmations
The ISA will provide that, notwithstanding the terms of the related Mortgage Loan documents or other provisions of the ISA, if any action under such Mortgage Loan documents or the ISA requires a Rating Agency Confirmation from each of the Rating Agencies as a condition precedent to such action, if the party (the “Requesting Party”) required to obtain such Rating Agency Confirmations has made a request to any Rating Agency for such Rating Agency Confirmation and, within 10 business days of such request being posted to the 17g-5 Information Provider’s website, such Rating Agency has not replied to such request or has responded in a manner that indicates that such Rating Agency is neither reviewing such request nor waiving the requirement for Rating Agency Confirmation, then such Requesting Party will be required to confirm (through direct communication and not by posting any confirmation on the 17g-5 Information Provider’s website) that the applicable Rating Agency has received the Rating Agency Confirmation request, and, if it has, promptly request the related Rating Agency Confirmation again. The circumstances described in the preceding sentence are referred to in this prospectus as a “RAC No-Response Scenario”.
If there is no response to either such Rating Agency Confirmation request within 5 business days of such second request in a RAC No-Response Scenario or if such Rating Agency has responded in a manner that indicates such Rating Agency is neither reviewing such request nor waiving the requirement for Rating Agency Confirmation, then (x) with respect to any condition in any Mortgage Loan document requiring such Rating Agency Confirmation, or with respect to any other matter under the ISA relating to the servicing of the Mortgage Loans (other than as set forth in clause (y) below), the requirement to obtain a Rating Agency Confirmation will be deemed not to apply (as if such requirement did not exist) with respect to such Rating Agency, and the master servicer or the special servicer, as the case may be, may then take such action if the master servicer or the special servicer, as applicable, confirms its original determination (made prior to making such request) that taking the action with respect to which it requested the Rating Agency Confirmation would still be consistent with the Servicing Standard, and (y) with respect to a replacement of the master servicer or special servicer, such condition will be deemed not to apply (as if such requirement did not exist) if (i) [NAME OF RATING AGENCY] has not cited servicing concerns of the applicable replacement as the sole or material factor in such rating action or any qualification, downgrade or withdrawal of the ratings (or placement on “watch status” in contemplation of a ratings downgrade or withdrawal) of securities in a transaction serviced by the applicable master servicer or special servicer prior to the time of determination, if [NAME OF RATING AGENCY] is the non-responding Rating Agency, (ii) the applicable replacement master servicer or special servicer is rated at least “[INSERT MINIMUM RATING]” (in the case of the master servicer) or “[INSERT MINIMUM RATING]” (in the case of the special servicer), if [NAME OF RATING AGENCY] is the non-responding Rating Agency or (iii) [NAME OF RATING AGENCY] has not cited servicing concerns of the applicable replacement master servicer or special servicer as the sole or material factor in any qualification, downgrade or withdrawal of the ratings (or placement on “watch status” in contemplation of a ratings downgrade or withdrawal) of securities in any other commercial mortgage-backed securitization transaction serviced by the applicable master servicer or special servicer prior to the time of determination, if [NAME OF RATING AGENCY] is the non-responding Rating Agency. Promptly following the master servicer’s or special servicer’s determination to take any action discussed above following any requirement to obtain Rating Agency Confirmation being deemed not to apply (as if such requirement did
not exist) as described in clause (x) above, the master servicer or special servicer will be required to provide electronic written notice to the 17g-5 Information Provider, who will promptly post such notice to the 17g-5 Information Provider’s website pursuant to the ISA, of the action taken.
For all other matters or actions not specifically discussed above, the applicable Requesting Party will be required to obtain a Rating Agency Confirmation from each of the Rating Agencies. In the event an action otherwise requires a Rating Agency Confirmation from each of the Rating Agencies, in absence of such Rating Agency Confirmation, we cannot assure you that any Rating Agency will not downgrade, qualify or withdraw its ratings as a result of any such action taken by the master servicer or the special servicer in accordance with the procedures discussed above.
As used above, “Rating Agency Confirmation” means, with respect to any matter, confirmation in writing (which may be in electronic form) by each applicable Rating Agency that a proposed action, failure to act or other event specified in this prospectus will not, in and of itself, result in the downgrade, withdrawal or qualification of the then-current rating assigned to any class of notes (if then rated by the Rating Agency); provided that a written waiver or acknowledgment from the Rating Agency indicating its decision not to review the matter for which the Rating Agency Confirmation is sought will be deemed to satisfy the requirement for the Rating Agency Confirmation from the Rating Agency with respect to such matter. The “Rating Agencies” mean [_________].
Any Rating Agency Confirmation requests made by the master servicer, special servicer, note administrator, or indenture trustee, as applicable, pursuant to the ISA, will be required to be made in writing, which writing must contain a cover page indicating the nature of the Rating Agency Confirmation request, and must contain all back-up material necessary for the Rating Agency to process such request. Such written Rating Agency Confirmation requests must be provided in electronic format to the 17g-5 Information Provider (who will be required to post such request on the 17g-5 Information Provider’s website in accordance with the ISA).
The master servicer, the special servicer, the note administrator and the indenture trustee will be permitted (but not obligated) to orally communicate with the Rating Agencies regarding any of the Mortgage Loan documents or any matter related to the Mortgage Loans, the related Mortgaged Properties, the related borrowers or any other matters relating to the ISA or any related Intercreditor Agreement; provided that such party summarizes the information provided to the Rating Agencies in such communication in writing and provides the 17g-5 Information Provider with such written summary the same day such communication takes place; provided, further, that the summary of such oral communications will not identify with which Rating Agency the communication was. The 17g-5 Information Provider will be required to post such written summary on the 17g-5 Information Provider’s website in accordance with the provisions of the ISA. All other information required to be delivered to the Rating Agencies pursuant to the ISA or requested by the Rating Agencies, will first be provided in electronic format to the 17g-5 Information Provider, who will be required to post such information to the 17g-5 Information Provider’s website in accordance with the ISA, and thereafter be delivered by the applicable party to the Rating Agencies in accordance with the delivery instructions set forth in the ISA. The operating advisor will have no obligation or authority to communicate directly with the Rating Agencies, but may deliver required information to the Rating Agencies to the extent set forth in this prospectus.
The ISA will provide that the ISA may be amended to change the procedures regarding compliance with Rule 17g-5 without any Noteholder consent; provided that notice of any such amendment must be provided to the 17g-5 Information Provider (who will post such notice to the 17g-5 Information Provider’s website) and to the note administrator (which will post such report to the note administrator’s website).
To the extent required under the ISA, in the event a rating agency confirmation is required by the applicable rating agencies that any action under any Mortgage Loan documents or the ISA will not result in the downgrade, withdrawal or qualification of any such rating agency’s then-current ratings of any securities related to a Companion Loan, then such rating agency confirmation may be considered satisfied in the same manner as described above with respect to any Rating Agency Confirmation from a Rating Agency.
Evidence as to Compliance
Each of the master servicer, the special servicer (regardless of whether the special servicer has commenced special servicing of a Mortgage Loan), [the custodian, the indenture trustee] and the note administrator will be required to furnish (and each such party will be required, with respect to each servicing function participant with which it has entered into a servicing relationship with respect to the Mortgage Loans, to cause (or, in the case of a sub-servicer that a mortgage loan seller requires the master servicer to retain, to use commercially reasonable efforts to cause) such servicing function participant to furnish) to the depositor, the note administrator, the indenture trustee and the 17g-5 Information Provider, an officer’s note of the officer responsible for the servicing activities of such party stating, among other things, that (i) a review of that party’s activities during the preceding calendar year or portion of that year and of performance under the ISA or any sub-servicing agreement in the case of an additional master servicer or special servicer, as applicable, has been made under such officer’s supervision and (ii) to the best of such officer’s knowledge, based on the review, such party has fulfilled all of its obligations under the ISA or the sub-servicing agreement in the case of an additional master servicer or special servicer, as applicable, in all material respects throughout the preceding calendar year or portion of such year, or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status of the failure.
In addition, each of the master servicer, the special servicer (regardless of whether the special servicer has commenced special servicing of any Mortgage Loan), the indenture trustee, the custodian, the note administrator and the operating advisor, each at its own expense, will be required to furnish (and each such party will be required, with respect to each servicing function participant with which it has entered into a servicing relationship with respect to the Mortgage Loans, to cause (or, in the case of a sub-servicer that a mortgage loan seller requires the master servicer to retain, to use commercially reasonable efforts to cause) such servicing function participant to furnish) to the indenture trustee, the note administrator, the 17g-5 Information Provider and the depositor (and, with respect to the special servicer, also to the operating advisor) a report (an “Assessment of Compliance”) assessing compliance by that party with the servicing criteria set forth in Item 1122(d) of Regulation AB (as described below) under the Securities Act of 1933, as amended (the “Securities Act”) that contains the following:
| • | a statement of the party’s responsibility for assessing compliance with the servicing criteria set forth in Item 1122 of Regulation AB applicable to it; |
| • | a statement that the party used the criteria in Item 1122(d) of Regulation AB to assess compliance with the applicable servicing criteria; |
| • | the party’s assessment of compliance with the applicable servicing criteria during and as of the end of the fiscal year, covered by the Form 10-K required to be filed pursuant to the ISA setting forth any material instance of noncompliance identified by the party, a discussion of each such failure and the nature and status of such failure; and |
| • | a statement that a registered public accounting firm has issued an attestation report (an “Attestation Report”) on the party’s assessment of compliance with the applicable servicing criteria during and as of the end of the prior fiscal year. |
Each party that is required to deliver an Assessment of Compliance will also be required to simultaneously deliver an Attestation Report of a registered public accounting firm, prepared in accordance with the standards for attestation engagements issued or adopted by the public company accounting oversight board, that expresses an opinion, or states that an opinion cannot be expressed (and the reasons for this), concerning the party’s assessment of compliance with the applicable servicing criteria set forth in Item 1122(d) of Regulation AB.
With respect to any Non-Serviced Whole Loan, each of the Non-Serviced Master Servicer, the Non-Serviced Special Servicer, the [Non-Serviced Indenture Trustee] and the Non-Serviced Note Administrator will have obligations under the related Non-Serviced Servicing Agreement similar to those described above.
“Regulation AB” means subpart 229.1100 – Asset Backed Securities (Regulation AB), 17 C.F.R. §§229.1100–229.1125, as such may be amended from time to time, and subject to such clarification and interpretation as have been provided by the SEC or by the staff of the SEC, or as may be provided by the SEC or its staff from time to time.
Limitation on Rights of Noteholders to Institute a Proceeding
Other than with respect to any rights described under “—The Asset Representations Reviewer—Asset Review” and “—Dispute Resolution Provisions”, no Noteholder will have any right under the ISA to institute any proceeding with respect to the ISA or with respect to the notes, unless the holder previously has given to the indenture trustee and the note administrator written notice of default and the continuance of the default and unless the holders of notes of any class evidencing not less than 25% of the aggregate Percentage Interests constituting the class have made written request upon the indenture trustee to institute a proceeding in its own name (as indenture trustee) and have offered to the indenture trustee reasonable indemnity satisfactory to it, and the indenture trustee for 60 days after receipt of the request and indemnity has neglected or refused to institute the proceeding. However, the indenture trustee will be under no obligation to exercise any of the trusts or powers vested in it by the ISA or the notes or to institute, conduct or defend any related litigation at the request, order or direction of any of the Noteholders, unless the Noteholders have offered to the indenture trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred as a result.
Amendment
The ISA may be amended by the parties to the ISA, without the consent of any of the holders of notes or holders of any Companion Loan or Owned Subordinate Companion Loan:
(a) to correct any defect or ambiguity in the ISA;
(b) to cause the provisions in the ISA to conform or be consistent with or in furtherance of the statements made in the prospectus (or in an offering document for any related non-offered notes) with respect to the notes, the issuing entity or the ISA or to correct or supplement any of its provisions which may be defective or inconsistent with any other provisions in the ISA or to correct any error;
(c) to change the timing and/or nature of deposits in the Collection Account, the Payment Accounts or any REO Account, provided that (A) the Remittance Date will in no event be later than the business day prior to the related Payment Date and (B) the change would not adversely affect in any material respect the interests of any Noteholder, as evidenced in writing by an opinion of counsel at the expense of the party requesting such amendment or as evidenced by a Rating Agency Confirmation from each of the Rating Agencies with respect to such amendment;
(d) to modify, eliminate or add to any of its provisions to restrict (or to remove any existing restrictions with respect to) the transfer of the [Subordinate Notes];
(e) to revise or add any other provisions with respect to matters or questions arising under the ISA or any other change, provided that the required action will not adversely affect in any material respect the interests of any Noteholder or any holder of a Serviced Pari Passu Companion Loan or Owned Subordinate Companion Loan not consenting to such revision or addition, as evidenced in writing by an opinion of counsel at the expense of the party requesting such amendment or as evidenced by a Rating Agency Confirmation from each of the Rating Agencies with respect to such amendment or supplement and confirmation of the applicable rating agencies that such action will not result in the downgrade, withdrawal or qualification of its then-current ratings of any securities related to a Companion Loan, if any (provided that such rating agency confirmation may be considered satisfied in the same manner as any Rating Agency Confirmation may be considered satisfied with respect to the notes as described in this prospectus);
(f) to amend or supplement any provision of the ISA to the extent necessary to maintain the then-current ratings assigned to each class of Offered Notes by each Rating Agency, as evidenced
by a Rating Agency Confirmation from each of the Rating Agencies and confirmation of the applicable rating agencies that such action will not result in the downgrade, withdrawal or qualification of its then-current ratings of any securities related to a Companion Loan, if any (provided that such rating agency confirmation may be considered satisfied in the same manner as any Rating Agency Confirmation may be considered satisfied with respect to the notes as described in this prospectus); provided that such amendment or supplement would not adversely affect in any material respect the interests of any Noteholder not consenting to such amendment or supplement, as evidenced by an opinion of counsel;
(g) to modify the provisions of the ISA with respect to reimbursement of Nonrecoverable Advances and Workout-Delayed Reimbursement Amounts if (a) the depositor, the master servicer, the indenture trustee and, for so long as a Control Termination Event has not occurred and is not continuing, the Directing Holder, determine that the commercial mortgage-backed securities industry standard for such provisions has changed, in order to conform to such industry standard and (b) a Rating Agency Confirmation and confirmation of the applicable rating agencies that such action will not result in the downgrade, withdrawal or qualification of its then-current ratings of any securities related to a Serviced Pari Passu Companion Loan, if any (provided that such rating agency confirmation may be considered satisfied in the same manner as any Rating Agency Confirmation may be considered satisfied with respect to the notes as described in this prospectus);
(h) to modify the procedures set forth in the ISA relating to compliance with Rule 17g-5, provided that the change would not adversely affect in any material respect the interests of any Noteholder, as evidenced by (A) an opinion of counsel or (B) if any note is then rated, receipt of Rating Agency Confirmation from each Rating Agency rating such notes; and provided, further, that the note administrator must give notice of any such amendment to the 17g-5 Information Provider for posting on the 17g-5 Information Provider’s website and the note administration must post such notice to its website;
(i) to effect the qualification of the indenture and servicing agreement under the Trust Indenture Act of 1939, as amended; or
(j) to take any action commercially reasonably necessary or advisable as required for the Issuing Entity to comply with the requirements of FATCA; or to prevent the Issuing Entity from failing to qualify as a Qualified REIT Subsidiary or other disregarded entity of a REIT for U.S. federal income tax purposes, or to prevent the Issuer, the holders of the notes, the holders of the Membership Interests or the indenture trustee from being subject to withholding or other taxes, fees or assessments or from otherwise being subject to U.S. federal, state, local or foreign income or franchise tax on a net income basis.
The ISA may also be amended by the parties to the ISA with the consent of the holders of notes of each class affected by such amendment evidencing, in each case, a majority of the aggregate Percentage Interests constituting the class for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the ISA or of modifying in any manner the rights of the holders of the notes, except that the amendment may not directly (1) reduce in any manner the amount of, or delay the timing of, payments received on the Mortgage Loans or Owned Subordinate Companion Loan that are required to be distributed on a note of any class without the consent of the holder of such note or which are required to be distributed to a holder of a Companion Loan without the consent of such holder, (2) reduce the aforesaid percentage of notes of any class the holders of which are required to consent to the amendment or remove the requirement to obtain consent of any holder of a Companion Loan or holder of the [LOAN-SPECIFIC CLASS] notes, without the consent of the holders of all notes of that class then-outstanding or such holder of the related Companion Loan, (3) adversely affect the Voting Rights of any class of notes, without the consent of the holders of all notes of that class then-outstanding, (4) change in any manner any defined term used in any MLPA or the obligations or rights of any mortgage loan seller under any MLPA without the consent of the applicable mortgage loan seller, or (5) amend the Servicing Standard without, in each case, the consent of 100% of the holders of notes or a Rating Agency Confirmation by each Rating Agency and confirmation of the applicable rating agencies that such action will not result in the downgrade, withdrawal or qualification of its then-current ratings of
any securities related to a Companion Loan, if any (provided that such rating agency confirmation may be considered satisfied in the same manner as any Rating Agency Confirmation may be considered satisfied with respect to the notes as described in this prospectus).
Notwithstanding the foregoing, no amendment to the ISA may be made that changes in any manner the obligations of any mortgage loan seller under any MLPA or the rights of any mortgage loan seller, including as a third party beneficiary, under the ISA, without the consent of such mortgage loan seller. In addition, no amendment to the ISA may be made that changes in any material respect the rights of the [LOAN-SPECIFIC CLASS] notes without the consent of the holders of such class. In addition, no amendment to the ISA may be made that changes any provisions specifically required to be included in the ISA by the Non-Serviced Intercreditor Agreement or the Non-Serviced Intercreditor Agreement without the consent of the holder of the Non-Serviced Companion Loan.
Also, notwithstanding the foregoing, no party will be required to consent to any amendment to the ISA without the indenture trustee, the note administrator, the master servicer, the special servicer, the asset representations reviewer and the operating advisor having first received an opinion of counsel (at the issuing entity’s expense) to the effect that the amendment does not conflict with the terms of the ISA. Further, the ISA shall not be amended (i) if such action would adversely affect the tax treatment of the Offered Notes as indebtedness, cause the Issuing Entity to be a taxable entity or constitute an event requiring a beneficial owner of an Offered Note to recognize gain or loss for U.S. federal income tax purposes, and (ii) unless the indenture trustee and the note administrator have received an opinion of counsel from Cadwalader, Wickersham & Taft LLP, or another nationally recognized tax counsel, to the effect that upon the execution of such amendment the Issuing Entity will continue to be treated as a Qualified REIT Subsidiary or other disregarded entity of a REIT for U.S. federal income tax purposes. Furthermore, no amendment to the ISA may be made that changes in any material respect to the rights of any class of loan-specific notes without the consent of such class.
Resignation and Removal of the Indenture Trustee and the Note Administrator
Each of the indenture trustee and the note administrator will at all times be, and will be required to resign if it fails to be, (i) a corporation, national bank, national banking association or a trust company, organized and doing business under the laws of any state or the United States of America, authorized under such laws to exercise corporate trust powers and to accept the trust conferred under the ISA, having a combined capital and surplus of at least $[100,000,000] and subject to supervision or examination by federal or state authority and, in the case of the indenture trustee, will not be an affiliate of the master servicer or the special servicer (except during any period when the indenture trustee is acting as, or has become successor to, the master servicer or the special servicer, as the case may be), (ii) an institution insured by the Federal Deposit Insurance Corporation, (iii) an institution whose long-term senior unsecured debt is rated at least [INSERT APPLICABLE RATINGS REQUIREMENTS], or such other rating with respect to which the Rating Agencies have provided a Rating Agency Confirmation, and (iv) an entity that is not on the depositor’s “prohibited party” list.
The indenture trustee and the note administrator will be also permitted at any time to resign from their obligations and duties under the ISA by giving written notice (which notice will be posted to the note administrator’s website pursuant to the ISA) to the depositor, the master servicer, the special servicer, the indenture trustee or the note administrator, as applicable, all Noteholders, the operating advisor, the asset representations reviewer and the 17g-5 Information Provider (who will promptly post such notice to the 17g-5 Information Provider’s website). Upon receiving this notice of resignation, the depositor will be required to use its reasonable best efforts to promptly appoint a successor indenture trustee or note administrator acceptable to the master servicer and, prior to the occurrence and continuance of a Control Termination Event, the Directing Holder. If no successor indenture trustee or note administrator has accepted an appointment within 30 days after the giving of notice of resignation, the resigning indenture trustee or note administrator, as applicable, may petition any court of competent jurisdiction to appoint a successor indenture trustee or note administrator, as applicable.
If at any time the indenture trustee or note administrator ceases to be eligible to continue as indenture trustee or note administrator, as applicable, under the ISA, and fails to resign after written request therefor by the depositor or the master servicer, or if at any time the indenture trustee or note administrator becomes incapable of acting, or if certain events of, or proceedings in respect of, bankruptcy or insolvency occur with respect to the indenture trustee or note administrator, or if the indenture trustee or note administrator fails to timely publish any report to be delivered, published, or otherwise made available by the note administrator pursuant to the ISA, and such failure continues unremedied for a period of five (5) days, or if the note administrator fails to make payments required pursuant to the ISA, the depositor will be authorized to remove the indenture trustee or note administrator, as applicable, and appoint a successor indenture trustee or note administrator acceptable to the master servicer.
In addition, holders of the notes entitled to at least [50]% of the Voting Rights may at any time, with or without cause, remove the indenture trustee or note administrator under the ISA and appoint a successor indenture trustee or note administrator. In the event that holders of the notes entitled to at least [50]% of the Voting Rights elect to remove the indenture trustee or note administrator without cause and appoint a successor, the successor indenture trustee or note administrator, as applicable, will be responsible for all expenses necessary to effect the transfer of responsibilities from its predecessor. In addition, following any Event of Default of the indenture trustee or the note administrator under the ISA, if such Event of Default has not been cured or waived, (i) the indenture trustee and the note administrator, as applicable, will each be subject to termination by the issuing entity with the consent of the Directing Holder so long as no Control Termination Event with respect to the Class [__] notes has occurred and is continuing or (ii) a majority of the Senior Controlling Class or any Noteholder may, on behalf of himself and all others similarly situated, petition, at the expense of the issuing entity, any court of competent jurisdiction for the removal of the indenture trustee or the note administrator, as the case may be, and the appointment of a successor thereto.
Any resignation or removal of the indenture trustee or note administrator and appointment of a successor indenture trustee or note administrator will not become effective until (i) acceptance of appointment by the successor indenture trustee or note administrator, as applicable, and (ii) the note administrator files any required Form 8-K. Further, the resigning indenture trustee or note administrator, as the case may be, must pay all costs and expenses associated with the transfer of its duties.
The ISA will prohibit the appointment of the asset representations reviewer or one of its affiliates as successor to the indenture trustee or note administrator.
Governing Law; Waiver of Jury Trial; and Consent to Jurisdiction
The ISA will be governed by the laws of the State of New York. Each party to the ISA will waive its respective right to a jury trial for any claim or cause of action based upon or arising out of or related to the ISA or notes. Additionally each party to the ISA will consent to the jurisdiction of any New York State and Federal courts sitting in New York City with respect to matters arising out of or related to the ISA.
[Description of the Derivative Instrument]
[THE FOLLOWING IS AN EXAMPLE OF THE DISCLOSURE THAT MAY BE PROVIDED IN A PROSPECTUS FOR A DERIVATIVE INSTRUMENT THAT PROVIDES FOR FLOATING RATE INTEREST PAYMENTS IN EXCHANGE FOR FIXED RATE INTEREST PAYMENTS FOR A PARTICULAR CLASS OF NOTES.]
General
Because the interest rate on the Class [ ] notes will be floating while the Mortgage Loans are fixed rate obligations, the issuing entity may enter into an interest rate swap contract (the “Swap Contract”) with [_____], a [__________] (the “Swap Counterparty”), to mitigate the risk associated with an increase in the floating interest rate of the Class [ ] notes. The assets of the issuing entity, which will be pledged to the
indenture trustee, include the issuing entity’s rights under the Swap Contract and payments made by the Swap Counterparty under the Swap Contract.
The initial notional amount of the Swap Contract will equal the aggregate initial Principal Balance of the Class [ ] notes and the notional amount will decrease to the extent of any decrease in the Principal Balance of the Class [__] notes. The Swap Contract will have an expiration date of the payment date in [_____] (the same date as the Stated Maturity Date for the Class [__] notes) unless it has already terminated. Under the Swap Contract, the Swap Counterparty will be obligated to pay to the issuing entity on the business day prior to each Payment Date interest accrued on the notional amount of the Swap Contract [at one-month LIBOR] [or other applicable interest rate] (determined as described in this prospectus) + [__]% (based on the actual number of days in the interest accrual period for the notes and a 360-day year). The issuing entity will be obligated to pay to the Swap Counterparty, on that day, interest accrued on the notional amount of the Swap Contract at a fixed interest rate of [__]% per annum.
Payments under the Swap Contract will be made on a net basis between the issuing entity and the Swap Counterparty. Any net amounts payable by the issuing entity to the Swap Counterparty on any Payment Date will be deducted from collections on the Mortgage Loans for the related Collection Period prior to making any payments of principal of the notes.
The calculation agent as defined in the Swap Contract will be [___________].
The respective obligations of the Swap Counterparty and the issuing entity to pay certain amounts due under the Swap Contract will be subject to the following conditions precedent: (i) no Swap Event of Default (as described below under “—Defaults Under Swap Contract”) or event that with the giving of notice or lapse of time or both would become an Event of Default has occurred and is continuing and (ii) no Swap Termination Event (as described below under “—Swap Termination Events”) has occurred or been effectively designated.
Defaults Under Swap Contract
Among other things, events of default under the Swap Contract (each, a “Swap Event of Default”) include:
| • | failure to make payments due under the Swap Contract; |
| • | the occurrence of certain bankruptcy events of the issuing entity or bankruptcy and insolvency events of the Swap Counterparty; |
| • | any breach of the Swap Contract or related agreements by the Swap Counterparty; |
| • | any misrepresentation by the Swap Counterparty; certain cross-defaults by the Swap Counterparty; or |
| • | a merger by the issuing entity or the Swap Counterparty without assumption of its obligations under the Swap Contract. |
Swap Termination Events
Among other things, termination events under the Swap Contract (each a “Swap Termination Event”) include:
| • | illegality of the transactions contemplated by the Swap Contract; any early redemption or prepayment of the notes, acceleration of the notes or liquidation of the assets of the issuing entity following an Event of Default, or upon the redemption or prepayment of the notes for any other reason; |
| • | certain tax events that would affect the ability of either party to make payments to the other without withholding taxes, that occur because of a change in tax law or a merger or consolidation of either party; |
| • | an amendment to the ISA or certain other agreements that is materially adverse to the Swap Counterparty is made without the approval of the Swap Counterparty where such approval is required; or |
| • | failure of the Swap Counterparty (or its credit support provider, if any) to maintain its credit ratings at certain levels required by the Swap Contract, which failure may not constitute a termination event if the Swap Counterparty: |
| • | at its own expense, obtains an unconditional guarantee from a guarantor with the appropriate credit rating, provided that certain criteria are satisfied; |
| • | assigns its rights and obligations under the Swap Contract to a substitute Swap Counterparty that satisfies the eligibility criteria set forth in the Swap Contract. |
Significance Percentage
The “significance percentage” with respect to the Swap Contract is [less than 10%] [at least 10% but less than 20%] [20% or more]. “Significance Percentage” means the percentage that the amount of the “significance estimate” (as described below) represents of the [initial aggregate Principal Balance of the Class [__] notes] [the Initial Pool Balance]. The “significance estimate” has been determined based on a reasonable good faith estimate of maximum probable exposure, made in substantially the same manner as that used in the internal risk management process of each sponsor in respect of similar interest rate swap agreements.
Termination Payments
The Swap Counterparty will be required to pay termination amounts, if any are payable pursuant to the Swap Contract, to the issuing entity if an event of default or an early termination date under the Swap Contract occurs under the Swap Contract and the Swap Counterparty is the sole defaulting party or the sole affected party as contemplated under the Swap Contract. No other termination amounts will be payable by either party under the Swap Contract.
Modification and Amendment of Swap Contract
The Swap Contract may be amended, modified or waived only in writing by the Swap Counterparty and the issuing entity, with the written consent of the Rating Agencies. Any such amendment shall be deemed not to adversely affect in any material respect the interests of any noteholder if the indenture trustee has received a letter from each Rating Agency to the effect that such Rating Agency will not qualify, reduce or withdraw the rating it has currently assigned to any class of notes as a result of such amendment.
The Swap Counterparty
[The Swap Counterparty is an affiliate of [_____], one of the underwriters,] and a wholly-owned, unregulated single purpose subsidiary of [_____]. The principal executive offices of the Swap Counterparty are located at [_____], telephone number [_____].
The Swap Counterparty conducts business in the over-the-counter derivatives market, writing a variety of derivative instruments, including interest rate swaps, currency swaps, credit default swaps and interest rate options with institutional clients. The obligations of the Swap Counterparty under its derivative instruments are guaranteed by [_____]. As of [_____] 20[__], [_____] has a long-term debt
rating of “[__]” by [specify rating agency], “[__]”by [specify rating agency] and “[__]” by [specify rating agency] and a short-term debt rating of “[__]” by [specify rating agency], “[__]” by [specify rating agency] and “[__]” by [specify rating agency]. [Include the following if financial statements of [_____] are required by Item 1115 of Regulation AB.] [The consolidated financial statements of [_____] included in, or as exhibits to, the following documents filed by [_____] with the SEC, are hereby incorporated by reference in this prospectus:
| • | Annual Report on Form 10-K for the year ended [_____]; |
| • | Quarterly Report on Form 10-Q for the period ended [_____]; |
In addition, all financial statements of [_____] included in, or as exhibits to, documents filed by [_____] pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the offering of the Offered Notes and prior to the termination of the offering are deemed incorporated by reference into this prospectus.]]
Certain Legal Aspects of Mortgage Loans
The following discussion contains general summaries of certain legal aspects of mortgage loans secured by commercial and multifamily residential properties. Because such legal aspects are governed by applicable local law (which laws may differ substantially), the summaries do not purport to be complete, to reflect the laws of any particular jurisdiction, or to encompass the laws of all jurisdictions in which the security for the mortgage loans is situated. [IF 10% OF MORTGAGE LOANS, BY OUTSTANDING BALANCE, ARE SECURED BY PROPERTIES IN A PARTICULAR JURISDICTION, RELEVANT LOCAL LAWS, TO THE EXTENT THEY VARY MATERIALLY FROM THIS DISCUSSION, WILL BE DISCUSSED IN THIS PROSPECTUS.]
General
Each mortgage loan will be evidenced by a promissory note and secured by an instrument granting a security interest in real property, which may be a mortgage, deed of trust or a deed to secure debt, depending upon the prevailing practice and law in the state in which the related mortgaged property is located. Mortgages, deeds of trust and deeds to secure debt are in this prospectus collectively referred to as “mortgages”. A mortgage creates a lien upon, or grants a title interest in, the real property covered thereby, and represents the security for the repayment of the indebtedness customarily evidenced by a promissory note. The priority of the lien created or interest granted will depend on the terms of the mortgage and, in some cases, on the terms of separate subordination agreements or intercreditor agreements with others that hold interests in the real property, the knowledge of the parties to the mortgage and, generally, the order of recordation of the mortgage in the appropriate public recording office. However, the lien of a recorded mortgage will generally be subordinate to later-arising liens for real estate taxes and assessments and other charges imposed under governmental police powers.
Types of Mortgage Instruments
There are two parties to a mortgage: a mortgagor (the borrower and usually the owner of the applicable property) and a mortgagee (the lender). In contrast, a deed of trust is a three-party instrument, among a trustor (the equivalent of a borrower), a indenture trustee to whom the real property is conveyed, and a beneficiary (the lender) for whose benefit the conveyance is made. Under a deed of trust, the trustor grants the property, irrevocably until the debt is paid, in trust and generally with a power of sale, to the indenture trustee to secure repayment of the indebtedness evidenced by the related note. A deed to secure debt typically has two parties, pursuant to which the borrower, or grantor, conveys title to the real property to the grantee, or lender generally with a power of sale, until such time as the debt is repaid. In a case where the borrower is a land trust, there would be an additional party because legal title to the property is held by a land indenture trustee under a land trust agreement for the benefit of the borrower. At origination of a mortgage loan involving a land trust, the borrower may execute a separate undertaking to make payments on the promissory note. The land indenture trustee would not be personally liable for
the promissory note obligation. The mortgagee’s authority under a mortgage, the indenture trustee’s authority under a deed of trust and the grantee’s authority under a deed to secure debt are governed by the express provisions of the related instrument, the law of the state in which the real property is located, certain federal laws and, in some deed of trust transactions, the directions of the beneficiary.
Leases and Rents
Mortgages that encumber income-producing property often contain an assignment of rents and leases, and/or may be accompanied by a separate assignment of rents and leases, pursuant to which the borrower assigns to the lender the borrower’s right, title and interest as landlord under each lease and the income derived from the lease, while (unless rents are to be paid directly to the lender) retaining a revocable license to collect the rents for so long as there is no default. If the borrower defaults, the license terminates and the lender is entitled to collect the rents. Local law may require that the lender take possession of the property and/or obtain a court-appointed receiver before becoming entitled to collect the rents.
In most states, hotel property and motel room rates are considered accounts receivable under the Uniform Commercial Code (“UCC”). In cases where hotel properties or motels constitute loan security, the revenues are generally pledged by the borrower as additional security for the loan. In general, the lender must file financing statements in order to perfect its security interest in the room revenues and must file continuation statements, generally every five years, to maintain perfection of such security interest. In certain cases, mortgage loans secured by hotel properties or motels may be included in the issuing entity even if the security interest in the room revenues was not perfected. Even if the lender’s security interest in room revenues is perfected under applicable nonbankruptcy law, it will generally be required to commence a foreclosure action or otherwise take possession of the property in order to enforce its rights to collect the room revenues following a default. In the bankruptcy setting, however, the lender will be stayed from enforcing its rights to collect room revenues, but those room revenues constitute “cash collateral” and therefore generally cannot be used by the bankruptcy debtor without a hearing or lender’s consent or unless the lender’s interest in the room revenues is given adequate protection (e.g., cash payment for otherwise encumbered funds or a replacement lien on unencumbered property, in either case in value equivalent to the amount of room revenues that the debtor proposes to use, or other similar relief). See “—Bankruptcy Laws” below.
Personalty
In the case of certain types of mortgaged properties, such as hotel properties, motels, nursing homes and manufactured housing, personal property (to the extent owned by the borrower and not previously pledged) may constitute a significant portion of the property’s value as security. The creation and enforcement of liens on personal property are governed by the UCC. Accordingly, if a borrower pledges personal property as security for a mortgage loan, the lender generally must file UCC financing statements in order to perfect its security interest in that personal property, and must file continuation statements, generally every five years, to maintain that perfection. Certain mortgage loans secured in part by personal property may be included in the issuing entity even if the security interest in such personal property was not perfected.
Foreclosure
General
Foreclosure is a legal procedure that allows the lender to recover its mortgage debt by enforcing its rights and available legal remedies under the mortgage. If the borrower defaults in payment or performance of its obligations under the promissory note or mortgage, the lender has the right to institute foreclosure proceedings to sell the real property at public auction to satisfy the indebtedness.
Foreclosure Procedures Vary from State to State
Two primary methods of foreclosing a mortgage are judicial foreclosure, involving court proceedings, and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage instrument. Other foreclosure procedures are available in some states, but they are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other lawsuits if defenses are raised or counterclaims are interposed, and sometimes requires several years to complete.
See also “Risk Factors—Risks Relating to the Mortgage Loans—Risks Associated with One Action Rules”.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having jurisdiction over the mortgaged property. Generally, the action is initiated by the service of legal pleadings upon all parties having a subordinate interest of record in the real property and all parties in possession of the property, under leases or otherwise, whose interests are subordinate to the mortgage. Delays in completion of the foreclosure may occasionally result from difficulties in locating defendants. When the lender’s right to foreclose is contested, the legal proceedings can be time-consuming. Upon successful completion of a judicial foreclosure proceeding, the court generally issues a judgment of foreclosure and appoints a referee or other officer to conduct a public sale of the mortgaged property, the proceeds of which are used to satisfy the judgment. Such sales are made in accordance with procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable principles to limit the remedies available to lenders in foreclosure actions. These principles are generally designed to relieve borrowers from the effects of mortgage defaults perceived as harsh or unfair. Relying on such principles, a court may alter the specific terms of a loan to the extent it considers necessary to prevent or remedy an injustice, undue oppression or overreaching, or may require the lender to undertake affirmative actions to determine the cause of the borrower’s default and the likelihood that the borrower will be able to reinstate the loan. In some cases, courts have substituted their judgment for the lender’s and have required that lenders reinstate loans or recast payment schedules in order to accommodate borrowers who are suffering from a temporary financial disability. In other cases, courts have limited the right of the lender to foreclose in the case of a nonmonetary default, such as a failure to adequately maintain the mortgaged property or an impermissible further encumbrance of the mortgaged property. Finally, some courts have addressed the issue of whether federal or state constitutional provisions reflecting due process concerns for adequate notice require that a borrower receive notice in addition to statutorily-prescribed minimum notice. For the most part, these cases have upheld the reasonableness of the notice provisions or have found that a public sale under a mortgage providing for a power of sale does not involve sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the right of the borrower to reinstate a mortgage loan after commencement of foreclosure proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale
In states permitting nonjudicial foreclosure proceedings, foreclosure of a deed of trust is generally accomplished by a nonjudicial indenture trustee’s sale pursuant to a power of sale typically granted in the deed of trust. A power of sale may also be contained in any other type of mortgage instrument if applicable law so permits. A power of sale under a deed of trust allows a nonjudicial public sale to be conducted generally following a request from the beneficiary/lender to the indenture trustee to sell the property upon default by the borrower and after notice of sale is given in accordance with the terms of the deed of trust and applicable state law. In some states, prior to such sale, the indenture trustee under the
deed of trust must record a notice of default and notice of sale and send a copy to the borrower and to any other party who has recorded a request for a copy of a notice of default and notice of sale. In addition, in some states the indenture trustee must provide notice to any other party having an interest of record in the real property, including junior lienholders. A notice of sale must be posted in a public place and, in most states, published for a specified period of time in one or more newspapers. The borrower or junior lienholder may then have the right, during a reinstatement period required in some states, to cure the default by paying the entire actual amount in arrears (without regard to the acceleration of the indebtedness), plus the lender’s expenses incurred in enforcing the obligation. In other states, the borrower or the junior lienholder is not provided a period to reinstate the loan, but has only the right to pay off the entire debt to prevent the foreclosure sale. Generally, state law governs the procedure for public sale, the parties entitled to notice, the method of giving notice and the applicable time periods.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a public sale because of the difficulty in determining the exact status of title to the property (due to, among other things, redemption rights that may exist) and because of the possibility that physical deterioration of the mortgaged property may have occurred during the foreclosure proceedings. Potential buyers may also be reluctant to purchase mortgaged property at a foreclosure sale as a result of the 1980 decision of the United States Court of Appeals for the Fifth Circuit in Durrett v. Washington National Insurance Co., 621 F.2d 2001 (5th Cir. 1980) and other decisions that have followed its reasoning. The court in Durrett held that even a non-collusive, regularly conducted foreclosure sale was a fraudulent transfer under the federal bankruptcy code and, thus, could be rescinded in favor of the bankrupt’s estate, if (1) the foreclosure sale was held while the debtor was insolvent and not more than one year prior to the filing of the bankruptcy petition and (2) the price paid for the foreclosed property did not represent “fair consideration”, which is “reasonably equivalent value” under the federal bankruptcy code. Although the reasoning and result of Durrett in respect of the federal bankruptcy code was rejected by the United States Supreme Court in BFP v. Resolution Trust Corp., 511 U.S. 531 (1994), the case could nonetheless be persuasive to a court applying a state fraudulent conveyance law which has provisions similar to those construed in Durrett. Therefore, it is common for the lender to purchase the mortgaged property for an amount equal to the secured indebtedness and accrued and unpaid interest plus the expenses of foreclosure, in which event the borrower’s debt will be extinguished, or for a lesser amount in order to preserve its right to seek a deficiency judgment if such is available under state law and under the terms of the mortgage loan documents. Thereafter, subject to the borrower’s right in some states to remain in possession during a redemption period, the lender will become the owner of the property and have both the benefits and burdens of ownership, including the obligation to pay debt service on any senior mortgages, to pay taxes, to obtain casualty insurance and to make such repairs as are necessary to render the property suitable for sale. Frequently, the lender employs a third-party management company to manage and operate the property. The costs of operating and maintaining a property may be significant and may be greater than the income derived from that property. The costs of management and operation of those mortgaged properties which are hotels, motels, restaurants, nursing or convalescent homes, hospitals or casinos may be particularly significant because of the expertise, knowledge and, with respect to certain property types, regulatory compliance, required to run those operations and the effect which foreclosure and a change in ownership may have on the public’s and the industry’s, including franchisors’, perception of the quality of those operations. The lender also will commonly obtain the services of a real estate broker and pay the broker’s commission in connection with the sale or lease of the property. Depending upon market conditions, the ultimate proceeds of the sale of a property may not equal the lender’s investment in the property. Moreover, a lender commonly incurs substantial legal fees and court costs in acquiring a mortgaged property through contested foreclosure and/or bankruptcy proceedings. Because of the expenses associated with acquiring, owning and selling a mortgaged property, a lender could realize an overall loss on a mortgage loan even if the mortgaged property is sold at foreclosure, or resold after it is acquired through foreclosure, for an amount equal to the full outstanding principal amount of the loan plus accrued interest.
Furthermore, an increasing number of states require that any environmental contamination at certain types of properties be cleaned up before a property may be resold. In addition, a lender may be
responsible under federal or state law for the cost of cleaning up a mortgaged property that is environmentally contaminated. See “—Environmental Considerations” below.
The holder of a junior mortgage that forecloses on a mortgaged property does so subject to senior mortgages and any other prior liens, and may be obliged to keep senior mortgage loans current in order to avoid foreclosure of its interest in the property. In addition, if the foreclosure of a junior mortgage triggers the enforcement of a “due-on-sale” clause contained in a senior mortgage, the junior mortgagee could be required to pay the full amount of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption
The purposes of a foreclosure action are to enable the lender to realize upon its security and to bar the borrower, and all persons who have interests in the property that are subordinate to that of the foreclosing lender, from exercise of their “equity of redemption”. The doctrine of equity of redemption provides that, until the property encumbered by a mortgage has been sold in accordance with a properly conducted foreclosure and foreclosure sale, those having interests that are subordinate to that of the foreclosing lender have an equity of redemption and may redeem the property by paying the entire debt with interest. Those having an equity of redemption must generally be made parties to and joined in the foreclosure proceeding in order for their equity of redemption to be terminated.
The equity of redemption is a common-law (nonstatutory) right which should be distinguished from post-sale statutory rights of redemption. In some states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the borrower and foreclosed junior lienors are given a statutory period in which to redeem the property. In some states, statutory redemption may occur only upon payment of the foreclosure sale price. In other states, redemption may be permitted if the former borrower pays only a portion of the sums due. The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed property because the exercise of a right of redemption would defeat the title of any purchaser through a foreclosure. Consequently, the practical effect of the redemption right is to force the lender to maintain the property and pay the expenses of ownership until the redemption period has expired. In some states, a post-sale statutory right of redemption may exist following a judicial foreclosure, but not following a indenture trustee’s sale under a deed of trust.
Anti-Deficiency Legislation
Some or all of the mortgage loans are nonrecourse loans, as to which recourse in the case of default will be limited to the mortgaged property and such other assets, if any, that were pledged to secure the mortgage loan. However, even if a mortgage loan by its terms provides for recourse to the borrower’s other assets, a lender’s ability to realize upon those assets may be limited by state law. For example, in some states a lender cannot obtain a deficiency judgment against the borrower following foreclosure or sale under a deed of trust.
A deficiency judgment is a personal judgment against the former borrower equal to the difference between the net amount realized upon the public sale of the real property and the amount due to the lender. Other statutes may require the lender to exhaust the security afforded under a mortgage before bringing a personal action against the borrower. In certain other states, the lender has the option of bringing a personal action against the borrower on the debt without first exhausting that security; however, in some of those states, the lender, following judgment on that personal action, may be deemed to have elected a remedy and thus may be precluded from foreclosing upon the security. Consequently, lenders in those states where such an election of remedy provision exists will usually proceed first against the security. Finally, other statutory provisions, designed to protect borrowers from exposure to large deficiency judgments that might result from bidding at below-market values at the foreclosure sale, limit any deficiency judgment to the excess of the outstanding debt over the fair market value of the property at the time of the sale.
Leasehold Considerations
Mortgage loans may be secured by a mortgage on the borrower’s leasehold interest in a ground lease. Leasehold mortgage loans are subject to certain risks not associated with mortgage loans secured by a lien on the fee estate of the borrower. The most significant of these risks is that if the borrower’s leasehold were to be terminated upon a lease default, the leasehold mortgagee would lose its security. This risk may be lessened if the ground lease requires the lessor to give the leasehold mortgagee notices of lessee defaults and an opportunity to cure them, permits the leasehold estate to be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure sale, and contains certain other protective provisions typically included in a “mortgageable” ground lease. Certain mortgage loans, however, may be secured by ground leases which do not contain these provisions.
In addition, where a lender has as its security both the fee and leasehold interest in the same property, the grant of a mortgage lien on its fee interest by the land owner/ground lessor to secure the debt of a borrower/ground lessee may be subject to challenge as a fraudulent conveyance. Among other things, a legal challenge to the granting of the liens may focus on the benefits realized by the land owner/ground lessor from the loan. If a court concluded that the granting of the mortgage lien was an avoidable fraudulent conveyance, it might take actions detrimental to the holders of the offered certificates, including, under certain circumstances, invalidating the mortgage lien on the fee interest of the land owner/ground lessor.
Cooperative Shares
Mortgage loans may be secured by a security interest on the borrower’s ownership interest in shares, and the related proprietary leases, allocable to cooperative dwelling units that may be vacant or occupied by non-owner tenants. Such loans are subject to certain risks not associated with mortgage loans secured by a lien on the fee estate of a borrower in real property. Such a loan typically is subordinate to the mortgage, if any, on the cooperative’s building which, if foreclosed, could extinguish the equity in the building and the proprietary leases of the dwelling units derived from ownership of the shares of the cooperative. Further, transfer of shares in a cooperative are subject to various regulations as well as to restrictions under the governing documents of the cooperative, and the shares may be cancelled in the event that associated maintenance charges due under the related proprietary leases are not paid. Typically, a recognition agreement between the lender and the cooperative provides, among other things, the lender with an opportunity to cure a default under a proprietary lease.
Under the laws applicable in many states, “foreclosure” on cooperative shares is accomplished by a sale in accordance with the provisions of Article 9 of the UCC and the security agreement relating to the shares. Article 9 of the UCC requires that a sale be conducted in a “commercially reasonable” manner, which may be dependent upon, among other things, the notice given the debtor and the method, manner, time, place and terms of the sale. Article 9 of the UCC provides that the proceeds of the sale will be applied first to pay the costs and expenses of the sale and then to satisfy the indebtedness secured by the lender’s security interest. A recognition agreement, however, generally provides that the lender’s right to reimbursement is subject to the right of the cooperative to receive sums due under the proprietary leases.
Bankruptcy Laws
Operation of the federal federal bankruptcy code in Title 11 of the United States Code, as amended from time to time (“Bankruptcy Code”) and related state laws may interfere with or affect the ability of a lender to obtain payment of a loan, realize upon collateral and/or to enforce a deficiency judgment. For example, under the Bankruptcy Code, virtually all actions (including foreclosure actions and deficiency judgment proceedings) are automatically stayed upon the filing of the bankruptcy petition, and, usually, no interest or principal payments are made during the course of the bankruptcy case. The delay and the consequences of a delay caused by an automatic stay can be significant. For example, the filing of a petition in bankruptcy by or on behalf of a junior mortgage lien holder may stay the senior lender from taking action to foreclose out such junior lien. At a minimum, the senior lender would suffer delay due to
its need to seek bankruptcy court approval before taking any foreclosure or other action that could be deemed in violation of the automatic stay under the Bankruptcy Code.
Under the Bankruptcy Code, a bankruptcy trustee, or a borrower as debtor-in-possession, may under certain circumstances sell the related mortgaged property or other collateral free and clear of all liens, claims, encumbrances and interests, which liens would then attach to the proceeds of such sale, despite the provisions of the related mortgage or other security agreement to the contrary. Such a sale may be approved by a bankruptcy court even if the proceeds are insufficient to pay the secured debt in full.
Under the Bankruptcy Code, provided certain substantive and procedural safeguards for a lender are met, the amount and terms of a mortgage or other security agreement secured by property of a debtor may be modified under certain circumstances. Pursuant to a confirmed plan of reorganization, lien avoidance or claim objection proceeding, the secured claim arising from a loan secured by real property or other collateral may be reduced to the then-current value of the property (with a corresponding partial reduction of the amount of lender’s security interest), thus leaving the lender a secured creditor to the extent of the then-current value of the property and a general unsecured creditor for the difference between such value and the outstanding balance of the loan. Such general unsecured claims may be paid less than 100% of the amount of the debt or not at all, depending upon the circumstances. Other modifications may include the reduction in the amount of each scheduled payment, which reduction may result from a reduction in the rate of interest and/or the alteration of the repayment schedule (with or without affecting the unpaid principal balance of the loan), and/or an extension (or reduction) of the final maturity date. Some courts have approved bankruptcy plans, based on the particular facts of the reorganization case, that effected the curing of a mortgage loan default by paying arrearages over a number of years. Also, under the Bankruptcy Code, a bankruptcy court may permit a debtor through its plan of reorganization to reinstate the loan even though the lender accelerated the mortgage loan and final judgment of foreclosure had been entered in state court (provided no sale of the property had yet occurred) prior to the filing of the debtor’s petition. This may be done even if the plan of reorganization does not provide for payment of the full amount due under the original loan. Thus, the full amount due under the original loan may never be repaid. Other types of significant modifications to the terms of a mortgage loan may be acceptable to the bankruptcy court, such as making distributions to the mortgage holder of property other than cash, or the substitution of collateral which is the “indubitable equivalent” of the real property subject to the mortgage, or the subordination of the mortgage to liens securing new debt (provided that the lender’s secured claim is “adequately protected” as such term is defined and interpreted under the Bankruptcy Code), often depending on the particular facts and circumstances of the specific case.
Federal bankruptcy law may also interfere with or otherwise adversely affect the ability of a secured mortgage lender to enforce an assignment by a borrower of rents and leases (which “rents” may include revenues from hotels and other lodging facilities specified in the Bankruptcy Code) related to a mortgaged property if the related borrower is in a bankruptcy proceeding. Under the Bankruptcy Code, a lender may be stayed from enforcing the assignment, and the legal proceedings necessary to resolve the issue can be time consuming and may result in significant delays in the receipt of the rents. Rents (including applicable hotel and other lodging revenues) and leases may also escape such an assignment, among other things, (i) if the assignment is not fully perfected under state law prior to commencement of the bankruptcy proceeding, (ii) to the extent such rents and leases are used by the borrower to maintain the mortgaged property, or for other court authorized expenses, (iii) to the extent other collateral may be substituted for the rents and leases, (iv) to the extent the bankruptcy court determines that the lender is adequately protected, or (v) to the extent the court determines based on the equities of the case that the post-petition rents are not subject to the lender’s pre-petition security interest.
Under the Bankruptcy Code, a security interest in real property acquired before the commencement of the bankruptcy case does not extend to income received after the commencement of the bankruptcy case unless such income is a proceed, product or rent of such property. Therefore, to the extent a business conducted on the mortgaged property creates accounts receivable rather than rents or results from payments under a license rather than payments under a lease, a valid and perfected pre-bankruptcy
lien on such accounts receivable or license income generally would not continue as to post-bankruptcy accounts receivable or license income.
The Bankruptcy Code provides that a lender’s perfected pre-petition security interest in leases, rents and hotel revenues continues in the post-petition leases, rents and hotel revenues, unless a bankruptcy court orders to the contrary “based on the equities of the case”. The equities of a particular case may permit the discontinuance of pre-petition security interests in post-petition leases and rents. Thus, unless a court orders otherwise, revenues from a mortgaged property generated after the date the bankruptcy petition is filed will constitute “cash collateral” under the Bankruptcy Code. Debtors may only use cash collateral upon obtaining the lender’s consent or a prior court order finding that the lender’s interest in the mortgaged hotel, motel or other lodging property and the cash collateral is “adequately protected” as the term is defined and interpreted under the Bankruptcy Code. In addition to post-petition rents, any cash held by a lender in a lockbox or reserve account generally would also constitute “cash collateral” under the Bankruptcy Code. So long as the lender is adequately protected, a debtor’s use of cash collateral may be for its own benefit or for the benefit of any affiliated entity group that is also subject to bankruptcy proceedings, including use as collateral for new debt. It should be noted, however, that the court may find that the lender has no security interest in either pre-petition or post-petition revenues if the court finds that the loan documents do not contain language covering accounts, room rents, or other forms of personalty necessary for a security interest to attach to such revenues.
The Bankruptcy Code provides generally that rights and obligations under an unexpired lease of the debtor/lessee may not be terminated or modified at any time after the commencement of a case under the Bankruptcy Code solely because of a provision in the lease to that effect or because of certain other similar events. This prohibition on so-called “ipso facto” clauses could limit the ability of a lender to exercise certain contractual remedies with respect to the leases on any mortgaged property. In addition, section 362 of the Bankruptcy Code operates as an automatic stay of, among other things, any act to obtain possession of property from a debtor’s estate, which may delay a lender’s exercise of those remedies, including foreclosure, in the event that a lessee becomes the subject of a proceeding under the Bankruptcy Code. Thus, the filing of a petition in bankruptcy by or on behalf of a lessee of a mortgaged property would result in a stay against the commencement or continuation of any state court proceeding for past due rent, for accelerated rent, for damages or for a summary eviction order with respect to a default under the related lease that occurred prior to the filing of the lessee’s petition. While relief from the automatic stay to enforce remedies may be requested, it can be denied for a number of reasons, including where the collateral is “necessary to an effective reorganization” for the debtor, and if a debtor’s case has been administratively consolidated with those of its affiliates, the court may also consider whether the property is “necessary to an effective reorganization” of the debtor and its affiliates, taken as a whole.
The Bankruptcy Code generally provides that a trustee in bankruptcy or debtor-in-possession may, with respect to an unexpired lease of non-residential real property, before the earlier of (i) 120 days after the filing of a bankruptcy case or (ii) the entry of an order confirming a plan, subject to approval of the court, (a) assume the lease and retain it or assign it to a third party or (b) reject the lease. If the trustee or debtor-in-possession fails to assume or reject the lease within the time specified in the preceding sentence, subject to any extensions by the bankruptcy court, the lease will be deemed rejected and the property will be surrendered to the lessor. The bankruptcy court may for cause shown extend the 120-day period up to 90 days for a total of 210 days. If the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the lessee as debtor-in-possession, or the assignee, if applicable, must cure any defaults under the lease, compensate the lessor for its losses and provide the lessor with “adequate assurance” of future performance. These remedies may be insufficient, however, as the lessor may be forced to continue under the lease with a lessee that is a poor credit risk or an unfamiliar tenant (if the lease was assigned), and any assurances provided to the lessor may, in fact, be inadequate. If the lease is rejected, the rejection generally constitutes a breach of the executory contract or unexpired lease as of the date immediately preceding the filing date of the bankruptcy petition. As a consequence, the other party or parties to the lease, such as the borrower, as lessor under a lease, generally would have only an unsecured claim against the debtor, as lessee, for damages resulting from the breach, which could adversely affect the security for the related mortgage loan. In addition, under the Bankruptcy Code, a
lease rejection damages claim is limited to the “(a) rent reserved by the lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of the date of the bankruptcy petition and the date on which the lessor regained possession of the real property, (b) plus any unpaid rent due under such lease, without acceleration, on the earlier of such dates”.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as debtor-in-possession, rejects an unexpired lease of real property, the lessee may treat the lease as terminated by the rejection or, in the alternative, the lessee may remain in possession of the leasehold for the balance of the term and for any renewal or extension of the term that is enforceable by the lessee under applicable non-bankruptcy law. The Bankruptcy Code provides that if a lessee elects to remain in possession after a rejection of a lease, the lessee may offset against rents reserved under the lease for the balance of the term after the date of rejection of the lease, and the related renewal or extension of the lease, any damages occurring after that date caused by the nonperformance of any obligation of the lessor under the lease after that date.
Similarly, bankruptcy risk is associated with an insolvency proceeding under the Bankruptcy Code of either a borrower ground lessee or a ground lessor. In general, upon the bankruptcy of a lessor or a lessee under a lease of nonresidential real property, including a ground lease, that has not been terminated prior to the bankruptcy filing date, the debtor entity has the statutory right to assume or reject the lease. Given that the Bankruptcy Code generally invalidates clauses that terminate contracts automatically upon the filing by one of the parties of a bankruptcy petition or that are conditioned on a party’s insolvency, following the filing of a bankruptcy petition, a debtor would ordinarily be required to perform its obligations under such lease until the debtor decides whether to assume or reject the lease. The Bankruptcy Code provides certain additional protections with respect to non-residential real property leases, such as establishing a specific timeframe in which a debtor must determine whether to assume or reject the lease. The bankruptcy court may extend the time to perform for up to 60 days for cause shown. Even if the agreements were terminated prior to bankruptcy, a bankruptcy court may determine that the agreement was improperly terminated and therefore remains part of the debtor’s bankruptcy estate. The debtor also can seek bankruptcy court approval to assume and assign the lease to a third party, and to modify the lease in connection with such assignment. In order to assume the lease, the debtor or assignee generally will have to cure outstanding defaults and provide “adequate assurance of future performance” in addition to satisfying other requirements imposed under the Bankruptcy Code. Under the Bankruptcy Code, subject to certain exceptions, once a lease is rejected by a debtor lessee, it is deemed breached, and the non-debtor lessor will have a claim for lease rejection damages, as described above.
If the ground lessor files for bankruptcy, it may determine until the confirmation of its plan of reorganization whether to reject the ground lease. On request of any party to the lease, the bankruptcy court may order the debtor to determine within a specific period of time whether to assume or reject the lease or to comply with the terms of the lease pending its decision to assume or reject. In the event of rejection, the non-debtor lessee will have the right to treat the lease as terminated by virtue of its terms, applicable nonbankruptcy law, or any agreement made by the lessee. The non-debtor lessee may also, if the lease term has begun, retain its rights under the lease, including its rights to remain in possession of the leased premises under the rent reserved in the lease for the balance of the term of the lease (including renewals). The term “lessee” includes any “successor, assign or mortgagee permitted under the terms of such lease”. If, pre-petition, the ground lessor had specifically granted the leasehold mortgagee such right, the leasehold mortgagee may have the right to succeed to the lessee/borrower’s position under the lease.
In the event of concurrent bankruptcy proceedings involving the ground lessor and the lessee/borrower, actions by creditors against the borrower/lessee debtor would be subject to the automatic stay, and a lender may be unable to enforce both (a) the bankrupt lessee’s/borrower’s pre-petition agreement to refuse to treat a ground lease rejected by a bankrupt lessor as terminated and to remain in possession of the property pursuant to the lease and (b) any agreement by the ground lessor to grant the lender a new lease upon such termination. In such circumstances, a lease could be terminated notwithstanding lender protection provisions contained in that lease or in the mortgage. A lender could lose its security unless the lender holds a fee mortgage or the bankruptcy court, as a court of equity,
allows the mortgagee to assume the ground lessee’s obligations under the ground lease and succeed to the ground lessee’s position. Although consistent with the Bankruptcy Code, such position may not be adopted by the bankruptcy court.
Further, in an appellate decision by the United States Court of Appeals for the Seventh Circuit (Precision Indus. v. Qualitech Steel SBQ, LLC, 327 F.3d 537 (7th Cir, 2003)), the court ruled with respect to an unrecorded lease of real property that where a statutory sale of leased property occurs under the Bankruptcy Code upon the bankruptcy of a landlord, that sale terminates a lessee’s possessory interest in the property, and the purchaser assumes title free and clear of any interest, including any leasehold estates. Pursuant to the Bankruptcy Code, a lessee may request the bankruptcy court to prohibit or condition the statutory sale of the property so as to provide adequate protection of the leasehold interest; however, the court ruled that, at least where a memorandum of lease had not been recorded, this provision does not ensure continued possession of the property, but rather entitles the lessee to compensation for the value of its leasehold interest, typically from the sale proceeds. As a result, we cannot assure you that, in the event of a statutory sale of leased property pursuant to the Bankruptcy Code, the lessee would be able to maintain possession of the property under the ground lease. In addition, we cannot assure you that a leasehold mortgagor and/or a leasehold mortgagee (to the extent it has standing to intervene) would be able to recover the full value of the leasehold interest in bankruptcy court.
Because of the possible termination of the related ground lease, whether arising from a bankruptcy, the expiration of a lease term or an uncured defect under the related ground lease, lending on a leasehold interest in a real property is riskier than lending on the fee interest in the property.
In a bankruptcy or similar proceeding involving a borrower, action may be taken seeking the recovery as a preferential transfer of any payments made by such borrower, or made directly by the related lessee, under the related mortgage loan to the issuing entity. Payments on long term debt may be protected from recovery as preferences if they qualify for the “ordinary course” exception under the Bankruptcy Code or if certain other defenses in the Bankruptcy Code are applicable. Whether any particular payment would be protected depends upon the facts specific to a particular transaction.
In addition, in a bankruptcy or similar proceeding involving any borrower or an affiliate, an action may be taken to avoid the transaction (or any component of the transaction, such as joint and several liability on the related mortgage loan) as an actual or constructive fraudulent conveyance under state or federal law. Any payment by a borrower in excess of its allocated share of the loan could be challenged as a fraudulent conveyance by creditors of that borrower in an action outside a bankruptcy case or by the representative of the borrower’s bankruptcy estate in a bankruptcy case. Generally, under federal and most state fraudulent conveyance statutes, the incurrence of an obligation or the transfer of property by a person will be subject to avoidance under certain circumstances if the person transferred such property with the intent to hinder, delay or defraud its creditors or the person did not receive fair consideration or reasonably equivalent value in exchange for such obligation or transfer and (i) was insolvent or was rendered insolvent by such obligation or transfer, (ii) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the person constituted unreasonably small capital, or (iii) intended to, or believed that it would, incur debts that would be beyond the person’s ability to pay as such debts matured. The measure of insolvency will vary depending on the law of the applicable jurisdiction. However, an entity will generally be considered insolvent if the present fair salable value of its assets is less than (x) the sum of its debts or (y) the amount that would be required to pay its probable liabilities on its existing debts as they become absolute and matured. Accordingly, in a multi-borrower loan transaction, a lien granted by one of the borrowers to secure repayment of the loan in excess of its allocated share of loan proceeds could be avoided if a court were to determine that (i) such borrower was insolvent at the time of granting the lien, was rendered insolvent by the granting of the lien, was left with inadequate capital, or was not able to pay its debts as they matured and (ii) such borrower did not, when it allowed its property to be encumbered by a lien securing the entire indebtedness represented by the loan, receive fair consideration or reasonably equivalent value for pledging such property for the equal benefit of each other borrower.
A bankruptcy court may, under certain circumstances, authorize a debtor to obtain credit after the commencement of a bankruptcy case, secured by, among other things, senior, equal or junior liens on property that is already subject to a lien. In the bankruptcy case of In re General Growth Properties, Inc. 409 B.R. 43 (Bankr. S.D.N.Y. 2009) filed on April 16, 2009, the debtors initially sought approval of a debtor-in-possession loan to the corporate parent entities guaranteed by the property-level single purpose entities and secured by second liens on their properties. Although the debtor-in-possession loan subsequently was modified to eliminate the subsidiary guarantees and second liens, we cannot assure you that, in the event of a bankruptcy of the borrower sponsor, the borrower sponsor would not seek approval of a similar debtor-in-possession loan, or that a bankruptcy court would not approve a debtor-in-possession loan that included such subsidiary guarantees and second liens on such subsidiaries’ properties.
Certain of the borrowers may be partnerships. The laws governing limited partnerships in certain states provide that the commencement of a case under the Bankruptcy Code with respect to a general partner will cause a person to cease to be a general partner of the limited partnership, unless otherwise provided in writing in the limited partnership agreement. This provision may be construed as an “ipso facto” clause and, in the event of the general partner’s bankruptcy, may not be enforceable. Certain limited partnership agreements of the borrowers may provide that the commencement of a case under the Bankruptcy Code with respect to the related general partner constitutes an event of withdrawal (assuming the enforceability of the clause is not challenged in bankruptcy proceedings or, if challenged, is upheld) that might trigger the dissolution of the limited partnership, the winding up of its affairs and the distribution of its assets, unless (i) at the time there was at least one other general partner and the written provisions of the limited partnership permit the business of the limited partnership to be carried on by the remaining general partner and that general partner does so or (ii) the written provisions of the limited partnership agreement permit the limited partners to agree within a specified time frame (often 60 days) after the withdrawal to continue the business of the limited partnership and to the appointment of one or more general partners and the limited partners do so. In addition, the laws governing general partnerships in certain states provide that the commencement of a case under the Bankruptcy Code or state bankruptcy laws with respect to a general partner of the partnerships triggers the dissolution of the partnership, the winding up of its affairs and the distribution of its assets. Those state laws, however, may not be enforceable or effective in a bankruptcy case. Limited liability companies may be subjected to similar treatment as that described in this prospectus with respect to limited partnerships. The dissolution of a borrower, the winding up of its affairs and the distribution of its assets could result in an acceleration of its payment obligation under the borrower’s mortgage loan, which may reduce the yield on the Offered Notes in the same manner as a principal prepayment.
In addition, the bankruptcy of the general or limited partner of a borrower that is a partnership, or the bankruptcy of a member of a borrower that is a limited liability company or the bankruptcy of a shareholder of a borrower that is a corporation may provide the opportunity in the bankruptcy case of the partner, member or shareholder to obtain an order from a court consolidating the assets and liabilities of the partner, member or shareholder with those of the mortgagor pursuant to the doctrines of substantive consolidation or piercing the corporate veil. In such a case, the respective mortgaged property, for example, would become property of the estate of the bankrupt partner, member or shareholder. Not only would the mortgaged property be available to satisfy the claims of creditors of the partner, member or shareholder, but an automatic stay would apply to any attempt by the indenture trustee to exercise remedies with respect to the mortgaged property. However, such an occurrence should not affect a lender’s status as a secured creditor with respect to the mortgagor or its security interest in the mortgaged property.
A borrower that is a limited partnership, in many cases, may be required by the loan documents to have a single purpose entity as its sole general partner, and a borrower that is a general partnership, in many cases, may be required by the loan documents to have as its general partners only entities that are single purpose entities. A borrower that is a limited liability company may be required by the loan documents to have a single purpose member or a springing member. All borrowers that are tenants-in-common may be required by the loan documents to be single purpose entities. These provisions are designed to mitigate the risk of the dissolution or bankruptcy of the borrower partnership or its general
partner, a borrower limited liability company or its member (if applicable), or a borrower that is a tenant-in-common. However, we cannot assure you that any borrower partnership or its general partner, or any borrower limited liability company or its member (if applicable), or a borrower that is a tenant-in-common, will not dissolve or become a debtor under the Bankruptcy Code.
Environmental Considerations
General
A lender may be subject to environmental risks when taking a security interest in real property. Of particular concern may be properties that are or have been used for industrial, manufacturing, military or disposal activity. Such environmental risks include the possible diminution of the value of a contaminated property or, as discussed below, potential liability for clean-up costs or other remedial actions that could exceed the value of the property or the amount of the lender’s loan. In certain circumstances, a lender may decide to abandon a contaminated mortgaged property as collateral for its loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws
Under the laws of many states, contamination on a property may give rise to a lien on the property for clean-up costs. In several states, such a lien has priority over all existing liens, including those of existing mortgages. In these states, the lien of a mortgage may lose its priority to such a “superlien”.
CERCLA
The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), imposes strict liability on present and past “owners” and “operators” of contaminated real property for the costs of clean-up. A secured lender may be liable as an “owner” or “operator” of a contaminated mortgaged property if agents or employees of the lender have participated in the management or operation of such mortgaged property. Such liability may exist even if the lender did not cause or contribute to the contamination and regardless of whether the lender has actually taken possession of a mortgaged property through foreclosure, deed in lieu of foreclosure or otherwise. Moreover, such liability is not limited to the original or unamortized principal balance of a loan or to the value of the property securing a loan. Excluded from CERCLA’s definition of “owner” or “operator, “ however, is a person “who, without participating in the management of the facility, holds indicia of ownership primarily to protect his security interest”. This is the so called “secured creditor exemption”.
The Asset Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the “1996 Act”) amended, among other things, the provisions of CERCLA with respect to lender liability and the secured creditor exemption. The 1996 Act offers protection to lenders by defining the activities in which a lender can engage and still have the benefit of the secured creditor exemption. In order for a lender to be deemed to have participated in the management of a mortgaged property, the lender must actually participate in the operational affairs of the property of the borrower. The 1996 Act provides that “merely having the capacity to influence, or unexercised right to control” operations does not constitute participation in management. A lender will lose the protection of the secured creditor exemption if it exercises decision-making control over the borrower’s environmental compliance and hazardous substance handling or disposal practices, or assumes day-to-day management of environmental or substantially all other operational functions of the mortgaged property. The 1996 Act also provides that a lender will continue to have the benefit of the secured creditor exemption even if it forecloses on a mortgaged property, purchases it at a foreclosure sale or accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the mortgaged property at the earliest practicable commercially reasonable time on commercially reasonable terms.
Certain Other Federal and State Laws
Many states have statutes similar to CERCLA, and not all of those statutes provide for a secured creditor exemption. In addition, under federal law, there is potential liability relating to hazardous wastes and underground storage tanks under the federal Resource Conservation and Recovery Act.
Some federal, state and local laws, regulations and ordinances govern the management, removal, encapsulation or disturbance of asbestos-containing materials. These laws, as well as common law standards, may impose liability for releases of or exposure to asbestos-containing materials, and provide for third parties to seek recovery from owners or operators of real properties for personal injuries associated with those releases.
Federal legislation requires owners of residential housing constructed prior to 1978 to disclose to potential residents or purchasers any known lead-based paint hazards and will impose treble damages for any failure to disclose. In addition, the ingestion of lead-based paint chips or dust particles by children can result in lead poisoning. If lead-based paint hazards exist at a property, then the owner of that property may be held liable for injuries and for the costs of removal or encapsulation of the lead-based paint.
In a few states, transfers of some types of properties are conditioned upon clean-up of contamination prior to transfer. In these cases, a lender that becomes the owner of a property through foreclosure, deed in lieu of foreclosure or otherwise, may be required to clean-up the contamination before selling or otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes of action (for example, actions based on nuisance or on toxic tort resulting in death, personal injury or damage to property) related to hazardous environmental conditions on a property. While it may be more difficult to hold a lender liable under common law causes of action, unanticipated or uninsured liabilities of the borrower may jeopardize the borrower’s ability to meet its loan obligations or may decrease the re-sale value of the collateral.
Additional Considerations
The cost of remediating hazardous substance contamination at a property can be substantial. If a lender becomes liable, it can bring an action for contribution against the owner or operator who created the environmental hazard, but that individual or entity may be without substantial assets. Accordingly, it is possible that such costs could become a liability of the issuing entity and occasion a loss to the certificateholders.
If a lender forecloses on a mortgage secured by a property, the operations on which are subject to environmental laws and regulations, the lender will be required to operate the property in accordance with those laws and regulations. Such compliance may entail substantial expense, especially in the case of industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions on a property to government entities and/or to prospective buyers (including prospective buyers at a foreclosure sale or following foreclosure). Such disclosure may decrease the amount that prospective buyers are willing to pay for the affected property, sometimes substantially, and thereby decrease the ability of the lender to recover its investment in a loan upon foreclosure.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the mortgage loans may contain “due-on-sale” and “due-on-encumbrance” clauses that purport to permit the lender to accelerate the maturity of the loan if the borrower transfers or encumbers the related mortgaged property. The Garn-St Germain Depository Institutions Act of 1982 (the “Garn Act”) generally preempts state laws that prohibit the enforcement of due-on-sale clauses and permits lenders to enforce these clauses in accordance with their terms, subject to certain limitations as set forth in the Garn
Act and related regulations. Accordingly, a lender may nevertheless have the right to accelerate the maturity of a mortgage loan that contains a “due-on-sale” provision upon transfer of an interest in the property, without regard to the lender’s ability to demonstrate that a sale threatens its legitimate security interest.
Subordinate Financing
The terms of certain of the mortgage loans may not restrict the ability of the borrower to use the mortgaged property as security for one or more additional loans, or such restrictions may be unenforceable. Where a borrower encumbers a mortgaged property with one or more junior liens, the senior lender is subjected to additional risk. First, the borrower may have difficulty servicing and repaying multiple loans. Moreover, if the subordinate financing permits recourse to the borrower (as-is frequently the case) and the senior loan does not, a borrower may have more incentive to repay sums due on the subordinate loan. Second, acts of the senior lender that prejudice the junior lender or impair the junior lender’s security may create a superior equity in favor of the junior lender. For example, if the borrower and the senior lender agree to an increase in the principal amount of or the interest rate payable on the senior loan, the senior lender may lose its priority to the extent any existing junior lender is harmed or the borrower is additionally burdened. Third, if the borrower defaults on the senior loan and/or any junior loan or loans, the existence of junior loans and actions taken by junior lenders can impair the security available to the senior lender and can interfere with or delay the taking of action by the senior lender. Moreover, the bankruptcy of a junior lender may operate to stay foreclosure or similar proceedings by the senior lender.
Default Interest and Limitations on Prepayments
Promissory notes and mortgages may contain provisions that obligate the borrower to pay a late charge or additional interest if payments are not timely made, and in some circumstances, may prohibit prepayments for a specified period and/or condition prepayments upon the borrower’s payment of prepayment fees or yield maintenance penalties. In certain states, there are or may be specific limitations upon the late charges which a lender may collect from a borrower for delinquent payments. Certain states also limit the amounts that a lender may collect from a borrower as an additional charge if the loan is prepaid. In addition, the enforceability of provisions that provide for prepayment fees or penalties upon an involuntary prepayment is unclear under the laws of many states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980 (“Title V”) provides that state usury limitations will not apply to certain types of residential (including multifamily) first mortgage loans originated by certain lenders after March 31, 1980. Title V authorized any state to reimpose interest rate limits by adopting, before April 1, 1983, a law or constitutional provision that expressly rejects application of the federal law. In addition, even where Title V is not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on mortgage loans covered by Title V. Certain states have taken action to reimpose interest rate limits and/or to limit discount points or other charges.
Statutes differ in their provisions as to the consequences of a usurious loan. One group of statutes requires the lender to forfeit the interest due above the applicable limit or impose a specified penalty. Under this statutory scheme, the borrower may cancel the recorded mortgage or deed of trust upon paying its debt with lawful interest, and the lender may foreclose, but only for the debt plus lawful interest. A second group of statutes is more severe. A violation of this type of usury law results in the invalidation of the transaction, thereby permitting the borrower to cancel the recorded mortgage or deed of trust without any payment or prohibiting the lender from foreclosing.
Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and related regulations (collectively, the “ADA”), in order to protect individuals with disabilities, public accommodations (such as hotel properties,
restaurants, shopping centers, hospitals, schools and social service center establishments) must remove architectural and communication barriers which are structural in nature from existing places of public accommodation to the extent “readily achievable”. In addition, under the ADA, alterations to a place of public accommodation or a commercial facility are to be made so that, to the maximum extent feasible, such altered portions are readily accessible to and usable by disabled individuals. The “readily achievable” standard takes into account, among other factors, the financial resources of the affected site, owner, landlord or other applicable person. In addition to imposing a possible financial burden on the borrower in its capacity as owner or landlord, the ADA may also impose such requirements on a foreclosing lender who succeeds to the interest of the borrower as owner or landlord. Furthermore, since the “readily achievable” standard may vary depending on the financial condition of the owner or landlord, a foreclosing lender who is financially more capable than the borrower of complying with the requirements of the ADA may be subject to more stringent requirements than those to which the borrower is subject.
Servicemembers Civil Relief Act
Under the terms of the Servicemembers Civil Relief Act as amended (the “Relief Act”), a borrower who enters military service after the origination of such borrower’s mortgage loan (including a borrower who was in reserve status and is called to active duty after origination of the mortgage loan), upon notification by such borrower, will not be charged interest, including fees and charges, in excess of 6% per annum during the period of such borrower’s active duty status. In addition to adjusting the interest, the lender must forgive any such interest in excess of 6% unless a court or administrative agency orders otherwise upon application of the lender. The Relief Act applies to individuals who are members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service or the National Oceanic and Atmospheric Administration assigned to duty with the military. Because the Relief Act applies to individuals who enter military service (including reservists who are called to active duty) after origination of the related mortgage loan, no information can be provided as to the number of loans with individuals as borrowers that may be affected by the Relief Act. Application of the Relief Act would adversely affect, for an indeterminate period of time, the ability of a master servicer or special servicer to collect full amounts of interest on certain of the mortgage loans. Any shortfalls in interest collections resulting from the application of the Relief Act would result in a reduction of the amounts distributable to the holders of certificates, and would not be covered by advances or, any other form of credit support provided in connection with the certificates. In addition, the Relief Act imposes limitations that would impair the ability of a lender to foreclose on an affected mortgage loan during the borrower’s period of active duty status, and, under certain circumstances, during an additional one-year period thereafter.
Anti-Money Laundering, Economic Sanctions and Bribery
Many jurisdictions have adopted wide-ranging anti-money laundering, economic and trade sanctions, and anti-corruption and anti-bribery laws, and regulations (collectively, the “Requirements”). Any of the depositor, the issuing entity, the underwriters or other party to the ISA could be requested or required to obtain certain assurances from prospective investors intending to purchase notes and to retain such information or to disclose information pertaining to them to governmental, regulatory or other authorities or to financial intermediaries or engage in due diligence or take other related actions in the future. Failure to honor any request by the depositor, the issuing entity, the underwriters or other party to the ISA to provide requested information or take such other actions as may be necessary or advisable for the depositor, the issuing entity, the underwriters or other party to the ISA to comply with any Requirements, related legal process or appropriate requests (whether formal or informal) may result in, among other things, a forced sale to another investor of such investor’s notes. In addition, it is expected that each of the depositor, the issuing entity, the underwriters and the other parties to the ISA will comply with the U.S. Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (also known as the “Patriot Act”), the Anti-Money Laundering Act of 2020, including the Corporate Transparency Act, and any other anti-money laundering and anti-terrorism, economic and trade sanctions, and anti-corruption or anti-bribery laws, and regulations of the United States and other countries, and will disclose any information required or
requested by authorities in connection with such compliance. It is currently unclear as to the long-term implications of the Anti-Money Laundering Act of 2020 or the Corporate Transparency Act.
Potential Forfeiture of Assets
Federal law provides that assets (including property purchased or improved with assets) derived from criminal activity or otherwise tainted, or used in the commission of certain offenses, is subject to the blocking requirements of economic sanctions laws and regulations, and can be blocked and/or seized and ordered forfeited to the United States of America. The offenses that can trigger such a blocking and/or seizure and forfeiture include, among others, violations of the Racketeer Influenced and Corrupt Organizations Act, the U.S. Bank Secrecy Act, the anti-money laundering, anti-terrorism, economic sanctions, and anti-bribery laws and regulations, including the Patriot Act and the regulations issued pursuant to that act, as well as the narcotic drug laws. In many instances, the United States may seize the property even before a conviction occurs.
In the event of a forfeiture proceeding, a lender may be able to establish its interest in the property by proving that (a) its mortgage was executed and recorded before the commission of the illegal conduct from which the assets used to purchase or improve the property were derived or before the commission of any other crime upon which the forfeiture is based, or (b) the lender, at the time of the execution of the mortgage, “did not know or was reasonably without cause to believe that the property was subject to forfeiture”. However, there is no assurance that such a defense will be successful.
Certain Affiliations, Relationships and Related Transactions Involving Transaction Parties
3650 REIT and its affiliates are playing several roles in this transaction. 3650 REIT Commercial Mortgage Securities II LLC is the depositor and an affiliate of 3650 REIT. 3650 REIT and the other mortgage loan sellers originated, co-originated or acquired the mortgage loans and will be selling them to the depositor.
[In addition, 3650 REIT currently holds the [_______] Pari Passu Companion Loan. However, 3650 REIT intends to sell the [________] Pari Passu Companion Loan in connection with a future securitization. In addition, with respect to [__] mortgage loan identified as “[______]” on Annex A-1, representing approximately [__]% of the Initial Pool Balance, 3650 REIT is the holder of a related mezzanine loan secured by direct or indirect equity interests in the borrower under such mortgage loan.]
[[__] and certain other third party lenders provide warehouse financing to certain affiliates of [MORTGAGE LOAN SELLER] (the “Financing Affiliates”) through various repurchase facilities and other lending arrangements. Some or all of the [MORTGAGE LOAN SELLER] Mortgage Loans are (or as of the securitization closing date may be) subject to such repurchase facilities and other lending arrangements. If such is the case at the time the notes are issued, then [MORTGAGE LOAN SELLER] will use the proceeds from its sale of the [MORTGAGE LOAN SELLER] Mortgage Loans to the depositor to, among other things, acquire the financed [MORTGAGE LOAN SELLER] Mortgage Loans from the Financing Affiliates, and the Financing Affiliates will, in turn, use the funds that they receive from [MORTGAGE LOAN SELLER] to, among other things, reacquire or otherwise obtain the release of the warehoused [MORTGAGE LOAN SELLER] Mortgage Loans from the repurchase agreement counterparties or other types of lenders free and clear of any liens. As of [_____], [__] was the repurchase agreement counterparty with respect to [__] of the [MORTGAGE LOAN SELLER] Mortgage Loans, with an aggregate Cut-off Date Balance of $[_______]. The note administrator is the interim custodian of the loan documents with respect to [__] of the [MORTGAGE LOAN SELLER] Mortgage Loans, which have an aggregate Cut-off Date Balance of $[_________]. In addition, the note administrator acts as interim servicer with respect to [__] of the [MORTGAGE LOAN SELLER] Mortgage Loans, which have an aggregate Cut-off Date Balance of $[_______].]
[ADD SIMILAR DISCLOSURE, IF APPLICABLE, FOR OTHER SPONSORS OR MORTGAGE LOAN SELLERS]
[The note administrator is also the note administrator, the custodian, the note registrar and the 17g-5 information provider under the [______] indenture and servicing agreement with respect to the [______] Whole Loan.]
[The master servicer is also the master servicer under the [______] indenture and servicing agreement with respect to the [______] Whole Loan.]
[The asset representations reviewer is also the asset representations reviewer under the [______] indenture and servicing agreement with respect to the [______] Whole Loan.]
[The special servicer is an affiliate of the entity that is expected to purchase the [____] notes (and may purchase certain other classes of notes) and to be appointed as the initial Directing Holder.]
See “Risk Factors—Risks Related to Conflicts of Interest—Potential Conflicts of Interest of the Master Servicer and the Special Servicer”, “—Potential Conflicts of Interest of the Asset Representations Reviewer”, “—Potential Conflicts of Interest of the Directing Holder and the Companion Loan Holders” and “—Risks Relating to the Mortgage Loans—Mortgaged Properties Leased to Borrowers or Borrower Affiliated Entities Also Have Risks”. For a description of certain other affiliations, relationships and related transactions, to the extent known and material, among the transaction parties, see the individual descriptions of the transaction parties under “Transaction Parties”.
Pending Legal Proceedings Involving Transaction Parties
While the sponsors have been involved in, and are currently involved in, certain litigation or potential litigation, including actions relating to repurchase claims, there are no legal proceedings pending, or any proceedings known to be contemplated by any governmental authorities, against the sponsors that are material to Noteholders.
[For a description of certain other material legal proceedings pending against the transaction parties, see the individual descriptions of the transaction parties under “Transaction Parties”.]
Use of Proceeds
Certain of the net proceeds from the sale of the Offered Notes, together with the net proceeds from the sale of the other notes not being offered by this prospectus, will be used by the depositor to purchase the mortgage loans from the mortgage loan sellers and to pay certain expenses in connection with the issuance of the notes. [If applicable, disclosure of the amount of expenses payable from offering proceeds, separately identifying the type and amount of expenses paid to each of the sponsor, servicer, depositor, issuing entity, originator, underwriter, or any affiliate of the foregoing will be included as required by Item 1107(j) of Regulation AB.]
Yield and Maturity Considerations
Yield Considerations
General
The “Stated Maturity Date” of the notes is the Payment Date in [INSERT STATED MATURITY DATE]. The yield to maturity on the Offered Notes will depend upon the price paid by the investors, the rate and timing of the payments in reduction of the Principal Balance of the applicable class of Offered Notes, and the rate, timing and severity of losses on the Mortgage Loans.
Rate and Timing of Principal Payments
The rate and amount of payments in reduction of the Principal Balance of any class of Offered Notes and the yield to maturity of any class of Offered Notes will be directly related to the rate of payments of principal (both scheduled and unscheduled) on the Mortgage Loans, as well as borrower defaults and the severity of losses occurring upon a default and the resulting rate and timing of collections made in connection with liquidations of Mortgage Loans due to these defaults. Principal payments on the Mortgage Loans will be affected by their amortization schedules, lockout periods, defeasance provisions, provisions relating to the release and/or application of earnout reserves, provisions requiring prepayments in connection with the release of real property collateral, requirements to pay yield maintenance charges or prepayment premiums in connection with principal payments, the dates on which balloon payments are due, incentives for a borrower to repay an ARD Loan by the related Anticipated Repayment Date, property release provisions, provisions relating to the application or release of earnout reserves, and any extensions of maturity dates by the master servicer or the special servicer. While voluntary prepayments of some Mortgage Loans are generally prohibited during applicable prepayment lockout periods, effective prepayments may occur if a sufficiently significant portion of a mortgaged property is lost due to casualty or condemnation. In addition, such payments in reduction of Principal Balances of the respective classes of Offered Notes may result from repurchases of, or substitutions for, Mortgage Loans made by the sponsors due to missing or defective documentation or breaches of representations and warranties with respect to the Mortgage Loans as described under “Description of the Mortgage Loan Purchase Agreements”, paydowns of the notes in the manner described under “Description of the Notes —Redemption of Notes”, and the exercise of purchase options by the holder of companion loan, a mezzanine loan, if any, or the holder of the [LOAN-SPECIFIC CLASS] notes. See “Description of the Mortgage Pool—The Whole Loans—The Serviced AB Whole Loan[—Purchase Option]”. To the extent a Mortgage Loan requires payment of a yield maintenance charge or prepayment premium in connection with a voluntary prepayment, any such yield maintenance charge or prepayment premium generally is not due in connection with a prepayment due to casualty or condemnation, is not included in the purchase price of a Mortgage Loan purchased or repurchased due to a breach of a representation or warranty or otherwise, and may not be enforceable or collectible upon a default.
The notes are subject to an [Optional Redemption, Clean-up Call and Tax Redemption], in each case as described under “Description of the Notes—Redemption of Notes—Optional Redemption”, “—Clean-up Call”, “—Tax Redemption” and “—Tax Redemption, Optional Redemption and Clean-up Call Procedures”.
The extent to which the yield to maturity of any class of Offered Notes may vary from the anticipated yield will depend upon the degree to which the notes are purchased at a discount or premium and when, and to what degree, payments of principal on the Mortgage Loans are in turn distributed on the notes. An investor should consider, in the case of any note purchased at a discount, the risk that a slower than anticipated rate of principal payments on the Mortgage Loans could result in an actual yield to such investor that is lower than the anticipated yield and, in the case of any note purchased at a premium, the risk that a faster than anticipated rate of principal payments could result in an actual yield to such investor that is lower than the anticipated yield. In general, the earlier a payment of principal on the Mortgage Loans is distributed or otherwise results in reduction of the Principal Balance of a note purchased at a discount or premium, the greater will be the effect on an investor’s yield to maturity. As a result, the effect on an investor’s yield of principal payments distributed on an investor’s notes occurring at a rate higher (or lower) than the rate anticipated by the investor during any particular period would not be fully offset by a subsequent like reduction (or increase) in the rate of principal payments.
Certain Relevant Factors Affecting Loan Payments and Defaults
The rate and timing of principal payments and defaults and the severity of losses on the Mortgage Loans may be affected by a number of factors, including, without limitation, the availability of credit for commercial or multifamily real estate, prevailing interest rates, the terms of the Mortgage Loans (for example, due-on-sale clauses, lockout periods or yield maintenance charges, release of property provisions, amortization terms that require balloon payments and incentives for a borrower to repay its
mortgage loan by an anticipated repayment date), the demographics and relative economic vitality of the areas in which the Mortgaged Properties are located and the general supply and demand for rental properties in those areas, the quality of management of the Mortgaged Properties, the servicing of the Mortgage Loans, possible changes in tax laws and other opportunities for investment. See “Risk Factors” and “Description of the Mortgage Pool”.
The rate of prepayment on the pool of Mortgage Loans is likely to be affected by prevailing market interest rates for Mortgage Loans of a comparable type, term and risk level as the Mortgage Loans. When the prevailing market interest rate is below a mortgage interest rate, a borrower may have an increased incentive to refinance its Mortgage Loan. [Even in the case of floating rate Mortgage Loans, as prevailing market interest rates decline, and without regard to whether the mortgage interest rates on the floating rate Mortgage Loans decline in a manner consistent with market interest rates, the related borrowers may have an increased incentive to refinance for purposes of either (1) converting to a fixed rate loan and thereby “locking in” that rate or (2) taking advantage of a different index, margin or rate cap or floor on another floating rate Mortgage Loan.] Although the Mortgage Loans contain provisions designed to mitigate the likelihood of an early loan repayment, we cannot assure you that the related borrowers will refrain from prepaying their Mortgage Loans due to the existence of these provisions, or that involuntary prepayments will not occur. See “Description of the Mortgage Pool—Certain Terms of the Mortgage Loans”.
With respect to certain Mortgage Loans, the related Mortgage Loan documents allow for the sale of individual properties and the severance of the related debt and the assumption by the transferee of such portion of the Mortgage Loan as-is allocable to the individual property acquired by that transferee, subject to the satisfaction of certain conditions. In addition, with respect to certain Mortgage Loans, the related Mortgage Loan documents allow for partial releases of individual Mortgaged Properties during a lockout period or during such time as a yield maintenance charge would otherwise be payable, which could result in a prepayment of a portion of the initial principal balance of the related Mortgage Loan without payment of a yield maintenance charge or prepayment premium. Additionally, in the case of a partial release of an individual Mortgaged Property, the related release amount in many cases is greater than the allocated loan amount for the Mortgaged Property being released, which would result in a greater than proportionate paydown of the Mortgage Loan. See “Description of the Mortgage Pool—Certain Terms of the Mortgage Loans—Partial Releases”.
Depending on prevailing market interest rates, the outlook for market interest rates and economic conditions generally, some borrowers may sell Mortgaged Properties in order to realize their equity in the Mortgaged Property, to meet cash flow needs or to make other investments. In addition, some borrowers may be motivated by federal and state tax laws (which are subject to change) to sell Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
We make no representation as to the particular factors that will affect the rate and timing of prepayments and defaults on the Mortgage Loans, as to the relative importance of those factors, as to the percentage of the principal balance of the Mortgage Loans that will be prepaid or as to which a default will have occurred as of any date or as to the overall rate of prepayment or default on the Mortgage Loans.
Delay in Payment on the Notes
Because each monthly payment is made on each Payment Date, which is at least [__] days after the end of the related Interest Accrual Period for the notes, the effective yield to the holders of such notes will be lower than the yield that would otherwise be produced by the applicable Interest Rates and purchase prices (assuming the prices did not account for the delay).
Weighted Average Life
The weighted average life of any note refers to the average amount of time that will elapse from the date of its issuance until each dollar to be applied in reduction of the Principal Balance of those notes is paid to the related investor. The weighted average life of a note will be influenced by, among other things, the rate at which principal on the mortgage loans is paid or otherwise received, which may be in the form
of scheduled amortization, voluntary prepayments, Insurance and Condemnation Proceeds and Liquidation Proceeds. Payments among the various classes of notes will be made as set forth under “Description of the Notes—Payments on the Notes—Priority of Payments”.
Prepayments on Mortgage Loans may be measured by a prepayment standard or model. The “Constant Prepayment Rate” or “CPR” model represents an assumed constant annual rate of prepayment each month, expressed as a per annum percentage of the then-scheduled principal balance of the pool of Mortgage Loans (or, with respect to an AB Whole Loan, the related Mortgage Loan). The “CPY” model represents an assumed CPR prepayment rate after any applicable lockout period, any applicable period in which defeasance is permitted and any applicable yield maintenance period. The model used in this prospectus is the CPY model. As used in each of the following tables, the column headed “0% CPY” assumes that none of the Mortgage Loans is prepaid before its maturity date or Anticipated Repayment Date, as the case may be. The columns headed [“25% CPY”, “50% CPY”, “75% CPY”] and “100% CPY” assume that prepayments on the Mortgage Loans are made (or, with respect to an AB Whole Loan, principal is allocated to the related Mortgage Loan) at those levels of CPR following the expiration of any applicable lockout period, any applicable period in which defeasance is permitted and any applicable yield maintenance period (except as described below). We cannot assure you, however, that prepayments of the Mortgage Loans (or, with respect to an AB Whole Loan, the related Mortgage Loan) will conform to any level of CPY, and we make no representation that the Mortgage Loans will prepay at the levels of CPY shown or at any other prepayment rate.
The following tables indicate the percentage of the initial Principal Balance of each class of the Offered Notes that would be outstanding after each of the dates shown at various CPYs and the corresponding weighted average life of each class of Offered Notes. The tables have been prepared on the basis of the following assumptions (the “Modeling Assumptions”), among others:
| • | each Mortgage Loan is assumed to prepay at the indicated level of CPY. The column headed “0% CPY” assumes that none of the Mortgage Loans is prepaid before the maturity date. The columns headed “25% CPY”, “50% CPY”, “75% CPY” and “100% CPY” assume that prepayments on the Mortgage Loans are made at those levels of CPY following the expiration of any applicable lockout period, any period in which defeasance is permitted and any applicable yield maintenance period, |
| • | the Mortgage Loan identified on Annex A-1 to this prospectus as [_____] is assumed not to have prepaid during the applicable lockout period in connection with achieving a debt yield equal to a debt yield threshold set forth in the related mortgage loan documents, |
| • | there are no delinquencies, |
| • | scheduled interest and principal payments, including balloon payments, on the Mortgage Loans are received on a timely basis, beginning in [DATE], |
| • | no prepayment premiums or yield maintenance charges are collected, |
| • | [no party exercises its right of optional termination of the issuing entity described in this prospectus or any other purchase option with respect to a Mortgage Loan described in this prospectus,] |
| • | no [Optional Redemption, Tax Redemption or Clean-up Call] occurs, |
| • | no Mortgage Loan is required to be repurchased from the issuing entity, |
| • | the Administrative Cost Rate for each Mortgage Loan is the rate set forth on Annex A-1 to this prospectus with respect to such Mortgage Loan. The Administrative Cost Rate is calculated on the Stated Principal Balance of the Mortgage Loans and in the same manner as interest is calculated on the Mortgage Loans, |
| • | there are no shortfalls unrelated to defaults or appraisal reductions allocated to any class of notes, |
| • | no Event of Default occurs, |
| • | payments on the notes are made on the [__] calendar day (each assumed to be a business day) of each month, commencing in [DATE], |
| • | the notes will be issued on the Closing Date, |
| • | the Interest Rate with respect to each class of Offered Notes is as described under “Description of the Notes—Payments on the Notes—Interest Rates” in this prospectus, |
| • | all prepayments are assumed to be voluntary prepayments and will not include, without limitation, Liquidation Proceeds, condemnation proceeds, insurance proceeds, proceeds from the purchase of a Mortgage Loan from the issuing entity or any prepayment that is accepted by the master servicer or the special servicer pursuant to a workout, settlement or loan modification, and |
| • | the initial respective principal balances of the various classes of notes are as set forth in the table and the footnotes to the table under “Summary of Notes” in this prospectus. |
To the extent that the Mortgage Loans have characteristics that differ from those assumed in preparing the tables set forth below, a class of Offered Notes may mature earlier or later than indicated by the tables. The tables set forth below are for illustrative purposes only and it is highly unlikely that the Mortgage Loans will actually prepay at any constant rate until maturity or that all the Mortgage Loans will prepay at the same rate. In addition, variations in the actual prepayment experience and the balance of the Mortgage Loans that prepay may increase or decrease the percentages of initial Principal Balances (and weighted average lives) shown in the following tables. These variations may occur even if the average prepayment experience of the Mortgage Loans were to equal any of the specified CPY percentages. Investors should not rely on the prepayment assumptions set forth in this prospectus and are urged to conduct their own analyses of the rates at which the Mortgage Loans may be expected to prepay, based on their own assumptions. Based on the foregoing assumptions, the following tables indicate the resulting weighted average lives of each class of Offered Notes and set forth the percentage of the initial Principal Balance of the class of the note that would be outstanding after each of the dates shown at the indicated CPYs.
Percent of the Initial Principal Balance
of the Class [___] Notes at the Respective CPYs
Set Forth Below:
Payment Date | | 0% CPY | | 25% CPY | | 50% CPY | | 75% CPY | | 100% CPY |
| Initial Percentage | | 100% | | 100% | | 100% | | 100% | | 100% |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Weighted Average Life (years)(1) | | | | | | | | | | |
_____________________
| (1) | The weighted average life of the Class [__] notes is determined by (a) multiplying the amount of each principal payment on it by the number of years from the date of issuance of the Class [__] notes to the related Payment Date, (b) summing the results and (c) dividing the sum by the aggregate amount of the reductions in the principal balance of the Class [__] notes. |
Percent of the Initial Principal Balance
of the Class [__] Notes at the Respective CPYs
Set Forth Below:
Payment Date | | 0% CPY | | 25% CPY | | 50% CPY | | 75% CPY | | 100% CPY |
| Initial Percentage | | 100% | | 100% | | 100% | | 100% | | 100% |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Weighted Average Life (years)(1) | | | | | | | | | | |
| (1) | The weighted average life of the Class [___] notes is determined by (a) multiplying the amount of each principal payment on it by the number of years from the date of issuance of the Class [___] notes to the related Payment Date, (b) summing the results and (c) dividing the sum by the aggregate amount of the reductions in the principal balance of the Class [___] notes. |
Percent of the Initial Principal Balance
of the Class [EXCH] Notes at the Respective CPYs
Set Forth Below:
Payment Date | | 0% CPY | | 25% CPY | | 50% CPY | | 75% CPY | | 100% CPY |
| Initial Percentage | | 100% | | 100% | | 100% | | 100% | | 100% |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Weighted Average Life (years)(1) | | | | | | | | | | |
_____________________
| (1) | The weighted average life of the Class [__] notes is determined by (a) multiplying the amount of each principal payment on it by the number of years from the date of issuance of the Class [__] notes to the related Payment Date, (b) summing the results and (c) dividing the sum by the aggregate amount of the reductions in the principal balance of the Class [__] notes. |
Pre-Tax Yield to Maturity Tables
The following tables indicate the approximate pre-tax yield to maturity on a corporate bond equivalent basis on the Offered Notes for the specified CPYs based on the assumptions set forth under
“—Weighted Average Life” above. It was further assumed that the purchase price of the Offered Notes is as specified in the tables below, expressed as a percentage of the initial Principal Balance plus accrued interest from [_______] to the Closing Date.
The yields set forth in the following tables were calculated by determining the monthly discount rates that, when applied to the assumed streams of cash flows to be paid on the applicable class of Offered Notes, would cause the discounted present value of such assumed stream of cash flows to equal the assumed purchase price of such class, and by converting such monthly rates to semi-annual corporate bond equivalent rates. Such calculations do not take into account shortfalls in collection of interest due to prepayments (or other liquidations) of the Mortgage Loans or the interest rates at which investors may be able to reinvest funds received by them as payments on the applicable class of notes (and, accordingly, do not purport to reflect the return on any investment in the applicable class of Offered Notes when such reinvestment rates are considered).
The characteristics of the Mortgage Loans may differ from those assumed in preparing the tables below. In addition, we cannot assure you that the Mortgage Loans will prepay in accordance with the above assumptions (or, with respect to an AB Whole Loan, amounts will be allocated to the related Mortgage Loan in accordance with the above assumptions) at any of the rates shown in the tables or at any other particular rate, that the cash flows on the applicable class of Offered Notes will correspond to the cash flows shown in this prospectus or that the aggregate purchase price of such class of Offered Notes will be as assumed. In addition, it is unlikely that the Mortgage Loans will prepay in accordance with the above assumptions at any of the specified CPYs until maturity or that all the Mortgage Loans will so prepay at the same rate. Timing of changes in the rate of prepayments may significantly affect the actual yield to maturity to investors, even if the average rate of principal prepayments is consistent with the expectations of investors. Investors must make their own decisions as to the appropriate prepayment assumption to be used in deciding whether to purchase any class of Offered Notes.
For purposes of this prospectus, prepayment assumptions with respect to the Mortgage Loans are presented in terms of the CPY model described under “—Weighted Average Life” above.
Pre-Tax Yield to Maturity for the Class [__] Notes
Assumed Purchase Price
(% of Initial Principal Balance
of Class [__] notes) | | Prepayment Assumption (CPY)
|
| | | 0% CPY
| | 25% CPY | | 50% CPY | | 75% CPY | | 100% CPY |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Pre-Tax Yield to Maturity for the Class [__] Notes
Assumed Purchase Price
(% of Initial Principal Balance
of Class [__] notes) | | Prepayment Assumption (CPY)
|
| | | 0% CPY
| | 25% CPY | | 50% CPY | | 75% CPY | | 100% CPY |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Pre-Tax Yield to Maturity for the Class [EXCH] Notes
Assumed Purchase Price
(% of Initial Principal Balance
of Class [EXCH] notes) | | Prepayment Assumption (CPY)
|
| | | 0% CPY
| | 25% CPY | | 50% CPY | | 75% CPY | | 100% CPY |
| | | | | | | | | | | |
Assumed Purchase Price
(% of Initial Principal Balance
of Class [EXCH] notes) | | Prepayment Assumption (CPY)
|
| | | 0% CPY
| | 25% CPY | | 50% CPY | | 75% CPY | | 100% CPY |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Material Federal Income Tax Considerations
General
The following discussion summarizes certain of the material U.S. federal income tax consequences of the purchase, beneficial ownership, ownership and disposition of Offered Notes. For purposes of this summary, a “U.S. Holder” is a beneficial owner of an Offered Note that is (i) an individual who is a citizen or resident of the United States for U.S. federal income tax purposes, (ii) a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) that is created or organized in or under the laws of the United States or any state (including the District of Columbia), (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions. For purposes of this summary, a “Non-U.S. Holder” is a beneficial owner of such Offered Note that is (i) a nonresident alien individual for U.S. federal income tax purposes, (ii) a foreign corporation for U.S. federal income tax purposes, (iii) an estate whose income is not subject to U.S. federal income tax on a net income basis, or (iv) a trust if no court within the United States is able to exercise primary jurisdiction over its administration or if no United States persons have the authority to control any of its substantial decisions.
An individual may, subject to certain exceptions, be deemed to be a resident of the United States for U.S. federal income tax purposes by reason of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three year period ending in the current calendar year (counting for such purposes all of the days present in the current year, one third of the days present in the immediately preceding year, and one sixth of the days present in the second preceding year).
This discussion is based on interpretations of the Code, regulations issued thereunder, and rulings and decisions currently in effect (or in some cases proposed), all of which are subject to change. Any such change may be applied retroactively and may adversely affect the U.S. federal income tax consequences described herein. This summary addresses only U.S. Holders that purchase the Offered Notes in the initial offering at their “issue price” (as defined below) and that beneficially own such Offered Notes as capital assets and not as part of a “straddle,” “hedge,” “synthetic security” or a “conversion transaction” for U.S. federal income tax purposes, or as part of some other integrated investment. This summary does not discuss all of the tax consequences that may be relevant to particular investors or to investors subject to special treatment under the U.S. federal income tax laws (such as banks, thrifts or other financial institutions, insurance companies, small business investment companies, S corporations, retirement plans or other tax exempt entities, or persons holding Offered Notes in tax-deferred or tax-advantaged accounts, mutual funds, real estate investment trusts, regulated investment companies, securities dealers or brokers, traders in securities electing mark-to-market treatment, investors who hold their Offered Notes through partnerships or other entities treated as partnerships for U.S. federal income tax purposes, investors whose functional currency is not the U.S. dollar, certain former citizens or residents of the United States, persons subject to the alternative minimum tax, “controlled foreign
corporations” or “passive foreign investment companies” for U.S. federal income tax purposes). In addition, this summary does not discuss any state, local or foreign tax consequences of the purchase, ownership or disposition of the Offered Notes, or the tax consequences that may be relevant to the shareholders or other beneficial owners of any investor in the Offered Notes.
U.S. Federal Income Tax Treatment of the Issuing Entity
As a condition to the issuance of the notes, the issuing entity will receive an opinion of Cadwalader, Wickersham & Taft LLP (the “REIT Opinion”) to the effect that (i) commencing with [3650 Real Estate Investment Trust 2 LLC]’s initial taxable year ending on [INSERT RELEVANT TAX YEAR], [3650 Real Estate Investment Trust 2 LLC] has been organized and operated in conformity with the requirements for qualification and taxation as a real estate investment trust (“REIT”) under the Code, and its current and proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT, and (ii) so long as [3650 Real Estate Investment Trust 2 LLC] owns 100% of the equity interests in the issuing entity either directly or indirectly through one or more entities that are disregarded for U.S. federal income tax purposes, the issuing entity will qualify as a Qualified REIT Subsidiary for U.S. federal income tax purposes. Provided that [3650 Real Estate Investment Trust 2 LLC] qualifies as a REIT and the issuing entity is a Qualified REIT Subsidiary for U.S. federal income tax purposes, the issuing entity will not be subject to U.S. federal income tax on a net income basis and [3650 Real Estate Investment Trust 2 LLC], and not the issuing entity, will be treated as the issuing entity of the Offered Notes for such purposes.
The REIT Opinion will be based on various assumptions relating to the organization and the past, present and future conduct of the operations of [3650 Real Estate Investment Trust 2 LLC] and certain affiliated entities, and will be conditioned upon representations and covenants made by [3650 Real Estate Investment Trust 2 LLC]. These will include representations and covenants that so long as any Offered Note is outstanding, no portion of the retained or repurchased notes or the Membership Interests will be permitted to be transferred, pledged or hypothecated to any person unless (i) 100% of the retained or repurchased notes and the Membership Interests are transferred to a person that is a REIT or a Qualified REIT Subsidiary or other disregarded entity of a REIT for U.S. federal income tax purposes or (ii) with respect to such transfer, pledge or hypothecation the issuing entity receives an opinion from Cadwalader, Wickersham & Taft LLP, or another nationally recognized tax counsel, to the effect that upon such transfer, pledge or hypothecation the issuing entity will continue to be treated as a Qualified REIT Subsidiary or other disregarded entity of a REIT for U.S. federal income tax purposes. You should be aware that opinions of counsel are not binding on the United States Internal Revenue Service (“IRS”), and no assurance can be given that the IRS will not challenge the conclusions set forth in such opinions.
Although [3650 Real Estate Investment Trust 2 LLC] intends to operate so that it will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in the circumstances of [3650 Real Estate Investment Trust 2 LLC], no assurance can be given that [3650 Real Estate Investment Trust 2 LLC] will so qualify for any particular year. Cadwalader, Wickersham & Taft LLP will have no obligation to advise [3650 Real Estate Investment Trust 2 LLC] or the Holders of the Offered Notes of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in the applicable law.
Qualification and taxation as a REIT depends on the ability of [3650 Real Estate Investment Trust 2 LLC] to meet, on a continuing basis, various requirements imposed upon REITs by the Code, including requirements relating to its assets, income, distributions and diversity of stock ownership, compliance with which will not be reviewed by Cadwalader, Wickersham & Taft LLP in preparing the REIT Opinion. Accordingly, no assurance can be given that the actual results of [3650 Real Estate Investment Trust 2 LLC]’s operations for any taxable year will satisfy such requirements for qualification and taxation as a REIT.
U.S. Federal Income Tax Treatment of the Offered Notes
On the Closing Date, Cadwalader, Wickersham & Taft LLP will issue an opinion to the effect that the Class [__] notes, the Class [__] notes, the Class [__] notes, the Class [__] notes, and the Class [__] notes (when held on the Closing Date by third parties unrelated to [3650 Real Estate Investment Trust 2 LLC]) will be treated as indebtedness for U.S. federal income tax purposes. The issuing entity intends to take the position that such Offered Notes constitute indebtedness for U.S. federal, state, and local income and franchise tax purposes, and the Indenture requires the holders of such Offered Notes (other than holders disregarded as separate from [3650 Real Estate Investment Trust 2 LLC] for U.S. federal income tax purposes) to agree to take the position that the Offered Notes constitute indebtedness for U.S. federal, state and local income and franchise tax purposes. The issuing entity’s characterizations will be binding on holders of those notes. Nevertheless, the IRS could assert, and a court could ultimately hold, that one or more classes of Offered Notes are equity in the issuing entity. If any Offered Notes are treated as equity in the issuing entity, rather than debt of [3650 Real Estate Investment Trust 2 LLC], for U.S. federal income tax purposes, then the issuing entity could cease to be a Qualified REIT Subsidiary for U.S. federal income tax purposes, resulting in adverse tax consequences to any U.S. Holder of such Offered Notes. Except as otherwise indicated, the balance of this summary assumes that all of the Offered Notes are treated as debt of [3650 Real Estate Investment Trust 2 LLC] for U.S. federal, state and local income and franchise tax purposes. Prospective investors in the Offered Notes should consult their tax advisors regarding the U.S. federal, state and local income and franchise tax consequences to the holders and the issuing entity in the event one or more classes of Offered Notes are treated as equity.
For U.S. federal income tax purposes, [3650 Real Estate Investment Trust 2 LLC], and not the issuing entity, will be treated as the issuing entity of the Offered Notes.
U.S. Federal Income Tax Treatment of U.S. Holders of the Offered Notes
Stated Interest. U.S. Holders of any class of Offered Notes will be required to include in gross income payments of stated interest accrued or received in accordance with their usual method of tax accounting, as ordinary interest income.
Original Issue Discount. If the discount at which a substantial amount of any of the Offered Notes (other than the Class [__] notes and the Class [__] notes) is first sold to investors equals or exceeds 0.25% of the principal amount of such class multiplied by the number of complete years to the weighted average maturity of such class, then the issuing entity will treat such class as issued with original issue discount (“OID”) for U.S. federal income tax purposes. The total amount of such discount with respect to such a class will equal the excess of the principal amount of such class over its “issue price” (the first price at which a substantial amount of such class was sold to investors). U.S. Holders of a class Offered Notes that is issued with OID will be required to include OID in advance of the receipt of cash attributable to such income. A U.S. Holder generally will be required to include OID in income as it accrues (regardless of the U.S. Holder’s method of accounting) under a constant-yield method. Accruals of any such OID will be based on the weighted average life of such class rather than its stated maturity. It is possible, however, that the IRS could assert and a court could ultimately hold that some other method of accruing OID should apply.
The issuing entity will treat the Class [__] notes and the Class [__] notes as issued with OID for U.S. federal income tax purposes. The total amount of such discount with respect to a Class [__] note or a Class [__] note will equal the sum of all payments to be received under such note less its issue price (the first price at which a substantial amount of such note is sold to investors). A U.S. Holder of a Class [__] note or a Class [__] note will be required to include OID in income as it accrues.
The amount of OID with respect to the Class [__] notes or the Class [__] notes accruing in any accrual period will generally equal the stated interest accruing in that period (whether or not currently due) plus any additional amount representing the accrual under a constant-yield method of any additional OID represented by the excess of the principal amount of a Class [__] note or a Class [__] note over its issue price. Accruals of any such additional OID will be based on the weighted average life of such Class [__] note or such Class [__] note rather than its stated maturity. Accruals of OID will be calculated by
assuming that interest will be paid over the life of such Class [__] note or such Class [__] note based on the value of LIBOR used in setting interest for the initial Interest Accrual Period, and then adjusting the accrual for each subsequent Interest Accrual Period based on the difference between the value of LIBOR used in setting interest for that subsequent Interest Accrual Period and the assumed rate. It is possible the IRS could assert and a court could ultimately hold that some other method of accruing OID on the Class [__] notes or the Class [__] notes should apply. U.S. Holders of Class [__] notes and Class [__] notes may be required to include OID in advance of the receipt of cash attributable to such income.
Section 1272(a)(6). It is possible that the Offered Notes could be treated as debt instruments described under Section 1272(a)(6) of the Code (debt instruments that may be accelerated by reason of the prepayment of other debt obligations securing such debt instruments). Special tax rules principally relating to the accrual period of original issue discount, market discount and bond premium apply to debt instruments described in Section 1272(a)(6) of the Code. Further, those debt instruments may not be part of an integrated transaction with a related hedge under Treasury Regulations Section 1.1275-6. Prospective investors should consult with their own tax advisors regarding the possible application of Section 1272(a)(6) of the Code.
Sale and Retirement of the Offered Notes. In general, a U.S. Holder of an Offered Note will have a basis in such note equal to the cost of such note increased by any OID previously included in income by that U.S. Holder with respect to such Offered Note and reduced by any payments received on such note other than stated interest on such note. Upon a sale, exchange, or retirement of an Offered Note, a U.S. Holder will generally recognize gain or loss equal to the difference between the amount realized on the sale, exchange, or retirement (less any accrued and unpaid interest, which will be taxable as such) and the U.S. Holder’s tax basis in such Offered Note. Such gain or loss will be long term capital gain or loss if the U.S. Holder held the Offered Note for more than one year at the time of disposition. In certain circumstances, U.S. Holders that are individuals may be entitled to preferential treatment for net long term capital gains; however, the ability of U.S. Holders to offset capital losses against ordinary income is limited.
Alternate Characterizations. It is possible that one or more classes of Offered Notes could be treated as “contingent payment debt instruments” for U.S. federal income tax purposes. In this event, any gain recognized on the sale, exchange, or retirement of such class of Offered Notes would be treated as ordinary income and not capital gain, and the timing, character, and amount of income and gain that a U.S. Holder is required to include with respect to such Offered Notes may be different than described above.
U.S. Federal Income Tax Treatment of Tax Exempt U.S. Holders of Offered Notes
A U.S. Holder that is a tax exempt entity should not be subject to the tax on unrelated business taxable income in respect of the Offered Notes unless the Offered Notes constitute “debt financed property” (as defined in the Code) of that entity.
U.S. Federal Income Tax Treatment of Non-U.S. Holders of Offered Notes
Treatment of Interest. Generally, a beneficial owner of an Offered Note that is a Non-U.S. Holder will not be subject to U.S. federal income or withholding tax in respect of interest income or gain on the Offered Notes if (1) the Non-U.S. Holder provides an appropriate statement, generally on IRS Form W-8BEN or Form W-8BEN-E, as applicable, signed under penalties of perjury, identifying the Non-U.S. Holder and stating, among other things, that the Non-U.S. Holder is not a U.S. person, and (2) the Non-U.S. Holder is not a “10 percent shareholder” or “related controlled foreign corporation” with respect to the issuing entity, [3650 Real Estate Investment Trust 2 LLC] or such other persons that directly or indirectly hold equity of the issuing entity, unless certain exceptions apply. To the extent these conditions are not met, a 30% withholding tax will apply to interest income (including OID) on the Offered Notes, unless an income tax treaty reduces or eliminates such tax or the interest is effectively connected with the conduct of a trade or business within the United States by such Non-U.S. Holder and in either case, certain certification requirements are met. In the latter case, such Non-U.S. Holder will be subject to U.S. federal
income tax with respect to all income from the Offered Notes at regular rates applicable to U.S. taxpayers (and if such Non-U.S. Holder is a corporation, possibly to a 30% branch profits tax as well).
Treatment of Disposition of Offered Notes. Generally, a Non-U.S. Holder will not be subject to U.S. federal income tax on any amount that constitutes capital gain upon the sale, exchange, retirement or other disposition of an Offered Note unless such holder is an individual present in the United States for 183 days or more in the taxable year of the sale, exchange, retirement or other disposition and certain other conditions are met, or unless the gain is effectively connected with the conduct of a trade or business in the United States by such Non-U.S. Holder. If the gain is effectively connected with the conduct of a trade or business in the United States by such Non-U.S. Holder, such Non-U.S. Holder will generally be subject to U.S. federal income tax with respect to such gain in the same manner as a U.S. Holder, as described above, and a Non-U.S. Holder that is a corporation could be subject to the U.S. branch profits tax on such income as well.
Information Reporting and Backup Withholding
Under certain circumstances, the Code requires “information reporting annually to the IRS and to each holder,” and “backup withholding” with respect to certain payments made on or with respect to the Offered Notes. Backup withholding generally does not apply with respect to certain holders, including corporations, tax-exempt organizations, qualified pension and profit sharing trusts, and individual retirement accounts. Backup withholding will apply to a U.S. Holder only if the U.S. Holder (i) fails to furnish its Taxpayer Identification Number (“TIN”) which, for an individual would be his or her Social Security Number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to properly report payments of interest and dividends, or (iv) under certain circumstances, fails to certify, under penalty of perjury, that it has furnished a correct TIN and has not been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments. The application for exemption is available by providing a properly completed IRS Form W-9.
A Non-U.S. Holder that provides the applicable valid and properly completed IRS Form W-8BEN or Form W-8BEN-E, as applicable, Form W-8ECI or Form W-8IMY, together with all appropriate attachments, signed under penalties of perjury, identifying the Non-U.S. Holder and stating that the Non-U.S. Holder is not a United States person will not be subject to IRS reporting requirements or U.S. backup withholding.
The payment of the proceeds on the disposition of an Offered Note by a holder to or through the U.S. office of a broker generally will be subject to information reporting and backup withholding unless the holder either certifies its status as a Non-U.S. Holder under penalties of perjury on the applicable IRS Form W-8BEN or Form W-8BEN-E, as applicable, Form W-8ECI, or Form W-8IMY (as described above) or otherwise establishes an exemption. The payment of the proceeds on the disposition of an Offered Note by a Non-U.S. Holder to or through a non-U.S. office of a non-U.S. broker will not be subject to backup withholding or information reporting unless the non-U.S. broker is a “U.S. Related Person” (as defined below). The payment of proceeds on the disposition of a note by a Non-U.S. Holder to or through a non-U.S. office of a U.S. broker or a “U.S. Related Person” generally will not be subject to backup withholding but will be subject to information reporting unless the holder certifies its status as a Non-U.S. Holder under penalties or perjury or the broker has certain documentary evidence in its files as to the Non-U.S. Holder’s foreign status and the broker has no actual knowledge to the contrary.
For this purpose, a “U.S. Related Person” is (i) a “controlled foreign corporation” for U.S. federal income tax purposes, (ii) a foreign person 50% or more of whose gross income from all sources for the three year period ending with the close of its taxable year preceding the payment (or for such part of the period that the broker has been in existence) is derived from activities that are effectively connected with the conduct of a U.S. trade or business, or (iii) a foreign partnership if at any time during its tax year one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interest of the partnership or if, at any time during its taxable year, the partnership is engaged in the conduct of a U.S. trade or business.
Backup withholding is not an additional tax and may be refunded (or credited against the holder’s U.S. federal income tax liability, if any); provided that certain required information is furnished. The information reporting requirements may apply regardless of whether withholding is required. Copies of the information returns reporting such interest and withholding also may be made available to the tax authorities in the country in which a Non-U.S. Holder is a resident under the provisions of an applicable income tax treaty or agreement.
3.8% Medicare Tax on “Net Investment Income”
Certain non-corporate U.S. Holders will be subject to an additional 3.8% tax on all or a portion of their “net investment income,” which may include the interest payments and any gain realized with respect to the Offered Notes, to the extent of their net investment income that, when added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or a surviving spouse), or $125,000 for a married individual filing a separate return. The 3.8% Medicare tax is calculated in a different manner than regular income tax. U.S. Holders should consult their tax advisors with respect to their consequences with respect to the 3.8% Medicare tax.
Under FATCA, a Non-U.S. Holder of an Offered Note may become subject to withholding of U.S. federal income tax at the rate of 30% on payments of interest, if (i) the holder is, or holds the Offered Note through, a “foreign financial institution,” unless such foreign financial institution is exempt, deemed compliant, has entered into an agreement with the United States government to report, on an annual basis, certain information regarding accounts with or interests in the institution held, directly or indirectly, by certain United States persons, or is subject to a FATCA Inter-Governmental Agreement providing for similar reporting or (ii) the holder is a “non-financial foreign entity,” unless the holder has provided any required information with respect to its direct and indirect United States owners.
Future Legislation and Regulatory Changes Affecting Holders of Offered Notes
Future legislation, regulations, rulings or other authority could affect the U.S. federal income tax treatment of the issuing entity and Noteholders. The issuing entity cannot predict whether and to what extent any such legislative or administrative changes could change the tax consequences to the issuing entity and to Noteholders. Prospective investors should consult their tax advisors regarding possible legislative and administrative changes and their effect on the federal tax treatment of the issuing entity and their investment in the Offered Notes.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN OF THE TAX IMPLICATIONS OF AN INVESTMENT IN THE OFFERED NOTES. PROSPECTIVE PURCHASERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS PRIOR TO PURCHASING OFFERED NOTES TO DETERMINE THE TAX IMPLICATIONS OF SUCH PURCHASE IN LIGHT OF EACH SUCH PURCHASER’S PARTICULAR CIRCUMSTANCES.
Certain State and Local Tax Considerations
In addition to the federal income tax consequences described in “Material Federal Income Tax Considerations” above, purchasers of Offered Notes should consider the state and local and foreign income tax consequences of the acquisition, ownership, and disposition of the Offered Notes. State and local and foreign income tax law may differ substantially from the corresponding federal law, and this discussion does not purport to describe any aspect of the income tax laws of any state, locality or foreign jurisdiction.
It is possible that one or more jurisdictions may attempt to tax nonresident holders of offered notes solely by reason of the location in that jurisdiction of the depositor, the indenture trustee, the note administrator, the sponsors, a related borrower or a mortgaged property or on some other basis, may require nonresident holders of notes to file returns in such jurisdiction or may attempt to impose penalties
for failure to file such returns; and it is possible that any such jurisdiction will ultimately succeed in collecting such taxes or penalties from nonresident holders of offered notes. We cannot assure you that holders of offered notes will not be subject to tax in any particular state, local or other taxing jurisdiction.
You should consult with your tax advisor with respect to the various state, local, and foreign, and any other, tax consequences of an investment in the Offered Notes.
Method of Distribution (Conflicts of Interest)
[Subject to the terms and conditions set forth in an underwriting agreement (the “Underwriting Agreement”), among the depositor and the underwriters, the Offered Notes will be offered by the issuing entity through the underwriters who will offer them to the public at negotiated prices[, plus, in certain cases, accrued interest,] determined at the time of sale. The underwriters are not required to purchase and sell any specific dollar amount of the Offered Notes. Any Offered Notes not purchased by the underwriters will be purchased by the sponsor or one or more of its affiliates.]
[Subject to the terms and conditions set forth in an underwriting agreement (the “Underwriting Agreement”), among the depositor and the underwriters, the depositor has agreed to sell to the underwriters, and the underwriters have severally, but not jointly, agreed to purchase from the depositor the respective Principal Balance of each class of Offered Notes set forth below subject in each case to a variance of 5%.
Class | [LEAD UNDERWRITER] | [OTHER UNDERWRITERS] | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
The Underwriting Agreement provides that the obligations of the underwriters will be subject to certain conditions precedent and that the underwriters will be obligated to purchase all Offered Notes if any are purchased. In the event of a default by any underwriter, the Underwriting Agreement provides that, in certain circumstances, purchase commitments of the non-defaulting underwriter(s) may be increased or the Underwriting Agreement may be terminated.]
The parties to the ISA have severally agreed to indemnify the underwriters, and the underwriters have agreed to indemnify the depositor and controlling persons of the depositor, against certain liabilities, including liabilities under the Securities Act, and will contribute to payments required to be made in respect of these liabilities.
[IF NOT A FIRM COMMITMENT UNDERWRITING, DESCRIBE TERMS OF BEST EFFORTS UNDERWRITING, OR PLACEMENT AGENCY ARRANGEMENT OR DIRECT OFFERING BY DEPOSITOR, PROVIDED THAT ANY CONTINUOUS OFFERING MUST BE AN “ALL OR NOTHING” OFFERING. IF APPLICABLE, DESCRIBE SALES OF SECURITIES TO ANY LOAN SELLERS BY THE UNDERWRITERS]
The depositor has been advised by the underwriters that they propose to offer the Offered Notes to the public from time to time in one or more negotiated transactions, or otherwise, at varying prices to be determined at the time of sale. [MODIFY THIS DISCLOSURE IF A FIXED PRICE OFFERING] Proceeds to the depositor from the sale of Offered Notes will be approximately [___]% of the initial aggregate
Principal Balance of the Offered Notes, plus accrued interest on the Offered Notes from [______], before deducting expenses payable by the depositor. The underwriters may effect the transactions by selling the Offered Notes to or through dealers, and the dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the underwriters. In connection with the purchase and sale of the Offered Notes, the underwriters and dealers may be deemed to have received compensation from the depositor in the form of underwriting discounts and commissions.
Expenses payable by the depositor are estimated at $[__], excluding underwriting discounts and commissions.
We anticipate that the Offered Notes will be sold primarily to institutional investors. Purchasers of Offered Notes, including dealers, may, depending on the facts and circumstances of those purchases, be deemed to be “underwriters” within the meaning of the Securities Act in connection with reoffers and resales by them of Offered Notes. If you purchase Offered Notes, you should consult with your legal advisors in this regard prior to any reoffer or resale. The underwriters expect to make, but are not obligated to make, a secondary market in the Offered Notes. See “Risk Factors—Other Risks Relating to the Notes—The Notes May Have Limited Liquidity and the Market Value of the Notes May Decline”.
The primary source of ongoing information available to investors concerning the Offered Notes will be the monthly statements discussed under “Description of the Notes—Reports to Noteholders; Certain Available Information”. We cannot assure you that any additional information regarding the Offered Notes will be available through any other source. In addition, we are not aware of any source through which price information about the Offered Notes will be generally available on an ongoing basis. The limited nature of that information regarding the Offered Notes may adversely affect the liquidity of the Offered Notes, even if a secondary market for the Offered Notes becomes available.
[AFFILIATED UNDERWRITER], one of the underwriters, is an affiliate of the depositor and an affiliate of one of the sponsors. [________], one of the underwriters, is an affiliate of one of the sponsors. [___________], one of the underwriters, is an affiliate of one of the sponsors.
A substantial portion of the net proceeds of this offering (after the payment of underwriting compensation and transaction expenses) is expected to be directed to affiliates of [______], [_______] and [_________], which are underwriters for this offering. That flow of funds will occur by means of the collective effect of the payment by the underwriters to the depositor, an affiliate of [AFFILIATED UNDERWRITER], of the purchase price for the Offered Notes, the payment described in the next paragraph and the following payments: (i) the payment by the depositor to 3650 REIT, [an affiliate of [AFFILIATED UNDERWRITER]], in its capacity as a sponsor, of the purchase price for the mortgage loans to be sold to the depositor by 3650 REIT, (ii) the payment by the depositor to [________], an affiliate of [___________], in its capacity as a sponsor, of the purchase price for the mortgage loans sold to the depositor by [___________] and (iii) the payment by the depositor to [__________], an affiliate of [___________], in its capacity as a sponsor, of the purchase price for the mortgage loan sold to the depositor by [________]. See “Transaction Parties—The Sponsors and Mortgage Loan Sellers”.
As a result of the circumstances described above in this paragraph and the prior paragraph, [__________], [__________] and [___________] have a “conflict of interest” within the meaning of Rule 5121 of the consolidated rules of The Financial Industry Regulatory Authority, Inc. In addition, other circumstances exist that result in the underwriters or their affiliates having conflicts of interest, notwithstanding that such circumstances may not constitute a “conflict of interest” within the meaning of such Rule 5121. See “Risk Factors—Risks Related to Conflicts of Interest—Interests and Incentives of the Underwriter Entities May Not Be Aligned With Your Interests”.
Incorporation of Certain Information by Reference
[The following documents filed by the date of the filing of this prospectus filed in accordance with Rule 424(h) or Rule 424(b), as applicable, under the Securities Act are incorporated by reference into this prospectus:
(1) DOCUMENTS INCORPORATED BY REFERENCE.]
All reports filed or caused to be filed by the depositor with respect to the issuing entity before the termination of this offering pursuant to Section 13(a), 13(c) or 15(d) of the Securities Exchange Act of 1934, as amended, that relate to the Offered Notes (other than Annual Reports on Form 10-K) will be deemed to be incorporated by reference into this prospectus[, except that if a Non-Serviced PSA is entered into after termination of this offering, any Current Report on Form 8-K filed after termination of this offering that includes as an exhibit such Non-Serviced PSA will be deemed to be incorporated by reference into this prospectus].
In addition, the disclosures filed as exhibits to the most recent Form ABS-EE filed on or prior to the date of the filing of this prospectus by or on behalf of the Depositor with respect to the issuing entity (file number [●]-[●])—in accordance with Item 601(b)(102) and Item 601(b)(103) of Regulation S-K (17 C.F.R. §§ 601(b)(102) and 601(b)(103))—are hereby incorporated by reference into this prospectus.
The depositor will provide or cause to be provided without charge to each person to whom this prospectus is delivered in connection with this offering (including beneficial owners of the Offered Notes), upon written or oral request of that person, a copy of any or all documents or reports incorporated in this prospectus by reference, in each case to the extent the documents or reports relate to the Offered Notes, other than the exhibits to those documents (unless the exhibits are specifically incorporated by reference in those documents). Requests to the depositor should be directed in writing to its principal executive offices at 2977 McFarlane Rd., Suite 300, Miami, Florida 33133, or by telephone at (213) 448-5754.
Where You Can Find More Information
The depositor has filed a Registration Statement on Form SF-3 (SEC File No. [●]) (the “Registration Statement”) relating to multiple series of CMBS, including the Offered Notes, with the SEC. This prospectus will form a part of the Registration Statement, but the Registration Statement includes additional information. Copies of the Registration Statement and other materials filed with or furnished to the SEC, including Distribution Reports on Form 10-D, Annual Reports on Form 10-K, Current Reports on Form 8-K, Forms ABS-15G, Form ABS-EE, and any amendments to these reports may be accessed electronically at “http://www.sec.gov” at which you can view and download copies of reports, proxy and information statements and other information filed or furnished electronically through the Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system.
The depositor has met the registrant requirements of Section I.A.1. of the General Instructions to the Registration Statement.
Copies of all reports of the issuing entity on Forms ABS-EE, 10-D, 10-K and 8-K will also be made available on the website of the [indenture trustee][note administrator] as soon as reasonably practicable after these materials are electronically filed with or furnished to the SEC through the EDGAR system.
Financial Information
The issuing entity will be newly formed and will not have engaged in any business activities or have any assets or obligations prior to the issuance of the Offered Notes. Accordingly, no financial statements with respect to the issuing entity are included in this prospectus.
The depositor has determined that its financial statements will not be material to the offering of the Offered Notes.
Certain ERISA Considerations
The U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes certain requirements on “employee benefit plans” (as defined in Section 3(3) of ERISA) subject to the fiduciary
responsibility provisions of Title I of ERISA and on including entities such as collective investment funds and separate accounts whose underlying assets include the assets of such plans (collectively, “ERISA Plans”), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciary requirements, including, without limitation, requirements relating to “prohibited transactions.”
Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the assets of ERISA Plans and of plans that are not subject to ERISA but that are subject to the prohibited transaction provisions of Section 4975 of the Code (such as individual retirement accounts (together with ERISA Plans, “Plans”)) and persons (referred to as “parties in interest” under ERISA or “disqualified persons” under the Code) having certain relationships to such Plans, unless a statutory, regulatory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and Section 4975 of the Code.
The U.S. Department of Labor (the “DOL”) has promulgated regulations, 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA (the “Plan Asset Regulations”), describing what constitutes the assets of a Plan with respect to the Plan’s investment in an entity for purposes of certain provisions of ERISA, including the fiduciary responsibility provisions of Title I of ERISA, and Section 4975 of the Code. Under the Plan Asset Regulations, if a Plan invests in an “equity interest” of an entity that is neither a “publicly offered security” nor a security issued by an investment company registered under the 1940 Act, the Plan’s assets include both the equity interest and an undivided interest in each of the entity’s underlying assets, unless it is established that the entity is an “operating company” or that equity participation in the entity by Benefit Plan Investors is not “significant.”
In general, an “equity interest” is defined under the Plan Asset Regulations as any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and that has no substantial equity features. Equity participation by Benefit Plan Investors is “significant” on any date if, immediately after the most recent acquisition of any equity interest in the entity, 25% or more of the value of any class of equity interests in the entity is held by Benefit Plan Investors. For purposes of making the 25% determination, the Plan Asset Regulations provide that the value of any equity interests held by a person (other than a Benefit Plan Investor) who has discretionary authority or control with respect to the assets of the entity or provides investment advice for a fee (direct or indirect) with respect to such assets, or any affiliate of any such person is disregarded. A “Benefit Plan Investor” generally is defined in the Plan Asset Regulations as: (i) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to the fiduciary responsibility provisions of Title I of ERISA; (ii) a “plan” (including an individual retirement account or a “Keogh” plan) within the meaning of Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code; or (iii) any entity whose underlying assets include “plan assets” under the Plan Asset Regulations by reason of any such employee benefit plan’s or plan’s investment in the entity. Thus, if the Offered Notes constitute debt with no substantial equity features for purposes of the Plan Asset Regulations, then a Plan’s acquisition of such Offered Notes will not cause the assets of the issuing entity to be deemed to be assets of such Plan for purposes of Sections 404 and 406 of ERISA or Section 4975 of the Code, and the Plan’s interest will be deemed solely to include an interest in such Offered Notes. Conversely, if the Offered Notes constitute an equity interest for purposes of the Plan Asset Regulations, then a Plan’s acquisition of such Offered Notes may cause the assets of the issuing entity to be deemed to be assets of such Plan for purposes of Sections 404 and 406 of ERISA and Section 4975 of the Code. In such event, the fiduciary responsibility and prohibited transaction restrictions of ERISA and Section 4975 of the Code would apply to transactions involving the assets of the issuing entity, and such transactions could give rise to prohibited transactions for which no exemption is available.
The issuing entity believes that the Offered Notes should not be considered to be “equity interests” in the issuing entity for purposes of the Plan Asset Regulations, although there can be no assurance in this regard. Nevertheless, prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may arise if any Offered Notes are acquired by a Plan with respect to which the issuing entity, the note administrator, the indenture trustee, the underwriters, the holder of the [LIST NOTES OR IOS OTHER THAN “OFFERED NOTES” AND ANY PREFERENCE SHARES OR SIMILAR SECURITIES], or any of their respective affiliates, is a party in interest or a disqualified person. Similarly,
prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may arise if any Offered Notes are acquired by a person or entity that is a party in interest or disqualified person with respect to a Plan that acquires or holds an equity interest in the issuing entity. Certain exemptions from the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code may be applicable to an investment by or with assets of a Plan, however, depending in part on the type of Plan fiduciary making the decision to acquire any Offered Notes and the circumstances under which such decision is made. Included among these exemptions are Prohibited Transaction Class Exemption (“PTCE”) 84-14 (relating to investments effected by a “qualified professional asset manager”), PTCE 90-1 (relating to investments by insurance company pooled separate accounts), PTCE 91-38 (relating to investments by bank collective investment funds), PTCE 95-60 (relating to transactions by insurance company general accounts) and PTCE 96-23 (relating to transactions effected by in house asset managers). In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provide a statutory exemption for prohibited transactions between a Plan and a person that is a party in interest or a disqualified person (other than a fiduciary or an affiliate that has or exercises discretionary authority or control or renders investment advice with respect to the assets involved in the transaction) solely by reason of providing services to the Plan, provided that there is adequate consideration for the transaction. However, there can be no assurance that any exemption will be available with respect to any particular transaction involving the Offered Notes and, even if the conditions specified in one or more exemptions are met, the scope of the relief provided by an exemption might not cover all acts that might be prohibited transactions.
Governmental plans, certain church plans and certain other plans, while not subject to the fiduciary responsibility and prohibited transaction provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to local, state, federal or other law that is substantially similar to the prohibited transaction provisions of ERISA and of the Code. Fiduciaries of any such plans should consult with their own counsel regarding the need for and the availability of exemptive relief before purchasing any Offered Notes.
BY ITS PURCHASE OF AN OFFERED NOTE, THE PURCHASER THEREOF WILL BE DEEMED TO HAVE REPRESENTED, AGREED AND WARRANTED THAT EITHER (I) IT IS NOT AND WILL NOT BE, AND IS NOT ACTING ON BEHALF OF OR USING ANY ASSETS OF ANY PERSON THAT IS OR WILL BECOME, A BENEFIT PLAN INVESTOR OR ANY OTHER EMPLOYEE BENEFIT PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR OTHER LAW THAT IS SUBSTANTIALLY SIMILAR TO SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (“SIMILAR LAW”) OR ANY ENTITY WHOSE UNDERLYING ASSETS ARE DEEMED TO INCLUDE “PLAN ASSETS” BY REASON OF ANY SUCH EMPLOYEE BENEFIT PLAN’S OR PLAN’S INVESTMENT IN THE ENTITY OR OTHERWISE (ANY OF THE FOREGOING, A “PLAN”), OR (II) ITS ACQUISITION, HOLDING AND DISPOSITION OF ANY OFFERED NOTES DO NOT AND WILL NOT CONSTITUTE OR GIVE RISE TO A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, OR, IN THE CASE OF A PLAN SUBJECT TO SIMILAR LAW, A NON-EXEMPT VIOLATION OF SIMILAR LAW.
Any insurance company proposing to invest assets of its general account in the Offered Notes should consider the extent to which such investment would be subject to the requirements of ERISA in light of the U.S. Supreme Court’s decision in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank and under any subsequent guidance that may become available relating to that decision. In particular, such an insurance company should consider the retroactive and prospective exemptive relief granted by the DOL for transactions involving insurance company general accounts in PTCE 95-60 and 29 C.F.R. § 2550.401c-1.
Any fiduciary of a Plan which proposes to use assets of a Plan to purchase any Offered Notes should consult with its own counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such investment will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA or Section 4975 of the Code.
In addition, each Benefit Plan Investor, by purchasing or otherwise acquiring any Offered Note or interest therein, will be deemed to have acknowledged and agreed that none of the issuing entity, the note administrator, the indenture trustee, the underwriters, the master servicer or the special servicer or any of their respective affiliates (the “Transaction Parties”), has provided any investment advice on which it, or any fiduciary or other person investing the assets of the Benefit Plan Investor (a “Plan Fiduciary”), has relied in connection with its decision to invest in the Offered Notes.
The sale of any Offered Notes to a Plan is in no respect a representation by the Transaction Parties that such an investment meets all relevant legal requirements with respect to investments by Plans generally or any particular Plan, or that such an investment is appropriate for Plans generally or any particular Plan.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN IMPLICATIONS UNDER ERISA, SECTION 4975 OF THE CODE OR SIMILAR LAW OF AN INVESTMENT IN THE OFFERED NOTES BY A PLAN. PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN LEGAL, TAX, FINANCIAL OR OTHER ADVISORS PRIOR TO INVESTING TO DETERMINE THE IMPLICATIONS UNDER ERISA, SECTION 4975 OF THE CODE OR SIMILAR LAW OF SUCH INVESTMENT IN LIGHT OF EACH SUCH INVESTOR’S PARTICULAR CIRCUMSTANCES.
Legal Investment
[SPECIFY CLASSES] [None of the] classes of Offered Notes will constitute “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended (“SMMEA”). Generally, the only classes of Offered Notes which will qualify as “mortgage related securities” will be those that (1) are rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization, as defined in Section 3(a)(62) of the Exchange Act (“NRSRO”); and (2) are part of a series evidencing interests in a trust consisting of loans originated by certain types of originators specified in SMMEA and secured by first liens on real estate.
Although Section 939(e) of the Dodd-Frank Act amended SMMEA, effective July 21, 2012, so as to require the SEC to establish creditworthiness standards by that date in substitution for the foregoing ratings test, the SEC has neither proposed nor adopted a rule establishing new creditworthiness standards for purposes of SMMEA as of the date of this prospectus. However, the SEC has issued a transitional interpretation (Release No. 34-67448 (effective July 20, 2012)), which provides that, until such time as final rules establishing new standards of creditworthiness become effective, the standard of creditworthiness for purposes of the definition of the term “mortgage related security” is a security that is rated in one of the two highest rating categories by at least one NRSRO. Depending on the standards of creditworthiness that are ultimately established by the SEC, it is possible that certain classes of Offered Notes specified to be “mortgage related securities” for purposes of SMMEA may no longer qualify as such as of the time such new standards are effective.
The appropriate characterization of the Offered Notes under various legal investment restrictions, and thus the ability of investors subject to those restrictions to purchase the Offered Notes, are subject to significant interpretive uncertainties. We make no representation as to the proper characterization of the Offered Notes for legal investment, financial institution regulatory, or other purposes, or as to the ability of particular investors to purchase any Offered Notes under applicable legal investment restrictions. Further, any ratings downgrade of a class of Offered Notes by an NRSRO to less than an “investment grade” rating (i.e., lower than the top four rating categories) may adversely affect the ability of an investor to purchase or retain, or otherwise impact the regulatory characteristics of, that class. The uncertainties described above (and any unfavorable future determinations concerning the legal investment or financial institution regulatory characteristics of the Offered Notes) may adversely affect the liquidity and market value of the Offered Notes.
Accordingly, if your investment activities are subject to legal investment laws and regulations, regulatory capital requirements, or review by regulatory authorities, you should consult with your own
legal advisors in determining whether and to what extent the Offered Notes constitute legal investments or are subject to investment, capital, or other regulatory restrictions.
The issuing entity will not be registered under the Investment Company Act of 1940, as amended. The issuing entity will be relying on an exclusion or exemption from the definition of “investment company” under the Investment Company Act of 1940, as amended contained in Section 3(c)(5)(C) of the Investment Company Act of 1940, as amended, or Rule 3a-7 under the Investment Company Act of 1940, as amended, although there may be additional exclusions or exemptions available to the issuing entity. The issuing entity is being structured so as not to constitute a “covered fund” for purposes of the Volcker Rule under the Dodd-Frank Act.
Legal Matters
The validity of the notes and material federal income tax matters will be passed upon for the depositor by Cadwalader, Wickersham & Taft LLP. Certain legal matters will be passed upon for the underwriters by [________].
Ratings
It is a condition of the issuance of the notes that (i) the Class [__] notes be issued with ratings of “[__]” by [__] and “[__]” by [__], (ii) the Class [__] notes be issued with a rating of “[__]” by [__], (iii) the Class [__] notes be issued with a rating of at least “[__]” by [__], (iv) the Class [__] notes be issued with a rating of at least “[__]” by [__], (v) the Class [__] notes be issued with a rating of at least “[__]” by [__], (vi) the Class [__] notes be issued with a rating of at least “[__]” by [__] and (vii) the Class [__] notes be issued with a rating of at least “[__]” by [__]. Such classes of notes will not be rated by any other NRSRO. The Class [__] notes will not be rated by [__], [__] or any other NRSRO. A security rating is not a recommendation to buy, sell or hold securities and is subject to withdrawal at any time. There is no assurance that a rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by the assigning of a Rating Agency if in its judgment circumstances in the future so warrant.
The ratings assigned to the notes by [__] and [__] are based upon their assessment of the probability that the Mortgage Loans will provide sufficient funds to pay such notes, based largely upon the Rating Agencies’ statistical analysis of historical default rates on debt obligations with various ratings, expected recovery rates on the Mortgage Loans, and the asset and interest coverage required for such notes (which is achieved through the subordination of more junior notes).
The ratings of the notes address the likelihood of the timely payment of interest and of the ultimate payment of principal by the Stated Maturity Date of the Class [__] notes, Class [__] notes and Class [__] notes and the likelihood of the ultimate payment of interest and principal by the Stated Maturity Date of the Class [__] notes, Class [__] notes, Class [__] notes and the Class [__] notes.
The ratings of the notes take into consideration the characteristics and credit quality of the Mortgage Loans and the structural and legal aspects associated with the notes and the extent to which the payment stream from the Mortgage Loans is adequate to make payments required under the notes. The ratings on the notes do not, however, constitute statements regarding the likelihood or frequency of prepayments, both voluntary and involuntary, on the Mortgage Loans, the tax attributes of the notes or the possibility that Noteholders might realize a lower than anticipated yield. The rating applicable for each class does not address the likelihood of receipt of any Defaulted Interest Amount. In addition, a rating does not address the likelihood or frequency of the receipt of prepayment premiums, yield maintenance or spread maintenance charges or net default interest. A securities rating does not assess the yield to maturity that investors may experience and, in general, the ratings address credit risk and not prepayment risk.
Other NRSROs that we have not engaged to rate the notes may nevertheless issue unsolicited credit ratings on one or more classes of notes, relying on information they receive pursuant to Rule 17g-5 or otherwise. If any such unsolicited ratings are issued, we cannot assure you that they will not be different
from those ratings assigned by the Rating Agencies. The issuance of an unsolicited rating on a class of notes that is lower than the ratings assigned by the Rating Agencies may adversely impact the liquidity, market value and regulatory characteristics of that class. Neither the issuing entity nor any other person or entity will have any duty to notify you if any such other NRSRO issues, or delivers notice of its intention to issue, unsolicited ratings on one or more classes of the notes after the date of the final Prospectus. In no event will ratings confirmation from any such other NRSRO be a condition to any action, or the exercise of any right, power or privilege by any person or entity under the Indenture.
Furthermore, the SEC may determine that [__] or [__] no longer qualify as an NRSRO, or is no longer qualified to rate the notes, and that determination may have an adverse effect on the liquidity, market value and regulatory characteristics of the notes.
[The Rating Agencies have informed us that the “sf” designation in the ratings represents an identifier of structured finance product ratings. For additional information about this identifier, prospective investors can register and log onto the respective Rating Agency website. The issuing entity and the underwriters have not verified, do not adopt and do not accept responsibility for any statements made by the Rating Agencies on their respective websites.]
Although the depositor will prepay fees for ongoing rating surveillance by certain of the Rating Agencies, the depositor has no obligation or ability to ensure that any Rating Agency performs ratings surveillance. In addition, a Rating Agency may cease ratings surveillance if the information furnished to that Rating Agency is insufficient to allow it to perform surveillance.
Index of Significant Definitions
[ | |
[Assumed] Note Coupon | 209 |
[Expected] Price | 209 |
[INTEREST-ONLY CLASS] Defaulted Interest Amount | 221 |
[INTEREST-ONLY CLASS] Special Redemption | 229 |
| 1 | |
17g-5 Information Provider | 238 |
1996 Act | 352 |
| 3 | |
30/360 Basis | 160 |
3650 REIT | 185 |
3650 REIT Data Tape | 186 |
3650 REIT Deal Team | 186 |
3650 REIT Mortgage Loans | 185 |
3650 REIT Qualification Criteria | 187 |
| A | |
AB Control Appraisal Period | 178 |
AB Intercreditor Agreement | 174 |
AB Major Decisions | 178 |
AB Material Event of Default | 175 |
AB Mortgage Loan | 174 |
AB Whole Loan | 169, 174 |
Acceptable Insurance Default | 280 |
Acting General Counsel’s Letter | 119 |
Actual/360 Basis | 160 |
Actual/360 Loans | 259 |
Additional Exclusions | 279 |
Administrative Cost Rate | 261 |
ADR | 130 |
Advances | 255 |
Affiliate Debt | 169 |
Affirmative Asset Review Vote | 311 |
Announcements | 95 |
Annual Debt Service | 130 |
Anticipated Repayment Date | 160 |
Appraisal Institute | 247 |
Appraisal Reduction Amount | 275 |
Appraisal Reduction Event | 274 |
Appraised Value | 130 |
Appraised-Out Class | 278 |
ARD Loan | 160 |
Assessment of Compliance | 334 |
Asset Representations Reviewer Fee | 261, 273 |
Asset Review | 313 |
Asset Review Notice | 312 |
Asset Review Quorum | 312 |
Asset Review Report | 314 |
Asset Review Standard | 313 |
Asset Review Trigger | 310 |
Asset Review Vote | 311 |
Asset Review Vote Election | 311 |
Asset Reviewer Termination Event | 315 |
Asset Status Report | 286 |
Assumed Scheduled Payment | 222 |
Attestation Report | 334 |
Available Funds | 218 |
| B | |
Balloon Balance | 130 |
Bankruptcy Code | 346 |
BBA | 95 |
Beds | 139 |
Benefit Plan Investor | 373 |
B-Piece Buyer | 205 |
Breach Notice | 245 |
| C | |
C(WUMP)O | 17 |
CERCLA | 352 |
Class [A] Percentage Interest | 215 |
Class [A]-Exchange Percentage Interest | 215 |
Class [B] Deferred Interest Amount | 224 |
