As filed with the Securities and Exchange Commission on May 29, 2002
Registration No. [_______]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
56-1950039
(I.R.S. employer identification number)
Bank of America Corporate Center
Charlotte, North Carolina 28255
(704) 386-2400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
David A. Gertner
Banc of America Commercial Mortgage Inc.
Bank of America Corporate Center, NC1-007-11-07
Charlotte, North Carolina 28255
(704) 386-3621
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
--------------
Copies to:
Dean B. Roberson, Esq. Henry A. LaBrun, Esq.
Assistant General Counsel Cadwalader, Wickersham & Taft
Bank of America, N.A. 227 West Trade Street
Bank of America Corporate Center, Charlotte, North Carolina 28202
NC1-007-20-01
Charlotte, North Carolina 28255
================================================================================
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest plans, please check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Securities Being Amount to be Price Offering Registration
Registered (1) Registered Per Unit Price (3) Fee
- --------------------------------------------------------------------------------
Mortgage Pass-Through $1,000,000.00 (2) 100% $1,000,000.00 $92.00
Certificates
- --------------------------------------------------------------------------------
(1) This Registration Statement and the registration fee pertain to
the initial offering of the Mortgage Pass-Through Certificates registered
hereunder by the registrant and to offers and sales relating to market-making
transactions by Banc of America Securities LLC, an affiliate of the registrant.
The amount of Mortgage Pass-Through Certificates that may be initially offered
hereunder and the registration fee shall not be affected by any offers and sales
relating to any such market-making transactions.
(2) $1,691,505,872 aggregate principal amount of Mortgage
Pass-Through Certificates registered by the Registrant under Registration
Statement No. 333-65298 (the "Prior Registration Statement") referred to below
and not previously sold is carried forward in this Registration Statement
pursuant to Rule 429. All registration fees in connection with such unsold
amount of Mortgage Pass-Through Certificates have been previously paid by the
Registrant under the Prior Registration Statement.
(3) Estimated solely for the purposes of calculating the
registration fee.
PURSUANT TO RULE 429 OF THE SECURITIES AND EXCHANGE COMMISSION'S RULES AND
REGULATIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS AND
PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION STATEMENT NO.
333-65298).
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
2
The information in this prospectus supplement will be
amended or completed; dated _________ ___, 2002.
Prospectus Supplement
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
Depositor
---------------------------------
Master Servicer
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 200_-_
- -----------------------------
CONSIDER CAREFULLY THE RISK The Series 200__-__ Mortgage
FACTORS BEGINNING ON PAGE __ Pass-Through Certificates will
IN THIS PROSPECTUS SUPPLEMENT consist of the following classes:
AND PAGE __ IN THE
ACCOMPANYING PROSPECTUS. o the senior certificates
consisting of the Class A
Neither the certificates nor Certificates;
the underlying mortgage loans
are insured or guaranteed by o the Class B Certificates;
any governmental agency.
o the Class C Certificates; and
The certificates will
represent interests only in the Class R Certificates.
the trust and will not
represent interests in or Only the senior certificates and
obligations of Banc of America the Class B Certificates are
Commercial Mortgage Inc. or offered hereby.
any of its affiliates,
including Bank of America
Corporation.
- -----------------------------
Certain characteristics of the offered certificates include:
INITIAL CERTIFICATE BALANCE OR
CLASS NOTIONAL AMOUNT PASS-THROUGH RATE RATING
- ----- ------------------------------ ---------------- ------
A $_____________________ ____%
B $_____________________ ____%
The underwriter, ____________________, will purchase the offered
certificates from Banc of America Commercial Mortgage Inc. and will offer them
to the public at negotiated prices determined at the time of sale. The
underwriter expects to deliver the offered certificates to purchasers on or
about ___________. Banc of America Commercial Mortgage Inc. expects to receive
from this offering approximately ___% of the initial principal amount of the
offered certificates, [plus accrued interest from __________], before deducting
expenses payable by Banc of America Commercial Mortgage Inc.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER(S)]
______________, 2002
TABLE OF CONTENTS
FOR MORE INFORMATION
Important Notice About in this Prospectus
Banc of America Commercial Supplement and the Prospectus
Mortgage Inc. has filed with
the SEC additional Summary of Prospectus Supplement........1
registration materials Risk Factors...........................15
relating to the Description Of The Mortgage Pool.......18
certificates. You may read General.............................18
and copy any of these Certain Payment Characteristics.....19
materials at the SEC's Public [The Index].........................20
Reference Room at the [Delinquent Mortgage Loans].........20
following locations: Additional Mortgage Loan Information20
The Mortgage Loan Seller............28
o SEC Public Reference Underwriting Standards..............28
Section Representations and Warranties;
450 Fifth Street, N.W. Repurchases......................28
Room 1204 Changes in Mortgage Pool
Washington, D.C. 20549 Characteristics..................29
Servicing Of The Mortgage Loans........29
o SEC Midwest Regional General.............................29
Offices Citicorp Center The Master Servicer.................30
500 West Madison Street Prepayment Experience of Master
Suite 1400 Servicer's Multifamily and
Chicago, Illinois 60661-2511 Commercial Mortgage Loan Servicing
Portfolio........................31
You may obtain information on The Special Servicer................31
the operation of the Public Servicing and Other Compensation and
Reference Room by calling the Payment of Expenses..............31
SEC at 1-800-SEC-0330. The Modifications, Waivers and Amendments33
SEC also maintains an Inspections; Collection of Operating
Internet site that contains Information......................33
reports, proxy and Additional Obligations of the Master
information statements, and Servicer with Respect to ARM Loans34
other information that has Description Of The Certificates........34
been filed electronically General.............................34
with the SEC. The Internet Book-Entry Registration of the
address is Offered Certificates.............35
http://www.sec.gov. Distributions.......................36
Subordination; Allocation of
You may also contact Banc of Collateral Support Deficit.......40
America Commercial Mortgage Advances............................41
Inc. in writing at Bank of Reports to Certificateholders;
America Corporate Center, 100 Certain Available Information....42
North Tryon Street, Voting Rights.......................43
Charlotte, North Carolina Termination; Retirement of
28255, or by telephone at Certificates.....................43
(704) 386-2400. The Trustee.........................44
Yield And Maturity Considerations......44
See also the sections Yield Considerations................44
captioned "Available Weighted Average Life...............47
Information" and Yield Sensitivity of the Class X
"Incorporation of Certain Certificates.....................49
Information by Reference" Certain Federal Income Tax Consequences50
appearing at the end of the Special Tax Considerations Applicable
accompanying prospectus. to REMIC Residual Certificates...51
Method Of Distribution.................52
Legal Matters..........................53
Rating.................................53
Legal Investment.......................53
Erisa Considerations...................54
i
IMPORTANT NOTICE ABOUT IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may apply to the
offered certificates, and (b) this prospectus supplement, which describes the
specific terms of the offered certificates. If the terms of the offered
certificates vary between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the Series ____-___ and the trust in abbreviated form:
Summary of Prospectus Supplement, which shows certain characteristics of
the offered certificates in tabular form; and
Risk Factors, which describes risks that apply to the offered certificates
which are in addition to those described in the prospectus with respect to the
securities issued by the trust generally.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus and the accompanying
prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the accompanying prospectus to assist you in understanding the
terms of the offered certificates and this offering. The capitalized terms used
throughout this prospectus supplement are defined on the pages indicated under
the caption "Glossary" beginning on page S-___ in this prospectus supplement.
The capitalized terms used in the prospectus are defined on the pages indicated
under the caption "Glossary" beginning on page ___ in the prospectus.
--------------------
Until _______, all dealers that buy, sell or trade the offered
certificates, whether or not participating in this offering, may be required to
deliver a prospectus supplement and the accompanying prospectus. This is in
addition to the dealers' obligation to deliver a prospectus supplement and the
accompanying prospectus, when acting as underwriters and with respect to their
unsold allotments or subscriptions.
[If and to the extent required by applicable law or regulation, this prospectus
supplement and the prospectus will be used by the underwriter in connection with
offers and sales related to market-making transactions in the offered
certificates with respect to which the underwriter is a principal. The
underwriter may also act as agent in such transactions. Such sales will be made
at negotiated prices determined at the time of sale.]
ii
SUMMARY OF PROSPECTUS SUPPLEMENT
This summary highlights selected
information from this prospectus supplement. It
does not contain all of the information you need
to consider in making your investment decisions.
TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF
THE OFFERED CERTIFICATES, READ THIS ENTIRE
DOCUMENT AND THE ACCOMPANYING PROSPECTUS
CAREFULLY. As used in this prospectus supplement,
"you" refers to a prospective investor in the
offered certificates, and "we" refers to the
depositor, Banc of America Commercial Mortgage
Inc.. A "Glossary" appears at the end of this
prospectus supplement and at the end of the
accompanying prospectus.
TITLE OF CERTIFICATES
Banc of America Commercial Mortgage Inc. Mortgage
Pass-Through Certificates, Series 200__-__.
TRUSTEE
_____________________. See "Description of the
Certificates-The Trustee" in this prospectus
supplement.
DEPOSITOR
Banc of America Commercial Mortgage Inc.. See "The
Depositor" in the prospectus.
MASTER SERVICER
_____________________. See "Servicing of the
Mortgage Loans-The Master Servicer" in this
prospectus supplement.
SPECIAL SERVICER
_____________________. See "Servicing of the
Mortgage Loans-The Special Servicer" in this
prospectus supplement.
REMIC ADMINISTRATOR
_____________________. See "Certain Federal Income
Tax Consequences-REMICs-Reporting and Other
Administrative Matters" and "The Pooling and
Servicing Agreements-Events of Default" and
"-Rights Upon Event of Default" in the
accompanying prospectus.
S-1
MORTGAGE LOAN SELLER
________________________. See "Description of the
Mortgage Pool-The Mortgage Loan Seller" in this
prospectus supplement.
CUT-OFF DATE
___________________, 200__.
DELIVERY DATE
On or about ___________________, 200__.
DENOMINATIONS
The Class A Certificates will be issued,
maintained and transferred on the book-entry
records of The Depository Trust Company in minimum
denominations of $25,000. Investments in excess of
the minimum denomination may be made in multiples
of $1. The Class B Certificates will be issued in
fully registered, certificated form in
denominations of $100,000. Investments in excess
of the minimum denomination may be made in
multiples of $1,000. There will be one Class B
Certificate evidencing an additional amount equal
to the remainder of the initial certificate
balance of such class.
CERTIFICATE REGISTRATION
The Class A Certificates will be represented by
one or more global certificates registered in the
name of Cede & Co., as nominee of The Depository
Trust Company. No person acquiring an interest in
the Class A Certificates will be entitled to
receive a Class A Certificate in fully registered,
certificated form, except under the limited
circumstances described in this prospectus
supplement and in the accompanying prospectus. The
Class B Certificates will be offered in fully
registered, certificated form. See "Description of
the Certificates-Book-Entry Registration of the
Class A Certificates" in this prospectus
supplement and "Description of the
Certificates-Book-Entry Registration and
Definitive Certificates" in the accompanying
prospectus.
THE MORTGAGE POOL
The mortgage pool will consist of _____
conventional, multifamily and commercial mortgage
loans with an initial pool balance of
$_________________. On or prior to _________ ___,
200__, we will acquire the mortgage loans from the
mortgage loan seller pursuant to a mortgage loan
purchase and sale agreement.
S-2
Each mortgage loan is secured by a first mortgage
lien on a fee simple and/or leasehold interest in
a commercial or multifamily rental property. Set
forth below are the number of mortgage loans, and
the approximate percentage of the aggregate
principal balance of the mortgage loans
represented by such mortgage loans, that are
secured by mortgaged properties operated for each
indicated purpose:
Percentage of
Number of initial pool
Property Type mortgage loans balance
------------- ------------------
[Multifamily..................]
[Specify various types of
commercial properties]........]
See "Risk Factors-Risks Associated With
Multifamily Properties" and "-Risks Associated
with ___________ Properties" and "Description of
the Mortgage Pool-Additional Mortgage Loan
Information" in this prospectus supplement.
The mortgaged properties are located throughout
____ states. Set forth below are the number of
mortgage loans, and the approximate percentage of
the initial pool balance represented by such
mortgage loans, that are secured by mortgaged
properties located in the _____ states with the
highest concentrations:
Percentage of
Number of initial pool
State mortgage loans balance
- ----- -------------- -------
[Specify all stated with a
concentration of 10%
or greater...................]
___________ of the mortgage loans, which
___________ of the mortgage loans, which represent
______% of the initial pool balance, provide for
monthly payments of principal and/or interest to
be due on the first day of each month; the
remainder of the mortgage loans provide for
monthly payments to be due on the ____, _____,
_____ or _____ day of each month.
The annualized rate at which interest accrues on
____ of the mortgage loans, which represent _____%
of the initial pool balance, is subject to
adjustment on specified due dates by adding a
fixed number of basis points to the value of a
base index, subject, in ______ cases, to lifetime
maximum and/or minimum mortgage rates, and in
_____ cases, to periodic maximum and/or minimum
mortgage rates, in each case as described in this
prospectus supplement. The remaining mortgage
loans bear interest at fixed mortgage rates. ____
of the adjustable rate mortgage loans mentioned
above, which represent ___% of the initial pool
balance, provide for mortgage rate adjustments to
occur monthly, while the remainder of such
mortgage loans provide for mortgage rate
adjustments to occur semi-annually or annually.
[Identify Mortgage Loan Index] See "Description of
the Mortgage Pool-Certain Payment Characteristics"
in this prospectus supplement.
S-3
The amount of the monthly payment on all of the
adjustable rate mortgage loans is subject to
adjustment on specified due dates to an amount
that would amortize the outstanding principal
balance of the mortgage loan over its then
remaining amortization schedule and pay interest
at the then applicable mortgage rate. Payment
adjustments for adjustable rate mortgage loans
will occur on the due date following each related
interest rate adjustment.
_________ of the mortgage loans provide for
monthly payments of principal based on
amortization schedules significantly longer than
the remaining terms of such mortgage loans,
thereby leaving substantial principal amounts due
and payable with corresponding interest payments,
on their respective maturity dates, unless prepaid
prior thereto.
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued pursuant to a
pooling and servicing agreement, and will
represent in the aggregate the entire beneficial
ownership interest in the trust fund, which will
consist of the mortgage pool and certain related
assets.
The aggregate balance of the certificates as of
the date they are delivered to the underwriter
will equal the initial pool balance. Each of the
Class A Certificates and the Class B Certificates
will have the initial certificate balance set
forth on the cover page, and the Class C
Certificates will have an initial certificate
balance of $____________. The Class R Certificates
will not have a certificate balance. See
"Description of the Certificates-General" in this
prospectus supplement.
The yearly pass-through rate applicable to each
class of certificates for the initial date of
distribution will be _____%. With respect to any
date of distribution subsequent to the initial
date of distribution, the pass-through rate for
each class of certificates will equal the weighted
average of the applicable effective net mortgage
rates for the mortgage loans, weighted on the
basis of their respective stated principal
balances (as described in this prospectus
supplement) immediately prior to such date of
distribution.
For purposes of calculating the pass-through rate
for any class of certificates and any date of
distribution, the applicable effective net
mortgage rate for each mortgage loan is an
annualized rate equal to--
S-4
o the mortgage rate in effect for such mortgage loan as of the
[second] day of the most recently ended calendar month;
o reduced by ___ basis points; and
o if the accrual of interest on such mortgage loan is computed other
than on the basis of a 360-day year consisting of twelve 30-day
months (which is the basis of accrual for interest on the
certificates), then adjusted to reflect that difference in
computation.
See "Description of the
Certificates-Distributions-Pass-Through Rates" and
"-Distributions-Certain Calculations with Respect
to Individual Mortgage Loans" in this prospectus
supplement.
INTEREST DISTRIBUTIONS ON THE
SENIOR CERTIFICATES
On each date of distribution, to the extent of the
available distribution amount, holders of each
class of senior certificates will be entitled to
receive distributions of interest in an amount
equal to--
o distributable certificate interest with respect to such certificates
for such date of distribution; and
o any interest not paid from any prior date of distribution.
See "Description of the
Certificates-Distributions" in this prospectus
supplement.
The distributable certificate interest in respect
of any class of certificates for any date of
distribution will equal one month's interest at
the then-applicable pass-through rate accrued on
the certificate balance of that class of
certificates immediately prior to the date of
distribution, reduced (to not less than zero) by
the class of certificates' allocable share (in
each case, calculated as described in this
prospectus supplement) of any net aggregate
prepayment interest shortfall (also as described
in this prospectus supplement) for that date of
distribution. See "Description of the
Certificates-Distributions-Distributable
Certificate Interest" in this prospectus
supplement.
The available distribution amount for any date of
distribution is the total of all payments or other
collections (or available advances) on or in
respect of the mortgage loans that are available
for distribution on the certificates on that date.
S-5
PRINCIPAL DISTRIBUTIONS ON
THE SENIOR CERTIFICATES
On each date of distribution, to the extent of the
available distribution amount remaining after the
distributions of interest to be made on the senior
certificates on that date, holders of the senior
certificates will be entitled to distributions of
principal (until the certificate balances of such
classes of certificates are reduced to zero) in an
aggregate amount equal to the sum of--
o the related holders' pro rata share of the scheduled principal
distribution amount for such date of distribution, plus
o the entire unscheduled principal distribution amount for that date
of distribution.
Distributions of principal on the senior
certificates will be paid to the holders of the
senior certificates until the certificate balance
of those certificates is reduced to zero. See
"Description of the Certificates Distributions
Scheduled Principal Distribution Amount and
Unscheduled Principal Distribution Amount" in this
prospectus supplement.
INTEREST DISTRIBUTIONS ON
THE CLASS B CERTIFICATES
On each date of distribution, to the extent of the
available distribution amount remaining after all
distributions to be made on the senior
certificates on that date, holders of the Class B
Certificates will be entitled to receive
distributions of interest in an amount equal to
all--
o distributable certificate interest with respect to those
certificates for that date of distribution; and
o any interest not paid from any prior date of distribution.
See "Description of the
Certificates-Distributions" in this prospectus
supplement.
PRINCIPAL DISTRIBUTIONS ON
THE CLASS B CERTIFICATES
On each date of distribution, to the extent there
are amounts remaining after the distributions of
interest to be made on the Class B Certificates on
that date, holders of the Class B Certificates
will be entitled to distributions of principal
(until the certificate balance of such Class B
Certificates is reduced to zero) in an amount
equal to the sum of--
o such holders' pro rata share of the scheduled principal distribution
amount for such date of distribution, plus
o if the certificate balances of the senior certificates have been
reduced to zero, then to the extent not distributed in reduction of
such certificate balances on that date of distribution, the entire
unscheduled principal distribution amount for that date of
distribution.
S-6
See "Description of the
Certificates-Distributions" in this prospectus
supplement.
CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS
The yield on the offered certificates of any class
will depend on, among other things, the
pass-through rate for those certificates. The
yield on any offered certificate that is purchased
at a discount or premium will also be affected by
the rate and timing of distributions in respect of
principal on such certificate, which in turn will
be affected by --
o the rate and timing of principal payments (including principal
prepayments) on the mortgage loans; and
o the extent to which such principal payments are applied on any date
of distribution in reduction of the certificate balance of the class
to which that certificate belongs.
See "Description of the
Certificates-Distributions-Priority" and
"-Distributions-Scheduled Principal Distribution
Amount and Unscheduled Principal Distribution
Amount" in this prospectus supplement.
An investor that purchases an offered certificate
at a discount should consider the risk that a
slower than anticipated rate of principal payments
on that certificate will result in an actual yield
that is lower than such investor's expected yield.
An investor that purchases any offered certificate
at a premium should consider the risk that a
faster than anticipated rate of principal payments
on such certificate will result in an actual yield
that is lower than such investor's expected yield.
Insofar as an investor's initial investment in any
offered certificate is repaid, there can be no
assurance that such amounts can be reinvested in a
comparable alternative investment with a
comparable yield.
The actual rate of prepayment of principal on the
mortgage loans cannot be predicted. The mortgage
loans may be prepaid at any time, subject, in the
case of ____ mortgage loans, to payment of a
prepayment premium. The investment performance of
the offered certificates may vary materially and
adversely from the investment expectations of
investors due to prepayments on the mortgage loans
being higher or lower than anticipated by
investors. The actual yield to the holder of an
offered certificate may not be equal to the yield
anticipated at the time of purchase of the
certificate or, notwithstanding that the actual
yield is equal to the yield anticipated at that
time, the total return on investment expected by
S-7
the investor or the expected weighted average life
of the certificate may not be realized. For a
discussion of certain factors affecting prepayment
of the mortgage loans, including the effect of
prepayment premiums, see "Yield and Maturity
Considerations" in this prospectus supplement. IN
DECIDING WHETHER TO PURCHASE ANY OFFERED
CERTIFICATES, AN INVESTOR SHOULD MAKE AN
INDEPENDENT DECISION AS TO THE APPROPRIATE
PREPAYMENT ASSUMPTIONS TO BE USED.
[The structure of the offered certificates causes
the yield of certain classes to be particularly
sensitive to changes in the rates of prepayment of
the mortgage loans and other factors, as follows:]
[Allocation to the senior certificates, for so
long as they are outstanding, of the entire
unscheduled principal distribution amount for each
date of distribution will generally accelerate the
amortization of those certificates relative to the
actual amortization of the mortgage loans.
Following retirement of the Class A Certificates,
the unscheduled principal distribution amount for
each date of distribution will be allocated to the
Class B Certificates.]
[The following disclosure is applicable to
stripped interest certificates, when offered...
The Stripped Interest Certificates. The Class X
Certificates are interest-only certificates and
are not entitled to any distributions in respect
of principal. The yield to maturity of the Class X
Certificates will be especially sensitive to the
prepayment, repurchase and default experience on
the mortgage loans, which may fluctuate
significantly from time to time. A rate of
principal payments that is more rapid than
expected by investors will have a material
negative effect on the yield to maturity of the
Class X Certificates. See "Yield and Maturity
Considerations-Yield Sensitivity of the Class X
Certificates" in this prospectus supplement.]
Class R Certificates: Holders of the Class R
Certificates are entitled to receive distributions
of principal and interest as described in this
prospectus supplement. Holders of those
certificates may have tax liabilities with respect
to their certificates during the early years of
the term of the Trust Fund that substantially
exceed the principal and interest payable thereon
during such periods. See "Yield and Maturity
Considerations", especially "-Additional Yield
Considerations Applicable Solely to the Class R
Certificates," in this prospectus supplement and
"Certain Federal Income Tax Consequences" in this
prospectus supplement and in the accompanying
prospectus.
S-8
ADVANCES
The master servicer is required to make advances
of delinquent principal and interest on the
mortgage loans. In the case of each mortgage loan
that is delinquent in respect of its balloon
payment or as to which the related mortgaged
property was acquired through foreclosure, (or
similar means), the master servicer is only
required to advance delinquent interest. In any
event these advances are subject to the
limitations set forth in this prospectus
supplement. Advances are intended to maintain a
regular flow of scheduled interest and principal
payments to the certificateholders, rather than to
guarantee or insure against losses. Accordingly,
advances which cannot be reimbursed out of
collections on or in respect of the related
mortgage loans will represent a portion of the
losses to be borne by certificateholders.
The master servicer will be entitled to interest
on any advances made, and the master servicer and
the special servicer will each be entitled to
interest on certain servicing expenses incurred by
it or on its behalf, such interest accruing at the
rate and payable under the circumstances described
in this prospectus supplement. Interest accrued on
outstanding advances will result in a reduction in
amounts payable on the certificates. See
"Description of the Certificates-Advances" and
"-Subordination; Allocation of Collateral Support
Deficit" in this prospectus supplement and
"Description of the Certificates-Advances in
Respect of Delinquencies" and "The Pooling and
Servicing Agreements-Certificate Account" in the
accompanying prospectus.
Each distribution date statement delivered by the
trustee to the certificateholders will contain
information relating to the amounts of advances
made with respect to the related date of
distribution. See "Description of the
Certificates-Reports to Certificateholders;
Certain Available Information" in this prospectus
supplement and "Description of
Certificates-Reports to Certificateholders" in the
accompanying prospectus.
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICIT
The rights of the holders of the Class B and Class
C Certificates to receive distributions with
respect to the mortgage loans will be subordinate
to the rights of the holders of the senior
certificates, and the rights of the holders of the
Class C certificates to receive distributions with
respect to the mortgage loans will be subordinate
to the rights of the holders of the Class B
Certificates, in each case to the extent described
in this prospectus supplement and in the
accompanying prospectus. This subordination is
intended to enhance the likelihood of timely
receipt by the holders of the senior certificates
S-9
of the full amount of all interest payable in
respect of such certificates on each date of
distribution, and the ultimate receipt by those
holders of principal in an amount equal to the
entire aggregate certificate balance of the senior
certificates.
Similarly, but to a lesser degree, this
subordination is also intended to enhance the
likelihood of timely receipt by the holders of the
Class B Certificates of the full amount of all
interest payable in respect of those certificates
on each date of distribution, and the ultimate
receipt by such holders of principal in an amount
equal to the entire certificate balance of the
Class B Certificates. This subordination will be
accomplished by the application of the available
distribution amount on each date of distribution
to distributions on the respective classes of
certificates in the order described in this
prospectus supplement under "Description of the
Certificates-Distributions-Priority". No other
form of credit support will be available for the
benefit of the holders of the offered
certificates.
The chart below describes the manner in which the
right of various classes will be senior to the
rights of other classes. Entitlement to receive
principal and interest on any date of distribution
is depicted in descending order.
------------------
CLASS A
------------------
|
|
|
------------------
CLASS B
------------------
|
|
|
------------------
CLASS C
------------------
Allocation to the senior certificates, for so long
as they are outstanding, of the entire unscheduled
principal distribution amount for each
Distribution Date will generally accelerate the
amortization of such certificates relative to the
actual amortization of the mortgage loans. To the
extent that the senior certificates are amortized
faster than the mortgage loans, the percentage
interest evidenced by the senior certificates in
the trust fund will be decreased (with a
corresponding increase in the interest in the
trust fund evidenced by the Class B and Class C
Certificates). This will increase, relative to
their respective certificate balances, the
subordination afforded the senior certificates by
the Class B and Class C Certificates. Following
retirement of the Class A Certificates, allocation
to the Class B Certificates, for so long as they
are outstanding, of the entire unscheduled
S-10
principal distribution amount for each
distribution date will provide a similar benefit
to such class of certificates as regards the
relative amount of subordination afforded thereto
by the Class C Certificates.
As a result of losses and other shortfalls
experienced with respect to the mortgage loans or
otherwise with respect to the trust fund (which
may include shortfalls arising both from interest
accrued on advances and from paying for
nonrecoverable advances), the aggregate stated
principal balance of the mortgage pool expected to
be outstanding immediately following any date of
distribution may be less than the aggregate
certificate balance of the certificates
immediately following the distributions on such
date of distribution. Such deficit will be
allocated first to the Class C Certificates, then
to the Class B Certificates and last to the Class
A Certificates (in reduction of their certificate
balances), in each case until the related
certificate balance has been reduced to zero. See
"Description of the Certificates - Subordination;
Allocation of Collateral Support Deficit" in this
prospectus supplement.
OPTIONAL TERMINATION
At its option, on any date of distribution on
which the remaining aggregate stated principal
balance of the mortgage pool is less than [__]% of
the initial pool balance, the master servicer or
the depositor may purchase all of the mortgage
loans and REO properties, and thereby effect
termination of the trust fund and early retirement
of the then outstanding certificates. See
"Description of the Certificates-Termination;
Retirement of Certificates" in this prospectus
supplement and in the accompanying prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust fund
as a "real estate mortgage investment conduit,"
also referred to in this prospectus supplement as
a "REMIC" for federal income tax purposes. Upon
the issuance of the offered certificates,
Cadwalader, Wickersham & Taft, counsel to the
depositor, will deliver its opinion generally to
the effect that, assuming compliance with all
provisions of the pooling and servicing agreement,
for federal income tax purposes, the Trust Fund
will qualify as a REMIC under Sections 860A
through 860G of the Internal Revenue Code. For
federal income tax purposes, the Class A, Class B
and Class C Certificates will be the "regular
interests" in the REMIC.
Under the REMIC regulations, the Class R
Certificates may constitute "noneconomic" residual
interests for purposes of the REMIC Regulations.
S-11
Transfers of the Class R Certificates will be
restricted under the pooling and servicing
agreement in the case of persons other than U.S.
Persons (as defined in this prospectus supplement)
in a manner designed to prevent a transfer of a
noneconomic residual interest from being
disregarded under the REMIC regulations. See
"Certain Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC Residual
Certificates" in this prospectus supplement and
"Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC
Residual Certificates-Excess Inclusions" and
"-Noneconomic REMIC Residual Certificates" in the
accompanying prospectus.
The Class R Certificateholders may be required to
report an amount of taxable income with respect to
the early years of the trust fund's term that
significantly exceeds distributions on the Class R
Certificates during such years, with corresponding
tax deductions or losses deferred until the later
years of the trust fund's term. Accordingly, on a
present value basis, the tax detriments occurring
in the earlier years may substantially exceed the
sum of any tax benefits in the later years. As a
result, the Class R Certificateholders' after-tax
rate of return may be zero or negative, even if
their pre-tax rate of return is positive.
See "Yield and Maturity Considerations,"
especially "-Additional Yield Considerations
Applicable Solely to the Class R Certificates",
and "Certain Federal Income Tax
Consequences-Special Tax Considerations Applicable
to REMIC Residual Certificates" in this prospectus
supplement.
For further information regarding the federal
income tax consequences of investing in the
offered certificates, see "Certain Federal Income
Tax Consequences" in this prospectus supplement
and in the accompanying prospectus.
RATING
It is a condition of their issuance that the
senior certificates be rated not lower than "___",
and that the Class B Certificates be rated not
lower than "___", by _______________________. A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the
assigning rating agency. A security rating does
not address the frequency of prepayments of
mortgage loans, or the corresponding effect on
yield to investors.
[The following disclosure is applicable to
Stripped Interest Certificates, when offered... A
security rating does not address the frequency or
likelihood of prepayments (whether voluntary or
S-12
involuntary) of mortgage loans, or the possibility
that, as a result of prepayments, investors in the
Class X Certificates may realize a lower than
anticipated yield or may fail to recover fully
their initial investment.] See "Rating" in this
prospectus supplement.
ERISA CONSIDERATIONS
Fiduciaries of retirement plans and certain other
employee benefit plans and arrangements, including
individual retirement accounts, individual
retirement annuities, Keogh plans, and collective
investment funds and separate accounts in which
such plans, accounts, annuities or arrangements
are invested, that are subject to the Employee
Retirement Income Security Act of 1974, as
amended, or Section 4975 of the Internal Revenue
Code, should review with their legal advisors
whether the purchase or holding of offered
certificates could give rise to a transaction that
is prohibited or is not otherwise permissible
either under the Employee Retirement Income
Security Act of 1974 or Section 4975 of the
Internal Revenue Code. Certain employee benefit
plans not subject to the Employee Retirement
Income Security Act of 1974 or the Internal
Revenue Code may be subject to materially similar
restrictions under applicable federal, state or
local law. See "ERISA Considerations" in this
prospectus supplement and in the accompanying
prospectus.
LEGAL INVESTMENT
If your investment activities are subject to legal
investment laws and regulations, regulatory
capital requirements, or review by regulatory
authorities, then you may be subject to
restrictions on investment in the offered
certificates. You should consult your own legal,
tax, and accounting advisers for assistance in
determining the suitability of and consequences to
you of the purchase, ownership, and sale of the
offered certificates.
[The [_____] certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984,
as amended, for so long as they are rated in one
of the two highest ratings categories by
[___________,][__________,] or another nationally
recognized statistical rating organization and, as
such, are legal investments for certain entities
to the extent provided in the Secondary Mortgage
Market Enhancement Act of 1984.
[The [_____] Certificates will not constitute
"mortgage related securities" within the meaning
of the Secondary Mortgage Market Enhancement Act
of 1984, as amended.]
S-13
See "Legal Investment" in this prospectus
supplement and in the accompanying prospectus.
S-14
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT
DECISION. IN PARTICULAR, DISTRIBUTIONS ON YOUR OFFERED CERTIFICATES WILL DEPEND
ON PAYMENTS RECEIVED ON AND OTHER RECOVERIES WITH RESPECT TO THE MORTGAGE LOANS.
THUS, YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS RELATING TO THE MORTGAGE
LOANS AND THE MORTGAGED PROPERTIES.
o THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES RELATING
TO YOUR CERTIFICATES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR YOUR
INVESTMENT.
o IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, YOUR INVESTMENT COULD BE
MATERIALLY AND ADVERSELY AFFECTED.
o THIS PROSPECTUS SUPPLEMENT ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT.
MATERIALLY ADVERSE ENVIRONMENTAL
CONDITIONS WILL SUBJECT THE
TRUST FUND TO POTENTIAL LIABILITY.
[An environmental site assessment was performed at
[each][all but ___] of the mortgaged properties
during the _____ month period prior to the cut-off
date. [Note any special environmental problems.]
[Otherwise,] no such environmental assessment
revealed any material adverse environmental
condition or circumstance at any mortgaged
property[, except for-
o those cases in which the condition or
circumstance was remediated or an escrow for
such remediation has been established; and
o those cases in which an operations and
maintenance plan or periodic monitoring of
nearby properties was recommended, which
recommendations are consistent with
industrywide practices].
The pooling and servicing agreement to be dated as
of the cut-off date, among the depositor, the
master servicer, the special servicer, the trustee
and the REMIC administrator, requires that the
master servicer obtain an environmental site
assessment of a mortgaged property securing a
defaulted mortgage loan prior to acquiring title
thereto or assuming its operation. Such
prohibition effectively precludes enforcement of
the security for the related mortgage note until a
satisfactory environmental site assessment is
obtained (or until any required remedial action is
thereafter taken), but will decrease the
likelihood that the trust fund will become liable
for a material adverse environmental condition at
the mortgaged property. However, there can be no
assurance that the requirements of the pooling and
servicing agreement will effectively insulate the
trust fund from potential liability for a
materially adverse environmental condition at any
mortgaged property. See "The Pooling and Servicing
Agreements-Realization Upon Defaulted Mortgage
Loans", "Risk Factors-Certain Factors Affecting
Delinquency, Foreclosure and Loss of the Mortgage
Loans-Risk of Liability Arising from Environmental
Conditions" and "Certain Legal Aspects of Mortgage
Loans-Environmental Considerations" in the
accompanying prospectus.
S-15
GEOGRAPHIC CONCENTRATION OF
THE MORTGAGED PROPERTIES MAY
ADVERSELY AFFECT PAYMENTS ON
YOUR CERTIFICATES; CONCENTRATIONS
OF MORTGAGE LOANS AND BORROWERS
MAY SUBJECT THE TRUST FUND TO AN
INCREASED RISK OF LOSS. ______ mortgage loans, which represent ____%
of the initial pool balance, are secured by
liens on mortgaged properties located in
_____________. In general, that concentration
increases the exposure of the mortgage pool to
any adverse economic or other developments that
may occur in _________. In recent periods,
_____________ (along with other regions of the
United States) has experienced a significant
downturn in the market value of real estate.
INCREASED RISK OF LOSS ASSOCIATED
WITH CONCENTRATION OF MORTGAGE
LOANS AND BORROWERS. Several of the mortgage loans have cut-off date
balances that are substantially higher than the
average cut-off date balance. In general,
concentrations in a mortgage pool of loans with
larger-than-average balances can result in
losses that are more severe, relative to the
size of the pool, than would be the case if the
aggregate balance of the pool were more evenly
distributed. Concentration of borrowers also
poses increased risks. For instance, if a
borrower that owns several mortgaged properties
experiences financial difficulty at one
mortgaged property, or at another
income-producing property that it owns, it
could attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect
of interrupting monthly payments for an
indefinite period on all of the related
mortgage loans.
INCREASES IN MONTHLY PAYMENTS OF
ADJUSTABLE RATE MORTGAGE LOANS
MAY RESULT IN AN INCREASED RISK
OF DEFAULTS. ________ of the mortgage loans, which represent
____% of the initial pool balance, are
adjustable rate mortgage loans. Increases in
the required monthly payments on adjustable
rate mortgage loans in excess of those assumed
in the original underwriting of such loans may
result in a default rate higher than that on
mortgage loans with fixed mortgage rates.
BALLOON PAYMENTS SUBJECT
BORROWERS TO GREATER RISK OF
DEFAULT BECAUSE OF AN
INABILITY TO REFINANCE OR SELL
THE MORTGAGE PROPERTY.
[___] of the mortgage loans will have a balloon
payment of principal and interest due at their
respective stated maturities unless prepaid
prior thereto. Mortgage loans with balloon
payments involve a greater likelihood of
default than fully amortizing loans because the
ability of a borrower to make a balloon payment
typically will depend upon its ability either
to refinance the loan or to sell the related
mortgaged property. See "Risk Factors-Certain
Factors Affecting Delinquency, Foreclosure and
Loss of the Mortgage Loans-Increased Risk of
Default Associated With Balloon Payments" in
the accompanying prospectus.
RECENT TERRORIST ATTACKS MAY
ADVERSELY AFFECT YOUR
INVESTMENT. On September 11, 2001, the United States was
subjected to multiple terrorist attacks which
resulted in considerable uncertainty in the
world financial markets. The full impact of
these events is not yet known but could
S-16
include, among other things, increased
volatility in the price of securities including
the certificates. The terrorist attacks may
also adversely affect the revenues or costs of
operation of the mortgaged properties. For
example, declines in travel or shopping may
adversely affect revenues from hotel and retail
properties, and the attacks could result in
higher costs for insurance or for security,
particularly for larger properties.
Accordingly, these disruptions, uncertainties
and costs could materially and adversely affect
your investment in the certificates.
THE SPECIAL SERVICER'S ABILITY
TO MODIFY BALLOON PAYMENTS MAY
NOT INCREASE RECOVERY AND MAY
EXTEND THE WEIGHTED AVERAGE
LIFE OF YOUR OFFERED
CERTIFICATES. In order to maximize recoveries on defaulted
mortgage loans, the pooling and servicing
agreement enables the special servicer to
extend and modify mortgage loans that are in
material default or as to which a payment
default (including the failure to make a
balloon payment) is reasonably foreseeable;
subject, however, to the limitations described
under "Servicing of the Mortgage
Loans-Modifications, Waivers and Amendments" in
this prospectus supplement. There can be no
assurance, however, that any such extension or
modification will increase the present value of
recoveries in a given case. Any delay in
collection of a balloon payment that would
otherwise be distributable in respect of a
class of offered certificates, whether such
delay is due to borrower default or to
modification of the related mortgage loan by
the special servicer, will likely extend the
weighted average life of such class of offered
certificates. See "Yield and Maturity
Considerations" in this prospectus supplement
and in the accompanying prospectus.
[MULTIFAMILY PROPERTIES ARE
SUBJECT TO RISKS THAT MAY NOT
BE APPLICABLE TO COMMERCIAL
PROPERTIES]. In the case of multifamily lending in
particular, adverse economic conditions, either
local, regional or national, may limit the
amount of rent that can be charged and may
result in a reduction in timely rent payments
or a reduction in occupancy levels. Occupancy
and rent levels may also be affected by
construction of additional housing units, local
military base closings and national and local
politics, including current or future rent
stabilization and rent control laws and
agreements. In addition, the level of mortgage
interest rates may encourage tenants to
purchase single-family housing. Further, the
cost of operating a multifamily property may
increase, including the costs of utilities and
the costs of required capital expenditures.
All of these conditions and events may increase
the possibility that a borrower may be unable
to meet its obligation under its mortgage loan.]
[[___] MORTGAGED PROPERTIES
ARE SUBJECT TO CERTAIN RISKS].
[Add disclosure relating to property types with
respect to which there exists a material
concentration in a particular Trust Fund.]]
THE LACK OF
CERTIFICATEHOLDERS' CONTROL
OVER THE TRUST FUND MAY RESULT
IN DECISIONS THAT MAY
NEGATIVELY AFFECT YOUR
INTEREST. You and other certificateholders generally do
not have a right to vote, except with respect
to required consents to certain amendments to
the pooling and servicing agreement.
Furthermore, you and other certificateholders
S-17
will generally not have the right to make
decisions with respect to the administration of
the trust fund. Such decisions are generally
made, subject to the express terms of the
pooling and servicing agreement, by the master
servicer, the trustee, the special servicer or
the REMIC administrator, as applicable. Any
decision made by one of those parties in
respect of the trust fund, even if made in your
best interests (as determined by such party in
its good faith and reasonable judgment), may be
contrary to the decision that would have been
made by you or other certificateholders of any
particular class of offered certificates and
may negatively affect your interests.
INCREASED CONCENTRATIONS
RESULTING FROM PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS
MAY EXPOSE YOUR OFFERED
CERTIFICATES TO RISK. If and as payments in respect of principal
(including any principal prepayments, liquidations
and the principal portion of the repurchase prices
of any mortgage loans repurchased due to breaches
of representations) are received with respect to
the mortgage loans, the remaining mortgage loans
as a group may exhibit increased concentration
with respect to the type of properties, property
characteristics, number of mortgagors and
affiliated mortgagors and geographic location.
Because unscheduled collections of principal on
the mortgage loans is payable on the Class A,
Class B and Class C Certificates in sequential
order, such classes that have a lower sequential
priority are relatively more likely to be exposed
to any risks associated with changes in
concentrations of loan or property
characteristics.
SUBORDINATION OF CERTAIN
CLASSES OF CERTIFICATES MAY
RESULT IN A LOSS TO HOLDERS OF
THESE CERTIFICATES. As and to the extent described in this prospectus
supplement, the rights of the holders of the Class
B and Class C Certificates to receive
distributions of amounts collected or advanced on
or in respect of the mortgage loans will be
subordinated to those of the holders of the senior
certificates and also, in the case of the holders
of the Class C Certificates, also to those of the
holders of the Class B Certificates. See
"Description of the
Certificates-Distributions-Priority" and
"-Subordination; Allocation of Collateral Support
Deficit" in this prospectus supplement.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of ___ conventional, multifamily and
commercial mortgage loans with an Initial pool balance of $_______________. Each
Mortgage Loan is evidenced by a Mortgage Note and secured by a Mortgage that
creates a first mortgage lien on a fee simple and or leasehold interest in a
Mortgaged Property. All percentages of the Mortgage Loans, or of any specified
group of Mortgage Loans, referred to in this prospectus supplement without
further description are approximate percentages by aggregate Cut-off Date
Balance. The Cut-off Date Balance of any Mortgage Loan is the unpaid principal
balance thereof as of the Cut-off Date, after application of all payments due on
or before such date, whether or not received.
The Mortgage Loans are not insured or guaranteed by any governmental entity
or private mortgage insurer. The Depositor has not undertaken any evaluation of
the significance of the recourse provisions of any of a number of the Mortgage
Loans that provide for recourse against the related borrower or another person
in the event of a default.
S-18
Accordingly, investors should consider all of the Mortgage Loans to be
nonrecourse loans as to which recourse in the case of default will be limited to
the specific property and such other assets, if any, as were pledged to secure a
Mortgage Loan.
[On or prior to the Delivery Date, the Depositor will acquire the Mortgage
Loans from the Mortgage Loan Seller pursuant to the mortgage loan purchase and
sale agreement and will then assign its interests in the Mortgage Loans, without
recourse, to the Trustee for the benefit of the Certificateholders. See "-The
Mortgage Loan Seller" in this prospectus supplement and "The Pooling and
Servicing Agreements-Assignment of Mortgage Loans; Repurchases" in the
accompanying prospectus. For purposes of the accompanying prospectus, the
Mortgage Loan Seller constitutes a "Mortgage Asset Seller".]
The Mortgage Loans were originated between 19__ and 20__. The Mortgage Loan
Seller originated ____ of the Mortgage Loans, which represent ___% of the
Initial Pool Balance, and acquired the remaining Mortgage Loans from the
respective originators thereof, generally in accordance with the underwriting
criteria described below under "-Underwriting Standards".
CERTAIN PAYMENT CHARACTERISTICS
___ of the Mortgage Loans, which represent ___% of the Initial Pool Balance,
have Due Dates that occur on the first day of each month. The remaining Mortgage
Loans have Due Dates that occur on the ______ (____% of the Mortgage Loans),
_____ (____% of the Mortgage Loans), _____ (____% of the Mortgage Loans), and
_______ (____% of the Mortgage Loans) day of each month.
____________ of the Mortgage Loans, which represent ____% of the Initial Pool
Balance, are ARM Loans. The ARM Loans bear interest at Mortgage Rates that are
subject to adjustment on periodically occurring Interest Rate Adjustment Dates
by adding the related Gross Margin to the applicable value of the related Index,
subject in ______ cases to rounding conventions and lifetime minimum and/or
maximum Mortgage Rates and, in the case of ________ Mortgage Loans, which
represent ____% of the Initial Pool Balance, to periodic minimum and/or maximum
Mortgage Rates. The remaining Mortgage Loans are Fixed Rate Loans. None of the
ARM Loans is convertible into a Fixed Rate Loan.
[Identify Mortgage Loan Index] The adjustments to the Mortgage Rates on the
ARM Loans may in each case be based on the value of the related Index as
available a specified number of days prior to the Interest Rate Adjustment Date,
or may be based on the value of the related Index as most recently published as
of an Interest Rate Adjustment Date or as of a designated date preceding an
Interest Rate Adjustment Date.
o ____ of the ARM Loans, which represent ___% of the Initial Pool
Balance, provide for Interest Rate Adjustment Dates that occur
monthly;
o ____ of the ARM Loans, which represent ___% of the Initial Pool
Balance, provide for Interest Rate Adjustment Dates that occur
semi-annually; and
o the remaining ARM Loans provide for Interest Rate Adjustment
Dates that occur annually.
The monthly payments on each ARM Loan are subject to adjustment on each
Payment Adjustment Date to an amount that would amortize fully the principal
balance of the Mortgage Loan over its then remaining amortization schedule and
pay interest at the Mortgage Rate in effect during the one month period
preceding such Payment Adjustment Date. The ARM Loans provide for "Payment
Adjustment Dates" that occur on the Due Date following each related Interest
Rate Adjustment Date. None of the ARM Loans provide for negative amortization.
________ of the Mortgage Loans provide for monthly payments of principal
based on amortization schedules significantly longer than the remaining terms of
those Mortgage Loans. Thus, each of these Mortgage Loans will have a Balloon
Payment due at its stated maturity date, unless prepaid prior thereto.
No Mortgage Loan currently prohibits principal prepayments; however,
[certain] of the Mortgage Loans impose "Prepayment Premiums" in connection with
full or partial prepayments. Prepayment Premiums are payable to the Master
Servicer as additional servicing compensation, to the extent not otherwise
applied to offset Prepayment Interest Shortfalls, and may be waived by the
S-19
Master Servicer in accordance with the servicing standard described under
"Servicing of the Mortgage Loans-General" in this prospectus supplement.
[THE INDEX]
Describe Index and include 5 year history.
[DELINQUENT MORTGAGE LOANS]
[Describe those delinquent Mortgage Loans, if any, included in the Trust
Fund.]
ADDITIONAL MORTGAGE LOAN INFORMATION
The following tables set forth the specified characteristics of, in each case
as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage Loans. The
sum in any column may not equal the indicated total due to rounding.
MORTGAGE RATES AS OF THE CUT-OFF DATE
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE CUT-OFF CUT-OFF
RANGE OF MORTGAGE RATES (%) LOANS DATE BALANCE DATE BALANCE
--------------------------- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average
Mortgage Rate (All Mortgage Loans):
______% per annum
Weighted Average
Mortgage Rate (ARM Loans): ____% per annum
Weighted Average
Mortgage Rate (Fixed Rate Loans): _____% per annum
GROSS MARGINS
PERCENT BY
AGGREGATE AGGREGATE
NUMBER OF CUT-OFF CUT-OFF
RANGE OF MORTGAGE RATES (%) ARM LOANS DATE BALANCE DATE BALANCE
--------------------------- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average
Gross Margin: ____%
S-20
FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES AND MONTHLY PAYMENTS FOR THE ARM
LOANS
MORTGAGE MONTHLY PERCENT BY
RATE PAYMENT NUMBER OF AGGREGATE AGGREGATE
ADJUSTMENT ADJUSTMENT MORTGAGE CUT-OFF CUT-OFF DATE
FREQUENCY FREQUENCY LOANS DATE BALANCE BALANCE
--------- --------- --------- ------------ -------------
--------- ------------ ------------
Total.........................
========= ============ ============
MAXIMUM LIFETIME MORTGAGE RATES FOR THE ARM LOANS
PERCENT BY
RANGE OF MAXIMUM NUMBER OF AGGREGATE AGGREGATE
LIFETIME MORTGAGE RATES (%) ARM LOANS CUT-OFF CUT-OFF
DATE BALANCE DATE BALANCE
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
MINIMUM LIFETIME MORTGAGE RATES FOR THE ARM LOANS
PERCENT BY
AGGREGATE AGGREGATE
RANGE OF MINIMUM NUMBER OF CUT-OFF CUT-OFF
LIFETIME MORTGAGE RATES (%) ARM LOANS DATE BALANCE DATE BALANCE
--------------------------- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average Minimum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without minimum
lifetime Mortgage Rates.
MAXIMUM ANNUAL MORTGAGE RATES FOR THE ARM LOANS
PERCENT BY
AGGREGATE AGGREGATE
RANGE OF MAXIMUM NUMBER OF CUT-OFF CUT-OFF
LIFETIME MORTGAGE RATES (%) ARM LOANS DATE BALANCE DATE BALANCE
--------------------------- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
S-21
Weighted Average Maximum Annual
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
MINIMUM ANNUAL MORTGAGE RATES FOR THE ARM LOANS
PERCENT BY
AGGREGATE AGGREGATE
RANGE OF MINIMUM NUMBER OF CUT-OFF CUT-OFF
LIFETIME MORTGAGE RATES (%) ARM LOANS DATE BALANCE DATE BALANCE
--------------------------- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average Minimum Annual
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
CUT-OFF DATE BALANCES
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
CUT-OFF DATE MORTGAGE CUT-OFF CUT-OFF
BALANCE RANGE ($) LOANS DATE BALANCE DATE BALANCE
----------------- ----- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Average Cut-off Date
Balance (All Mortgage
Loans): $____________
Average Cut-off Date
Balance (ARM Loans): $____________
Average Cut-off Date
Balance (Fixed Rate Loans): $____________
TYPES OF MORTGAGED PROPERTIES
WEIGHTED
PERCENT BY AVERAGE
NUMBER OF AGGREGATE AGGREGATE AGGREGATE OCCUPANCY
MORTGAGE CUT-OFF CUT-OFF CUT-OFF RATE
PROPERTY TYPE LOANS DATE BALANCE BALANCE DATE BALANCE
------------- --------- ------------ ------- ---- -------
Multifamily............................
[other property types].................
Total..................................
S-22
GEOGRAPHIC CONCENTRATION OF THE MORTGAGED PROPERTIES
PERCENT BY
AGGREGATE AGGREGATE WEIGHTED
NUMBER OF CUT-OFF CUT-OFF DATE AVERAGE
STATE MORTGAGE LOANS DATE BALANCE BALANCE DSC RATIO
----- -------------- ------------ ------- ---------
Total.........................
ORIGINAL TERM TO STATED MATURITY (IN MONTHS)
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
RANGE IN ORIGINAL MORTGAGE CUT-OFF CUT-OFF
TERMS (IN MONTHS) LOANS DATE BALANCE DATE BALANCE
----------------- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average Original
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): ____ months
REMAINING TERM TO STATED MATURITY (IN MONTHS)
AS OF THE CUT-OFF DATE
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
RANGE IN ORIGINAL MORTGAGE CUT-OFF CUT-OFF
TERMS (IN MONTHS) LOANS DATE BALANCE DATE BALANCE
----------------- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average Remaining
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): ____ months
S-23
YEAR OF ORIGINATION
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE CUT-OFF CUT-OFF
YEAR LOANS DATE BALANCE DATE BALANCE
---- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
YEAR OF SCHEDULED MATURITY
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE CUT-OFF CUT-OFF
YEAR LOANS DATE BALANCE DATE BALANCE
---- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
S-24
The following table was prepared using operating statements obtained from
the respective mortgagors or the related property managers. In each case, the
information contained in such operating statements was unaudited, and the
Depositor has made no attempt to verify its accuracy. In the case of _____
Mortgage Loans (____ ARM Loans and ____ Fixed Rate Loans), representing __% of
the Initial Pool Balance, operating statements could not be obtained, and
accordingly, Debt Service Coverage Ratios for those Mortgage Loans were not
calculated. The last day of the period (which may not correspond to the end of
the calendar year most recent to the Cut-off Date) covered by each operating
statement from which a Debt Service Coverage Ratio was calculated is set forth
in Annex A with respect to the related Mortgage Loan.
DEBT SERVICE COVERAGE RATIOS(A)
PERCENT BY
RANGE OF NUMBER OF AGGREGATE AGGREGATE
DEBT SERVICE MORTGAGE CUT-OFF CUT-OFF
COVERAGE RATIOS LOANS DATE BALANCE DATE BALANCE
--------------- --------- ------------ ------------
NOT CALCULATED (B)............
TOTAL ========= ============ ============
Weighted Average
Debt Service Coverage
Ratio (All Mortgage Loans): ______x(C)
Weighted Average
Debt Service Coverage
Ratio (ARM Loans): ______x(D)
Weighted Average
Debt Service Coverage
Ratio (Fixed Rate Loans): ______(E)
- -------------------
(A) The Debt Service Coverage Ratios are based on the most recently available
operating statements obtained from the respective mortgagors or the
related property managers.
(B) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(C) This calculation does not include the ________ Mortgage Loans as to which
Debt Service Coverage Ratios were not calculated.
(D) This calculation does not include the ________ ARM Loans as to which Debt
Service Coverage Ratios were not calculated.
(E) This calculation does not include the ________ Fixed Rate Loans as to
which Debt Service Coverage Ratios were not calculated.
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at origination and the Cut-off Date.
S-25
Because it is based on the value of a Mortgaged Property determined as of
loan origination, the information set forth in the table below is not
necessarily a reliable measure of the related borrower's current equity in each
Mortgaged Property. In a declining real estate market, the fair market value of
a Mortgaged Property could have decreased from the value determined at
origination, and the current actual loan-to-value ratio of a Mortgage Loan may
be higher than even its LTV Ratio at origination, notwithstanding taking into
account amortization since origination.
LTV RATIOS AT ORIGINATION
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
RANGE OF ORIGINAL MORTGAGE CUT-OFF CUT-OFF
LTV RATIOS(%) LOANS DATE BALANCE DATE BALANCE
----------------- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average Original LTV
Ratio (All Mortgage Loans):
_____%
Weighted Average Original LTV
Ratio (ARM Loans): _____%
Weighted Average Original LTV
Ratio (Fixed Rate Loans):
____%
LTV RATIOS AT CUT-OFF DATE
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
RANGE OF LTV RATIOS(%) MORTGAGE CUT-OFF CUT-OFF
AS OF CUT-OFF DATE LOANS DATE BALANCE DATE BALANCE
------------------ --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average LTV Ratio as
of Cut-off Date (All
Mortgage Loans): _____%
Weighted Average LTV Ratio as
of Cut-off Date (ARM
Loans): _____%
Weighted Average LTV Ratio as
of Cut-off Date (Fixed Rate
Loans): _____%
S-26
The Mortgage Loans are secured by Mortgaged Properties located in _____
different states. The following table sets forth the states in which the
Mortgaged Properties are located:
GEOGRAPHIC DISTRIBUTION
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE CUT-OFF CUT-OFF
STATE LOANS DATE BALANCE DATE BALANCE
----- --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
OCCUPANCY RATES
PERCENT BY
NUMBER OF AGGREGATE AGGREGATE
RANGE OF MORTGAGE CUT-OFF CUT-OFF
OCCUPANCY RATES(A) LOANS DATE BALANCE DATE BALANCE
------------------ --------- ------------ ------------
--------- ------------ ------------
Total.........................
========= ============ ============
Weighted Average Occupancy Rate
(All Mortgage Loans)(A): _____%
Weighted Average Occupancy Rate
(ARM Loans)(A): _____%
Weighted Average Occupancy Rate
(Fixed Rate Loans)(A): _____%
- -----------------------------
(A) Physical occupancy rates calculated based on rent rolls provided by the
respective Mortgagors or related property managers as of a date no more
than ___ months prior to the Cut-off Date.
PREPAYMENT RESTRICTIONS IN EFFECT AS OF THE CUT-OFF DATE
WEIGHTED AVERAGES
% BY CUM. ----------------------------------------------------------------
AGGREGATE AGGREGATE % OF INDICATIVE
CUT-OFF CUT-OFF INITIAL STATED REMAINING CUT-OFF
PREPAYMENT NUMBER DATE DATE POOL MORTGAGE REMAINING AMOUNT. IMPLIED DATE
RESTRICTIONS OF LOANS BALANCE BALANCE RATE RATE TERM (MO.) TERM (MO.) DSCR DSR LTV
------------ -------- ------- ------- ---- ---- ---------- ---------- ---- --- ---
Locked Out (A)
Yield Maintenance (B)
Declining
Percentage Premium
____% Premium
____% Premium
No Prepayment
Restrictions
TOTALS
- ------------------
(A) The weighted average term to the expiration of the lock-out periods is ___
years. _____ of the Mortgage Loans within their lock-out periods are
subject to declining percentage Prepayment Premiums after the expiration
of their lock-out periods; the remaining Mortgage Loans are subject to a
yield maintenance-type Prepayment Premium following such expiration.
S-27
(B) All Mortgage Loans subject to yield maintenance-type Prepayment Premiums
remain subject to payment of the Prepayment Premium until at least ___
months prior to maturity.
Specified in Annex A to this prospectus supplement are the foregoing and
certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained in this prospectus supplement under "-Underwriting Standards" and
"-Representations and Warranties; Repurchases" and in the accompanying
prospectus under "Description of the Trust Funds-Mortgage Loans" and "Certain
Legal Aspects of Mortgage Loans".
[Delinquencies. As of the Cut-off Date, [no] Mortgage Loan was more than
30 days delinquent in respect of any Monthly Payment.]
THE MORTGAGE LOAN SELLER
General. [The Mortgage Loans Seller [, a wholly-owned subsidiary of
__________,] is a _________________ organized in 19___ under the laws of
__________________. As of December 31, 200_, the Mortgage Loan Seller had a net
worth of approximately $_________________, and currently holds and services for
its own account a total residential and commercial mortgage loan portfolio of
approximately $__________________, of which approximately $__________________
constitutes multifamily mortgage loans.]
The information set forth in this prospectus supplement concerning the
Mortgage Loan Seller and its underwriting standards has been provided by the
Mortgage Loan Seller, and neither the Depositor nor the Underwriter makes any
representation or warranty as to the accuracy or completeness of such
information.
UNDERWRITING STANDARDS
[All of the Mortgage Loans were originated or acquired by the Mortgage Loan
Seller, generally in accordance with the underwriting criteria described in this
prospectus supplement.
[Description of underwriting standards.]
The Depositor believes that the Mortgage Loans selected for inclusion in the
Mortgage Pool from the Mortgage Loan Seller's portfolio were not so selected on
any basis which would have a material adverse effect on the Certificateholders.]
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the mortgage loan purchase and sale agreement, the Mortgage Loan Seller
has represented and warranted with respect to each Mortgage Loan, as of [the
Delivery Date], or as of such other date specifically provided in the
representation and warranty, among other things, that:
[Specify significant representations and warranties.]
If the Mortgage Loan Seller has been notified of a material breach of any of
the above representations and warranties as described in this prospectus
supplement and the accompanying prospectus and if the Mortgage Loan Seller
cannot cure the breach within 90 days following its receipt of appropriate
notice, then the Mortgage Loan Seller will be obligated to repurchase the
affected Mortgage Loan within that 90-day period. The Purchase Price that the
Mortgage Loan Seller must pay for the affected Mortgage Loans is equal to the
sum of
o the unpaid principal balance of the Mortgage Loan,
o unpaid accrued interest on the Mortgage Loan at the Mortgage
Rate from the date to which interest was last paid to the Due
Date in the Due Period in which the purchase is to occur, and
o certain servicing expenses that are reimbursable to the
Master Servicer and the Special Servicer.
S-28
The above repurchase obligation constitutes the sole remedy available to the
Certificateholders and the Trustee for any breach of the Mortgage Loan Seller's
representations and warranties regarding the Mortgage Loans. The Mortgage Loan
Seller will be the sole Warranting Party in respect of the Mortgage Loans. The
Depositor, the Master Servicer and their affiliates [(other than the Mortgage
Loan Seller)] are not obligated to repurchase any affected Mortgage Loan in
connection with a breach of the Mortgage Loan Seller's representations and
warranties. However, the Depositor will not include any Mortgage Loan in the
Mortgage Pool if anything has come to the Depositor's attention prior to the
Closing Date that would cause it to believe that the representations and
warranties made by the Mortgage Loan Seller regarding such Mortgage Loan are not
correct in all material respects. See "The Pooling and Servicing
Agreements-Representations and Warranties; Repurchases" in the accompanying
prospectus.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this prospectus supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described in this prospectus supplement. The Depositor believes
that the information set forth in this prospectus supplement will be
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued, although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the Offered
Certificates on or shortly after the Delivery Date and will be filed, together
with the pooling and servicing agreement and tax opinion of Cadwalader
Wickersham & Taft, counsel to the Depositor, with the Securities and Exchange
Commission within fifteen days after the initial issuance of the Offered
Certificates. In the event Mortgage Loans are removed from or added to the
Mortgage Pool as set forth in the preceding paragraph, such removal or addition
will be noted in such Form 8-K.
SERVICING OF THE MORTGAGE LOANS
GENERAL
Each of the Master Servicer and the Special Servicer will be required to
service and administer the Mortgage Loans for which it is responsible, either
directly or through sub-servicers, on behalf of the Trustee and in the best
interests of and for the benefit of the Certificateholders (as determined by the
Master Servicer or the Special Servicer, as the case may be, in its good faith
and reasonable judgment). Such servicing and administration will be in
accordance with applicable law, the terms of the pooling and servicing
agreement, the terms of the respective Mortgage Loans and, to the extent
consistent with the foregoing, in the same manner as would prudent institutional
mortgage lenders and loan servicers servicing mortgage loans comparable to the
Mortgage Loans in the jurisdictions where the Mortgaged Properties are located,
and with a view to the maximization of timely and complete recovery of principal
and interest. The above servicing and administration will be performed but
without regard to:
o any relationship that the Master Servicer or the Special Servicer, as
the case may be, or any affiliate thereof, may have with the related
mortgagor;
o the ownership of any Certificate by the Master Servicer or the Special
Servicer, as the case may be, or any affiliate thereof;
o the Master Servicer's or the Special Servicer's, as the case may be,
obligation to make advances, whether in respect of delinquent payments
of principal and/or interest or to cover certain servicing expenses;
and
S-29
o the Master Servicer's or the Special Servicer's, as the case may be,
right to receive compensation for its services under the pooling and
servicing agreement or with respect to any particular transaction.
Except as otherwise described under "-Inspections; Collection of Operating
Information" below, the Master Servicer initially will be responsible for the
servicing and administration of the entire Mortgage Pool. The Master Servicer
will transfer its servicing responsibilities to the Special Servicer, with
respect to any Mortgage Loan
o which has a Balloon Payment which is past due or any other payment
which is more than [60] days past due,
o 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 such a proceeding which shall have remained in force
undischarged or unstayed for a period of [60] days,
o as to which the Master Servicer shall have received notice of the
foreclosure or proposed foreclosure of any other lien on the Mortgaged
Property, or
o as to which, in the judgment of the Master Servicer, a payment default
has occurred or is imminent and is not likely to be cured by the
borrower within [60] days, and prior to acceleration of amounts due
under the related Mortgage Note or commencement of any foreclosure or
similar proceedings, with respect to the above Mortgage Loans, the
Master Servicer will continue to receive payments on such Mortgage
Loan (including amounts collected by the Special Servicer), to make
certain calculations with respect to such Mortgage Loan and to make
remittances and prepare certain reports to the Certificateholders with
respect to such Mortgage Loan.
If the related Mortgaged Property is acquired in respect of any such Mortgage
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 the operation and management thereof. The Mortgage Loans
serviced by the Special Servicer are referred to in this prospectus supplement
as the "Specially Serviced Mortgage Loans" and, together with any REO
Properties, constitute the "Specially Serviced Mortgage Assets". The Master
Servicer shall have no responsibility for the performance by the Special
Servicer of its duties under the pooling and servicing agreement.
If any Specially Serviced Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes a performing Mortgage Loan for at least [90] days, the Special Servicer
will return servicing of such Mortgage Loan to the Master Servicer.
Set forth below, following the subsection captioned "-The Master Servicer",
is a description of certain pertinent provisions of the pooling and servicing
agreement relating to the servicing of the Mortgage Loans. Reference is also
made to the accompanying prospectus, in particular to the section captioned
"Pooling and Servicing Agreements", for important information in addition to
that set forth in this prospectus supplement regarding the terms and conditions
of the pooling and servicing agreement as they relate to the rights and
obligations of the Master Servicer thereunder.
THE MASTER SERVICER
[__________________________________, a ___________________, will act as
Master Servicer with respect to the Mortgage Pool. Founded in ____ as a
____________, the Master Servicer today furnishes a variety of wholesale banking
services. As of December 31, 20__, the Master Servicer had a net worth of
approximately $__________, and a total mortgage loan servicing portfolio of
approximately $___________, of which approximately $_____________ represented
multifamily mortgage loans.
The offices of the Master Servicer that will be primarily responsible for
servicing and administering the Mortgage Pool are located at
____________________________.
S-30
[If and to the extent available and relevant to an investment decision: The
following table sets forth the historical prepayment information with respect to
the Master Servicer's multifamily and commercial mortgage loan servicing
portfolio:
PREPAYMENT EXPERIENCE OF MASTER SERVICER'S MULTIFAMILY AND COMMERCIAL
MORTGAGE LOAN SERVICING PORTFOLIO
[Table to include relevant information regarding the size of the Master
Servicer's multifamily and commercial mortgage loan servicing portfolio (by
number and/or balance) and the portion of such loans that was subject to
prepayment.]]
The information set forth in this prospectus supplement concerning the Master
Servicer has been provided by the Master Servicer, and neither the Depositor nor
the Underwriter makes any representation or warranty as to the accuracy or
completeness of such information.
THE SPECIAL SERVICER
[_______________________________, a ____________________, will be responsible
for the servicing and administration of the Specially Serviced Mortgage Assets.
As of December 31, 20___, the Special Servicer had a total mortgage loan
servicing portfolio of approximately $____________, of which approximately
$_____________ represented multifamily mortgage loans.
The Special Servicer has ___ offices in ___ states with a total staff of
____ employees. Its principal executive offices are located at
_________________________.]
The information set forth in this prospectus supplement concerning the
Special Servicer has been provided by the Special Servicer, and neither the
Depositor nor the Underwriter makes any representation or warranty as to the
accuracy or completeness of such information.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Master Servicing Fee. The
"Master Servicing Fee" will
____________________.
o be payable monthly on a loan-by-loan basis from amounts received
in respect of interest on each Mortgage Loan,
o will accrue in accordance with the terms of the related Mortgage
Note at a rate equal to ________% per annum, in the case of
Mortgage Loans other than Specially Serviced Mortgage Loans, and
____% per annum, in the case of Specially Serviced Mortgage
Loans, and
o will be computed on the basis of the same principal amount and
for the same period respecting which any related interest payment
on the related Mortgage Loan is computed.
[As additional servicing compensation, the Master Servicer will be entitled
to retain all Prepayment Premiums, assumption and modification fees, late
charges and penalty interest and, as and to the extent described below,
Prepayment Interest Excesses collected from mortgagors. In addition, the Master
Servicer is authorized but not required to invest or direct the investment of
funds held in the Certificate Account in Permitted Investments, and the Master
Servicer will be entitled to retain any interest or other income earned on such
funds, but will be required to cover any losses from its own funds without any
right to reimbursement.]
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will consist of the Special Servicing Fee
(together with the Master Servicing Fee, the "Servicing Fees") and the
Workout Fee. Like the Master Servicing Fee, the "Special Servicing Fee"
S-31
o will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Specially Serviced
Mortgage Loan and each Mortgage Loan as to which the related
mortgaged property has become an REO Property,
o will accrue in accordance with the terms of the related Mortgage
Note at a rate equal to _____% per annum, in the case of Mortgage
Loans other than Specially Serviced Mortgage Loans, and ___% per
annum, in the case of Specially Serviced Mortgage Loans, and
o will be computed on the basis of the same principal amount and
for the same period respecting which any related interest payment
on the related Mortgage Loan is computed.
The "Workout Fee"
o will equal a specified percentage (varying from ____% to ____%
(the "Workout Fee Rate") depending on the related unpaid
principal balance) of, and
o will be payable from, all collections and proceeds received in
respect of principal of each Mortgage Loan which is or has been a
Specially Serviced Mortgage Loan (including those for which
servicing has been returned to the Master Servicer);
o provided that, in the case of Liquidation Proceeds, the otherwise
fixed Workout Fee Rate will be proportionately reduced to reflect
the extent to which, if at all, the principal portion of such
Liquidation Proceeds is less than the unpaid principal balance of
the related Mortgage Loan immediately prior to the receipt
thereof.
As additional servicing compensation, the Special Servicer will be entitled
to retain all assumption and modification fees received on Mortgage Loans
serviced thereby.
Although the Master Servicer and Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the general
servicing standard described under "-General" above and, accordingly, without
regard to its right to receive compensation under the pooling and servicing
agreement, additional servicing compensation in the nature of assumption and
modification fees, Prepayment Premiums and Prepayment Interest Excesses may,
under certain circumstances, provide the Master Servicer or the Special Servicer
with an economic disincentive to comply with such standard.
[If a borrower voluntarily prepays a Mortgage Loan in whole or in part during
any Due Period (as defined in this prospectus supplement) on a date that is
prior to its Due Date in such Due Period, a Prepayment Interest Shortfall may
result. If such a principal prepayment occurs during any Due Period after the
Due Date for such Mortgage Loan in such Due Period, the amount of interest (net
of related Servicing Fees) that accrues on the amount of such principal
prepayment may exceed (such excess, a "Prepayment Interest Excess") the
corresponding amount of interest accruing on the Certificates. As to any Due
Period, to the extent Prepayment Interest Excesses collected for all Mortgage
Loans are greater than Prepayment Interest Shortfalls incurred, such excess will
be paid to the Master Servicer as additional servicing compensation.]
[As and to the extent described in this prospectus supplement under
"Description of the Certificates-Advances", the Master Servicer will be entitled
to receive interest on Advances, and the Master Servicer and the Special
Servicer will be entitled to receive interest on reimbursable servicing
expenses, such interest to be paid, contemporaneously with the reimbursement of
the related Advance or servicing expense, out of any other collections on the
Mortgage Loans.]
The Master Servicer generally will be required to pay all expenses incurred
by it in connection with its servicing activities under the pooling and
servicing agreement, and will not be entitled to reimbursement therefor except
as expressly provided in the pooling and servicing agreement. However, the
Master Servicer will be permitted to pay certain of those expenses directly out
of the Certificate Account and at times without regard to the relationship
between the expense and the funds from which it is being paid. The Master
Servicer will be responsible for all fees of any sub-servicers, other than
management fees earned in connection with the operation of an REO Property,
which management fees the Master Servicer will be authorized to pay out of
revenues received from that property (thereby reducing the portion of revenues
S-32
that would otherwise be available for distribution to Certificateholders). See
"Description of the Certificates-Distributions-Method, Timing and Amount" in
this prospectus supplement and "The Pooling and Servicing Agreements-Certificate
Account" and "-Servicing Compensation and Payment of Expenses" in the
accompanying prospectus.
MODIFICATIONS, WAIVERS AND AMENDMENTS
The Master Servicer or the Special Servicer may, consistent with its normal
servicing practices, agree to modify, waive or amend any term of any Mortgage
Loan, without the consent of the Trustee or any Certificateholder, subject,
however, to each of the following limitations, conditions and restrictions:
(a) with limited exception, the Master Servicer and the Special
Servicer may not agree to any modification, waiver or amendment that will
(1) affect the amount or timing of any scheduled payments of
principal or interest on the Mortgage Loan or
(2) in its judgment, materially impair the security for the
Mortgage Loan or reduce the likelihood of timely payment of
amounts due under the Mortgage Loan;
Unless, in any such case, in the Master Servicer's or the Special Servicer's
judgment, as the case may be, a material default on the Mortgage Loan has
occurred or a payment default is reasonably foreseeable, and the modification,
waiver or amendment is reasonably likely to produce a greater recovery with
respect to the Mortgage Loan, taking into account the time value of money, than
would liquidation.
(b) [describe additional limitations to permitted modification
standards]
The Master Servicer and the Special Servicer will notify the Trustee of any
modification, waiver or amendment of any term of any Mortgage Loan, and must
deliver to the Trustee or the related Custodian, for deposit in the related
Mortgage File, an original counterpart of the agreement related to that
modification, waiver or amendment, promptly (and in any event within [10]
business days) following the execution thereof. Copies of each agreement that
effects a modification, waiver or amendment of any term of any Mortgage Loan are
to be available for review during normal business hours at the offices of the
[Trustee]. See "Description of the Certificates-Reports to Certificateholders;
Certain Available Information" in this prospectus supplement.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Special Servicer will perform physical inspections of each Mortgaged
Property at the times and in the manner as are consistent with the Special
Servicer's normal servicing procedures, but in any event
(1) at least once per calendar year, commencing in the calendar
year 200 , and ----
(2) if any scheduled payment becomes more than 60 days
delinquent on the related Mortgage Loan, as soon as
practicable after the occurrence of the delinquency. The
Special Servicer will prepare a written report of each such
inspection describing the condition of the Mortgaged
Property and specifying the existence of any material
vacancies in the Mortgaged Property, of any sale, transfer
or abandonment of the Mortgaged Property, of any material
change in the condition or value of the Mortgaged Property,
or of any waste committed on the Mortgaged Property.
With respect to each Mortgage Loan that requires the borrower to deliver
these statements, the Special Servicer is also required to collect and review
the annual operating statements of the related Mortgaged Property. [Most] of the
Mortgages obligate the related borrower to deliver annual property operating
statements. However, there can be no assurance that any operating statements
required to be delivered will in fact be delivered, nor is the Special Servicer
likely to have any practical means of compelling delivery in the case of an
otherwise performing Mortgage Loan.
S-33
Copies of the inspection reports and operating statements referred to above
are to be available for review by Certificateholders during normal business
hours at the offices of the [Trustee]. See "Description of the
Certificates-Reports to Certificateholders; Certain Available Information" in
this prospectus supplement.
ADDITIONAL OBLIGATIONS OF THE MASTER SERVICER WITH RESPECT TO ARM LOANS
The Master Servicer is responsible for calculating adjustments in the
Mortgage Rate and the Monthly Payment for each ARM Loan and for notifying the
related borrower of such adjustments. If the base index for any ARM Loan is not
published or is otherwise unavailable, then the Master Servicer is required to
select a comparable alternative index over which it has no direct control, that
is readily verifiable and that is acceptable under the terms of the related
Mortgage Note. If the Mortgage Rate or the Monthly Payment with respect to any
ARM Loan is not properly adjusted by the Master Servicer pursuant to the terms
of such Mortgage Loan and applicable law, the Master Servicer is required to
deposit in the Certificate Account on or prior to the Due Date of the affected
Monthly Payment, an amount equal to the excess, if any, of
(1) the amount that would have been received from the borrower
if the Mortgage Rate or Monthly Payment had been properly
adjusted, over
(2) the amount of such improperly adjusted Monthly Payment,
subject to reimbursement only out of such amounts as are
recovered from the borrower in respect of such excess.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the pooling and servicing
agreement and will represent in the aggregate the entire beneficial ownership
interest in a Trust Fund consisting of:
o the Mortgage Loans and all payments under and proceeds of
the Mortgage Loans received after the Cut-off Date
(exclusive of payments of principal and interest due on or
before the Cut-off Date);
o any REO Property;
o such funds or assets as from time to time are deposited in
the Certificate Account;
o the rights of the mortgagee under all insurance policies
with respect to the Mortgage Loans; and
o certain rights of the Depositor under the mortgage loan
purchase and sale agreement relating to Mortgage Loan
document delivery requirements and the representations and
warranties of the Mortgage Loan Seller regarding the
Mortgage Loans.
The Certificates will consist of the following four Classes:
(1) the Class A Certificates (the "Senior Certificates");
(2) the Class B Certificates;
(3) the Class C Certificates; and the Class R Certificates; and
(4) The Class A Certificates will have an initial Certificate
Balance of $____________, which represents ____% of the
Initial Pool Balance; the Class B Certificates will have an
initial Certificate Balance of $____________, which
represents ____% of the Initial Pool Balance the Class C
Certificates will have an initial Certificate Balance of
$____________, which represents ___% of the Initial Pool
Balance; and the Class R Certificates will not have a
Certificate Balance.
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The Certificate Balance of any Class of Certificates outstanding at any time
represents the maximum amount which the holders thereof are entitled to receive
as distributions allocable to principal from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund. On each Distribution Date, the
Certificate Balance of each Class of Certificates will be reduced by any
distributions of principal actually made on, and any Collateral Support Deficit
actually allocated to, such Class of Certificates on such Distribution Date.
Only the Senior Certificates and the Class B Certificates (collectively, the
"Offered Certificates") are offered hereby. The Class C Certificates and the
Class R Certificates have not been registered under the Securities Act of 1933
and are not offered by this prospectus supplement.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of DTC and its Participants in minimum denominations of
$25,000 and integral multiples of $1. The Class B Certificates will be issued in
fully registered, certificated form in minimum denominations of $100,000 and
integral multiples of $1,000, with one Class B Certificate evidencing an
additional amount equal to the remainder of the initial Certificate Balance of
that Class. The Class R Certificates will be issued in registered, certificated
form in minimum denominations of 20% Percentage Interest in that Class. The
"Percentage Interest" evidenced by any Offered Certificate is equal to the
initial denomination thereof as of the Delivery Date, divided by the initial
Certificate Balance of the Class to which it belongs.
The Class A Certificates will initially be represented by one or more global
Certificates registered in the name of the nominee of DTC. The Depositor has
been informed by DTC that DTC's nominee will be Cede & Co. No Class A
Certificate Owner will be entitled to receive a Definitive Class A Certificate
representing its interest in such Class, except as set forth below under
"-Book-Entry Registration of the Class A Certificates-Definitive Class A
Certificates". Unless and until Definitive Class A Certificates are issued, all
references to actions by holders of the Class A Certificates will refer to
actions taken by DTC upon instructions received from Class A Certificate Owners
through its Participants, and all references in this prospectus supplement to
payments, notices, reports and statements to holders of the Class A Certificates
will refer to payments notices, reports and statements to DTC or Cede & Co., as
the registered holder of the Class A Certificates, for distribution to Class A
Certificate Owners through its Participants in accordance with DTC procedures.
See "Description of the Certificates-Book-Entry Registration and Definitive
Certificates" in the accompanying prospectus.
Until Definitive Class A Certificates are issued, interests in such Class
will be transferred on the book-entry records of DTC and its Participants.
Subject to certain restrictions on the transfer of these Certificates to Plans
(see "ERISA Considerations" in this prospectus supplement), the Class B
Certificates may be transferred or exchanged at the offices of
___________________________ located at ____________________________________,
without the payment of any service charges, other than any tax or other
governmental charge payable in connection therewith. ________________________
will initially serve as registrar (in such capacity, the "Certificate
Registrar") for purposes of recording and otherwise providing for the
registration of the Offered Certificates and of transfers and exchanges of the
Class B and, if issued, the Definitive Class A Certificates.
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
General. Class A Certificate Owners that are not Direct or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the Class A Certificates may do so only through Direct and
Indirect Participants. In addition, Class A Certificate Owners will receive all
distributions of principal of and interest on the Class A Certificates from the
Trustee through DTC and its Direct and Indirect Participants. Accordingly, Class
A Certificate Owners may experience delays in their receipt of payments. Unless
and until Definitive Class A Certificates are issued, it is anticipated that the
only registered Certificateholder of the Class A Certificates will be Cede &
Co., as nominee of DTC. Class A Certificate Owners will not be recognized by the
Trustee or the Master Servicer as Certificateholders, as such term is used in
the pooling and servicing agreement, and Class A Certificate Owners will be
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permitted to receive information furnished to Certificateholders and to exercise
the rights of Certificateholders only indirectly through DTC and its Direct and
Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Class A Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Class A Certificates. Direct
and Indirect Participants with which Class A Certificate Owners have accounts
with respect to the Class A Certificates similarly are required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Class A Certificate Owners. Accordingly, although Class A
Certificate Owners will not possess physical certificates evidencing their
interests in the Class A Certificates, the Rules provide a mechanism by which
Class A Certificate Owners, through their Direct and Indirect Participants, will
receive distributions and will be able to transfer their interests in the Class
A Certificates.
None of the Depositor, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Class A Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
Definitive Class A Certificates. Definitive Class A Certificates will be
issued to Class A Certificate Owners or their nominees, respectively, rather
than to DTC or its nominee, only under the limited conditions set forth in the
accompanying prospectus under "Description of the Certificates-Book-Entry
Registration and Definitive Certificates."
Upon the occurrence of an event described in the accompanying prospectus in
the last paragraph under "Description of the Certificates-Book-Entry
Registration and Definitive Certificates," the Trustee is required to notify,
through DTC, Direct Participants who have ownership of Class A Certificates as
indicated on the records of DTC of the availability of Definitive Certificates.
Upon surrender by DTC of the definitive certificates representing the Class A
Certificates and upon receipt of instructions from DTC for re-registration, the
Trustee will reissue the Class A Certificates as Definitive Class A Certificates
issued in the respective principal amounts owned by individual Class A
Certificate Owners. Thereafter the Trustee and the Master Servicer will
recognize the holders of such Definitive Class A Certificates as
Certificateholders under the pooling and servicing agreement.
For additional information regarding DTC and Certificates maintained on the
book-entry records thereof, see "Description of the Certificates-Book-Entry
Registration and Definitive Certificates" in the accompanying prospectus.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made by
the [Trustee], to the extent of available funds, on the [11th] day of each month
or, if any such [11th] day is not a business day, then on the next succeeding
business day, commencing in _________ 200__ (each, a "Distribution Date"). These
distributions (other than the final distribution on any Certificate) will be
made to the persons in whose names the Certificates are registered at the close
of business on each Record Date, which will be the last business day of the
month preceding the month in which the related Distribution Date occurs. Each
distribution will be made by wire transfer in immediately available funds to the
account specified by the Certificateholder at a bank or other entity having
appropriate facilities such transfer shall only be made if such
Certificateholder will have provided the [Trustee] with 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
distributions) and is the registered owner of Certificates with an aggregate
initial principal amount of at least $5,000,000], or otherwise by check mailed
to such Certificateholder. The final distribution on any Certificate will be
made in like manner, but only upon presentation and surrender of such
Certificate at the location that will be specified in a notice of the pendency
of such final distribution. All distributions made with respect to a Class of
Certificates will be allocated pro rata among the outstanding Certificates of
such Class based on their respective Percentage Interests.
The aggregate amount available for distribution to Certificateholders on each
Distribution Date (the "Available Distribution Amount") will, in general, equal
the sum of the following amounts:
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(a) the total amount of all cash received on the Mortgage Loans
and any REO Properties that is on deposit in the Certificate
Account as of the related Determination Date, exclusive of:
(1) all Monthly Payments collected but due on a Due Date
subsequent to the related Due Period,
(2) all principal prepayments (together with related
payments of interest thereon and related Prepayment
Premiums), Liquidation Proceeds, Insurance and
Condemnation Proceeds and other unscheduled recoveries
received subsequent to the related Due Period, and
(3) all amounts in the Certificate Account that are due or
reimbursable to any person other than the
Certificateholders; and
(b) all Advances made by the Master Servicer with respect to
such Distribution Date. See "The Pooling and Servicing
Agreements-Certificate Account" in the accompanying
prospectus.
The "Due Period" for each Distribution Date will be the period that begins on
the [second] day of the month preceding the month in which such Distribution
Date occurs and ends on the [first] day of the month in which such Distribution
Date occurs. For purposes of the discussion in the accompanying prospectus, the
Due Period is also the Prepayment Period. The "Determination Date" for each
Distribution Date is the [5th] day of the month in which such Distribution Date
occurs or, if any such [5th] day is not a business day, then the next preceding
business day.
Priority. On each Distribution Date, for so long as the Certificate Balances
of the Offered Certificates have not been reduced to zero, the [Trustee] will
(except as otherwise described under "-Termination; Retirement of Certificates"
below) apply amounts on deposit in the Certificate Account, to the extent of the
Available Distribution Amount, in the following order of priority:
(1) to distributions of interest to the holders of the
Senior Certificates, pro rata among the respective
Classes thereof, in an amount equal to all
Distributable Certificate Interest in respect of the
Senior Certificates for such Distribution Date and, to
the extent not previously paid, for all prior
Distribution Dates;
(2) to distributions of principal to the holders of the
Senior Certificates in an amount equal to the sum of
(a) the product of the Senior Certificates' Ownership Percentage
(as calculated immediately prior to such Distribution Date),
multiplied by the Scheduled Principal Distribution Amount
for such Distribution Date, plus
(b) the entire Unscheduled Principal Distribution Amount for
such Distribution Date (but not more than would be necessary
to reduce the aggregate Certificate Balance of the Senior
Certificates to zero);
(3) to distributions to the holders of the Class A
Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class A
Certificates, but not previously reimbursed, have been
reimbursed in full;
(4) to distributions of interest to the holders of the
Class B Certificates in an amount equal to all
Distributable Certificate Interest in respect of the
Class B Certificates for such Distribution Date and, to
the extent not previously paid, for all prior
Distribution Dates;
(5) to distributions of principal to the holders of the
Class B Certificates in an amount equal to the sum of
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(a) the product of the Class B Certificates' Ownership
Percentage (as calculated immediately prior to such
Distribution Date), multiplied by the Scheduled Principal
Distribution Amount for such Distribution Date, plus
(b) if the Certificate Balances of the Senior Certificates have
been reduced to zero, then to the extent not distributed in
reduction of such Certificate Balances on such Distribution
Date, the entire Unscheduled Principal Distribution Amount
for such Distribution Date (but not more than would be
necessary to reduce the Certificate Balance of the Class B
Certificates to zero);
(6) to distributions to the holders of the Class B
Certificates , until all amounts of Collateral Support
Deficit previously allocated to the Class B
Certificates, but not previously reimbursed, have been
reimbursed in full;
(7) to distributions of interest to the holders of the
Class C Certificates in an amount equal to all
Distributable Certificate Interest in respect of the
Class C Certificates for such Distribution Date and, to
the extent not previously distributed, for all prior
Distribution Dates;
(8) to distributions of principal to the holders of the
Class C Certificates in an amount equal to the product
of (a) the Class C Certificates' Ownership Percentage
(as calculated immediately prior to such Distribution
Date), multiplied by (b) the Scheduled Principal
Distribution Amount for such Distribution Date;
(9) to distributions to the holders of the Class C
Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class C
Certificates, but not previously reimbursed, have been
reimbursed in full; and
(10) to distributions to the holders of the Class R
Certificates in an amount equal to the remaining
balance, if any, of the Available Distribution Amount.
Reimbursement of previously allocated Collateral Support Deficit will not
constitute distributions of principal for any purpose and will not result in an
additional reduction in the Certificate Balance of the Class of Certificates in
respect of which any such reimbursement is made.
Pass-Through Rates. The "Pass-Through Rate" applicable to each Class of
Certificates for the initial Distribution Date will equal _______% per annum.
With respect to any Distribution Date subsequent to the initial Distribution
Date, the Pass-Through Rate for each Class of Certificates will equal the
weighted average of the applicable Effective Net Mortgage Rates for the Mortgage
Loans, weighted on the basis of their respective Stated Principal Balances
immediately prior to such Distribution Date. For purposes of calculating the
Pass-Through Rate for any Class of Certificates and any Distribution Date, the
"applicable Effective Net Mortgage Rate" for each Mortgage Loan is:
(a) if such Mortgage Loan accrues interest on the basis of a 360-day year
consisting of twelve 30-day months (a "30/360 basis", which is the basis of
accrual for interest on the Certificates), the Net Mortgage Rate in effect for
such Mortgage Loan as of the commencement of the related Due Period; and
(b) if such Mortgage Loan does not accrue interest on a 30/360 basis, the
annualized rate at which interest would have to accrue during the one month
period preceding the Due Date for such Mortgage Loan during the related Due
Period on a 30/360 basis in order to produce the aggregate amount of interest
(adjusted to the actual Net Mortgage Rate) accrued during such period.
The "Net Mortgage Rate" for each Mortgage Loan is equal to the related
Mortgage Rate in effect from time to time less the Servicing Fee Rate.
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Distributable Certificate Interest. The "Distributable Certificate Interest"
in respect of each Class of Certificates for each Distribution Date represents
that portion of the Accrued Certificate Interest in respect of such Class of
Certificates for such Distribution Date that is net of such Class's allocable
share (calculated as described below) of the aggregate of any Prepayment
Interest Shortfalls resulting from voluntary principal prepayments made on the
Mortgage Loans during the related Due Period that are not offset by Prepayment
Interest Excesses collected during the related Due Period (the aggregate of such
Prepayment Interest Shortfalls that are not so offset or covered, as to such
Distribution Date, the "Net Aggregate Prepayment Interest Shortfall").
The "Accrued Certificate Interest" in respect of each Class of Certificates
for each Distribution Date is equal to one month's interest at the Pass-Through
Rate applicable to such Class of Certificates for such Distribution Date accrued
on the related Certificate Balance outstanding immediately prior to such
Distribution Date. Accrued Certificate Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of Certificates will equal the
product of
(a) such Net Aggregate Prepayment Interest Shortfall, multiplied by
(b) a fraction, the numerator of which is equal to the Accrued Certificate
Interest in respect of such Class of Certificates for such Distribution Date,
and the denominator of which is equal to the Accrued Certificate Interest in
respect of all the Classes of Certificates for such Distribution Date.
Scheduled Principal Distribution Amount and Unscheduled Principal
Distribution Amount. The "Scheduled Principal Distribution Amount" for each
Distribution Date will equal the aggregate of the principal portions of all
Monthly Payments, including Balloon Payments [, net of any related Workout Fees
payable therefrom to the Special Servicer], due during or, if and to the extent
not previously received or advanced and distributed to Certificateholders on a
preceding Distribution Date, prior to the related Due Period, in each case to
the extent paid by the related borrower or advanced by the Master Servicer and
included in the Available Distribution Amount for such Distribution Date. The
Scheduled Principal Distribution Amount from time to time will include all late
payments of principal made by a borrower, including late payments in respect of
a delinquent Balloon Payment, regardless of the timing of such late payments,
except to the extent such late payments are otherwise reimbursable to the Master
Servicer for prior Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of:
(a) all voluntary prepayments of principal received on the Mortgage Loans
during the related Due Period [, net of any related Workout Fees payable
therefrom to the Special Servicer]; and
(b) any other collections (exclusive of payments by borrowers) received on
the Mortgage Loans and any REO Properties during the related Due Period, whether
in the form of Liquidation Proceeds, Insurance and Condemnation Proceeds, net
income 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 [, net of any related Workout Fees payable therefrom to the
Special Servicer].
The respective amounts which constitute the Scheduled Principal Distribution
Amount and Unscheduled Principal Distribution Amount for any Distribution Date
are in this prospectus supplement collectively referred to from time to time as
the "Distributable Principal".
The "Ownership Percentage" evidenced by any Class or Classes of Certificates
as of any date of determination will equal a fraction, expressed as a
percentage, the numerator of which is the then Certificate Balance(s) of such
Class(es) of Certificates, and the denominator of which is the then aggregate
Stated Principal Balance of the Mortgage Pool.
Certain Calculations with Respect to Individual Mortgage Loans. The "Stated
Principal Balance" of each Mortgage Loan outstanding at any time represents the
principal balance of such Mortgage Loan ultimately due and payable to the
Certificateholders subject to the Special Servicer's right to receive any
Workout Fee with respect to such Mortgage Loan. The Stated Principal Balance of
each Mortgage Loan will initially equal the Cut-off Date Balance thereof and, on
S-39
each Distribution Date, will be reduced by the portion of the Distributable
Principal for such date that is attributable to such Mortgage Loan. The Stated
Principal Balance of a Mortgage Loan may also be reduced in connection with any
forced reduction of the actual unpaid principal balance thereof imposed by a
court presiding over a bankruptcy proceeding wherein the related borrower is the
debtor. See "Certain Legal Aspects of Mortgage Loans-Foreclosure-Bankruptcy
Laws" in the accompanying prospectus. If any Mortgage Loan is paid in full or
such Mortgage Loan (or any Mortgaged Property acquired in respect thereof) is
otherwise liquidated, then, as of the first Distribution Date that follows the
end of the Due Period in which such payment in full or liquidation occurred, and
notwithstanding that a loss may have occurred in connection with any such
liquidation, the Stated Principal Balance of such Mortgage Loan shall be zero.
For purposes of calculating distributions on, and allocations of Collateral
Support Deficit to, the Certificates, as well as for purposes of calculating the
amount of Servicing Fees payable each month, each REO Property will be treated
as if there exists with respect thereto an outstanding mortgage loan (an "REO
Loan"), and all references to "Mortgage Loan", "Mortgage Loans" and "Mortgage
Pool" in this prospectus supplement and in the accompanying prospectus, when
used in such 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 the same adjustable or fixed Mortgage Rate (and, accordingly, the same
Net Mortgage Rate and Effective Net Mortgage Rate) and the same unpaid principal
balance and Stated Principal Balance. Amounts due on such predecessor Mortgage
Loan, including any portion thereof payable or reimbursable to the Master
Servicer, 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 the Special Servicer for payments
previously advanced, in connection with the operation and management of such
property, generally will be applied by the Master Servicer as if received on the
predecessor Mortgage Loan. However, notwithstanding the terms of the predecessor
Mortgage Loan, the Monthly Payment "due" on an REO Loan will in all cases, for
so long as the related Mortgaged Property is part of the Trust Fund, be deemed
to equal one month's interest thereon at the applicable Mortgage Rate.
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICIT
The rights of holders of the Class B Certificates and the Class C
Certificates to receive distributions of amounts collected or advanced on the
Mortgage Loans will be subordinated, to the extent described in this prospectus
supplement, to the rights of holders of the Senior Certificates. The rights of
holders of the Class C Certificates to receive distributions of amounts
collected or advanced on the Mortgage Loans will be subordinated, to the extent
described in this prospectus supplement, to the rights of holders of the Class B
Certificates. This subordination is intended to enhance the likelihood of timely
receipt by the holders of the Senior Certificates of the full amount of all
Distributable Certificate Interest payable in respect of such Certificates on
each Distribution Date, and the ultimate receipt by such holders of principal in
an amount equal to the entire aggregate Certificate Balance of the Senior
Certificates. Similarly, but to a lesser degree, this subordination is also
intended to enhance the likelihood of timely receipt by the holders of the Class
B Certificates of the full amount of all Distributable Certificate Interest
payable in respect of such Certificates on each Distribution Date, and the
ultimate receipt by such holders of principal in an amount equal to the entire
Certificate Balance of the Class B Certificates. This subordination will be
accomplished by the application of the Available Distribution Amount on each
Distribution Date in accordance with the order of priority described under
"-Distributions-Priority" above. No other form of Credit Support will be
available for the benefit of the holders of the Offered Certificates.
Allocation to the Senior Certificates, for so long as they are outstanding,
of the entire Unscheduled Principal Distribution Amount for each Distribution
Date will generally accelerate the amortization of such Certificates relative to
the actual amortization of the Mortgage Loans. To the extent that the Senior
Certificates are amortized faster than the Mortgage Loans, the percentage
interest evidenced by the Senior Certificates in the Trust Fund will be
decreased (with a corresponding increase in the interest in the Trust Fund
evidenced by the Class B and Class C Certificates), thereby increasing, relative
to their respective Certificate Balances, the subordination afforded the Senior
Certificates by the Class B and Class C Certificates. Following retirement of
the Class A Certificates, allocation to the Class B Certificates, for so long as
they are outstanding, of the entire Unscheduled Principal Distribution Amount
for each Distribution Date will provide a similar benefit to such Class of
Certificates as regards the relative amount of subordination afforded thereto by
the Class C Certificates.
S-40
On each Distribution Date, immediately following the distributions to be made
to the Certificateholders on such date, the [Trustee] is to calculate the
amount, if any, by which
(a) the aggregate Stated Principal Balance of the Mortgage Pool expected to
be outstanding immediately following such Distribution Date is less than
(b) the then aggregate Certificate Balance of the REMIC Regular Certificates
(any such deficit, "Collateral Support Deficit"). The [Trustee] will be required
to allocate any such Collateral Support Deficit among the respective Classes of
Certificates as follows:
o first, to the Class C Certificates, until the remaining
Certificate Balance of such Class of Certificates is reduced
to zero;
o second, to the Class B Certificates, until the remaining
Certificate Balance of such Class of Certificates is reduced
to zero; and
o last, to the Class A Certificates, until the remaining
Certificate Balance of such Class of Certificates has been
reduced to zero.
Any allocation of Collateral Support Deficit to a Class of Certificates will
be made by reducing the Certificate Balance thereof by the amount so allocated.
Any Collateral Support Deficit allocated to a Class of REMIC Regular
Certificates will be allocated among the respective Certificates of such Class
in proportion to the Percentage Interests evidenced thereby. In general,
Collateral Support Deficit will result from the occurrence of:
o losses and other shortfalls on or in respect of the Mortgage
Loans, including as a result of defaults and delinquencies
thereon, Nonrecoverable Advances made in respect thereof and
the payment to the Master Servicer of interest on Advances
and certain servicing expenses; and
o certain unanticipated, non-Mortgage Loan specific expenses
of the Trust Fund, including certain reimbursements to the
Trustee as described under "The Pooling and Servicing
Agreements - Certain Matters Regarding the Trustee" in the
accompanying prospectus, certain reimbursements to the
Master Servicer and the Depositor as described under "The
Pooling and Servicing Agreements - Certain Matters Regarding
the Master Servicer and the Depositor" in the accompanying
prospectus and certain federal, state and local taxes, and
certain tax-related expenses, payable out of the Trust Fund
as described under "Certain Federal Income Tax Consequences
- REMICs - Prohibited Transactions Tax and Other Taxes " in
the accompanying prospectus.
Accordingly, the allocation of Collateral Support Deficit as described above
will constitute an allocation of losses and other shortfalls experienced by the
Trust Fund.
ADVANCES
[On the business day immediately preceding each Distribution Date, the Master
Servicer will be obligated, subject to the recoverability determination
described in the next paragraph, to make advances (each, an "Advance") out of
its own funds or, subject to the replacement thereof as provided in the pooling
and servicing agreement, funds held in the Certificate Account that are not
required to be part of the Available Distribution Amount for such Distribution
Date, in an amount equal to the aggregate of:
(1) all Monthly Payments (net of the related Servicing Fee),
other than Balloon Payments, which were due on the Mortgage
Loans during the related Due Period and delinquent as of the
related Determination Date;
(2) in the case of each Mortgage Loan delinquent in respect of
its Balloon Payment as of the related Determination Date, an
amount equal to one month's interest on that Mortgage Loan
at the related Mortgage Rate in effect as of the
commencement of the related Due Period (net of the related
Servicing Fee), but only to the extent that the related
mortgagor has not made a payment sufficient to cover such
amount under any forbearance arrangement or otherwise that
has been included in the Available Distribution Amount for
such Distribution Date; and
S-41
(3) in the case of each REO Property, an amount equal to thirty
days' imputed interest with respect thereto at the related
Mortgage Rate in effect as of the commencement of the
related Due Period (net of the related Servicing Fee), but
only to the extent that such amount is not covered by any
net income from such REO Property included in the Available
Distribution Amount for such Distribution Date.
The Master Servicer's obligations to make Advances in respect of any Mortgage
Loan or REO Property will continue through liquidation of such Mortgage Loan or
disposition of such REO Property, as the case may be.
The Master Servicer will be entitled to recover any Advance made out of its
own funds from any amounts collected in respect of the Mortgage Loan as to which
such Advance was made, whether in the form of late payments, Insurance and
Condemnation Proceeds, Liquidation Proceeds or otherwise ("Related Proceeds").
Notwithstanding the foregoing, the Master Servicer will not be obligated to make
any Advance that it determines in its reasonable good faith judgment would, if
made, not be recoverable out of Related Proceeds (a "Nonrecoverable Advance"),
and the Master Servicer will be entitled to recover any Advance that it so
determines to be a Nonrecoverable Advance out of general funds on deposit in the
Certificate Account. Nonrecoverable Advances will represent a portion of the
losses to be borne by the Certificateholders. See "Description of the
Certificates-Advances in Respect of Delinquencies" and "The Pooling and
Servicing Agreements-Certificate Account" in the accompanying prospectus.
In connection with its recovery of any Advance or reimbursable servicing
expense, each of the Master Servicer and the Special Servicer will be entitled
to be paid, out of any amounts then on deposit in the Certificate Account,
interest at ____% per annum (the "Reimbursement Rate") accrued on the amount of
such Advance or expense from the date made to but not including the date of
reimbursement.
To the extent not offset or covered by amounts otherwise payable on the Class
C Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Class B Certificates. To the extent not
offset or covered by amounts otherwise payable on the Class B and Class C
Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Senior Certificates. To the extent that any
holder of an Offered Certificate must bear the cost of the Master Servicer's
and/or Special Servicer's Advances, the benefits of such Advances to such holder
will be contingent on the ability of such holder to reinvest the amounts
received as a result of such Advances at a rate of return equal to or greater
than the Reimbursement Rate.]
Each Distribution Date Statement delivered by the Trustee to the
Certificateholders will contain information relating to the amounts of Advances
made with respect to the related Distribution Date. See "Description of the
Certificates-Reports to Certificateholders; Certain Available Information" in
this prospectus supplement and "Description of Certificates-Reports to
Certificateholders" in the accompanying prospectus.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
On each Distribution Date, the [Trustee] will be required to forward by mail
to each holder of an Offered Certificate a statement (a "Distribution Date
Statement") providing various items of information relating to distributions
made on such date with respect to the relevant Class and the recent status of
the Mortgage Pool. For a more detailed discussion of the particular items of
information to be provided in each Distribution Date Statement, as well as a
discussion of certain annual information reports to be furnished by the
[Trustee] to persons who at any time during the prior calendar year were holders
of the Offered Certificates, see "Description of the Certificates-Reports to
Certificateholders" in the accompanying prospectus.
The pooling and servicing agreement requires that the [Trustee] make
available at its offices primarily responsible for [administration of the Trust
Fund], during normal business hours, for review by any holder of an Offered
Certificate, originals or copies of, among other things, the following items:
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o the pooling and servicing agreement and any amendments
thereto,
o all Distribution Date Statements delivered to holders of the
relevant Class of Offered Certificates since the Delivery
Date,
o all officer's certificates delivered to the Trustee since
the Delivery Date as described under "The Pooling and
Servicing Agreements-Evidence as to Compliance" in the
accompanying prospectus,
o all accountants' reports delivered to the Trustee since the
Delivery Date as described under "The Pooling and Servicing
Agreements-Evidence as to Compliance" in the accompanying
prospectus,
o the most recent property inspection report prepared by or on
behalf of the Special Servicer and delivered to the Trustee
in respect of each Mortgaged Property,
o the most recent annual operating statements, if any,
collected by or on behalf of the Special Servicer and
delivered to the Trustee in respect of each Mortgaged
Property, and
o any and all modifications, waivers and amendments of the
terms of a Mortgage Loan entered into by the Master Servicer
or the Special Servicer and delivered to the Trustee.
Copies of any and all of the foregoing items will be available from the
[Trustee] upon request; however, the [Trustee] will be permitted to require
payment of a sum sufficient to cover the reasonable costs and expenses of
providing such copies.
Until such time as Definitive Class A Certificates are issued, the foregoing
information will be available to Class A Certificate Owners only to the extent
it is forwarded by or otherwise available through DTC and its Participants.
Conveyance of notices and other communications by DTC to Participants, and by
Participants to Class A Certificate Owners, will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time. The Master Servicer, the Special Servicer, the
Trustee, the Depositor, the REMIC Administrator and the Certificate Registrar
are required to recognize as Certificateholders only those persons in whose
names the Certificates are registered on the books and records of the
Certificate Registrar. The initial registered holder of the Class A Certificates
will be Cede & Co. as nominee for DTC.
VOTING RIGHTS
At all times during the term of the pooling and servicing agreement, the
voting rights for the series offered hereby (the "Voting Rights") shall be
allocated among the respective Classes of Certificateholders in proportion to
the Certificate Balances of their Certificates. Voting Rights allocated to a
Class of Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the pooling and servicing agreement will terminate
following the earliest of
(1) the final payment (or advance in respect thereof) or other
liquidation of the last Mortgage Loan or REO Property
subject thereto, and
(2) the purchase of all of the assets of the Trust Fund by the
Master Servicer or the Depositor. Written notice of
termination of the pooling and servicing agreement will be
given to each Certificateholder, and the final distribution
will be made only upon surrender and cancellation of the
Certificates at the office of the Certificate Registrar or
other location specified in such notice of termination.
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Any such purchase by the Master Servicer or the Depositor of all the Mortgage
Loans and other assets in the Trust Fund is required to be made at a price equal
to
(a) the sum of
(1) the aggregate Purchase Price of all the Mortgage Loans
(exclusive of REO Loans) then included in the Trust Fund and
(2) the aggregate fair market value of all REO Properties then
included in the Trust Fund (which fair market value for any
REO Property may be less than the Purchase Price for the
corresponding REO Loan), as determined by an appraiser
mutually agreed upon by the Master Servicer and the Trustee,
over
(b) the aggregate of amounts payable or reimbursable to the Master Servicer
under the pooling and servicing agreement.
Such purchase will effect early retirement of the then outstanding Offered
Certificates, but the right of the Master Servicer or the Depositor to effect
such termination is subject to the requirement that the then aggregate Stated
Principal Balance of the Mortgage Pool be less than 5% of the Initial Pool
Balance.
On the final Distribution Date, the aggregate amount paid by the Master
Servicer or the Depositor, as the case may be, for the Mortgage Loans and other
assets in the Trust Fund (if the Trust Fund is to be terminated as a result of
the purchase described in the preceding paragraph), together with all other
amounts on deposit in the Certificate Account and not otherwise payable to a
person other than the Certificateholders (see "The Pooling and Servicing
Agreements-Certificate Account" in the accompanying prospectus), will be applied
generally as described above under "-Distributions-Priority", except that the
distributions of principal described thereunder will, in the case of each Class
of Certificates, be made, subject to available funds, in an amount equal to the
related Certificate Balance then outstanding.
THE TRUSTEE
____________, a _____________________, will act as Trustee on behalf of the
Certificateholders. [The Master Servicer will be responsible for the fees and
normal disbursements of the Trustee.] The offices of the Trustee primarily
responsible for the administration of the Trust Fund are located at
_____________________________. See "The Pooling and Servicing Agreements-the
Trustee", "-Duties of the Trustee", "-Certain Matters Regarding the Trustee" and
"-Resignation and Removal of the Trustee" in the accompanying prospectus.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on:
(1) the Pass-Through Rate in effect from time to time for such
Certificate;
(2) the price paid for such Certificate and, if the price was
other than par, the rate and timing of payments of principal
on such Certificate; and
(3) the aggregate amount of distributions on such Certificate.
Pass-Through Rate. The Pass-Through Rate applicable to each Class of Offered
Certificates for any Distribution Date (other than the initial Distribution
Date) will equal the weighted average of the applicable Effective Net Mortgage
Rates. Accordingly, the yield on the Offered Certificates will be sensitive to
(1) adjustments to the Mortgage Rates on the ARM Loans and
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(2) changes in the relative composition of the Mortgage Pool as
a result of scheduled amortization, voluntary prepayments
and involuntary liquidations of the Mortgage Loans. See
"Description of the Mortgage Pool" in this prospectus
supplement and "-Yield Considerations-Rate and Timing of
Principal Payments" below.
Rate and Timing of Principal Payments. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by the
rate and timing of principal payments on the Mortgage Loans (including principal
prepayments on the Mortgage Loans resulting from both voluntary prepayments by
the mortgagors and involuntary liquidations). The rate and timing of principal
payments on the Mortgage Loans will in turn be affected by the amortization
schedules thereof, the dates on which Balloon Payments are due and the rate and
timing of principal prepayments and other unscheduled collections thereon
(including for this purpose, collections made in connection with liquidations of
Mortgage Loans due to defaults, casualties or condemnations affecting the
Mortgaged Properties, or purchases of Mortgage Loans out of the Trust Fund).
Prepayments and, assuming the respective stated maturity dates therefor have not
occurred, liquidations and purchases of the Mortgage Loans, will result in
distributions on the Offered Certificates of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans. Defaults on the
Mortgage Loans, particularly at or near their stated maturity dates, may result
in significant delays in payments of principal on the Mortgage Loans (and,
accordingly, on the Offered Certificates) while work-outs are negotiated or
foreclosures are completed. See "Servicing of the Mortgage Loans-Modifications,
Waivers and Amendments" in this prospectus supplement and "The Pooling and
Servicing Agreements-Realization Upon Defaulted Mortgage Loans" and "Certain
Legal Aspects of Mortgage Loans-Foreclosure" in the accompanying prospectus.
Because the rate of principal payments on the Mortgage Loans will depend on
future events and a variety of factors (as described below), no assurance can be
given as to such rate or the rate of principal prepayments in particular. The
Depositor is not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large group
of mortgage loans comparable to the Mortgage Loans.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates 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 such Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on a Certificate could result in an actual yield to
the investor that is lower than the anticipated yield and, in the case of any
Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments on a Certificate could result in an
actual yield to the investor that is lower than the anticipated yield. In
general, the earlier a payment of principal is made on an Offered Certificate
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 on the investor's Offered Certificates 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.
Losses and Shortfalls. The yield to holders of the Offered Certificates will
also depend on the extent to which such holders are required to bear the effects
of any losses or shortfalls on the Mortgage Loans. Losses and other shortfalls
on the Mortgage Loans will, with the exception of any Net Aggregate Prepayment
Interest Shortfalls, generally be borne:
o first, by the holders of the Class C Certificates, to the
extent of amounts otherwise distributable in respect of
their Certificates;
o second, by the holders of the Class B Certificates, to the
extent of amounts otherwise distributable in respect of
their Certificates; and
o last, by the holders of the Senior Certificates.
As more fully described in this prospectus supplement under "Description of
the Certificates-Distributions-Distributable Certificate Interest", Net
Aggregate Prepayment Interest Shortfalls will generally be borne by the
respective Classes of Certificateholders on a pro rata basis.
S-45
Certain Relevant Factors. 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,
o prevailing interest rates
o the terms of the Mortgage Loans (for example
o Prepayment Premiums,
o adjustable Mortgage Rates and amortization terms that
require Balloon Payments,
o the demographics and relative economic vitality of the areas
in which the Mortgaged Properties are located and
o the general supply and demand for rental properties in such
areas
o the quality of management of the Mortgaged Properties,
o the servicing of the Mortgage Loans,
o possible changes in tax laws and
o other opportunities for investment. See "Risk Factors" and
"Description of the Mortgage Pool" in this prospectus
supplement and "Risk Factors" and "Yield and Maturity
Considerations-Yield and Prepayment Considerations" in the
accompanying prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Although most of the Mortgage Loans are ARM Loans, adjustments to the
Mortgage Rates thereon will generally be limited by lifetime and/or periodic
caps and floors and, in each case, will be based on the related Index (which may
not rise and fall consistently with mortgage interest rates then available) plus
the related Gross Margin (which may be different from margins then offered on
adjustable rate mortgage loans). See "Description of the Mortgage Pool-Certain
Payment Characteristics" and "-The Index" in this prospectus supplement. As a
result, the Mortgage Rates on the ARM Loans at any time may not be comparable to
prevailing market interest rates. In addition, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on the ARM Loans
decline in a manner consistent therewith, related borrowers may have an
increased incentive to refinance for purposes of either
(1) converting to a fixed rate loan and thereby "locking in"
such rate, or
(2) taking advantage of a different index, margin or rate cap or
floor on another adjustable rate mortgage loan. The Mortgage
Loans may be prepaid at any time and, in ____ cases
(approximately _____% of the Initial Pool Balance), may be
prepaid in whole or in part without payment of a Prepayment
Premium.
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 therein, 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.
The Depositor makes 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 such 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.
S-46
Delay in Payment of Distributions. Because monthly distributions will not be
made to Certificateholders until a date that is scheduled to be at least _____
days and as many as ______ days following the Due Dates for the Mortgage Loans
during the related Due Period, the effective yield to the holders of the Offered
Certificates will be lower than the yield that would otherwise be produced by
the applicable Pass-Through Rates and purchase prices (assuming such prices did
not account for such delay).
Unpaid Distributable Certificate Interest. As described under "Description of
the Certificates-Distributions-Priority" in this prospectus supplement, if the
portion of the Available Distribution Amount distributable in respect of
interest on any Class of Offered Certificates on any Distribution Date is less
than the Distributable Certificate Interest then payable for such Class, the
shortfall will be distributable to holders of such Class of Certificates on
subsequent Distribution Dates, to the extent of available funds. Any such
shortfall will not bear interest, however, and will therefore negatively affect
the yield to maturity of such Class of Certificates for so long as it is
outstanding.
WEIGHTED AVERAGE LIFE
The weighted average life of an Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each dollar
allocable to principal of the Certificate is distributed to the investor. The
weighted average life of an Offered Certificate will be influenced by, among
other things, the rate at which principal on the Mortgage Loans is paid or
otherwise collected, which may be in the form of scheduled amortization,
voluntary prepayments, Insurance and Condemnation Proceeds and Liquidation
Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this prospectus supplement is the ["Constant Prepayment
Rate" or "CPR" model. The 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. As used in each of
the following tables, the column headed "0%" assumes that none of the Mortgage
Loans is prepaid before maturity. The columns headed "___%", "___%", "___%" and
"___%" assume that prepayments on the Mortgage Loans are made at those levels of
CPR. There is no assurance, however, that prepayments of the Mortgage Loans will
conform to any level of CPR, and no representation is made that the Mortgage
Loans will prepay at the levels of CPR shown or at any other prepayment rate.]
The following tables indicate the percentage of the initial Certificate
Balance of each of the Class A Certificates and the Class B Certificates that
would be outstanding after each of the dates shown at various CPRs and the
corresponding weighted average life of each such Class of Certificates. The
tables have been prepared on the basis of the following assumptions, among
others:
(1) scheduled monthly payments of principal and interest on the
Mortgage Loans, in each case prior to any prepayment of the
loan, will be timely received (with no defaults) and will be
distributed on the 15th day of each month commencing in
________ 200___;
(2) the Mortgage Rate in effect for each Mortgage Loan as of the
Cut-off Date will remain in effect
(a) in the case of each Fixed Rate Loan, to maturity and,
(b) in the case of each ARM Loan, until its next Interest
Rate Adjustment Date, when a new Mortgage Rate that is
to remain in effect to maturity will be calculated
reflecting the value of the related Index as of
________, 200__, subject to such Mortgage Loan's
lifetime and/or periodic rate caps and floors, if any;
(3) all Mortgage Loans accrue and pay interest on a 30/360
basis;
(4) the monthly principal and interest payment due for each
Mortgage Loan on the first Due Date following the Cut-off
Date will continue to be due
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(a) in the case of each Fixed Rate Loan, on each Due Date
until maturity and
(b) in the case of each ARM Loan, until its next Payment
Adjustment Date, when a new payment that is to be due
on each Due Date until maturity will be calculated
reflecting the appropriate Mortgage Rate and remaining
amortization term;
(5) any principal prepayments on the Mortgage Loans will be
received on their respective Due Dates at the respective
levels of CPR set forth in the tables, and there will be no
Net Aggregate Prepayment Interest Shortfalls in connection
therewith; and
(6) the Mortgage Loan Seller will not be required to repurchase
any Mortgage Loan, and neither the master servicer nor the
depositor will exercise its option to purchase all the
Mortgage Loans and thereby cause an early termination of the
Trust Fund.
To the extent that the Mortgage Loans have characteristics that differ from
those assumed in preparing the tables set forth below, the Class A Certificates
or the Class B Certificates may mature earlier or later than indicated by the
tables. It is highly unlikely that the Mortgage Loans will 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 Certificate Balances (and weighted average lives) shown
in the following tables. Such variations may occur even if the average
prepayment experience of the Mortgage Loans were to equal any of the specified
CPR percentages. Investors are urged to conduct their own analyses of the rates
at which the Mortgage Loans may be expected to prepay. Based on the foregoing
assumptions, the following table indicates the resulting weighted average lives
of the Class A Certificates and sets forth the percentage of the initial
Certificate Balance of the Class A Certificates that would be outstanding after
each of the dates shown at the indicated CPRs.
Percent of the Initial Certificate Balance of the
Class A Certificates at the Respective CPRs
Set Forth Below:
DATE 0% % % % %
- ---- ----- ----- ----- ----- -----
Delivery Date 100.0 100.0 100.0 100.0 100.0
_________ 11, 2000..................
_________ 11, 2001..................
_________ 11, 2002..................
_________ 11, 2003..................
_________ 11, 2004..................
_________ 11, 2005..................
_________ 11, 2006..................
_________ 11, 2007..................
_________ 11, 2008..................
_________ 11, 2009..................
Weighted Average Life (years)(A)....
- ----
(A) The weighted average life of a Class A Certificate is determined by
(1) multiplying the amount of each principal distribution thereon by the
number of years from the date of issuance of the Class A Certificates
to the related Distribution Date,
(2) summing the results and
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(3) dividing the sum by the aggregate amount of the reductions in the
principal balance of such Class A Certificate.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class B Certificates and sets forth the
percentage of the initial Certificate Balance of the Class B Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
Percent of the Initial Certificate Balance of the
Class B Certificates at the Respective CPRs
Set Forth Below:
DATE 0% % % % %
- ---- ----- ----- ----- ----- -----
Delivery Date 100.0 100.0 100.0 100.0 100.0
_________ 11, 2000..................
_________ 11, 2001..................
_________ 11, 2002..................
_________ 11, 2003..................
_________ 11, 2004..................
_________ 11, 2005..................
_________ 11, 2006..................
_________ 11, 2007..................
_________ 11, 2008..................
_________ 11, 2009..................
Weighted Average Life (years)(A)....
- --------------------
(A) The weighted average life of a Class B Certificate is determined by (1)
multiplying the amount of each principal distribution thereon by the
number of years from the date of issuance of the Class B Certificates to
the related Distribution Date, (2) summing the results and (3) dividing
the sum by the aggregate amount of the reductions in the principal balance
of such Class B Certificate.
[The following disclosure is applicable to Stripped Interest Certificates,
when offered...
YIELD SENSITIVITY OF THE CLASS X CERTIFICATES
The yield to maturity of the Class X Certificates will be especially
sensitive to the prepayment, repurchase and default experienced on the Mortgage
Loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments will have a material negative effect on the yield to maturity
of the Class X Certificates. There can be no assurance that the Mortgage Loans
will prepay at any particular rate. Prospective investors in the Class X
Certificates should fully consider the associated risks, including the risk that
such investors may not fully recover their initial investment.
The following table indicates the sensitivity of the pre-tax yield to
maturity on the Class X Certificates to various constant rates of prepayment on
the Mortgage Loans by projecting the monthly aggregate payments of interest on
the Class X Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis. This computation is based on the
assumptions described in the third paragraph under the heading "--Weighted
Average Life" above, including the assumptions regarding the characteristics and
performance of the Mortgage Loans which differ from the actual characteristics
and performance thereof and assuming the aggregate purchase price set forth
below. Any differences between such assumptions and the actual characteristics
and performance of the Mortgage Loans and of the Class X Certificates may result
in yields being different from those shown in such table. Discrepancies between
assumed and actual characteristics and performance underscore the hypothetical
nature of the table, which is provided only to give a general sense of the
sensitivity of yields in varying prepayment scenarios.
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Pre-Tax Yield to Maturity of the Class X Certificates
at the Following CPRs
ASSUMED PURCHASE PRICE 0% % % % %
----- ----- ----- ----- -----
$___________________............. ___% ___% ___% ___% ___%
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Class X Certificates, would cause
the discounted present value of such assumed stream of cash flows to equal the
assumed purchase price listed in the table. Accrued interest is included in the
assumed purchase price and is used in computing the corporate bond equivalent
yields shown. These yields do not take into account the different interest rates
at which investors may be able to reinvest funds received by them as
distributions on the Class X Certificates, and thus do not reflect the return on
any investment in the Class X Certificates when any reinvestment rates other
than the discount rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on the Class X
Certificates is likely to differ from those shown in the tables, even if all of
the Mortgage Loans prepay at the indicated CPRs over any given time period or
over the entire life of the Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Class X Certificates will conform to
the yields described in this prospectus supplement. Investors are urged to make
their investment decisions based on the determinations as to anticipated rates
of prepayment under a variety of scenarios. Investors in the Class X
Certificates should fully consider the risk that a rapid rate of prepayments on
the Mortgage Loans could result in the failure of such investors to fully
recover their investments.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, [Cadwalader, Wickersham &
Taft], counsel to the Depositor, will deliver the following opinion: [Assuming
compliance with the provisions of the pooling and servicing agreement, for
federal income tax purposes, the Trust Fund will qualify as a "real estate
mortgage investment conduit" (a "REMIC") within the meaning of Sections 860A
through 860G (the "REMIC Provisions") of the Internal Revenue Code of 1986 (the
"Code"), and
(1) the Class A, Class B and Class C Certificates will evidence
"regular interests" in such REMIC and
(2) the Class R Certificates will be the sole class of "residual
interests" in such REMIC, each within the meaning of the
REMIC Provisions in effect on the date hereof.] [Assuming
compliance with the pooling and servicing agreement, for
federal income tax purposes, the Trust Fund will be
classified as a grantor trust under Subpart E, part I of
subchapter J of the Code, and not as an association taxable
as a corporation or as a partnership.]
The __________ Certificates [may] [will] [will not] be treated as having been
issued with original issue discount for federal income tax reporting purposes.
The prepayment assumption that will be used in determining the rate of accrual
of [original issue discount,] market discount and premium, if any, for federal
income tax purposes will be based on the assumption that subsequent to the date
of any determination the Mortgage Loans will prepay at a rate equal to [a CPR of
__%]. No representation is made that the Mortgage Loans will prepay at that rate
or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount" in the accompanying prospectus.
The ___________________ Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of [either] such
Class of Certificates will be treated as holding a Certificate with amortizable
bond premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of [each] such Class of
S-50
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the accompanying prospectus.
The Offered Certificates will be treated as [assets described in Section
7701(a)(19)(C) of the Code and] "real estate assets" within the meaning of
Section 856(c)(4)(A) of the Code, and interest (including original issue
discount, if any) on the Offered Certificates will be interest described in
Section 856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860G(a)(3) of the Code. See
"Certain Federal Income Tax Consequences-REMICs-Characterization of Investments
in REMIC Certificates" in the accompanying prospectus.
________________________, a _______________, will act as REMIC Administrator
for the Trust Fund. [The Master Servicer will be responsible for the fees and
normal disbursements of the REMIC Administrator.] See "Certain Federal Income
Tax Consequences-REMICs-Reporting and Other Administrative Matters" and "The
Pooling and Servicing Agreements-Certain Matters Regarding the Master Servicer,
the Special Servicer, the REMIC Administrator and the Depositor", "-Events of
Default" and "-Rights Upon Event of Default" in the accompanying prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences-REMICs" in the accompanying prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO REMIC RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations that significantly affect holders of
REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to the transfer of "noneconomic" residual interests to U.S. Persons.
Pursuant to the pooling and servicing agreement, the Class R Certificates may
not be transferred to certain non-U.S. Persons. See "Certain Federal Income Tax
Consequences--REMICS--Taxation of Owners of REMIC Residual Certificates" in the
accompanying prospectus. A transfer to a U.S. Person of "noneconomic" residual
interests will be disregarded for all federal income tax purposes, and the
purported transferor of "noneconomic" residual interests will continue to remain
liable for any taxes due with respect to the income on such residual interests,
if "a significant purpose of the transfer was to impede the assessment or
collection of tax." Based on the REMIC Regulations, the Class R Certificates may
constitute noneconomic residual interests during some or all of their terms for
purposes of the REMIC Regulations and, accordingly, if a significant purpose of
a transfer is to impede the assessment or collection of tax, transfers of the
Class R Certificates may be disregarded and purported transferors may remain
liable for any taxes due with respect to the income on the Class R Certificates.
All transfers of the Class R Certificates will be subject to certain
restrictions under the terms of the pooling and servicing agreement that are
intended to reduce the possibility of any such transfer being disregarded to the
extent that the Class R Certificates constitute noneconomic residual interests.
See "Certain Federal Income Tax Consequences-REMICs-Taxation of Owners of REMIC
Residual Certificates-Noneconomic REMIC Residual Certificates" in the
accompanying prospectus.
The Class R Certificateholders may be required to report an amount of taxable
income with respect to the earlier accrual periods of the term of the Trust Fund
that significantly exceeds the amount of cash distributions received by such
Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under the
pooling and servicing agreement, the holder of the largest percentage interest
in the Class R Certificates will, by its acceptance of such Certificates, agree
to irrevocably appoint the Master Servicer as its agent to perform all of the
duties of the tax matters person for the REMIC.
S-51
Purchasers of the Class R Certificates are strongly advised to consult their
tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences of
investing in the Class R Certificates, see "Yield and Maturity
Considerations-Additional Yield Considerations Applicable Solely to the Class R
Certificates" in this prospectus supplement and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates" in the
accompanying prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated _____________, 200_ (the "Underwriting Agreement"), ______________________
(the "Underwriter") has agreed to purchase and the Depositor has agreed to sell
to the Underwriter each class of the Offered Certificates. It is expected that
delivery of the Class A Certificates will be made only in book-entry form
through the Same Day Funds Settlement System of DTC, and that the delivery of
the Class B and Class R Certificates will be made at the offices of the
Underwriter, _____________________, on or about _____________, 200_ against
payment therefor in immediately available funds.
The Underwriting Agreement provides that the obligation of the Underwriter to
pay for and accept delivery of its Certificates is subject to, among other
things, the receipt of certain legal opinions and to the conditions, among
others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be approximately ____% of the aggregate
Certificate Balance of the Offered Certificates plus accrued interest thereon
from the Cut-off Date. The Underwriter may effect such transactions by selling
its Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter for whom they act as agent. In connection with the sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting compensation. The
Underwriter and any dealers that participate with such Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter, and that under limited circumstances the Underwriter will indemnify
the Depositor, against certain civil liabilities under the Securities Act of
1933, as amended, or contribute to payments required to be made in respect
thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of ongoing information available to investors concerning the
Offered Certificates will be the monthly statements discussed in the
accompanying prospectus under "Description of the Certificates--Reports to
Certificateholders," which will include information as to the outstanding
principal balance of the Offered Certificates and the status of the applicable
form of credit enhancement. Except as described in this prospectus supplement
under "Description of the Certificates--Reports to Certificateholders; Certain
Available Information", there can be no assurance that any additional
information regarding the Offered Certificates will be available through any
other source. In addition, the Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis. The limited nature of such information regarding
the Offered Certificates may adversely affect the liquidity of the Offered
Certificates, even if a secondary market for the Offered Certificates becomes
available.
S-52
[If and to the extent required by applicable law or regulation, this
prospectus supplement and the accompanying prospectus will be used by the
Underwriter in connection with offers and sales related to market-making
transactions in the Offered Certificates with respect to which the Underwriter
acts as principal. The Underwriter may also act as agent in such transactions.
Sales may be made at negotiated prices determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor by Cadwalader, Wickersham & Taft. Certain legal matters relating
to the Certificates will be passed upon for the Underwriter by Cadwalader,
Wickersham & Taft. Certain federal income tax matters and other matters will be
passed upon for the Depositor by Cadwalader, Wickersham & Taft.
RATING
It is a condition to issuance that the Senior Certificates be rated not lower
than "__", by ________________ and the Class B Certificates be rated not lower
than "__", by ____________________________________.
A securities rating on mortgage pass-through certificates addresses the
likelihood of the receipt by holders thereof of payments to which they are
entitled. The rating takes into consideration the credit quality of the mortgage
pool, structural and legal aspects associated with the certificates, and the
extent to which the payment stream from the mortgage pool is adequate to make
payments required under the certificates. The ratings on the Offered
Certificates do not, however, constitute a statement regarding the likelihood or
frequency of prepayments (whether voluntary or involuntary) on the Mortgage
Loans, [The following disclosure is applicable to Stripped Interest
Certificates, when offered... or the possibility that as a result of prepayments
investors in the Class X Certificates may realize a lower than anticipated yield
or may fail to recover fully their initial investment.]
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class of
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the rating assigned thereto by
- ---------------------------.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
LEGAL INVESTMENT
[As long as the [______] Certificates are rated in one of the two highest
rating categories by [___________,][___________,] or another nationally
recognized statistical rating organization, the [______] Certificates will
constitute "mortgage related securities" within the meaning of the Secondary
Mortgage Market Enhancement Act of 1984, as amended ("SMMEA").]
[The [______] Certificates will not constitute "mortgage related securities"
for purposes of SMMEA. As a result, the appropriate characterization of the
[______] Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase the [______]
Certificates, may be subject to significant interpretive uncertainties.]
[Except as set forth above with respect to the status of the [______]
Certificates as "mortgage related securities,"] no representations are made as
to the proper characterization of any class of Offered Certificates for legal
investment purposes, financial institution regulatory purposes or other
purposes, or as to the ability of particular investors to purchase the Offered
Certificates under applicable legal investment restrictions. All institutions
whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
should consult with their own legal advisors in determining whether and to what
extent the Offered Certificates constitute legal investments for them or are
subject to investment, capital or other restrictions and, if applicable, whether
SMMEA has been overridden in any jurisdiction relevant to that investor.
S-53
See "Legal Investment" in the accompanying prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, including insurance company general
accounts, that is subject to Title I of ERISA or Section 4975 of the Code (each,
a "Plan") should review with its legal advisors whether the purchase or holding
of Offered Certificates could give rise to a transaction that is prohibited or
is not otherwise permitted either under ERISA or Section 4975 of the Code or
whether there exists any statutory or administrative exemption applicable
thereto. Certain employee benefit plans, such as governmental plans (as defined
in Section 3(32) of ERISA), and, if no election has been made under Section
410(d) of the Code, church plans (as defined in Section 3(33) of ERISA) are not
subject to ERISA requirements. However, such plans may be subject to the
provisions of other applicable federal and state law materially similar to ERISA
or the Code. Moreover, any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
The U.S. Department of Labor issued to NationsBank Corporation (predecessor
in interest to Bank of America Corporation) an individual prohibited transaction
exemption, Prohibited Transaction Exemption ("PTE") 93-31, as amended by PTE
97-34 and PTE 2000-58 (the "Exemption"). This exemption generally exempts from
the application of the prohibited transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on such prohibited transactions pursuant to
Sections 4975(a) and (b) of the Code and Section 501(i) of ERISA, certain
transactions, among others, relating to the servicing and operation of mortgage
pools, such as the Mortgage Pool, and the purchase, sale and holding of mortgage
pass-through certificates, such as the Offered Certificates, underwritten by an
Underwriter (as defined in this prospectus supplement), provided that certain
conditions set forth in the Exemption are satisfied. For purposes of this
Section "ERISA Considerations", the term "Underwriter" shall include (a) Bank of
America Corporation, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with Bank of
America Corporation, and (c) any member of the underwriting syndicate or selling
group of which a person described in (a) or (b) is a manager or co-manager with
respect to the Offered Certificates.
The Exemption sets forth five general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of the Offered
Certificates to be eligible for exemptive relief thereunder.
o First, the acquisition of the Offered Certificates by a Plan
must be on terms that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an
unrelated party.
o Second, the Offered Certificates at the time of acquisition
by the Plan must be rated in one of the four highest generic
rating categories by Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies, Inc. ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's"), or
Fitch, Inc. ("Fitch").
o Third, the Trustee cannot be an affiliate of any other
member of the "Restricted Group", which consists of any
Underwriter, the Depositor, the Trustee, the Master
Servicer, the Special Servicer, any sub-servicer, and any
mortgagor with respect to Mortgage Loans constituting more
than 5% of the aggregate unamortized principal balance of
the Mortgage Loans as of the date of initial issuance of the
Offered Certificates.
o Fourth, the sum of all payments made to and retained by the
Underwriter must represent not more than reasonable
compensation for underwriting the Offered Certificates; the
sum of all payments made to and retained by the Depositor
pursuant to the assignment of the Mortgage Loans to the
S-54
Trust Fund must represent not more than the fair market
value of such obligations; and the sum of all payments made
to and retained by the Master Servicer, the Special Servicer
and any sub-servicer must represent not more than reasonable
compensation for such person's services under the pooling
and servicing agreement and reimbursement of such person's
reasonable expenses in connection therewith.
o Fifth, the investing Plan must be an accredited investor as
defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933, as
amended.
It is a condition of the issuance of the Offered Certificates that they
receive the ratings listed on the cover page. As of the Delivery Date, the third
general condition set forth above will be satisfied with respect to the Offered
Certificates. A fiduciary of a Plan contemplating purchasing a Offered
Certificates in the secondary market must make its own determination that, at
the time of such purchase, the Offered Certificates continue to satisfy the
second and third general conditions set forth above. A fiduciary of a Plan
contemplating purchasing an Offered Certificate, whether in the initial issuance
of such Certificates or in the secondary market, must make its own determination
that the first, fourth and fifth general conditions set forth above will be
satisfied with respect to such Offered Certificates.
The Exemption also requires that the Trust Fund meet the following
requirements:
(1) the Trust Fund must consist solely of assets of the type
that have been included in other investment pools;
(2) certificates in such other investment pools must have been
rated in one of the four highest categories of Standard &
Poor's, Moody's, or Fitch for at least one year prior to the
Plan's acquisition of Offered Certificates; and
(3) certificates in such other investment pools must have been
purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of Offered
Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1) (A) through (D) of the Code) in connection
with
o the direct or indirect sale, exchange or transfer of Offered
Certificates in the initial issuance of Certificates between
the Depositor or an Underwriter and a Plan when the
Depositor, the Underwriter, the Trustee, the Master
Servicer, the Special Servicer, a Sub-Servicer or a
mortgagor is a Party in Interest with respect to the
investing Plan,
o the direct or indirect acquisition or disposition in the
secondary market of the Offered Certificates by a Plan and
o the holding of Offered Certificates by a Plan. However, no
exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition
or holding of an Offered Certificate on behalf of an
"Excluded Plan" by any person who has discretionary
authority or renders investment advice with respect to the
assets of such Excluded Plan.
For purposes hereof, an Excluded Plan is a Plan sponsored by any member of
the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with
S-55
(1) the direct or indirect sale, exchange or transfer of Offered
Certificates in the initial issuance of Certificates between
the Depositor or an Underwriter and a Plan when the person
who has discretionary authority or renders investment advice
with respect to the investment of Plan assets in such
Certificates is
(a) a mortgagor with respect to 5% or less of the fair
market value of the Mortgage Loans or
(b) an affiliate of such a person,
(2) the direct or indirect acquisition or disposition in the
secondary market of Offered Certificates by a Plan and
(3) the holding of Offered Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Mortgage Pool.
The Exemption also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1) (a) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a Party in Interest with respect to an investing Plan by virtue of
providing services to the Plan (or by virtue of having certain specified
relationships to such a person) solely as a result of the Plan's ownership of
Offered Certificates.
Before purchasing an Offered Certificate, a fiduciary of a Plan should itself
confirm that
(1) the Offered Certificates constitute "certificates" for
purposes of the Exemption and
(2) the specific and general conditions and the other
requirements set forth in the Exemption would be satisfied.
In addition to making its own determination as to the
availability of the exemptive relief provided in the
Exemption, the Plan fiduciary should consider the
availability of any other prohibited transaction exemptions.
See "ERISA Considerations" in the Prospectus. A purchaser of
an Offered Certificate should be aware, however, that even
if the conditions specified in one or more exemptions are
satisfied, the scope of relief provided by an exemption may
not cover all acts which might be construed as prohibited
transactions.
See "ERISA Considerations" in the accompanying prospectus. Any Plan fiduciary
considering whether to purchase an Offered Certificate on behalf of a Plan
should consult with its counsel regarding the applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and the Code to
such investment.
S-56
GLOSSARY
The following capitalized terms will have the respective meanings assigned to
them in this "Glossary" Section whenever they are used in this prospectus
supplement.
"ARMS Loans" means mortgage loans that are subject to adjustment of their
mortgage rate on specified dates.
"Balloon Payments" means certain payments under Mortgage Loans that provide
monthly payments of principal based on amortization schedules significantly
longer than the remaining terms of such mortgage loans, thereby leaving
substantial principal amounts due and payable on their respective maturity
dates, unless prepaid prior to that Mortgage Loan's maturity date.
"Debt Service Coverage Ratio" means for any Mortgage Loan is the ratio of--
o Net Operating Income produced by the related Mortgaged Property for the
period (annualized if the period was less than one year) covered by the
most recent operating statement available to the depositor to
o the amount of the monthly payment in effect as of the cut-off date
multiplied by 12.
"Definitive Class A Certificate" means a Class A Certificate in fully
registered, certificated form.
"DTC" means The Depository Trust Company.
"Due Date" means the date on which a monthly payment on a mortgage loan is
first due.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fixed Rate Loan" means those mortgage loans which bear interest at a fixed
mortgage rate.
"Index" means the base index to which a fixed number of basis points are
added in connection with ARM loans.
"Initial Pool Balance" means the initial aggregate principal balance of the
Mortgage Loans.
"Interest Rate Adjustment Date" means the date upon which the interest rate
is adjusted in connection with an ARM Loan.
"LTV Ratio" means LTV Ratio for any Mortgage Loan, as of any date of
determination, is a fraction, expressed as a percentage--
o the numerator of which is the original principal balance of such Mortgage
Loan or the balance as of the Cut-off Date of such Mortgage Loan, as
applicable, and
o the denominator of which is the appraised value of the related Mortgaged
Property as determined by an appraisal thereof obtained in connection with
the origination of such Mortgage Loan.
"Mortgage" means a mortgage, deed of trust or other similar security
instrument securing a Mortgaged Property.
"Mortgage Loan" means the conventional, multifamily and commercial mortgage
loans primarily comprising the trust fund.
"Mortgage Note" means the promissory note evidencing the Mortgage Loan.
"Mortgaged Property" means a commercial or multifamily rental property that
has a Mortgage that creates a first mortgage lien.
"Net Mortgage Rate" means mortgage rate in effect for a Mortgage Loan reduced
by ___ basis points.
"Net Operating Income" means--
S-57
o the revenue derived from the use and operation of a Mortgaged Property
(consisting primarily of rental income and deposit forfeitures);
o less operating expenses (such as utilities, general administrative
expenses, management fees, advertising, repairs and maintenance); and
o less fixed expenses (such as insurance and real estate taxes).
Net Operating Income generally does not reflect capital expenditures.
"Prepayment Premium" means a fee or penalty charged in connection with
certain full or partial prepayments.
S-58
YOU SHOULD RELY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. WE HAVE NOT $________________
AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES
IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE
INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING BANC OF AMERICA COMMERCIAL
PROSPECTUS AS OF ANY DATE OTHER THAN THE MORTGAGE INC.
DATES STATED ON THEIR RESPECTIVE COVERS.
DEALERS WILL DELIVER A PROSPECTUS MORTGAGE PASS-THROUGH
SUPPLEMENT AND THE ACCOMPANYING CERTIFICATES
PROSPECTUS WHEN ACTING AS UNDERWRITERS SERIES 200_-_
OF THE CERTIFICATES AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR CLASS A CERTIFICATES VARIABLE RATE
SUBSCRIPTIONS. IN ADDITION, ALL DEALERS $___________
SELLING THE CERTIFICATES WILL DELIVER A
PROSPECTUS SUPPLEMENT AND THE CLASS B CERTIFICATES VARIABLE RATE
ACCOMPANYING PROSPECTUS UNTIL ________ $___________
__, 200__.
TABLE OF CONTENTS
PAGE
----
Prospectus Supplement
Summary............................
Risk Factors.......................
Description of the Mortgage Pool...
Servicing of the Mortgage Loans.... ___________
Description of the Certificates....
Yield and Maturity Considerations.. PROSPECTUS SUPPLEMENT
Certain Federal Income Tax Consequences ___________
Method of Distribution.............
Legal Matters......................
Rating.............................
Legal Investment...................
ERISA Considerations............... [UNDERWRITER(S)]
Index of Principal Definitions.....
Prospectus
Prospectus Supplement..............
Available Information..............
Incorporation of Certain Information by Dated __________, 200_
Reference..........................
Summary of Prospectus..............
Risk Factors.......................
Description of the Trust Funds.....
Yield and Maturity Considerations..
The Depositor......................
Description of the Certificates....
The Pooling and Servicing Agreements
Description of Credit Support......
Certain Legal Aspects of Mortgage Loans
Certain Federal Income Tax Consequences
State Tax and Other Considerations.
ERISA Considerations...............
Legal Investment...................
Use of Proceeds....................
Method of Distribution.............
Legal Matters......................
Financial Information..............
Rating.............................
Index of Principal Definitions.....
VERSION 1
PROSPECTUS
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 7 IN THIS PROSPECTUS.
Neither the certificates nor the underlying mortgage loans are insured by any
governmental agency.
The certificates will represent interests only in the related trust and will not
represent interests in or obligations of Banc of America Commercial Mortgage
Inc. or any of its affiliates, including Bank of America Corporation.
This prospectus may be used to offer and sell any series of certificates only if
accompanied by the prospectus supplement for that series.
THE TRUST--
o may periodically issue mortgage pass-through certificates in one or
more series with one or more classes; and
o will own--
o multifamily and commercial mortgage loans;
o mortgage-backed securities; and
o other property described in the accompanying prospectus
supplement.
THE CERTIFICATES--
o will represent interests in the trust and will be paid only from the
trust assets;
o provide for the accrual of interest based on a fixed, variable or
adjustable interest rate;
o may be offered through underwriters, which may include Banc of
America Securities LLC, an affiliate of Banc of America Commercial
Mortgage Inc.; and
o will not be listed on any securities exchange.
THE CERTIFICATEHOLDERS--
o will receive interest and principal payments based on the rate of
payment of principal and the timing of receipt of payments on
mortgage loans.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________, 2002
FOR MORE INFORMATION
Banc of America Commercial Mortgage Inc. has filed with the SEC additional
registration materials relating to the certificates. You may read and copy any
of these materials at the SEC's Public Reference Room at the following
locations:
o SEC Public Reference Section
450 Fifth Street, N.W.
Room 1204
Washington, D.C. 20549
o SEC Midwest Regional Offices
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
that contains reports, proxy and information statements, and other information
that has been filed electronically with the SEC. The Internet address is
http://www.sec.gov.
You may also contact Banc of America Commercial Mortgage Inc. in writing
at Bank of America Corporate Center, 100 North Tryon Street, Charlotte, North
Carolina 28255, or by telephone at (704) 386-2400.
See also the sections captioned "Available Information" and "Incorporation
of Certain Information by Reference" appearing at the end of this prospectus.
-2-
TABLE OF CONTENTS
Page
----
SUMMARY OF PROSPECTUS ..................................................... 1
RISK FACTORS .............................................................. 7
The Limited Liquidity of Your Certificates May Have an Adverse
Impact on Your Ability to Sell Your Certificates .................... 7
The Limited Assets of Each Trust May Adversely Impact Your Ability
To Recover Your Investment in the Event of Loss on the
Underlying Mortgage Assets .......................................... 7
Credit Support is Limited and May Not Be Sufficient to Prevent Loss
on Your Certificates ................................................ 8
Prepayments on the Underlying Mortgage Loans Will Affect the
Average Life of Your Certificates, and the Rate and Timing of
those Prepayments May Be Highly Unpredictable ....................... 8
Certificates Purchased at a Premium or a Discount Will Be Sensitive
to the Rate of Principal Payment .................................... 9
The Nature of Ratings Are Limited and Will Not Guarantee that You
Will Receive Any Projected Return on Your Certificates .............. 10
Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans ...................................................... 10
Inclusion of Delinquent Mortgage Loans in a Mortgage Asset Pool ........ 13
PROSPECTUS SUPPLEMENT ..................................................... 13
CAPITALIZED TERMS USED IN THIS PROSPECTUS ................................. 14
DESCRIPTION OF THE TRUST FUNDS ............................................ 15
General ................................................................ 15
Mortgage Loans ......................................................... 15
MBS .................................................................... 19
Certificate Accounts ................................................... 20
Credit Support ......................................................... 20
Cash Flow Agreements ................................................... 20
YIELD AND MATURITY CONSIDERATIONS ......................................... 20
General ................................................................ 20
Pass-Through Rate ...................................................... 21
Payment Delays ......................................................... 21
Certain Shortfalls in Collections of Interest .......................... 21
Yield and Prepayment Considerations .................................... 21
Weighted Average Life and Maturity ..................................... 23
Other Factors Affecting Yield, Weighted Average Life and Maturity ...... 24
THE DEPOSITOR ............................................................. 25
DESCRIPTION OF THE CERTIFICATES ........................................... 25
General ................................................................ 25
Distributions .......................................................... 26
Distributions of Interest on the Certificates .......................... 27
Distributions of Principal of the Certificates ......................... 28
Distributions on the Certificates Concerning Prepayment Premiums or
Concerning Equity Participations .................................... 28
Allocation of Losses and Shortfalls .................................... 28
Advances in Respect of Delinquencies ................................... 28
Reports to Certificateholders .......................................... 29
Voting Rights .......................................................... 31
Termination ............................................................ 31
Book-Entry Registration and Definitive Certificates .................... 31
THE POOLING AND SERVICING AGREEMENTS ...................................... 33
General ................................................................ 33
Assignment of Mortgage Loans; Repurchases .............................. 33
Representations and Warranties; Repurchases ............................ 34
Collection and Other Servicing Procedures .............................. 35
Sub-Servicers .......................................................... 37
Certificate Account .................................................... 37
Modifications, Waivers and Amendments of Mortgage Loans ................ 40
Realization Upon Defaulted Mortgage Loans .............................. 40
Hazard Insurance Policies .............................................. 42
-i-
Due-on-Sale and Due-on-Encumbrance Provisions .......................... 43
Servicing Compensation and Payment of Expenses ......................... 43
Evidence as to Compliance .............................................. 44
Certain Matters Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator and the Depositor ................. 44
Events of Default ...................................................... 45
Rights Upon Event of Default ........................................... 46
Amendment .............................................................. 47
List of Certificateholders ............................................. 48
The Trustee ............................................................ 48
Duties of the Trustee .................................................. 48
Certain Matters Regarding the Trustee .................................. 48
Resignation and Removal of the Trustee ................................. 48
DESCRIPTION OF CREDIT SUPPORT ............................................. 49
General ................................................................ 49
Subordinate Certificates ............................................... 49
Insurance or Guarantees Concerning to Mortgage Loans ................... 50
Letter of Credit ....................................................... 50
Certificate Insurance and Surety Bonds ................................. 50
Reserve Funds .......................................................... 50
Cash Collateral Account ................................................ 51
Credit Support with respect to MBS ..................................... 51
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS ................................... 51
General ................................................................ 51
Types of Mortgage Instruments .......................................... 52
Leases and Rents ....................................................... 52
Personalty ............................................................. 53
Foreclosure ............................................................ 53
Bankruptcy Laws ........................................................ 56
Environmental Considerations ........................................... 57
Due-on-Sale and Due-on-Encumbrance Provisions .......................... 58
Junior Liens; Rights of Holders of Senior Liens ........................ 59
Subordinate Financing .................................................. 60
Default Interest and Limitations on Prepayments ........................ 60
Applicability of Usury Laws ............................................ 60
Certain Laws and Regulations ........................................... 61
Americans with Disabilities Act ........................................ 61
Soldiers' and Sailors' Civil Relief Act of 1940 ........................ 61
Forfeiture for Drug and Money Laundering Violations .................... 61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................... 62
General ................................................................ 62
REMICs ................................................................. 63
Grantor Trust Funds .................................................... 78
STATE AND OTHER TAX CONSEQUENCES .......................................... 86
CERTAIN ERISA CONSIDERATIONS .............................................. 86
General ................................................................ 86
Plan Asset Regulations ................................................. 86
Insurance Company General Accounts ..................................... 87
Consultation With Counsel .............................................. 88
Tax Exempt Investors ................................................... 88
LEGAL INVESTMENT .......................................................... 88
USE OF PROCEEDS ........................................................... 90
METHOD OF DISTRIBUTION .................................................... 90
LEGAL MATTERS ............................................................. 91
FINANCIAL INFORMATION ..................................................... 91
RATING .................................................................... 91
AVAILABLE INFORMATION ..................................................... 91
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ......................... 92
-iii-
SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It does
not contain all the information you need to consider in making your investment
decision. You should carefully review this prospectus and the related prospectus
supplement in their entirety before making any investment in the certificates of
any series. As used in this prospectus, "you" refers to a prospective investor
in certificates, and "we" refers to the depositor, Banc of America Commercial
Mortgage Inc. A "Glossary" appears at the end of this prospectus.
SECURITIES OFFERED........... Mortgage pass-through certificates.
DEPOSITOR.................... Banc of America Commercial Mortgage Inc., a
Delaware corporation and a subsidiary of Bank of
America, N.A., has its principal executive offices
at Bank of America Corporate Center, 100 North
Tryon Street, Charlotte, North Carolina 28255, and
its telephone number is (704) 386-2400.
TRUSTEE...................... The trustee for each series of certificates will
be named in the related prospectus supplement.
MASTER SERVICER.............. If the trust includes mortgage loans, the master
servicer for the corresponding series of
certificates will be named in the prospectus
supplement.
SPECIAL SERVICER............. If the trust includes mortgage loans, the special
servicer for the corresponding series of
certificates will be named, or the circumstances
under which a special servicer may be appointed,
will be described in the prospectus supplement.
MBS ADMINISTRATOR............ If the trust includes mortgage-backed securities,
the entity responsible for administering the
mortgage-backed securities will be named in the
prospectus supplement.
REMIC ADMINISTRATOR.......... The person responsible for the various tax-related
administration duties for a series of certificates
concerning real estate mortgage investment
conduits will be named in the prospectus
supplement.
THE MORTGAGE LOANS........... Each series of certificates will, in general,
consist of a pool of mortgage loans referred to as
a mortgage asset pool secured by first or junior
liens on--
o residential properties consisting of five or
more rental or cooperatively-owned dwelling
units in high-rise, mid-rise or garden apartment
buildings or other residential structures; or
o office buildings, retail stores, hotels or
motels, nursing homes, hospitals or other health
care-related facilities, recreational vehicle
and mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage
facilities, industrial plants, parking lots,
entertainment or sports arenas, restaurants,
marinas, mixed use or various other types of
income-producing properties or unimproved land.
However, no one of the following types of
properties will be overly-represented in the trust
at the time the trust is formed:
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(1) restaurants; (2) entertainment or sports
arenas; (3) marinas; or (4) nursing homes,
hospitals or other health care-related facilities.
The mortgage loans will not be guaranteed or
insured by Banc of America Commercial Mortgage
Inc. or any of its affiliates or, unless
otherwise provided in the prospectus supplement,
by any governmental agency or by any other person.
If specified in the prospectus supplement, some
mortgage loans may be delinquent as of the date
the trust is formed.
As described in the prospectus supplement, a
mortgage loan may--
o provide for no accrual of interest or for
accrual of interest at an interest rate that is
fixed over its term or that adjusts from time to
time, or that may be converted at the borrower's
election from an adjustable to a fixed mortgage
rate, or from a fixed to an adjustable mortgage
rate;
o provide for level payments to maturity or for
payments that adjust from time to time to
accommodate changes in the mortgage rate or to
reflect the occurrence of certain events, and
may permit negative amortization;
o be fully amortizing or may be partially
amortizing or nonamortizing, with a balloon
payment due on its stated maturity date;
o may prohibit over its term or for a certain
period prepayments and/or require payment of a
premium or a yield maintenance payment in
connection with certain prepayments; and
o provide for payments of principal, interest or
both, on due dates that occur monthly,
quarterly, semi-annually or at any other
interval as specified in the prospectus
supplement.
Each mortgage loan will have had an original term
to maturity of not more than 40 years. No mortgage
loan will have been originated by Banc of America
Commercial Mortgage Inc., although one of its
affiliates may have originated some of the
mortgage loans.
If any mortgage loan, or group of related mortgage
loans, involves unusual credit risk, financial
statements or other financial information
concerning the related mortgaged property will be
included in the related prospectus supplement.
As described in the prospectus supplement, the
trust may also consist of mortgage participations,
mortgage pass-through certificates and/or other
mortgage-backed securities that evidence an
interest in, or are secured by a pledge of, one or
more mortgage loans similar to the other mortgage
loans in the trust and which may or may not be
issued, insured or guaranteed by the United States
or any governmental agency.
THE CERTIFICATES............. Each series of certificates will be issued in one
or more classes pursuant to a pooling and
servicing agreement or other agreement
-2-
specified in the prospectus supplement and will
represent in total the entire beneficial ownership
interest in the trust.
As described in the prospectus supplement, the
certificates of each series may consist of one or
more classes that--
o are senior or subordinate to one or more other
classes of certificates in entitlement to
certain distributions on the certificates;
o are "stripped principal certificates" entitled
to distributions of principal, with
disproportionate, nominal or no distributions of
interest;
o are "stripped interest certificates" entitled to
distributions of interest, with
disproportionate, nominal or no distributions of
principal;
o provide for distributions of interest or
principal that commence only after the
occurrence of certain events, such as the
retirement of one or more other classes of
certificates of that series;
o provide for distributions of principal 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 assets in
the trust;
o provide for distributions of principal to be
made, subject to available funds, based on a
specified principal payment schedule or other
methodology; or
o provide for distribution based on collections on
the mortgage assets in the trust attributable to
prepayment premiums, yield maintenance payments
or equity participations.
If specified in the prospectus supplement, a
series of certificates may include one or more
"controlled amortization classes," which will
entitle the holders to receive principal
distributions according to a specified principal
payment schedule. Although prepayment risk cannot
be eliminated entirely for any class of
certificates, a controlled amortization class will
generally provide a relatively stable cash flow so
long as the actual rate of prepayment on the
mortgage loans in the trust remains relatively
constant at the rate of prepayment used to
establish the specific principal payment schedule
for those certificates. Prepayment risk with
respect to a given mortgage asset pool does not
disappear, however, and the stability afforded to
a controlled amortization class comes at the
expense of one or more other classes of the same
series.
Each class of certificates, other than certain
classes of stripped interest certificates and
certain classes of REMIC residual certificates
will have an initial stated principal amount. Each
class of certificates, other than certain classes
of stripped principal certificates and certain
classes of REMIC residual certificates, will
accrue interest on its certificate
-3-
balance or, in the case of certain classes of
stripped interest certificates, on a notional
amount, based on a pass-through rate which may be
fixed, variable or adjustable. The prospectus
supplement will specify the certificate balance,
notional amount and/or pass-through rate for each
class of certificates.
DISTRIBUTIONS OF INTEREST
ON THE CERTIFICATES........ Interest on each class of certificates (other than
certain classes of stripped principal certificates
and certain classes of REMIC residual
certificates) of each series will accrue at the
applicable pass-through rate on the certificate
balance and will be paid on a distribution date.
However, in the case of certain classes of
stripped interest certificates, the notional
amount outstanding from time to time will be paid
to certificateholders as provided in the
prospectus supplement on a specified distribution
date.
Distributions of interest concerning one or more
classes of certificates may not commence until the
occurrence of certain events, such as the
retirement of one or more other classes of
certificates. Interest accrued concerning a class
of accrual certificates prior to the occurrence of
such an event will either be added to the
certificate balance or otherwise deferred as
described in the prospectus supplement.
Distributions of interest concerning one or more
classes of certificates may be reduced to the
extent of certain delinquencies, losses and other
contingencies described in this prospectus and in
the prospectus supplement.
DISTRIBUTIONS OF PRINCIPAL
OF THE CERTIFICATES........ Each class of certificates of each series (other
than certain classes of stripped interest
certificates and certain classes of REMIC residual
certificates) will have a certificate balance. The
certificate balance of a class of certificates
outstanding from time to time will represent the
maximum amount that the holders are then entitled
to receive in respect of principal from future
cash flow on the assets in the trust. The initial
total certificate balance of all classes of a
series of certificates will not be greater than
the outstanding principal balance of the related
mortgage assets as of a specified cut-off date,
after application of scheduled payments due on or
before that date, whether or not received. As
described in the prospectus supplement,
distributions of principal with respect to the
related series of certificates will be made on
each distribution date to the holders of the class
certificates of the series then entitled until the
certificate balances of those certificates have
been reduced to zero. Distributions of principal
with respect to one or more classes of
certificates--
o may be made 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 assets in the
trust;
o may not commence until the occurrence of certain
events, such as the retirement of one or more
other classes of certificates of the same
series;
o may be made, subject to certain limitations,
based on a specified principal payment schedule;
or
-4-
o may be contingent on the specified principal
payment schedule for another class of the same
series and the rate at which payments and other
collections of principal on the mortgage assets
in the trust are received. Unless otherwise
specified in the prospectus supplement,
distributions of principal of any class of
certificates will be made on a pro rata basis
among all of the certificates of that class.
CREDIT SUPPORT AND CASH
FLOW AGREEMENTS............ If specified in the prospectus supplement, partial
or full protection against certain defaults and
losses on the assets in the trust may be provided
to one or more classes of certificates by (1)
subordination of one or more other classes of
certificates to classes in the same series, or by
(2) one or more other types of credit support,
such as a letter of credit, insurance policy,
guarantee, reserve fund, cash collateral account,
overcollateralization or other credit support. If
so provided in the prospectus supplement, the
trust may include--
o guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate; or
o certain other agreements, such as interest rate
exchange agreements, interest rate cap or floor
agreements, or other agreements designed to
reduce the effects of interest rate fluctuations
on the mortgage assets or on one or more classes
of certificates.
Certain relevant information regarding any
applicable credit support or cash flow agreement
will be set forth in the prospectus supplement for
a series of certificates.
ADVANCES..................... As specified in the prospectus supplement, if the
trust includes mortgage loans, the master
servicer, the special servicer, the trustee, any
provider of credit support, and/or another
specified person may be obligated to make, or have
the option of making, certain advances concerning
delinquent scheduled payments of principal and/or
interest on mortgage loans. Any advances made
concerning a particular mortgage loan will be
reimbursable from subsequent recoveries relating
to the particular mortgage loan and as described
in the prospectus supplement. If specified in the
prospectus supplement, any entity making advances
may be entitled to receive interest for a
specified period during which those advances are
outstanding, payable from amounts in the trust. If
the trust includes mortgaged-backed securities,
any comparable advancing obligation of a party to
the related pooling and servicing agreement, or of
a party to the related mortgage-backed securities
agreement, will be described in the prospectus
supplement.
OPTIONAL TERMINATION......... If specified in the prospectus supplement, a
series of certificates may be subject to optional
early termination through the repurchase of the
mortgage assets in the trust. If provided in the
related prospectus supplement, upon the reduction
of the certificate balance of a specified class or
classes of certificates by a specified percentage
or amount, a specified party may be authorized or
required to solicit bids for the purchase of all
of the assets of the trust, or of a sufficient
portion of those assets to retire that class or
classes.
-5-
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES........... The certificates of each series will constitute or
evidence ownership of either--
o "regular interests" and "residual interests" in
the trust, or a designated portion of the trust,
treated as a REMIC under Sections 860A through
860G of the Code; or
o certificates in a trust treated as a grantor
trust under applicable provisions of the Code.
Investors are advised to consult their tax
advisors and to review "Certain Federal Income Tax
Consequences" in this prospectus and in the
prospectus supplement.
CERTAIN ERISA CONSIDERATIONS. Fiduciaries of retirement plans and certain other
employee benefit plans and arrangements, including
individual retirement accounts, individual
retirement annuities, Keogh plans, and collective
investment funds and separate individual
retirement accounts in which such plans, accounts,
annuities or arrangements are invested, that are
subject to the Employee Retirement Income Security
Act of 1974, as amended, Section 4975 of the
Internal Revenue Code of 1986, or any materially
similar provisions of federal, state or local law
should review with their legal advisors whether
the purchase or holding of certificates could give
rise to a transaction that is prohibited.
LEGAL INVESTMENT............. The certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended, only
if specified in the prospectus supplement.
Investors whose investment authority is subject to
legal restrictions should consult their legal
advisors to determine whether and to what extent
the certificates constitute legal investments for
them.
RATING....................... At their respective dates of issuance, each class
of certificates will be rated as of investment
grade by one or more nationally recognized
statistical rating agencies.
-6-
RISK FACTORS
In considering an investment in the certificates of any series, you should
consider carefully the following risk factors and the risk factors in the
prospectus supplement.
THE LIMITED LIQUIDITY OF YOUR CERTIFICATES MAY HAVE AN ADVERSE IMPACT ON YOUR
ABILITY TO SELL YOUR CERTIFICATES.
The certificates of any series may have limited or no liquidity. You may
be forced to bear the risk of investing in the certificates for an indefinite
period of time. In addition, you may have no redemption rights, and the
certificates are subject to early retirement only under certain circumstances.
Lack of a Secondary Market May Limit the Liquidity of Your Certificate. We
cannot assure you that a secondary market for the certificates will develop or,
if it does develop, that it will provide certificateholders with liquidity of
investment or that it will continue for as long as the certificates remain
outstanding.
The prospectus supplement may indicate that an underwriter intends to
establish a secondary market in the certificates, although no underwriter will
be obligated to do so. Any secondary market may provide less liquidity to
investors than any comparable market for securities relating to single-family
mortgage loans. Unless specified in the prospectus supplement, the certificates
will not be listed on any securities exchange.
The Limited Nature of Ongoing Information Regarding Your Certificate May
Adversely Affect Liquidity. The primary source of ongoing information regarding
the certificates, including information regarding the status of the related
mortgage assets and any credit support for the certificates, will be the
periodic reports to certificateholders to be delivered pursuant to the related
pooling and servicing agreement.
We cannot assure you that any additional ongoing information regarding the
certificates will be available through any other source. The limited nature of
the information concerning a series of certificates may adversely affect
liquidity, even if a secondary market for the certificates does develop.
The Liquidity of Your Certificate May Be Affected by External Sources
Including Interest Rate Movement. If a secondary market does develop for the
certificates, the market value of the certificates will be affected by several
factors, including--
o perceived liquidity;
o the anticipated cash flow (which may vary widely depending upon the
prepayment and default assumptions concerning the underlying
mortgage loans); and
o prevailing interest rates.
The price payable at any given time for certain classes of certificates
may be extremely sensitive to small fluctuations in prevailing interest rates.
The relative change in price for a certificate in response to an upward or
downward movement in prevailing interest rates may not necessarily equal the
relative change in price for the certificate in response to an equal but
opposite movement in those rates. Therefore, the sale of certificates by a
holder in any secondary market that may develop may be at a discount from the
price paid by the holder. We are not aware of any source through which price
information about the certificates will be generally available on an ongoing
basis.
THE LIMITED ASSETS OF EACH TRUST MAY ADVERSELY IMPACT YOUR ABILITY TO RECOVER
YOUR INVESTMENT IN THE EVENT OF LOSS ON THE UNDERLYING MORTGAGE ASSETS.
Unless specified in the prospectus supplement, neither the certificates
nor the mortgage assets in the trust will be guaranteed or insured by Banc of
America Commercial Mortgage Inc. or any of its affiliates, by any governmental
agency or by any other person or entity. No certificate will represent a claim
against or security
-7-
interest in the trust funds for any other series. Therefore, if the related
trust fund has insufficient assets to make payments, no other assets will be
available for payment of the deficiency, and the holders of one or more classes
of the certificates will be required to bear the consequent loss.
Amounts on deposit from time to time in certain accounts constituting part
of the trust, including the certificate account and any accounts maintained as
credit support, may be withdrawn for purposes other than the payment of
principal of or interest on the related series of certificates under certain
conditions. On any distribution occurring after losses or shortfalls in
collections on the mortgage assets have been incurred, all or a portion of those
losses or shortfalls will be borne on a disproportionate basis among classes of
certificates.
CREDIT SUPPORT IS LIMITED AND MAY NOT BE SUFFICIENT TO PREVENT LOSS ON YOUR
CERTIFICATES.
The prospectus supplement for a series of certificates will describe any
credit support. The credit support may not cover all potential losses. For
example, credit support may or may not cover loss by reason of fraud or
negligence by a mortgage loan originator or other parties. Any losses not
covered by credit support may, at least in part, be allocated to one or more
classes of certificates.
A series of certificates may include one or more classes of subordinate
certificates, if provided in the prospectus supplement. Although subordination
is intended to reduce the likelihood of temporary shortfalls and ultimate losses
to holders of senior certificates, the amount of subordination will be limited
and may decline under certain circumstances. In addition, if principal payments
on one or more classes of certificates of a series are made in a specified order
of priority, any related credit support may be exhausted before the principal of
the later-paid classes of certificates of that series have been repaid in full.
The impact of losses and shortfalls experienced with respect to the
mortgage assets may fall primarily upon those classes of certificates having a
later right of payment.
If a form of credit support covers the certificates of more than one
series and losses on the related mortgage assets exceed the amount of the credit
support, it is possible that the holders of certificates of one (or more) series
will disproportionately benefit from that credit support, to the detriment of
the holders of certificates of one (or more) other series.
The amount of any applicable credit support supporting one or more classes
of certificates will be determined on the basis of criteria established by each
rating agency rating such classes of certificates based on an assumed level of
defaults, delinquencies and losses on the underlying mortgage assets and certain
other factors. However, we cannot assure you that the loss experience on the
related mortgage assets will not exceed such assumed levels. If the losses on
the related mortgage assets do exceed such assumed levels, the holders of one or
more classes of certificates will be required to bear such additional losses.
PREPAYMENTS ON THE UNDERLYING MORTGAGE LOANS WILL AFFECT THE AVERAGE LIFE OF
YOUR CERTIFICATES, AND THE RATE AND TIMING OF THOSE PREPAYMENTS MAY BE
HIGHLY UNPREDICTABLE.
As a result of prepayments on the mortgage loans in the trust, the amount
and timing of distributions of principal and/or interest on the certificates of
the related series may be highly unpredictable. Prepayments on the mortgage
loans in the trust will result in a faster rate of principal payments on one or
more classes of the related series of certificates than if payments on those
mortgage loans were made as scheduled. Therefore, the prepayment experience on
the mortgage loans in the trust may affect the average life of one or more
classes of certificates of the related series.
The rate of principal payments on pools of mortgage loans varies among
pools and from time to time is influenced by a variety of economic, demographic,
geographic, social, tax and legal factors. For example, if prevailing interest
rates fall significantly below the mortgage rates borne by the mortgage loans
included in the trust, principal prepayments on those mortgage loans are likely
to be higher than if prevailing interest rates remain at or above the rates
borne by those mortgage loans. Conversely, if prevailing interest rates rise
significantly above the mortgage rates borne by the mortgage loans included in
the trust, then principal prepayments on those mortgage loans are likely to be
lower than if prevailing interest rates remain at or below the mortgage rates
borne by those mortgage loans.
-8-
We cannot assure you what as to the actual rate of prepayment on the
mortgage loans in the trust will be, or that the rate of prepayment will conform
to any model in any prospectus supplement. As a result, depending on the
anticipated rate of prepayment for the mortgage loans in the trust, the
retirement of any class of certificates of the related series could occur
significantly earlier or later, and its average life could be significantly
shorter or longer, than expected.
The extent to which prepayments on the mortgage loans in trust ultimately
affect the average life of any class of certificates of the related series will
depend on the terms and provisions of the certificates. A class of certificates
may provide that on any distribution date the holders of the certificates are
entitled to a pro rata share of the prepayments on the mortgage loans in the
trust fund that are distributable on that date.
A class of certificates that entitles the holders to a disproportionately
large share of the prepayments on the mortgage loans in the trust increases the
likelihood of early retirement of that class if the rate of prepayment is
relatively fast. This type of early retirement risk is sometimes referred to as
"call risk."
A class of certificates that entitles its holders to a disproportionately
small share of the prepayments on the mortgage loans in the trust increases the
likelihood of an extended average life of that class if the rate of prepayment
is relatively slow. This type of prolonged retirement risk is sometimes referred
to as "extension risk."
As described in the prospectus supplement, the respective entitlements of
the various classes of certificate-holders of any series to receive payments
(and, in particular, prepayments) of principal of the mortgage loans in the
trust may vary based on the occurrence of certain events (e.g., the retirement
of one or more classes of certificates of that series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to those mortgage
loans).
A series of certificates may include one or more controlled amortization
classes, which will entitle the holders to receive principal distributions
according to a specified principal payment schedule. Although prepayment risk
cannot be eliminated entirely for any class of certificates, a controlled
amortization class will generally provide a relatively stable cash flow so long
as the actual rate of prepayment on the mortgage loans in the trust remains
relatively constant at the rate of prepayment used to establish the specific
principal payment schedule for the certificates. Prepayment risk concerning a
given mortgage asset pool does not disappear, however, and the stability
afforded to a controlled amortization class comes at the expense of one or more
companion classes of the same series.
As described in the prospectus supplement, a companion class may entitle
the holders to a disproportionately large share of prepayments on the mortgage
loans in the trust when the rate of prepayment is relatively fast, and/or may
entitle the holders to a disproportionately small share of prepayments on the
mortgage loans in the trust when the rate of prepayment is relatively slow. A
companion class absorbs some (but not all) of the call risk and/or extension
risk that would otherwise belong to the related controlled amortization class if
all payments of principal of the mortgage loans in the trust were allocated on a
pro rata basis.
CERTIFICATES PURCHASED AT A PREMIUM OR A DISCOUNT WILL BE SENSITIVE TO THE RATE
OF PRINCIPAL PAYMENT.
A series of certificates may include one or more classes offered at a
premium or discount. Yields on those classes of certificates will be sensitive,
and in some cases extremely sensitive, to prepayments on the mortgage loans in
the trust fund. If the amount of interest payable with respect to a class is
disproportionately large as compared to the amount of principal, as with certain
classes of stripped interest certificates, a holder might fail to recover its
original investment under some prepayment scenarios. The yield to maturity of
any class of certificates may vary from the anticipated yield due to the degree
to which the certificates are purchased at a discount or premium and the amount
and timing of distributions.
You should consider, in the case of any certificate 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. In the case of any certificate purchased at a
premium, you should consider 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.
-9-
THE NATURE OF RATINGS ARE LIMITED AND WILL NOT GUARANTEE THAT YOU WILL RECEIVE
ANY PROJECTED RETURN ON YOUR CERTIFICATES.
Any rating assigned by a rating agency to a class of certificates will
reflect only its assessment of the likelihood that holders of the certificates
will receive payments to which the certificateholders are entitled under the
related pooling and servicing agreement. Such rating will not constitute an
assessment of the likelihood that--
o principal prepayments on the related mortgage loans will be made;
o the degree to which the rate of such prepayments might differ from
that originally anticipated; or
o the likelihood of early optional termination of the trust.
Any rating will not address the possibility that prepayment of the
mortgage loans at a higher or lower rate than anticipated by an investor may
cause such investor to experience a lower than anticipated yield or that an
investor purchasing a certificate at a significant premium might fail to recover
its initial investment under certain prepayment scenarios. Therefore, a rating
assigned by a rating agency does not guarantee or ensure the realization of any
anticipated yield on a class of certificates.
The amount, type and nature of credit support given a series of
certificates will be determined on the basis of criteria established by each
rating agency rating classes of the certificates of such series. Those criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. There can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience, or that
the data derived from a large pool of mortgage loans will accurately predict the
delinquency, foreclosure or loss experience of any particular pool of mortgage
loans. In other cases, such criteria may be based upon determinations of the
values of the properties that provide security for the mortgage loans. However,
we cannot assure you that those values will not decline in the future. As a
result, the credit support required in respect of the certificates of any series
may be insufficient to fully protect the holders of such certificates from
losses on the related mortgage asset pool.
CERTAIN FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS.
Mortgage loans made on the security of multifamily or commercial property
may have a greater likelihood of delinquency and foreclosure, and a greater
likelihood of loss than loans made on the security of an owner-occupied
single-family property. The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower. Therefore, the value of an income-producing property
is directly related to the net operating income derived from such property.
If the net operating income of the property is reduced (for example, if
rental or occupancy rates decline or real estate tax rates or other operating
expenses increase), the borrower's ability to repay the loan may be impaired. A
number of the mortgage loans may be secured by liens on owner-occupied
properties or on properties leased to a single tenant or in which only a few
tenants produce a material amount of the rental income. As the primary component
of the net operating income of a property, rental income (and maintenance
payments from tenant stockholders of a Cooperative) and the value of any
property are subject to the vagaries of the applicable real estate market and/or
business climate. Properties typically leased, occupied or used on a short-term
basis, such as health care-related facilities, hotels and motels, and
mini-warehouse and self-storage facilities, tend to be affected more rapidly by
changes in market or business conditions than do properties leased, occupied or
used for longer periods, such as (typically) warehouses, retail stores, office
buildings and industrial plants. Commercial Properties may be secured by
owner-occupied properties or properties leased to a single tenant. Therefore, a
decline in the financial condition of the borrower or a single tenant may have a
disproportionately greater effect on the net operating income from such
properties than would be the case with respect to properties with multiple
tenants.
Changes in the expense components of the net operating income of a
property due to the general economic climate or economic conditions in a
locality or industry segment, such as (1) increases in interest rates, real
estate and personal property tax rates and other operating expenses including
energy costs, (2) changes in governmental
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rules, regulations and fiscal policies, including environmental legislation, and
(3) acts of God may also affect the net operating income and the value of the
property and the risk of default on the related mortgage loan. In some cases
leases of properties may provide that the lessee, rather than the mortgagor, is
responsible for payment of certain of these expenses. However, because leases
are subject to default risks as well as when a tenant's income is insufficient
to cover its rent and operating expenses, the existence of such "net of expense"
provisions will only temper, not eliminate, the impact of expense increases on
the performance of the related mortgage loan.
Additional considerations may be presented by the type and use of a
particular property. For instance, properties that operate as hospitals and
nursing homes are subject to significant governmental regulation of the
ownership, operation, maintenance and financing of health care institutions.
Hotel, motel and restaurant properties are often operated pursuant to franchise,
management or operating agreements that may be terminable by the franchisor or
operator. The transferability of a hotel's or restaurant's operating, liquor and
other licenses upon a transfer of the hotel or the restaurant, whether through
purchase or foreclosure, is subject to local law requirements.
In addition, the concentration of default, foreclosure and loss risks in
mortgage loans in the trust will generally be greater than for pools of
single-family loans because mortgage loans in the trust generally will consist
of a smaller number of higher balance loans than would a pool of single-family
loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans May Make Recovery Difficult
in the Event that a Mortgage Loan Defaults. We anticipate that some or all of
the mortgage loans included in any trust fund will be nonrecourse loans or loans
for which recourse may be restricted or unenforceable. In this type of mortgage
loan, recourse in the event of borrower default will be limited to the specific
real property and other assets that were pledged to secure the mortgage loan.
However, even with respect to those mortgage loans that provide for recourse
against the borrower and its assets, we cannot assure you that enforcement of
such recourse provisions will be practicable, or that the assets of the borrower
will be sufficient to permit a recovery concerning a defaulted mortgage loan in
excess of the liquidation value of the related property.
Cross-Collateralization Provisions May Have Limitations on Their
Enforceability. A mortgage pool may include groups of mortgage loans which are
cross-collateralized and cross-defaulted. These arrangements are designed
primarily to ensure that all of the collateral pledged to secure the respective
mortgage loans in a cross-collateralized group. Cash flows generated on these
type of mortgage loans are available to support debt service on, and ultimate
repayment of, the total indebtedness. These arrangements seek to reduce the risk
that the inability of one or more of the mortgaged properties securing any such
group of mortgage loans to generate net operating income sufficient to pay debt
service will result in defaults and ultimate losses.
If the properties securing a group of mortgage loans which are
cross-collateralized are not all owned by the same entity, creditors of one or
more of the related borrowers could challenge the cross-collateralization
arrangement as a fraudulent conveyance. Under federal and state fraudulent
conveyance statutes, the incurring of an obligation or the transfer of property
by a person will be subject to avoidance under certain circumstances if the
person did not receive fair consideration or reasonably equivalent value in
exchange for such obligation or transfer and was then insolvent, was rendered
insolvent by such obligation or transfer or had unreasonably small capital for
its business. A creditor seeking to enforce remedies against a property subject
to such cross-collateralization to repay such creditor's claim against the
related borrower could assert that--
o such borrower was insolvent at the time the cross-collateralized
mortgage loans were made; and
o such borrower did not, when it allowed its property to be encumbered
by a lien securing the indebtedness represented by the other
mortgage loans in the group of cross-collateralized mortgage loans,
receive fair consideration or reasonably equivalent value for, in
effect, "guaranteeing" the performance of the other borrowers.
Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, we cannot assure you
that such exchanged "guarantees" would be found to constitute fair consideration
or be of reasonably equivalent value.
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The cross-collateralized mortgage loans may be secured by mortgage liens
on properties located in different states. Because of various state laws
governing foreclosure or the exercise of a power of sale and because foreclosure
actions are usually brought in state court, and the courts of one state cannot
exercise jurisdiction over property in another state, it may be necessary upon a
default under any such mortgage loan to foreclose on the related mortgaged
properties in a particular order rather than simultaneously in order to ensure
that the lien of the related mortgages is not impaired or released.
Increased Risk of Default Associated With Balloon Payments. Some of the
mortgage loans included in the trust may be nonamortizing or only partially
amortizing over their terms to maturity. These types of mortgage loans will
require substantial payments of principal and interest (that is, balloon
payments) at their stated maturity. These loans involve a greater likelihood of
default than self-amortizing loans because the ability of a borrower to make a
balloon payment typically will depend upon its ability either to refinance the
loan or to sell the related property. The ability of a borrower to accomplish
either of these goals will be affected by--
o the value of the related property;
o the level of available mortgage rates at the time of sale or
refinancing;
o the borrower's equity in the related property;
o the financial condition and operating history of the borrower and
the related property;
o tax laws;
o rent control laws (pertaining to certain residential properties);
o Medicaid and Medicare reimbursement rates (pertaining to hospitals
and nursing homes);
o prevailing general economic conditions; and
o the availability of credit for loans secured by multifamily or
commercial property.
Neither Banc of America Commercial Mortgage Inc. nor any of its affiliates
will be required to refinance any mortgage loan.
As specified in the prospectus supplement, the master servicer or the
special servicer will be permitted (within prescribed limits) to extend and
modify mortgage loans that are in default or as to which a payment default is
imminent. Although the master servicer or the special servicer generally will be
required to determine that any such extension or modification is reasonably
likely to produce a greater recovery than liquidation, taking into account the
time value of money, we cannot assure you that any such extension or
modification will in fact increase the present value of receipts from or
proceeds of the affected mortgage loans.
The Lender Under a Mortgage Loan May Have Difficulty Collecting Rents Upon
the Default and/or Bankruptcy of the Related Borrower. Each mortgage loan
included in the trust secured by property that is subject to leases typically
will be secured by an assignment of leases and rents. Under such an assignment,
the mortgagor assigns to the mortgagee its right, title and interest as lessor
under the leases of the related property, and the income derived, as further
security for the related mortgage loan, while retaining a license to collect
rents for so long as there is no default. If the borrower defaults, the license
terminates and the lender is entitled to collect rents. Some state laws may
require that the lender take possession of the property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the borrower, the lender's ability to collect the rents may be adversely
affected.
The Enforceability of Due-on-Sale and Debt-Acceleration Clauses May Be
Limited in Certain Situations. Mortgages may contain a due-on-sale clause, which
permits the lender to accelerate the maturity of the mortgage loan if the
borrower sells, transfers or conveys the related property or its interest in the
property. Mortgages also may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or
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nonmonetary default of the mortgagor. Such clauses are generally enforceable
subject to certain exceptions. The courts of all states will enforce clauses
providing for acceleration in the event of a material payment default. The
equity courts of any state, however, may refuse the foreclosure of a mortgage or
deed of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Adverse Environmental Conditions May Subject a Mortgage Loan to Additional
Risk. Under the laws of certain states, contamination of real property may give
rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether the environmental
damage or threat was caused by the borrower or a prior owner. A lender also
risks such liability on foreclosure of the mortgage.
Certain Special Hazard Losses May Subject Your Certificates to an
Increased Risk of Loss. Unless otherwise specified in a prospectus supplement,
the master servicer and special servicer for the trust will be required to cause
the borrower on each mortgage loan in the trust to maintain such insurance
coverage in respect of the property as is required under the related mortgage,
including hazard insurance. As described in the prospectus supplement, the
master servicer and the special servicer may satisfy its obligation to cause
hazard insurance to be maintained with respect to any property through
acquisition of a blanket policy.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the properties will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms, and therefore will not contain identical terms and conditions, most
such policies typically do not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of risks. Unless the mortgage
specifically requires the mortgagor to insure against physical damage arising
from such causes, then, to the extent any consequent losses are not covered by
credit support, such losses may be borne, at least in part, by the holders of
one or more classes of certificates of the related series.
INCLUSION OF DELINQUENT MORTGAGE LOANS IN A MORTGAGE ASSET POOL.
If provided in the prospectus supplement, the trust fund for a particular
series of certificates may include mortgage loans that are past due. As
specified in the related prospectus supplement, the servicing of such mortgage
loans will be performed by the special servicer. The same entity may act as both
master servicer and special servicer. Credit support provided with respect to a
particular series of certificates may not cover all losses related to such
delinquent mortgage loans, and investors should consider the risk that the
inclusion of such mortgage loans in the trust fund may adversely affect the rate
of defaults and prepayments concerning the subject mortgage asset pool and the
yield on the certificates of such series.
PROSPECTUS SUPPLEMENT
To the extent appropriate, the prospectus supplement relating to each
series of offered certificates will contain--
o a description of the class or classes of such offered certificates,
including the payment provisions with respect to each such class,
the aggregate principal amount (if any) of each such class, the rate
at which interest accrues from time to time (if at all), with
respect to each such class or the method of determining such rate,
and whether interest with respect to each such class will accrue
from time to time on its aggregate principal amount (if any) or on a
specified notional amount (if at all);
o information with respect to any other classes of certificates of the
same series;
o the respective dates on which distributions are to be made;
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o information as to the assets, including the mortgage assets,
constituting the related trust fund;
o the circumstances, if any, under which the related trust fund may be
subject to early termination;
o additional information with respect to the method of distribution of
such offered certificates;
o whether one or more REMIC elections will be made and the designation
of the "regular interests" and "residual interests" in each REMIC to
be created and the identity of the person responsible for the
various tax-related duties in respect of each REMIC to be created;
o the initial percentage ownership interest in the related trust fund
to be evidenced by each class of certificates of such series;
o information concerning the trustee of the related trust fund;
o if the related trust fund includes mortgage loans, information
concerning the master servicer and any special servicer of such
mortgage loans and the circumstances under which all or a portion,
as specified, of the servicing of a mortgage loan would transfer
from the master servicer to the special servicer;
o information as to the nature and extent of subordination of any
class of certificates of such series, including a class of offered
certificates; and
o whether such offered certificates will be initially issued in
definitive or book-entry form.
CAPITALIZED TERMS USED IN THIS PROSPECTUS
From time to time we use capitalized terms in this prospectus. Each of
those capitalized terms will have the meaning assigned to it in the "Glossary"
attached to this prospectus.
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DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each trust fund will consist of mortgage assets
which will include--
o various types of multifamily or commercial mortgage loans;
o mortgage participations, pass-through certificates or other
mortgage-backed securities that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily
or commercial mortgage loans; or
o a combination of such mortgage loans and mortgage backed securities.
We will establish each trust fund and select each mortgage asset. We will
purchase mortgage assets to be included in the trust fund and select each
mortgage asset from the Mortgage Asset Seller who may not have originated the
mortgage asset or issued the MBS and may be our affiliate.
We will not insure or guaranty the mortgage assets nor will any of its
affiliates or, unless otherwise provided in the related prospectus supplement,
by any governmental agency or instrumentality or by any other person. The
discussion below under the heading "--Mortgage Loans", unless otherwise noted,
applies equally to mortgage loans underlying any MBS included in a particular
trust fund.
MORTGAGE LOANS
General. The mortgage loans will be evidenced by promissory notes
(referred to in this prospectus as mortgage notes) notes secured by mortgages,
deeds of trust or similar security instruments (referred to in this prospectus
as mortgages) that create first or junior liens on fee or leasehold estates in
properties consisting of--
o residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden
apartment buildings or other residential structures; or
o office buildings, retail stores and establishments, hotels or
motels, nursing homes, hospitals or other health care-related
facilities, recreational vehicle and mobile home parks, warehouse
facilities, mini-warehouse facilities, self-storage facilities,
industrial plants, parking lots, entertainment or sports arenas,
restaurants, marinas, mixed use or various other types of
income-producing properties or unimproved land.
These multifamily properties may include mixed commercial and residential
structures and apartment buildings owned by private cooperative housing
corporations. However, no one of the following types of commercial properties
will represent security for a material concentration of the mortgage loans in
any trust fund, based on principal balance at the time such trust fund is
formed: (1) restaurants; (2) entertainment or sports arenas; (3) marinas; or (4)
nursing homes, hospitals or other health care-related facilities. Unless
otherwise specified in the related prospectus supplement, each mortgage will
create a first priority mortgage lien on a borrower's fee estate in a mortgaged
property. If a mortgage creates a lien on a borrower's leasehold estate in a
property, then, unless otherwise specified in the related prospectus supplement,
the term of any such leasehold will exceed the term of the mortgage note by at
least ten years. Unless otherwise specified in the related prospectus
supplement, each mortgage loan will have been originated by a person other than
us; however, such person may be or may have been our affiliate.
If so provided in the related prospectus supplement, mortgage assets for a
series of certificates may include mortgage loans secured by junior liens, and
the loans secured by the related senior liens may not be included in the
mortgage pool. The primary risk to holders of mortgage loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related senior liens to satisfy fully both the senior
liens and the mortgage loan. In the event that a holder of a senior lien
forecloses on a mortgaged property, the
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proceeds of the foreclosure or similar sale will be applied first to the payment
of court costs and fees in connection with the foreclosure, second to real
estate taxes, third in satisfaction of all principal, interest, prepayment or
acceleration penalties, if any, and any other sums due and owing to the holder
of the senior liens. The claims of the holders of the senior liens will be
satisfied in full out of proceeds of the liquidation of the related mortgaged
property, if such proceeds are sufficient, before the trust fund as holder of
the junior lien receives any payments in respect of the mortgage loan. If the
master servicer were to foreclose on any mortgage loan, it would do so subject
to any related senior liens. In order for the debt related to such mortgage loan
to be paid in full at such sale, a bidder at the foreclosure sale of such
mortgage loan would have to bid an amount sufficient to pay off all sums due
under the mortgage loan and any senior liens or purchase the mortgaged property
subject to such senior liens. In the event that such proceeds from a foreclosure
or similar sale of the related mortgaged property are insufficient to satisfy
all senior liens and the mortgage loan in the aggregate, the trust fund, as the
holder of the junior lien, and, accordingly, holders of one or more classes of
the certificates of the related series bear--
o the risk of delay in distributions while a deficiency judgment
against the borrower is obtained; and
o the risk of loss if the deficiency judgment is not obtained and
satisfied. Moreover, deficiency judgments may not be available in
certain jurisdictions, or the particular mortgage loan may be a
nonrecourse loan, which means that, absent special facts, recourse
in the case of default will be limited to the mortgaged property and
such other assets, if any, that were pledged to secure repayment of
the mortgage loan.
If so specified in the related prospectus supplement, the mortgage assets
for a particular series of certificates may include mortgage loans that are
delinquent as of the date such certificates are issued. In that case, the
related prospectus supplement will set forth, as to each such mortgage loan,
available information as to the period of such delinquency, any forbearance
arrangement then in effect, the condition of the related mortgaged property and
the ability of the mortgaged property to generate income to service the mortgage
debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, as noted above, some or all of the
mortgage loans included in a particular trust fund may be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important factor in evaluating the
likelihood of default on such a loan. The Net Operating Income of a mortgaged
property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related mortgage loan at any given time. As the
primary source of the operating revenues of a nonowner occupied,
income-producing property, rental income (and, with respect to a mortgage loan
secured by a cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial plants. Commercial
Properties may be owner-occupied or leased to a small number of tenants. Thus,
the Net Operating Income of such a mortgaged property may depend substantially
on the financial condition of the borrower or a tenant, and mortgage loans
secured by liens on such properties may pose a greater likelihood of default and
loss than loans secured by liens on Multifamily Properties or on multi-tenant
Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a mortgage loan.
As may be further described in the related prospectus supplement, in some cases
leases of mortgaged properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses. However,
the existence of such "net of expense" provisions will result in stable Net
Operating Income to the borrower/landlord only to the extent that the lessee is
able to absorb operating expense increases while continuing to make rent
payments.
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Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
factor in evaluating the likelihood of loss if a property must be liquidated
following a default. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a mortgaged property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
mortgage loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure
of the likelihood of liquidation loss in a pool of mortgage loans. For example,
the value of a mortgaged property as of the date of initial issuance of the
related series of certificates may be less than the value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
based on--
o the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement
method (the cost of replacing the property at such date);
o the income capitalization method (a projection of value based upon
the property's projected net cash flow),
o or upon a selection from or interpolation of the values derived from
such methods.
Each of these appraisal methods can present analytical difficulties. It is
often difficult to find truly comparable properties that have recently been
sold; the replacement cost of a property may have little to do with its current
market value; and income capitalization is inherently based on inexact
projections of income and expense and the selection of an appropriate
capitalization rate and discount rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of the
likelihood of default and loss, is even more difficult.
Although there may be multiple methods for determining the value of a
mortgaged property, value will in all cases be affected by property performance.
As a result, if a mortgage loan defaults because the income generated by the
related mortgaged property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the mortgaged property will reflect that
and a liquidation loss may occur.
While we believe that the foregoing considerations are important factors
that generally distinguish loans secured by liens on income-producing real
estate from single-family mortgage loans, there can be no assurance that all of
such factors will in fact have been prudently considered by the originators of
the mortgage loans, or that, for a particular mortgage loan, they are complete
or relevant. See "Risk Factors--Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans--General" and "--Certain Factors
Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans--Increased
Risk of Default Associated With Balloon Payments".
Payment Provisions of the Mortgage Loans. All of the mortgage loans will
(1) have had original terms to maturity of not more than 40 years and (2)
provide for scheduled payments of principal, interest or both, to be made on
specified dates that occur monthly, quarterly, semi-annually or annually. A
mortgage loan may--
o provide for no accrual of interest or for accrual of interest at an
interest rate that is fixed over its term or that adjusts from time
to time, or that may be converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate;
o provide for level payments to maturity or for payments that adjust
from time to time to accommodate changes in its interest rate or to
reflect the occurrence of certain events, and may permit negative
amortization;
o may be fully amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on its stated maturity
date;
o may prohibit over its term or for a certain period prepayments
and/or require payment of a premium or a yield maintenance payment
in connection with certain prepayments, in each case as described in
the related prospectus supplement.
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A mortgage loan may also contain a provision that entitles the lender to a
share of appreciation of the related mortgaged property, or profits realized
from the operation or disposition of such mortgaged property or the benefit, if
any, resulting from the refinancing of the mortgage loan, as described in the
related prospectus supplement. See "Certain Legal Aspects of the Mortgage
Loans--Default Interest and Limitations on Prepayments" in the prospectus
regarding the enforceability of prepayment premiums and yield maintenance
charges.
Mortgage Loan Information in Prospectus Supplements. Each prospectus
supplement will contain certain information pertaining to the mortgage loans in
the related trust fund, which, to the extent then applicable, will generally
include the following:
o the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the mortgage
loans;
o the type or types of property that provide security for repayment of
the mortgage loans;
o the earliest and latest origination date and maturity date of the
mortgage loans;
o the original and remaining terms to maturity of the mortgage loans,
or the respective ranges of such terms to maturity, and the weighted
average original and remaining terms to maturity of the mortgage
loans;
o the Loan-to-Value Ratios of the mortgage loans (either at
origination or as of a more recent date), or the range of the
Loan-to-Value-Ratios, and the weighted average of such Loan-to-Value
Ratios;
o the Mortgage Rates borne by the mortgage loans, or the range of the
Mortgage Rate, and the weighted average Mortgage Rate borne by the
mortgage loans;
o with respect to mortgage loans with adjustable Mortgage Rates, the
index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted
average gross margin, and any limits on Mortgage Rate adjustments at
the time of any adjustment and over the life of such mortgage loan;
o information regarding the payment characteristics of the mortgage
loans, including, without limitation, balloon payment and other
amortization provisions, Lock-out Periods and Prepayment Premiums,
o the Debt Service Coverage Ratios of the mortgage loans (either at
origination or as of a more recent date), or the range Debt Service
Coverage Ratios, and the weighted average of such Debt Service
Coverage Ratios, and
o the geographic distribution of the mortgaged properties on a
state-by-state basis. In appropriate cases, the related prospectus
supplement will also contain certain information available us that
pertains to the provisions of leases and the nature of tenants of
the mortgaged properties. If we are unable to provide the specific
information described above at the time any offered certificates of
a series are initially offered, more general information of the
nature described above will be provided in the related prospectus
supplement, and specific information will be set forth in a report
which will be available to purchasers of those certificates at or
before their initial issuance and will be filed as part of a Current
Report on Form 8-K with the Securities and Exchange Commission
within fifteen days following their issuance.
If any mortgage loan, or group of related mortgage loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related mortgaged property or mortgaged
properties will be included in the related prospectus supplement.
If and to the extent available and relevant to an investment decision in
the offered certificates of the related series, information regarding the
prepayment experience of a master servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related prospectus
supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
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addition, the relevant characteristics of a master servicer's servicing
portfolio may be so materially different from those of the related mortgage
asset pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to maturity and/or prepayment
restrictions) between the two pools of loans could render the master servicer's
prepayment experience irrelevant. Because of the nature of the assets to be
serviced and administered by a special servicer, no comparable prepayment
information will be presented with respect to the special servicer's multifamily
and/or commercial mortgage loan servicing portfolio.
MBS
MBS may include (1) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality of the United
States) mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities or (2) certificates issued and/or insured or
guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, the Governmental National Mortgage Association or the
Federal Agricultural Mortgage Corporation, provided that, unless otherwise
specified in the related prospectus supplement, each MBS will evidence an
interest in, or will be secured by a pledge of, mortgage loans that conform to
the descriptions of the mortgage loans contained in this prospectus.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a mortgage asset
pool: (a) either will (1) have been previously registered under the Securities
Act of 1933, as amended, (2) be exempt from such registration requirements or
(3) have been held for at least the holding period specified in Rule 144(k)
under the Securities Act of 1933, as amended; and (b) will have been acquired
(other than from us or any of our affiliates) in bona fide secondary market
transactions.
Any MBS will have been issued pursuant to a MBS agreement which is a
participation and servicing agreement, a pooling and servicing agreement, an
indenture or similar agreement. The issuer of the MBS and/or the servicer of the
underlying mortgage loans will be parties to the MBS agreement, generally
together with a trustee or, in the alternative, with the original purchaser or
purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of the offered certificates described in this prospectus.
Distributions in respect of the MBS will be made by the issuer of the MBS, the
servicer of the MBS, or the trustee of the MBS agreement or the MBS trustee on
the dates specified in the related prospectus supplement. The issuer of the MBS
or the MBS servicer or another person specified in the related prospectus
supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related prospectus supplement.
Reserve funds, subordination or other credit support similar to that
described for the offered certificates under "Description of Credit Support" may
have been provided with respect to the MBS. The type, characteristics and amount
of such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The prospectus supplement for a series of certificates that evidence
interests in MBS will specify, to the extent available--
o the aggregate approximate initial and outstanding principal
amount(s) and type of the MBS to be included in the trust fund;
o the original and remaining term(s) to stated maturity of the MBS, if
applicable;
o the pass-through or bond rate(s) of the MBS or the formula for
determining such rate(s);
o the payment characteristics of the MBS;
o the issuer of the MBS, servicer of the MBS and trustee of the MBS,
as applicable, of each of the MBS;
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o a description of the related credit support, if any;
o the circumstances under which the related underlying mortgage loans,
or the MBS themselves, may be purchased prior to their maturity;
o the terms on which mortgage loans may be substituted for those
originally underlying the MBS;
o the type of mortgage loans underlying the MBS and, to the extent
available and appropriate under the circumstances, such other
information in respect of the underlying mortgage loans described
under "--Mortgage Loans--Mortgage Loan Information in Prospectus
Supplements"; and
o the characteristics of any cash flow agreements that relate to the
MBS.
CERTIFICATE ACCOUNTS
Each trust fund will include one or more accounts established and
maintained on behalf of the certificateholders into which all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund will be deposited to the extent described in this
prospectus and in the related prospectus supplement. See "The Pooling and
Servicing Agreements--Certificate Account".
CREDIT SUPPORT
If so provided in the prospectus supplement for a series of certificates,
partial or full protection against certain defaults and losses on the mortgage
assets in the related trust fund may be provided to one or more classes of
certificates of such series in the form of subordination of one or more other
classes of certificates of such series or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination of subordination and credit support. The
amount and types of credit support, the identity of the entity providing it (if
applicable) and related information with respect to each type of credit support,
if any, will be set forth in the prospectus supplement for a series of
certificates. See "Risk Factors--Credit Support Limitations" and "Description of
Credit Support".
CASH FLOW AGREEMENTS
If so provided in the prospectus supplement for a series of certificates,
the related trust fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The related trust fund may also include certain
other agreements, such as interest rate exchange agreements, interest rate cap
or floor agreements, or other agreements designed to reduce the effects of
interest rate fluctuations on the mortgage assets on one or more classes of
certificates. The principal terms of any such cash flow agreement, including,
without limitation, provisions relating to the timing, manner and amount of
payments and provisions relating to the termination of the cash flow agreement,
will be described in the related prospectus supplement. The related prospectus
supplement will also identify the obligor under any such cash flow agreement.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any offered certificate will depend on the price paid by the
certificateholder, the pass-through rate of the certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors--Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a trust fund that consists solely of mortgage loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a class of certificates as will the characteristics and behavior
of comparable mortgage loans, the effect may differ due to the payment
characteristics of the MBS. If a trust fund includes MBS, the related prospectus
supplement will discuss
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the effect, if any, that the payment characteristics of the MBS may have on the
yield to maturity and weighted average lives of the offered certificates of the
related series.
PASS-THROUGH RATE
The certificates of any class within a series may have a fixed, variable
or adjustable pass-through rate, which may or may not be based upon the interest
rates borne by the mortgage loans in the related trust fund.
The prospectus supplement with respect to any series of certificates will
specify the pass-through rate for each class of offered certificates of such
series or, in the case of a class of offered certificates with a variable or
adjustable pass-through rate, the method of determining the pass-through rate;
the effect, if any, of the prepayment of any mortgage loan on the pass-through
rate of one or more classes of offered certificates; and whether the
distributions of interest on the offered certificates of any class will be
dependent, in whole or in part, on the performance of any obligor under a cash
flow agreement.
PAYMENT DELAYS
With respect to any series of certificates, a period of time will elapse
between the date upon which payments on the mortgage loans in the related trust
fund are due and the Distribution Date on which such payments are passed through
to certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such mortgage loans were distributed to
certificateholders on the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a mortgage loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any series of
certificates and distributable on any Distribution Date will generally
correspond to interest accrued on the mortgage loans to their respective Due
Dates during the related Due Period. If a prepayment on any mortgage loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest to the Due Date for such mortgage loan
in the related Due Period, then the interest charged to the borrower (net of
servicing and administrative fees) may be less than the corresponding amount of
interest accrued and otherwise payable on the certificates of the related
series. If and to the extent that any such shortfall is allocated to a class of
offered certificates, the yield will be adversely affected. The prospectus
supplement for each series of certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such certificates. The
related prospectus supplement will also describe any amounts available to offset
such shortfalls.
YIELD AND PREPAYMENT CONSIDERATIONS
A certificate's yield to maturity will be affected by the rate of
principal payments on the mortgage loans in the related trust fund and the
allocation the principal payments to reduce the principal balance (or notional
amount, if applicable) of such certificate. The rate of principal payments on
the mortgage loans in any trust fund will in turn be affected by the
amortization schedules of the mortgage loans (which, in the case of mortgage
loans, may change periodically to accommodate adjustments to the corresponding
Mortgage Rates), the dates on which any balloon payments are due, and the rate
of principal prepayments (including for this purpose, voluntary prepayments by
borrowers and also prepayments resulting from liquidations of mortgage loans due
to defaults, casualties or condemnations affecting the related mortgaged
properties, or purchases of mortgage loans out of the related trust fund).
Because the rate of principal prepayments on the mortgage loans in any trust
fund will depend on future events and a variety of factors (as described below),
no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of offered
certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the mortgage loans in the related trust
fund are in turn distributed on such certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the notional amount
of the Stripped Interest Certificates). An investor should consider, in the case
of any offered certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the mortgage loans in the related
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trust fund could result in an actual yield to such investor that is lower than
the anticipated yield and, in the case of any offered certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such mortgage loans could result in an actual yield to such investor that is
lower than the anticipated yield. In addition, if an investor purchases an
offered certificate at a discount (or premium), and principal payments are made
in reduction of the principal balance or notional amount of such investor's
offered certificates at a rate slower (or faster) than the rate anticipated by
the investor during any particular period, any consequent adverse effects on
such investor's yield would not be fully offset by a subsequent increase (or
decrease) in the rate of principal payments.
In general, the notional amount of a class of Stripped Interest
Certificates will either -
o be based on the principal balances of some or all of the mortgage
assets in the related trust fund; or
o equal the Certificate Balances of one or more of the other classes
of certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
received on such mortgage assets or distributions are made in reduction of the
Certificate Balances of such classes of certificates, as the case may be.
Consistent with the foregoing, if a class of certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the mortgage loans in
the related trust fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such mortgage loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the offered certificates of a series
include any such certificates, the related prospectus supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The extent of prepayments of principal of the mortgage loans in any trust
fund may be affected by a number of factors, including, without limitation--
o the availability of mortgage credit, the relative economic vitality
of the area in which the mortgaged properties are located;
o the quality of management of the mortgaged properties;
o the servicing of the mortgage loans; and
o possible changes in tax laws and other opportunities for investment.
In general, those factors which increase the attractiveness of selling a
mortgaged property or refinancing a mortgage loan or which enhance a borrower's
ability to do so, as well as those factors which increase the likelihood of
default under a mortgage loan, would be expected to cause the rate of prepayment
in respect of any mortgage asset pool to accelerate. In contrast, those factors
having an opposite effect would be expected to cause the rate of prepayment of
any mortgage asset pool to slow.
The rate of principal payments on the mortgage loans in any trust fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by prepayment premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its mortgage loan, thereby slowing the rate of
prepayments.
The rate of prepayment on a 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. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of adjustable rate mortgage loans, as prevailing
market interest rates decline, and without regard to whether the
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Mortgage Rates on such adjustable rate mortgage loans decline in a manner
consistent with the prevailing 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" such rate or (2) taking advantage
of a different index, margin or rate cap or floor on another adjustable rate
mortgage loan. Therefore, as prevailing market interest rates decline,
prepayment speeds would be expected to accelerate.
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
properties, 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 prepayment of the mortgage loans in any trust fund, as to
the relative importance of such factors, as to the percentage of the principal
balance of such mortgage loans that will be paid as of any date or as to the
overall rate of prepayment on such mortgage loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the mortgage loans in
any trust fund will affect the ultimate maturity and the weighted average life
of one or more classes of the certificates of such series. Unless otherwise
specified in the related prospectus supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
The weighted average life and maturity of a class of certificates of any
series will be influenced by the rate at which principal on the related mortgage
loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of mortgage loans due to default,
casualties or condemnations affecting the related mortgaged properties and
purchases of mortgage loans out of the related trust fund), is paid to such
class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the CPR prepayment model or the SPA prepayment model.
CPR represents an assumed constant rate of prepayment each month (expressed as
an annual percentage) relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such loans. SPA represents an assumed
variable rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans,
with different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the mortgage loans included in any trust fund will
conform to any particular level of CPR or SPA.
The prospectus supplement with respect to each series of certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of offered certificates of such series with a Certificate Balance,
and the percentage of the initial Certificate Balance of each such class that
would be outstanding on specified Distribution Dates, based on the assumptions
stated in such prospectus supplement, including assumptions that prepayments on
the related mortgage loans are made at rates corresponding to various
percentages of CPR or SPA, or at such other rates specified in such prospectus
supplement. Such tables and assumptions will illustrate the sensitivity of the
weighted average lives of the certificates to various assumed prepayment rates
and will not be intended to predict, or to provide information that will enable
investors to predict, the actual weighted average lives of the certificates.
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OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans included in a particular trust fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related mortgaged property, there is a possibility that mortgage loans that
require balloon payments may default at maturity, or that the maturity of such a
mortgage loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted mortgage loans, the master
servicer or the special servicer, to the extent and under the circumstances set
forth in this prospectus and in the related prospectus supplement, may be
authorized to modify mortgage loans that are in default or as to which a payment
default is imminent. Any defaulted balloon payment or modification that extends
the maturity of a mortgage loan may delay distributions of principal on a class
of offered certificates and thereby extend the weighted average life of such
certificates and, if such certificates were purchased at a discount, reduce the
yield.
Negative Amortization. The weighted average life of a class of
certificates can be affected by mortgage loans that permit negative amortization
to occur (that is, mortgage loans that provide for the current payment of
interest calculated at a rate lower than the rate at which interest accrues,
with the unpaid portion of such interest being added to the related principal
balance). Negative amortization on one or more mortgage loans in any trust fund
may result in negative amortization on the offered certificates of the related
series. The related prospectus supplement will describe, if applicable, the
manner in which negative amortization in respect of the mortgage loans in any
trust fund is allocated among the respective classes of certificates of the
related series. The portion of any mortgage loan negative amortization allocated
to a class of certificates may result in a deferral of some or all of the
interest payable, which deferred interest may be added to the Certificate
Balance of the certificates. In addition, an adjustable rate mortgage loan that
permits negative amortization would be expected during a period of increasing
interest rates to amortize at a slower rate (and perhaps not at all) than if
interest rates were declining or were remaining constant. Such slower rate of
mortgage loan amortization would correspondingly be reflected in a slower rate
of amortization for one or more classes of certificates of the related series.
Accordingly, the weighted average lives of mortgage loans that permit negative
amortization (and that of the classes of certificates to which any such negative
amortization would be allocated or that would bear the effects of a slower rate
of amortization on such mortgage loans) may increase as a result of such
feature.
Negative amortization may occur in respect of an adjustable rate mortgage
loan that--
o limits the amount by which its scheduled payment may adjust in
response to a change in its Mortgage Rate;
o provides that its scheduled payment will adjust less frequently than
its Mortgage Rate; or
o provides for constant scheduled payments notwithstanding adjustments
to its Mortgage Rate.
Accordingly, during a period of declining interest rates, the scheduled
payment on such a mortgage loan may exceed the amount necessary to amortize the
loan fully over its remaining amortization schedule and pay interest at the then
applicable Mortgage Rate, thereby resulting in the accelerated amortization of
such mortgage loan. Any such acceleration in amortization of its principal
balance will shorten the weighted average life of such mortgage loan and,
correspondingly, the weighted average lives of those classes of certificates
entitled to a portion of the principal payments on such mortgage loan.
The extent to which the yield on any offered certificate will be affected
by the inclusion in the related trust fund of mortgage loans that permit
negative amortization, will depend upon (1) whether such offered certificate was
purchased at a premium or a discount and (2) the extent to which the payment
characteristics of such mortgage loans delay or accelerate the distributions of
principal on such certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the reduction of the notional amount of a
Stripped Interest Certificate). See "--Yield and Prepayment Considerations"
above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the mortgage loans that are foreclosed in relation to the
number and principal amount of mortgage loans that are repaid in accordance with
their terms will affect the weighted average lives of those mortgage loans and,
accordingly, the weighted
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average lives of and yields on the certificates of the related series. Servicing
decisions made with respect to the mortgage loans, including the use of payment
plans prior to a demand for acceleration and the restructuring of mortgage loans
in bankruptcy proceedings or otherwise, may also have an effect upon the payment
patterns of particular mortgage loans and thus the weighted average lives of and
yields on the certificates of the related series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
offered certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the mortgage loans in the related trust
fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of certificates that is required to bear the effects of such
loss or shortfall.
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated among
the respective classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of certificates and/or (2)
establishing a priority of payments among such classes of certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the mortgage
loans in the related trust fund.
Additional Certificate Amortization. In addition to entitling the holders
to a specified portion (which may during specified periods range from none to
all) of the principal payments received on the mortgage assets in the related
trust fund, one or more classes of certificates of any series, including one or
more classes of offered certificates of such series, may provide for
distributions of principal from--
o amounts attributable to interest accrued but not currently
distributable on one or more classes of Accrual Certificates;
o Excess Funds; or
o any other amounts described in the related prospectus supplement.
The amortization of any class of certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
certificates and, if such certificates were purchased at a premium, reduce the
yield. The related prospectus supplement will discuss the relevant factors to be
considered in determining whether distributions of principal of any class of
certificates out of such sources is likely to have any material effect on the
rate at which such certificates are amortized and the consequent yield with
respect thereto.
THE DEPOSITOR
We are Banc of America Commercial Mortgage Inc., a Delaware corporation
and were organized on December 13, 1995 for the limited purpose of acquiring,
owning and transferring mortgage assets and selling interests in the mortgage
assets or bonds secured by the mortgage assets. We are a subsidiary of Bank of
America, N.A. We maintain our principal office at Bank of America Corporate
Center, Charlotte, North Carolina 28255. Our telephone number is (704) 386-2400.
Unless otherwise noted in the related prospectus supplement, neither we
nor any of our affiliates will insure or guarantee distributions on the
certificates of any series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of certificates will represent the entire beneficial ownership
interest in the trust fund created pursuant to the related pooling and servicing
agreement. As described in the related prospectus supplement, the
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certificates of each series, including the certificates of such series being
offered for sale, may consist of one or more classes of certificates that, among
other things:
o provide for the accrual of interest on the Certificate Balance or
Notional Amount at a fixed, variable or adjustable rate;
o constitute Senior Certificates or Subordinate Certificates;
o constitute Stripped Interest Certificates or Stripped Principal
Certificates;
o provide for distributions of interest or principal that commence
only after the occurrence of certain events, such as the retirement
of one or more other classes of certificates of such series;
o provide for distributions of principal 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 assets in the
related trust fund;
o provide for distributions of principal to be made, subject to
available funds, based on a specified principal payment schedule or
other methodology; or
o provide for distributions based on collections on the mortgage
assets in the related trust fund attributable to Prepayment Premiums
and Equity Participations.
If so specified in the related prospectus supplement, a class of
certificates may have two or more component parts, each having characteristics
that are otherwise described in this prospectus as being attributable to
separate and distinct classes. For example, a class of certificates may have a
Certificate Balance on which it accrues interest at a fixed, variable or
adjustable rate. Such class of certificates may also have certain
characteristics attributable to Stripped Interest Certificates insofar as it may
also entitle the holders of Stripped Interest Certificates to distributions of
interest accrued on a Notional Amount at a different fixed, variable or
adjustable rate. In addition, a class of certificates may accrue interest on one
portion of its Certificate Balance at one fixed, variable or adjustable rate and
on another portion of its Certificate Balance at a different fixed, variable or
adjustable rate.
Each class of offered certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related prospectus
supplement. As provided in the related prospectus supplement, one or more
classes of offered certificates of any series may be issued in fully registered,
definitive form or may be offered in book-entry format through the facilities of
DTC. The offered certificates of each series (if issued in fully registered
definitive form) may be transferred or exchanged, subject to any restrictions on
transfer described in the related prospectus supplement, at the location
specified in the related prospectus supplement, without the payment of any
service charges, other than any tax or other governmental charge payable in
connection with that transfer or exchange. Interests in a class of certificates
offered in book-entry format will be transferred on the book-entry records of
DTC and its participating organizations. If so specified in the related
prospectus supplement, arrangements may be made for clearance and settlement
through Clearstream Banking, societe anonyme, or the Euroclear System (in
Europe) if they are participants in DTC.
DISTRIBUTIONS
Distributions on the certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. The particular components of the Available Distribution
Amount for any series and Distribution Date will be more specifically described
in the related prospectus supplement. Except as otherwise specified in the
related prospectus supplement, the Distribution Date for a series of
certificates will be the 11th day of each month (or, if any such 11th day is not
a business day, the next succeeding business day), commencing in the month
immediately following the month in which such series of certificates is issued.
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Except as otherwise specified in the related prospectus supplement,
distributions on the certificates of each series (other than the final
distribution in retirement of any such certificate) will be made to the persons
in whose names such certificates are registered at the close of business on the
Record Date, and the amount of each distribution will be determined as of the
close of business on the date specified in the related prospectus supplement.
All distributions with respect to each class of certificates on each
Distribution Date will be allocated pro rata among the outstanding certificates
in such class in proportion to the respective percentage interests evidenced by
those certificates unless otherwise specified in the related prospectus
supplement. Payments will be made either by wire transfer in immediately
available funds to the account of a certificateholder at a bank or other entity
having appropriate facilities therefor, if such certificateholder has provided
the person required to make such payments with wiring instructions no later than
the related Record Date or such other date specified in the related prospectus
supplement (and, if so provided in the related prospectus supplement, such
certificate-holder holds certificates in the requisite amount or denomination
specified in the prospectus supplement), or by check mailed to the address of
such certificateholder as it appears on the Certificate Register; provided,
however, that the final distribution in retirement of any class of certificates
(whether issued in fully registered definitive form or in book-entry format)
will be made only upon presentation and surrender of such certificates at the
location specified in the notice to certificateholders of such final
distribution.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no pass-through rate) may have a different pass-through
rate, which in each case may be fixed, variable or adjustable. The related
prospectus supplement will specify the pass-through rate or, in the case of a
variable or adjustable pass-through rate, the method for determining the
pass-through rate, for each class of offered certificates. Unless otherwise
specified in the related prospectus supplement, interest on the certificates of
each series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any class of certificates (other
than a class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date or under the
circumstances specified in the related prospectus supplement, and other than any
class of Stripped Principal Certificates or REMIC Residual Certificates that is
not entitled to any distributions of interest) will be made on each Distribution
Date based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of that portion, if any, of the
Available Distribution Amount allocable to such class on such Distribution Date.
Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the Certificate Balance of such Accrual
Certificates on each Distribution Date or otherwise deferred as described in the
related prospectus supplement. Unless otherwise provided in the related
prospectus supplement, the Accrued Certificate Interest for each Distribution
Date on a class of Stripped Interest Certificates will be similarly calculated
except that it will accrue on a Notional Amount. Reference to a Notional Amount
with respect to a class of Stripped Interest Certificates is solely for
convenience in making certain calculations and does not represent the right to
receive any distributions of principal. If so specified in the related
prospectus supplement, the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that may
otherwise be added to the Certificate Balance of) one or more classes of the
certificates of a series may be reduced to the extent that any Prepayment
Interest Shortfalls, as described under "Yield and Maturity
Considerations--Certain Shortfalls in Collections of Interest", exceed the
amount of any sums that are applied to offset the amount of such shortfalls. The
particular manner in which such shortfalls will be allocated among some or all
of the classes of certificates of that series will be specified in the related
prospectus supplement. The related prospectus supplement will also describe the
extent to which the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the Certificate Balance of) a class of offered certificates may be
reduced as a result of any other contingencies, including delinquencies, losses
and deferred interest on or in respect of the mortgage assets in the related
trust fund. Unless otherwise provided in the related prospectus supplement, any
reduction in the amount of Accrued Certificate Interest otherwise distributable
on a class of certificates by reason of the allocation to such class of a
portion of any deferred interest on or in respect of the mortgage assets in the
related trust fund will result in a corresponding increase in the Certificate
Balance of such class. See "Risk Factors--Effect of Prepayments on Average Life
of Certificates" and "--Effect of Prepayments on Yield of Certificates" and
"Yield and Maturity Considerations--Certain Shortfalls in Collections of
Interest".
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DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of certificates of such class will be
entitled to receive as principal out of the future cash flow on the mortgage
assets and other assets included in the related trust fund. The outstanding
Certificate Balance of a class of certificates will be reduced by distributions
of principal made from time to time and, if and to the extent so provided in the
related prospectus supplement, further by any losses incurred in respect of the
related mortgage assets allocated thereto from time to time. In turn, the
outstanding Certificate Balance of a class of certificates may be increased as a
result of any deferred interest on or in respect of the related mortgage assets
being allocated thereto from time to time, and will be increased, in the case of
a class of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, by the amount of any Accrued
Certificate Interest in respect of such Accrual Certificate (reduced as
described above). The initial aggregate Certificate Balance of all classes of a
series of certificates will not be greater than the aggregate outstanding
principal balance of the related mortgage assets as of a specified date, after
application of scheduled payments due on or before such date, whether or not
received. The initial Certificate Balance of each class of a series of
certificates will be specified in the related prospectus supplement. As and to
the extent described in the related prospectus supplement, distributions of
principal with respect to a series of certificates will be made on each
Distribution Date to the holders of the class or classes of certificates of such
series entitled thereto until the Certificate Balances of such certificates have
been reduced to zero. Distributions of principal with respect to one or more
classes of certificates may be made at a rate that is faster (and, in some
cases, substantially faster) than the rate at which payments or other
collections of principal are received on the mortgage assets in the related
trust fund. Distributions of principal with respect to one or more classes of
certificates may not commence until the occurrence of certain events, such as
the retirement of one or more other classes of certificates of the same series,
or may be made at a rate that is slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal are
received on the mortgage assets in the related trust fund. Distributions of
principal with respect to Controlled Amortization Classes may be made, subject
to available funds, based on a specified principal payment schedule.
Distributions of principal with respect to Companion Classes may be contingent
on the specified principal payment schedule for a Controlled Amortization Class
of the same series and the rate at which payments and other collections of
principal on the mortgage assets in the related trust fund are received. Unless
otherwise specified in the related prospectus supplement, distributions of
principal of any class of offered certificates will be made on a pro rata basis
among all of the certificates of such class.
DISTRIBUTIONS ON THE CERTIFICATES CONCERNING PREPAYMENT PREMIUMS OR CONCERNING
EQUITY PARTICIPATIONS
If so provided in the related prospectus supplement, Prepayment Premiums
or payments in respect of Equity Participations received on or in connection
with the mortgage assets in any trust fund will be distributed on each
Distribution Date to the holders of the class of certificates of the related
series entitled thereto in accordance with the provisions described in such
prospectus supplement. Alternatively, we or any of our affiliates may retain
such items or by any other specified person and/or may be excluded as trust
assets.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated among
the respective classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of certificates and/or (2)
establishing a priority of payments among such classes of certificates. See
"Description of Credit Support".
ADVANCES IN RESPECT OF DELINQUENCIES
If and to the extent provided in the related prospectus supplement, if a
trust fund includes mortgage loans, the master servicer, the special servicer,
the trustee, any provider of credit support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their
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own funds or from excess funds held in the related Certificate Account that are
not part of the Available Distribution Amount for the related series of
certificates for such Distribution Date, an amount up to the aggregate of any
payments of principal (other than the principal portion of any balloon payments)
and interest that were due on or in respect of such mortgage loans during the
related Due Period and were delinquent on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the mortgage loans (including amounts drawn under any fund
or instrument constituting credit support) respecting which such advances were
made and such other specific sources as may be identified in the related
prospectus supplement, including, in the case of a series that includes one or
more classes of Subordinate Certificates, if so identified, collections on other
mortgage assets in the related trust fund that would otherwise be distributable
to the holders of one or more classes of such Subordinate Certificates. No
advance will be required to be made by a master servicer, special servicer or
trustee if, in the judgment of the master servicer, special servicer or trustee,
as the case may be, such advance would not be recoverable from recoveries on the
mortgage loans or another specifically identified source; and, if previously
made by a master servicer, special servicer or trustee, such an advance will be
reimbursable thereto from any amounts in the related Certificate Account prior
to any distributions being made to the related series of Certificateholders.
If advances have been made by a master servicer, special servicer, trustee
or other entity from excess funds in a Certificate Account, such master
servicer, special servicer, trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on or prior to any
future Distribution Date to the extent that funds in such Certificate Account on
such Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
prospectus supplement, the obligation of a master servicer, special servicer,
trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related prospectus supplement.
If and to the extent so provided in the related prospectus supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such prospectus supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the mortgage loans in the related trust fund prior to any payment to the related
series of Certificateholders or as otherwise provided in the related pooling and
servicing agreement and described in such prospectus supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust fund that includes MBS will describe any comparable
advancing obligation of a party to the related pooling and servicing agreement
or of a party to the agreement pursuant to which the MBS was issued.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders
of each class of the offered certificates of a series, a master servicer,
manager or trustee, as provided in the related prospectus supplement, will
forward to each such holder, a Distribution Date Statement that, unless
otherwise provided in the related prospectus supplement, will set forth, among
other things, in each case to the extent applicable:
o the amount of such distribution to holders of such class of offered
certificates that was applied to reduce the Certificate Balance of such
class;
o the amount of such distribution to holders of such class of offered
certificates that was applied to pay Accrued Certificate Interest;
o the amount, if any, of such distribution to holders of such class of
offered certificates that was allocable to (A) Prepayment Premiums and (B)
payments on account of Equity Participations;
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o the amount, if any, by which such distribution is less than the amounts to
which holders of such class of offered certificates are entitled;
o if the related trust fund includes mortgage loans, the aggregate amount of
advances included in such distribution;
o if the related trust fund includes mortgage loans, the amount of servicing
compensation received by the related master servicer (and, if payable
directly out of the related trust fund, by any special servicer and any
sub-servicer) and, if the related trust fund includes MBS, the amount of
administrative compensation received by the MBS Administrator;
o information regarding the aggregate principal balance of the related
mortgage assets on or about such Distribution Date;
o if the related trust fund includes mortgage loans, information regarding
the number and aggregate principal balance of such mortgage loans that are
delinquent;
o if the related trust fund includes mortgage loans, information regarding
the aggregate amount of losses incurred and principal prepayments made
with respect to such mortgage loans during the specified period, generally
corresponding in length to the period between Distribution Dates, during
which prepayments and other unscheduled collections on the mortgage loans
in the related trust fund must be received in order to be distributed on a
particular Distribution Date);
o the Certificate Balance or Notional Amount, as the case may be, of such
class of certificates at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance or
Notional Amount due to the allocation of any losses in respect of the
related mortgage assets, any increase in such Certificate Balance or
Notional Amount due to the allocation of any negative amortization in
respect of the related mortgage assets and any increase in the Certificate
Balance of a class of Accrual Certificates, if any, in the event that
Accrued Certificate Interest has been added to such balance;
o if such class of offered certificates has a variable pass-through rate or
an adjustable pass-through rate, the pass-through rate applicable thereto
for such Distribution Date and, if determinable, for the next succeeding
Distribution Date;
o the amount deposited in or withdrawn from any reserve fund on such
Distribution Date, and the amount remaining on deposit in such reserve
fund as of the close of business on such Distribution Date;
o if the related trust fund includes one or more instruments of credit
support, such as a letter of credit, an insurance policy and/or a surety
bond, the amount of coverage under each such instrument as of the close of
business on such Distribution Date; and
o the amount of credit support being afforded by any classes of Subordinate
Certificates.
In the case of information furnished pursuant to the first 3 bulleted
items above, the amounts will be expressed as a dollar amount per specified
denomination of the relevant class of offered certificates or as a percentage.
The prospectus supplement for each series of certificates may describe
additional information to be included in reports to the holders of the offered
certificates of such series.
Within a reasonable period of time after the end of each calendar year,
the master servicer, manager or trustee for a series of certificates, as the
case may be, will be required to furnish to each person who at any time during
the calendar year was a holder of an offered certificate of such series a
statement containing the information set forth in the first 3 bulleted items
above, aggregated for such calendar year or the applicable portion during which
such person was a certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Internal Revenue Code of 1986, as
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amended, are from time to time in force. See, however, "--Book-Entry
Registration and Definitive Certificates" below.
If the trust fund for a series of certificates includes MBS, the ability
of the related master servicer, manager or trustee, as the case may be, to
include in any Distribution Date Statement information regarding the mortgage
loans underlying such MBS will depend on the reports received with respect to
such MBS. In such cases, the related prospectus supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the offered certificates of that series
in connection with distributions made to them.
VOTING RIGHTS
The voting rights evidenced by each series of certificates will be
allocated among the respective classes of such series in the manner described in
the related prospectus supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related pooling and
servicing agreement and as otherwise specified in the related prospectus
supplement. See "The Pooling and Servicing Agreements--Amendment". The holders
of specified amounts of certificates of a particular series will have the right
to act as a group to remove the related trustee and also upon the occurrence of
certain events which if continuing would constitute an Event of Default on the
part of the related master servicer, special servicer or REMIC administrator.
See "The Pooling and Servicing Agreements--Events of Default", "--Rights Upon
Event of Default" and "--Resignation and Removal of the Trustee".
TERMINATION
The obligations created by the pooling and servicing agreement for each
series of certificates will terminate following (1) the final payment or other
liquidation of the last mortgage asset subject thereto or the disposition of all
property acquired upon foreclosure of any mortgage loan subject thereto and (2)
the payment (or provision for payment) to the Certificateholders of that series
of all amounts required to be paid to them pursuant to such pooling and
servicing agreement. Written notice of termination of a pooling and servicing
agreement will be given to each certificateholder of the related series, and the
final distribution will be made only upon presentation and surrender of the
certificates of such series at the location to be specified in the notice of
termination.
If so specified in the related prospectus supplement, a series of
certificates may be subject to optional early termination through the repurchase
of the mortgage assets in the related trust fund by the party or parties
specified in the prospectus supplement, under the circumstances and in the
manner set forth in the prospectus supplement. If so provided in the related
prospectus supplement upon the reduction of the Certificate Balance of a
specified class or classes of certificates by a specified percentage or amount
or upon a specified date, a party designated in the prospectus supplement may be
authorized or required to solicit bids for the purchase of all the mortgage
assets of the related trust fund, or of a sufficient portion of such mortgage
assets to retire such class or classes, under the circumstances and in the
manner set forth in the prospectus supplement.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the prospectus supplement for a series of certificates,
one or more classes of the offered certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" 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 the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations and
facilitate the clearance and settlement of securities transactions between its
participating organizations through electronic computerized book-entry changes
in their accounts, thereby eliminating the need for physical movement of
securities certificates. DTC is owned by a number of its Direct Participants and
by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National
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Association of Securities Dealers, Inc. The rules applicable to DTC and its
participating organizations are on file with the Securities and Exchange
Commission.
Purchases of book-entry certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the book-entry
certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate is in turn to be recorded on the Direct and Indirect
Participants' records. Certificate Owners will not receive written confirmation
from DTC of their purchases, but Certificate Owners are expected to receive
written confirmations providing details of such transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which each Certificate Owner entered into the transaction. Transfers of
ownership interests in the book-entry certificates are to be accomplished by
entries made on the books of DTC's participating organizations acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the book-entry certificates, except in
the event that use of the book-entry system for the book-entry certificates of
any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the book-entry
certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such certificates are credited, which may or may not be the
Certificate Owners. DTC's participating organizations will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the book-entry certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by DTC's participating organizations to
Certificate Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name", and will be the responsibility of
each such participating organization (and not of DTC, the depositor or any
trustee, master servicer, special servicer or Manager), subject to any statutory
or regulatory requirements as may be in effect from time to time. Accordingly,
under a book-entry system, Certificate Owners may receive payments after the
related Distribution Date.
Unless otherwise provided in the related prospectus supplement, the only
Certificateholder of book-entry certificates will be the nominee of DTC, and the
Certificate Owners will not be recognized as certificateholders under the
pooling and servicing agreement. Certificate Owners will be permitted to
exercise the rights of certificateholders under the related pooling and
servicing agreement only indirectly through DTC's participating organization who
in turn will exercise their rights through DTC. We have been informed that DTC
will take action permitted to be taken by a certificateholder under a pooling
and servicing agreement only at the direction of one or more Direct Participants
to whose account with DTC interests in the book-entry certificates are credited.
Because DTC can act only on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in book-entry certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of its interest in book-entry certificates, may be limited
due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related prospectus supplement,
certificates initially issued in book-entry form will be issued in fully
registered definitive form to Certificate Owners or their nominees, rather than
to DTC or its nominee, only if (1) the depositor advises the trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to such certificates and the depositor is unable to
locate a qualified successor or (2) the depositor, at its option, elects to
terminate the book-entry system through DTC with respect to such certificates.
Upon the occurrence of either of the events described in the preceding sentence,
DTC will be required to notify all Direct Participants of the availability
through DTC of Certificates in fully registered form. Upon surrender by DTC of
the certificate or certificates representing a class of book-entry certificates,
together with instructions for registration, the trustee for the related series
or other designated party will be required to issue to the Certificate Owners
identified in such instructions the Certificates in fully registered definitive
form to
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which they are entitled, and thereafter the holders of such Definitive
Certificates will be recognized as "certificateholders" under and within the
meaning of the related pooling and servicing agreement.
THE POOLING AND SERVICING AGREEMENTS
GENERAL
The certificates of each series will be issued pursuant to a Pooling and
Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the depositor, the trustee, the master servicer, the
special servicer and, if one or more REMIC elections have been made with respect
to the trust fund, the REMIC administrator. However, a Pooling and Servicing
Agreement that relates to a trust fund that includes MBS may include a manager
as a party, but may not include a master servicer, special servicer or other
servicer as a party. All parties to each Pooling and Servicing Agreement under
which certificates of a series are issued will be identified in the related
prospectus supplement. If so specified in the related prospectus supplement, an
affiliate of the depositor, or the mortgage asset seller may perform the
functions of master servicer, special servicer, manager or REMIC administrator.
If so specified in the related prospectus supplement, the master servicer may
also perform the duties of special servicer, and the master servicer, the
special servicer or the trustee may also perform the duties of REMIC
administrator. Any party to a Pooling and Servicing Agreement or any affiliate
of any party may own certificates issued under the Pooling and Servicing
Agreement; however, unless other specified in the related prospectus supplement,
except with respect to required consents to certain amendments to a Pooling and
Servicing Agreement, certificates issued under the Pooling and Servicing
Agreement that are held by the master servicer or special servicer for the
related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit
to the Registration Statement of which this prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the certificates to be issued under the Pooling and Servicing
Agreement and the nature of the related trust fund. The following summaries
describe certain provisions that may appear in a Pooling and Servicing Agreement
under which certificates that evidence interests in mortgage loans will be
issued. The prospectus supplement for a series of certificates will describe any
provision of the related Pooling and Servicing Agreement that materially differs
from the description of the Pooling and Servicing Agreement contained in this
prospectus and, if the related trust fund includes MBS, will summarize all of
the material provisions of the related agreement that provided for the issuance
of the MBS. The summaries in this prospectus do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the Pooling and Servicing Agreement for each series of
certificates and the description of such provisions in the related prospectus
supplement. We will provide a copy of the Pooling and Servicing Agreement
(without exhibits) that relates to any series of certificates without charge
upon written request of a holder of a certificate of such series addressed to it
at its principal executive offices specified in this prospectus under "The
Depositor".
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of certificates, we will assign (or
cause to be assigned) to the designated trustee the mortgage loans to be
included in the related trust fund, together with, unless otherwise specified in
the related prospectus supplement, all principal and interest to be received on
or with respect to such mortgage loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The trustee will,
concurrently with such assignment, deliver the certificates to or at our
direction in exchange for the mortgage loans and the other assets to be included
in the trust fund for such series. Each mortgage loan will be identified in a
schedule appearing as an exhibit to the related Pooling and Servicing Agreement.
Such schedule generally will include detailed information that pertains to each
mortgage loan included in the related trust fund, which information will
typically include the address of the related mortgaged property and type of such
property; the Mortgage Rate and, if applicable, the applicable index, gross
margin, adjustment date and any rate cap information; the original and remaining
term to maturity; the amortization term; and the original and outstanding
principal balance.
In addition, unless otherwise specified in the related prospectus
supplement, we will, as to each mortgage loan to be included in a trust fund,
deliver, or cause to be delivered, to the related trustee (or to a custodian
appointed by the trustee as described below) the mortgage note endorsed, without
recourse, either in blank or to the order of such trustee (or its nominee), the
mortgage with evidence of recording indicated (except for any mortgage not
returned
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from the public recording office), an assignment of the mortgage in blank or to
the trustee (or its nominee) in recordable form, together with any intervening
assignments of the mortgage with evidence of recording (except for any such
assignment not returned from the public recording office), and, if applicable,
any riders or modifications to such mortgage note and mortgage, together with
certain other documents at such times as set forth in the related Pooling and
Servicing Agreement. Such assignments may be blanket assignments covering
mortgages on mortgaged properties located in the same county, if permitted by
law. Notwithstanding the foregoing, a trust fund may include mortgage loans
where the original mortgage note is not delivered to the trustee if we deliver
or cause to be delivered, to the related trustee (or such custodian) a copy or a
duplicate original of the mortgage note, together with an affidavit certifying
that the original mortgage note has been lost or destroyed. In addition, if we
cannot deliver, with respect to any mortgage loan, the mortgage or any
intervening assignment with evidence of recording concurrently with the
execution and delivery of the related Pooling and Servicing Agreement because of
a delay caused by the public recording office, we will deliver, or cause to be
delivered, to the related trustee (or such custodian) a true and correct
photocopy of such mortgage or assignment as submitted for recording. We will
deliver, or cause to be delivered, to the related trustee (or such custodian)
such mortgage or assignment with evidence of recording indicated after receipt
of such mortgage from the public recording office. If we cannot deliver, with
respect to any mortgage loan, the mortgage or any intervening assignment with
evidence of recording concurrently with the execution and delivery of the
related Pooling and Servicing Agreement because such mortgage or assignment has
been lost, we will deliver, or cause to be delivered, to the related trustee (or
such custodian) a true and correct photocopy of such mortgage or assignment with
evidence of recording. Unless otherwise specified in the related prospectus
supplement, assignments of mortgage to the trustee (or its nominee) will be
recorded in the appropriate public recording office, except in states where, in
the opinion of counsel acceptable to the trustee, such recording is not required
to protect the trustee's interests in the mortgage loan against the claim of any
subsequent transferee or any successor to or creditor of us or the originator of
such mortgage loan.
The trustee (or a custodian appointed by the trustee) for a series of
certificates will be required to review the mortgage loan documents delivered to
it within a specified period of days after receipt of the mortgage loan
documents, and the trustee (or such custodian) will hold such documents in trust
for the benefit of the certificateholders of such series. Unless otherwise
specified in the related prospectus supplement, if any such document is found to
be missing or defective, and such omission or defect, as the case may be,
materially and adversely affects the interests of the certificateholders of the
related series, the trustee (or such custodian) will be required to notify the
master servicer, the special servicer and the depositor, and one of such persons
will be required to notify the relevant mortgage asset seller. In that case, and
if the mortgage asset seller cannot deliver the document or cure the defect
within a specified number of days after receipt of such notice, then, except as
otherwise specified below or in the related prospectus supplement, the mortgage
asset seller will be obligated to repurchase the related mortgage loan from the
trustee at a price generally equal to the Purchase Price, or at such other price
as will be specified in the related prospectus supplement. If so provided in the
prospectus supplement for a series of certificates, a mortgage asset seller, in
lieu of repurchasing a mortgage loan as to which there is missing or defective
loan documentation, will have the option, exercisable upon certain conditions
and/or within a specified period after initial issuance of such series of
certificates, to replace such mortgage loan with one or more other mortgage
loans, in accordance with standards that will be described in the prospectus
supplement. Unless otherwise specified in the related prospectus supplement,
this repurchase or substitution obligation will constitute the sole remedy to
holders of the certificates of any series or to the related trustee on their
behalf for missing or defective mortgage loan documentation, and neither we nor,
unless it is the mortgage asset seller, the master servicer or the special
servicer will be obligated to purchase or replace a mortgage loan if a mortgage
asset seller defaults on its obligation to do so.
The trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the mortgage loans
in any trust fund and to maintain possession of and, if applicable, to review
the documents relating to such mortgage loans, in any case as the agent of the
trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the certificates will be set forth in the related prospectus
supplement. Any such custodian may be one of our affiliates.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the prospectus supplement for a series of
certificates, the depositor will, with respect to each mortgage loan in the
related trust fund, make or assign, or cause to be made or assigned, certain
representations and warranties covering, by way of example--
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o the accuracy of the information set forth for such mortgage loan on the
schedule of mortgage loans appearing as an exhibit to the related Pooling
and Servicing Agreement;
o the enforceability of the related mortgage note and mortgage and the
existence of title insurance insuring the lien priority of the related
mortgage;
o the Warranting Party's title to the mortgage loan and the authority of the
Warranting Party to sell the mortgage loan; and
o the payment status of the mortgage loan.
It is expected that in most cases the Warranting Party will be the
mortgage asset seller; however, the Warranting Party may also be an affiliate of
the mortgage asset seller, the depositor or an affiliate of the depositor, the
master servicer, the special servicer or another person acceptable to the
depositor. The Warranting Party, if other than the mortgage asset seller, will
be identified in the related prospectus supplement.
Unless otherwise provided in the related prospectus supplement, each
Pooling and Servicing Agreement will provide that the master servicer and/or
trustee will be required to notify promptly any Warranting Party of any breach
of any representation or warranty made by it in respect of a mortgage loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related prospectus supplement, it will be
obligated to repurchase such mortgage loan from the trustee at the applicable
Purchase Price. If so provided in the prospectus supplement for a series of
certificates, a Warranting Party, in lieu of repurchasing a mortgage loan as to
which a breach has occurred, will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
series of certificates, to replace such mortgage loan with one or more other
mortgage loans, in accordance with standards that will be described in the
prospectus supplement. Unless otherwise specified in the related prospectus
supplement, this repurchase or substitution obligation will constitute the sole
remedy available to holders of the certificates of any series or to the related
trustee on their behalf for a breach of representation and warranty by a
Warranting Party, and neither the depositor nor the master servicer, in either
case unless it is the Warranting Party, will be obligated to purchase or replace
a mortgage loan if a Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a mortgage loan as of a date prior to the date upon which the related
series of certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the depositor will not
include any mortgage loan in the trust fund for any series of certificates if
anything has come to the depositor's attention that would cause it to believe
that the representations and warranties made in respect of such mortgage loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the mortgage loans
in any trust fund were made will be specified in the related prospectus
supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
Unless otherwise specified in the related prospectus supplement, the
master servicer and the special servicer for any mortgage pool, directly or
through sub-servicers, will each be obligated under the related Pooling and
Servicing Agreement to service and administer the mortgage loans in such
mortgage pool for the benefit of the related certificateholders, in accordance
with applicable law and further in accordance with the terms of such Pooling and
Servicing Agreement, such mortgage loans and any instrument of credit support
included in the related trust fund. Subject to the foregoing, the master
servicer and the special servicer will each have full power and authority to do
any and all things in connection with such servicing and administration that it
may deem necessary and desirable.
As part of its servicing duties, each of the master servicer and the
special servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the mortgage loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such mortgage loans
and held for its own account, provided (1) such procedures are consistent with
the terms of the related Pooling and Servicing Agreement and (2) do not impair
recovery under any instrument of credit support included in the related trust
fund. Consistent with the foregoing, the master servicer and the special
servicer will each be permitted, in its discretion, unless otherwise specified
in the related prospectus
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supplement, to waive any Prepayment Premium, late payment charge or other charge
in connection with any mortgage loan.
The master servicer and the special servicer for any trust fund, either
separately or jointly, directly or through sub-servicers, will also be required
to perform as to the mortgage loans in such trust fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling and Servicing Agreement,
for payment of taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items; attempting to collect
delinquent payments; supervising foreclosures; negotiating modifications;
conducting property inspections on a periodic or other basis; managing (or
overseeing the management of) mortgaged properties acquired on behalf of such
trust fund through foreclosure, deed-in-lieu of foreclosure or otherwise; and
maintaining servicing records relating to such mortgage loans. The related
prospectus supplement will specify when and the extent to which servicing of a
mortgage loan is to be transferred from the master servicer to the special
servicer. In general, and subject to the discussion in the related prospectus
supplement, a special servicer will be responsible for the servicing and
administration of--
o mortgage loans that are delinquent in respect of a specified number
of scheduled payments;
o mortgage loans as to which the related borrower has entered into or
consented to bankruptcy, appointment of a receiver or conservator or
similar insolvency proceeding, or the related borrower has become
the subject of a decree or order for such a proceeding which shall
have remained in force undischarged or unstayed for a specified
number of days; and
o REO Properties.
If so specified in the related prospectus supplement, a Pooling and
Servicing Agreement also may provide that if a default on a mortgage loan has
occurred or, in the judgment of the related master servicer, a payment default
is reasonably foreseeable, the related master servicer may elect to transfer the
servicing of the mortgage loan, in whole or in part, to the related special
servicer. Unless otherwise provided in the related prospectus supplement, when
the circumstances no longer warrant a special servicer's continuing to service a
particular mortgage loan (e.g., the related borrower is paying in accordance
with the forbearance arrangement entered into between the special servicer and
such borrower), the master servicer will resume the servicing duties with
respect thereto. If and to the extent provided in the related Pooling and
Servicing Agreement and described in the related prospectus supplement, a
special servicer may perform certain limited duties in respect of mortgage loans
for which the master servicer is primarily responsible (including, if so
specified, performing property inspections and evaluating financial statements);
and a master servicer may perform certain limited duties in respect of any
mortgage loan for which the special servicer is primarily responsible
(including, if so specified, continuing to receive payments on such mortgage
loan (including amounts collected by the special servicer)), making certain
calculations with respect to such mortgage loan and making remittances and
preparing certain reports to the trustee and/or certificateholders with respect
to such mortgage loan. Unless otherwise specified in the related prospectus
supplement, the master servicer will be responsible for filing and settling
claims in respect of particular mortgage loans under any applicable instrument
of credit support. See "Description of Credit Support".
A mortgagor's failure to make required mortgage loan payments may mean
that operating income is insufficient to service the mortgage debt, or may
reflect the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make mortgage loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related mortgaged property. In general, the related special servicer will be
required to monitor any mortgage loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related mortgaged property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related mortgaged property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the special
servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the special servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a mortgaged property in
lieu of foreclosure) on behalf of the certificateholders of the related series
may vary considerably depending on the particular mortgage loan, the mortgaged
property, the mortgagor, the presence of an acceptable party to assume the
mortgage loan and the laws of the jurisdiction in which the mortgaged
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property is located. If a mortgagor files a bankruptcy petition, the special
servicer may not be permitted to accelerate the maturity of the mortgage loan or
to foreclose on the related mortgaged property for a considerable period of
time. See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
mortgaged properties, easements, consents to alteration or demolition and other
similar matters. In general, the master servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectibility of, the related mortgage
loan. Any fee collected by the master servicer for processing such request will
be retained by the master servicer as additional servicing compensation.
In the case of mortgage loans secured by junior liens on the related
mortgaged properties, unless otherwise provided in the related prospectus
supplement, the master servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under a
senior lien for the protection of the related trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related prospectus supplement, the master servicer
also will be required to notify any superior lienholder in writing of the
existence of the mortgage loan and request notification of any action (as
described below) to be taken against the mortgagor or the mortgaged property by
the superior lienholder. If the master servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related senior lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured by that senior lien, or has filed or
intends to file an election to have the related mortgaged property sold or
foreclosed, then, unless otherwise specified in the related prospectus
supplement, the master servicer and the special servicer will each be required
to take, on behalf of the related trust fund, whatever actions are necessary to
protect the interests of the related certificateholders and/or to preserve the
security of the related mortgage loan, subject to the application of the REMIC
Provisions. Unless otherwise specified in the related prospectus supplement, the
master servicer or special servicer, as applicable, will be required to advance
the necessary funds to cure the default or reinstate the senior lien, if such
advance is in the best interests of the related certificateholders and the
master servicer or special servicer, as applicable, determines such advances are
recoverable out of payments on or proceeds of the related mortgage loan.
SUB-SERVICERS
A master servicer or special servicer may delegate its servicing
obligations in respect of the mortgage loans to one or more third-party
sub-servicers; provided that, unless otherwise specified in the related
prospectus supplement, such master servicer or special servicer will remain
obligated under the related Pooling and Servicing Agreement. A sub-servicer for
any series of certificates may be an affiliate of the depositor. Unless
otherwise provided in the related prospectus supplement, each subservicing
agreement between a master servicer and a sub-servicer must provide for
servicing of the applicable mortgage loans consistent with the related Pooling
and Servicing Agreement. Unless otherwise provided in the related prospectus
supplement, the master servicer and special servicer in respect of any mortgage
asset pool will each 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 such removal to be in the best interests of
certificateholders.
Unless otherwise provided in the related prospectus supplement, a master
servicer or special servicer will be solely liable for all fees owed by it to
any sub-servicer, irrespective of whether the master servicer's or special
servicer's compensation pursuant to the related Pooling and Servicing Agreement
is sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the
master servicer or special servicer, as the case may be, that retained it for
certain expenditures which it makes, generally to the same extent such master
servicer or special servicer would be reimbursed under a Pooling and Servicing
Agreement. See "--Certificate Account" and "--Servicing Compensation and Payment
of Expenses".
CERTIFICATE ACCOUNT
General. The master servicer, the trustee and/or the special servicer
will, as to each trust fund that includes mortgage loans, establish and maintain
or cause to be established and maintained the corresponding Certificate
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Account, which will be established so as to comply with the standards of each
rating agency that has rated any one or more classes of certificates of the
related series. A Certificate Account may be maintained as an interest-bearing
or a noninterest-bearing account and the funds held in the Certificate Account
may be invested pending each succeeding Distribution Date in United States
government securities and other obligations that are acceptable to each rating
agency that has rated any one or more classes of certificates of the related
series. Unless otherwise provided in the related prospectus supplement, any
interest or other income earned on funds in a Certificate Account will be paid
to the related master servicer, trustee or special servicer as additional
compensation. A Certificate Account may be maintained with the related master
servicer, special servicer, trustee or mortgage asset seller or with a
depository institution that is an affiliate of any of the foregoing or of the
depositor, provided that it complies with applicable rating agency standards. If
permitted by the applicable rating agency, a Certificate Account may contain
funds relating to more than one series of mortgage pass-through certificates and
may contain other funds representing payments on mortgage loans owned by the
related master servicer or special servicer or serviced by either on behalf of
others.
Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related prospectus supplement, the following
payments and collections received or made by the master servicer, the trustee or
the special servicer subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date) are to be deposited in the Certificate Account for
each trust fund that includes mortgage loans, within a certain period following
receipt (in the case of collections on or in respect of the mortgage loans) or
otherwise as provided in the related Pooling and Servicing Agreement--
o all payments on account of principal, including principal
prepayments, on the mortgage loans;
o all payments on account of interest on the mortgage loans, including
any default interest collected, in each case net of any portion of
such default interest retained by the master servicer or the special
servicer as its servicing compensation or as compensation to the
trustee;
o all 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 in connection with the full or
partial condemnation of a mortgaged property (other than proceeds
applied to the restoration of the property or released to the
related borrower) and all other amounts received and retained in
connection with the liquidation of defaulted mortgage loans or
property acquired in respect of such defaulted mortgage loans, by
foreclosure or otherwise, together with the net operating income
(less reasonable reserves for future expenses) derived from the
operation of any mortgaged properties acquired by the trust fund
through foreclosure or otherwise;
o any amounts paid under any instrument or drawn from any fund that
constitutes credit support for the related series of certificates;
o any advances made with respect to delinquent scheduled payments of
principal and interest on the mortgage loans;
o any amounts paid under any cash flow agreement;
o all proceeds of the purchase of any mortgage loan, or property
acquired in respect of a mortgage loan, by the depositor, any
mortgage asset seller or any other specified person as described
under "--Assignment of Mortgage Loans; Repurchases" and
"--Representations and Warranties; Repurchases", all proceeds of the
purchase of any defaulted mortgage loan as described under
"--Realization Upon Defaulted Mortgage Loans", and all proceeds of
any mortgage asset purchased as described under "Description of the
Certificates--Termination";
o to the extent that any such item does not constitute additional
servicing compensation to the master servicer or the special
servicer and is not otherwise retained by the depositor or another
specified person, any payments on account of modification or
assumption fees, late payment charges, Prepayment Premiums or Equity
Participations with respect to the mortgage loans;
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o all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance
policy as described under "--Hazard Insurance Policies";
o any amount required to be deposited by the master servicer, the
special servicer or the trustee in connection with losses realized
on investments for the benefit of the master servicer, the special
servicer or the trustee, as the case may be, of funds held in the
Certificate Account; and
o any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling and Servicing Agreement
and described in the related prospectus supplement.
Withdrawals. Unless otherwise provided in the related Pooling and
Servicing Agreement and described in the related prospectus supplement, a master
servicer, trustee or special servicer may make withdrawals from the Certificate
Account for each trust fund that includes mortgage loans for any of the
following purposes--
o to make distributions to the certificateholders on each Distribution
Date;
o to pay the master servicer or the special servicer any servicing
fees not previously retained by the master servicer or special
servicer, such payment to be made out of payments and other
collections of interest on the particular mortgage loans as to which
such fees were earned;
o to reimburse the master servicer, the special servicer or any other
specified person for unreimbursed advances of delinquent scheduled
payments of principal and interest made by it, and certain
unreimbursed servicing expenses incurred by it, with respect to
particular mortgage loans in the trust fund and particular
properties acquired in respect of the trust fund. Reimbursement for
advances made or expenses incurred that are related to particular
mortgage loans or properties will normally only be made out of
amounts that represent late payments collected on those mortgage
loans, Liquidation Proceeds, Insurance and Condemnation Proceeds
collected on those mortgage loans and properties, any form of credit
support related to those mortgaged loans and net income collected on
those properties. However, if in the judgment of the master
servicer, the special servicer or such other person, as applicable,
the advances and/or expenses will not be recoverable from the above
amounts, the reimbursement will be made from amounts collected on
other mortgage loans in the same trust fund or, if and to the extent
so provided by the related Pooling and Servicing Agreement and
described in the related prospectus supplement, only from that
portion of amounts collected on such other mortgage loans that is
otherwise distributable on one or more classes of Subordinate
Certificates of the related series;
o if and to the extent described in the related prospectus supplement,
to pay the master servicer, the special servicer or any other
specified person interest accrued on the advances and servicing
expenses described in the bulleted clause immediately listed above
incurred by it while such remain outstanding and unreimbursed;
o to pay for costs and expenses incurred by the trust fund for
environmental site assessments performed with respect to mortgaged
properties that constitute security for defaulted mortgage loans,
and for any containment, clean-up or remediation of hazardous wastes
and materials present on such mortgaged properties, as described
under "--Realization Upon Defaulted Mortgage Loans";
o to reimburse the master servicer, the special servicer, the REMIC
administrator, the depositor, the trustee, or any of their
respective directors, officers, employees and agents, as the case
may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "--Certain Matters
Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor" and "--Certain Matters Regarding
the Trustee";
o if and to the extent described in the related prospectus supplement,
to pay the fees of the trustee, the REMIC administrator and any
provider of credit support;
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o if and to the extent described in the related prospectus supplement,
to reimburse prior draws on any form of credit support;
o to pay the master servicer, the special servicer or the trustee, as
appropriate, interest and investment income earned in respect of
amounts held in the Certificate Account as additional compensation;
o to pay any servicing expenses not otherwise required to be advanced
by the master servicer, the special servicer or any other specified
person;
o if one or more elections have been made to treat the trust fund or
designated portions of the trust fund as a REMIC, to pay any
federal, state or local taxes imposed on the trust fund or its
assets or transactions, as and to the extent described under
"Certain Federal Income Tax Consequences--REMICs--Prohibited
Transactions Tax and Other Taxes";
o to pay for the cost of various opinions of counsel obtained pursuant
to the related Pooling and Servicing Agreement for the benefit of
certificateholders;
o to make any other withdrawals permitted by the related Pooling and
Servicing Agreement and described in the related prospectus
supplement; and
o to clear and terminate the Certificate Account upon the termination
of the trust fund.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
The master servicer and the special servicer may each agree to modify,
waive or amend any term of any mortgage loan serviced by it in a manner
consistent with the applicable "Servicing Standard" as defined in the related
prospectus supplement; provided that, unless otherwise set forth in the related
prospectus supplement, the modification, waiver or amendment will--
o not affect the amount or timing of any scheduled payments of
principal or interest on the mortgage loan;
o will not, in the judgment of the master servicer or the special
servicer, as the case may be, materially impair the security for the
mortgage loan or reduce the likelihood of timely payment of amounts
due; and
o will not adversely affect the coverage under any applicable
instrument of credit support.
Unless otherwise provided in the related prospectus supplement, the
special servicer also may agree to any other modification, waiver or amendment
if, in its judgment,--
o a material default on the mortgage loan has occurred or a payment
default is reasonably foreseeable or imminent;
o such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the mortgage loan, taking
into account the time value of money, than would liquidation; and
o unless inconsistent with the applicable "servicing standard", such
modification, waiver or amendment will not materially adversely
affect the coverage under any applicable instrument of credit
support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a mortgage loan has occurred, the special servicer, on
behalf of the trustee, may 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 comparably convert ownership of, or acquire
title to the related mortgaged property, by operation of law or otherwise. In
connection with such foreclosure or other conversion of ownership, the special
servicer shall follow the servicing standard. A Pooling and Servicing Agreement
may grant the special servicer the right to direct the master servicer to
advance costs and expenses to be incurred in any such proceedings, and such
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advances may be subject to reimbursement requirements. A Pooling and Servicing
Agreement may require the special servicer to consult with independent counsel
regarding the order and manner should foreclose upon or comparably proceed
against such properties if a mortgage loan or group of cross-collateralized
mortgage loans are secured by real properties in multiple states including
certain states with a statute, rule or regulation comparable to California's
"one action" rule. Unless otherwise provided in the related prospectus
supplement, when applicable state law permits the special servicer to select
between judicial and non-judicial foreclosure in respect of any mortgaged
property, a special servicer may make such selection so long as the selection is
made in a manner consistent with the servicing standard. Unless otherwise
specified in the related prospectus supplement, the special servicer may not,
however, 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 trustee, for the benefit
of the related series of Certificateholders, or any other specified person to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or an "operator" of such mortgaged property within the meaning of
certain federal environmental laws, unless the special servicer has previously
received a report prepared by a person who regularly conducts environmental
audits (which report will be an expense of the trust fund) and either:
(1) such report indicates that (a) the mortgaged property is in
compliance with applicable environmental laws and regulations and (b)
there are no circumstances or conditions present at the mortgaged property
that have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(2) the special servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the mortgaged property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (1)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value
of money, than not taking such actions. See "Certain Legal Aspects of
Mortgage Loans--Environmental Considerations".
A Pooling and Servicing Agreement may grant to the master servicer, the
special servicer, a provider of credit support and/or the holder or holders of
certain classes of the related series of certificates a right of first refusal
to purchase from the trust fund, at a predetermined price (which, if less than
the Purchase Price, will be specified in the related prospectus supplement), any
mortgage loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related prospectus
supplement, the special servicer may offer to sell any defaulted mortgage loan
if and when the special servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
mortgaged property. In the absence of any such sale, the special servicer will
generally be required to proceed against the related mortgaged property, subject
to the discussion above.
Unless otherwise provided in the related prospectus supplement, if title
to any mortgaged property is acquired by a trust fund as to which a REMIC
election has been made, the special servicer, on behalf of the trust fund, will
be required to sell the mortgaged property before the close of the third
calendar year following the year of acquisition, unless (1) the IRS grants an
extension of time to sell such property or (2) the trustee receives an opinion
of independent counsel to the effect that the holding of the property by the
trust fund for longer than such period will not result in the imposition of a
tax on the trust fund or cause the trust fund (or any designated portion of the
trust fund) to fail to qualify as a REMIC under the Code at any time that any
certificate is outstanding. Subject to the foregoing and any other tax-related
limitations, the special servicer will generally be required to attempt to sell
any mortgaged property so acquired on the same terms and conditions it would if
it were the owner. Unless otherwise provided in the related prospectus
supplement, if title to any mortgaged property is acquired by a trust fund as to
which a REMIC election has been made, the special servicer will also be required
to ensure that the mortgaged property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the
trust fund of any income from nonpermitted assets as described in Code Section
860F(a)(2)(B), and that the trust fund does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2), with
respect to such property unless the method of operation that produces such
income would produce a greater after-tax return than a different method of
operation of such property. If the trust fund acquires title to any mortgaged
property, the special servicer,
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on behalf of the trust fund, may be required to retain an independent contractor
to manage and operate such property. The retention of an independent contractor,
however, will not relieve the special servicer of its obligation to manage such
mortgaged property as required under the related Pooling and Servicing
Agreement.
If Liquidation Proceeds collected with respect to a defaulted mortgage
loan are less than the outstanding principal balance of the defaulted mortgage
loan plus interest accrued plus the aggregate amount of reimbursable expenses
incurred by the special servicer and/or the master servicer in connection with
such mortgage loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting credit support, the trust fund will realize
a loss in the amount of such shortfall. The special servicer and/or the master
servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted mortgage loan, prior to the distribution of such
Liquidation Proceeds to certificateholders, any and all amounts that represent
unpaid servicing compensation in respect of the mortgage loan, unreimbursed
servicing expenses incurred with respect to the mortgage loan and any
unreimbursed advances of delinquent payments made with respect to the mortgage
loan. In addition, if and to the extent set forth in the related prospectus
supplement, amounts otherwise distributable on the certificates may be further
reduced by interest payable to the master servicer and/or special servicer on
such servicing expenses and advances.
Except as otherwise provided in the prospectus supplement, if any
mortgaged property suffers damage such that the proceeds, if any, of the related
hazard insurance policy are insufficient to restore fully the damaged property,
neither the special servicer nor the master servicer will be required to expend
its own funds to effect such restoration.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will require the master servicer (or the special
servicer with respect to mortgage loans serviced by the special servicer) to use
reasonable efforts to cause each mortgage loan borrower to maintain a hazard
insurance policy that provides for such coverage as is required under the
related mortgage or, if the mortgage permits the holder to dictate to the
borrower the insurance coverage to be maintained on the related mortgaged
property, such coverage as is consistent with the master servicer's (or special
servicer's) normal servicing procedures. Unless otherwise specified in the
related prospectus supplement, such coverage generally will be in an amount
equal to the lesser of the principal balance owing on such mortgage loan and the
replacement cost of the related mortgaged property. The ability of a master
servicer (or special servicer) to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information concerning covered
losses is furnished by borrowers. All amounts collected by a master servicer (or
special servicer) under any such policy (except for amounts to be applied to the
restoration or repair of the mortgaged property or released to the borrower in
accordance with the master servicer's (or special servicer's) normal servicing
procedures and/or to the terms and conditions of the related mortgage and
mortgage note) will be deposited in the related Certificate Account. The Pooling
and Servicing Agreement may provide that the master servicer (or special
servicer) may satisfy its obligation to cause each borrower to maintain such a
hazard insurance policy by maintaining a blanket policy insuring against hazard
losses on the mortgage loans in a trust fund, which may contain a deductible
clause (not in excess of a customary amount). If such blanket policy contains a
deductible clause, the master servicer (or special servicer) will be required,
in the event of a casualty covered by such blanket policy, to deposit in the
related Certificate Account all additional sums that would have been deposited
in the Certificate Account under an individual policy but were not because of
such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the mortgaged properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a mortgaged
property may not be insured for losses arising from any such cause unless the
related mortgage specifically requires, or permits the holder to require, such
coverage.
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The hazard insurance policies covering the mortgaged properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (1) the
replacement cost of the improvements less physical depreciation and (2) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the mortgage loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the mortgage loan upon any sale or
other transfer of the related mortgaged property made without the lender's
consent. Certain of the mortgage loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the mortgage loan
upon the creation of any other lien or encumbrance upon the mortgaged property.
Unless otherwise provided in the related prospectus supplement, the master
servicer (or special servicer) will determine whether to exercise any right the
trustee may have under any such provision in a manner consistent with the master
servicer's (or special servicer's) normal servicing procedures. Unless otherwise
specified in the related prospectus supplement, the master servicer or special
servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
mortgaged property. See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale
and Due-on-Encumbrance Provisions".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related prospectus supplement, a master
servicer's primary servicing compensation with respect to a series of
certificates will come from the periodic payment to it of a specified portion of
the interest payments on each mortgage loan in the related trust fund, including
mortgage loans serviced by the related special servicer. If and to the extent
described in the related prospectus supplement, a special servicer's primary
compensation with respect to a series of certificates may consist of any or all
of the following components--
o a specified portion of the interest payments on each mortgage loan
in the related trust fund, whether or not serviced by it;
o an additional specified portion of the interest payments on each
mortgage loan then currently serviced by it; and
o subject to any specified limitations, a fixed percentage of some or
all of the collections and proceeds received with respect to each
mortgage loan which was at any time serviced by it, including
mortgage loans for which servicing was returned to the master
servicer.
Insofar as any portion of the master servicer's or special servicer's
compensation consists of a specified portion of the interest payments on a
mortgage loan, such compensation will generally be based on a percentage of the
principal balance of such mortgage loan outstanding from time to time and,
accordingly, will decrease with the amortization of the mortgage loan. As
additional compensation, a master servicer or special servicer may be entitled
to retain all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the related Certificate
Account. A more detailed description of each master servicer's and special
servicer's compensation will be provided in the related prospectus supplement.
Any sub-servicer will receive as its sub-servicing compensation a portion of the
servicing compensation to be paid to the master servicer or special servicer
that retained such sub-servicer.
In addition to amounts payable to any sub-servicer, a master servicer or
special servicer may be required, to the extent provided in the related
prospectus supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related trust fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the trustee and any custodians appointed by the trustee and payment of expenses
incurred in connection with distributions and reports to certificateholders.
Certain other expenses, including certain expenses related to
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mortgage loan defaults and liquidations and, to the extent so provided in the
related prospectus supplement, interest on such expenses at the rate specified
in the prospectus supplement, may be required to be borne by the trust fund.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, there will be furnished to the related trustee
a report of a firm of independent certified public accountants stating that (1)
it has obtained a letter of representation regarding certain matters from the
management of the master servicer which includes an assertion that the master
servicer has complied with certain minimum mortgage loan servicing standards (to
the extent applicable to commercial and multifamily mortgage loans), identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America, with respect to the master
servicer's servicing of commercial and multifamily mortgage loans during the
most recently completed calendar year and (2) on the basis of an examination
conducted by such firm in accordance with standards established by the American
Institute of Certified Public Accountants, such representation is fairly stated
in all material respects, subject to such exceptions and other qualifications
that, in the opinion of such firm, such standards require it to report. In
rendering its report such firm may rely, as to the matters relating to the
direct servicing of commercial and multifamily mortgage loans by sub-servicers,
upon comparable reports of firms of independent public accountants rendered on
the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those sub-servicers.
The prospectus supplement may provide that additional reports of independent
certified public accountants relating to the servicing of mortgage loans may be
required to be delivered to the trustee.
Each Pooling and Servicing Agreement will also provide that, on or before
a specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, the master servicer and
special servicer shall each deliver to the related trustee an annual statement
signed by one or more officers of the master servicer or the special servicer,
as the case may be, to the effect that, to the best knowledge of each such
officer, the master servicer or the special servicer, as the case may be, has
fulfilled in all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and the nature and status of such default. Such
statement may be provided as a single form making the required statements as to
more than one Pooling and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, copies of
the annual accountants' statement and the annual statement of officers of a
master servicer or special servicer may be obtained by certificateholders upon
written request to the trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER, THE REMIC
ADMINISTRATOR AND THE DEPOSITOR
Any entity serving as master servicer, special servicer or REMIC
administrator under a Pooling and Servicing Agreement may be an affiliate of the
depositor and may have other normal business relationships with the depositor or
the depositor's affiliates. Unless otherwise specified in the prospectus
supplement for a series of certificates, the related Pooling and Servicing
Agreement will permit the master servicer, the special servicer and any REMIC
administrator to resign from its obligations under the Pooling and Servicing
Agreement only upon a determination that such obligations are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it. No such resignation
will become effective until the trustee or other successor has assumed the
obligations and duties of the resigning master servicer, special servicer or
REMIC administrator, as the case may be, under the Pooling and Servicing
Agreement. The master servicer and special servicer for each trust fund will 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 related Pooling
and Servicing Agreement.
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Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will further provide that none of the master
servicer, the special servicer, the REMIC administrator, the depositor, any
extension adviser or any director, officer, employee or agent of any of them
will be under any liability to the related trust fund or Certificateholders for
any action taken, or not taken, in good faith pursuant to the Pooling and
Servicing Agreement or for errors in judgment; provided, however, that none of
the master servicer, the special servicer, the REMIC administrator, the
depositor, any extension adviser or any such person will be protected against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of obligations or duties under
the Pooling and Servicing Agreement or by reason of reckless disregard of such
obligations and duties. Unless otherwise specified in the related prospectus
supplement, each Pooling and Servicing Agreement will further provide that the
master servicer, the special servicer, the REMIC administrator, the depositor,
any extension adviser and any director, officer, employee or agent of any of
them will be entitled to indemnification by the related trust fund against any
loss, liability or expense incurred in connection with any legal action that
relates to such Pooling and Servicing Agreement or the related series of
certificates; provided, however, that such indemnification will not extend to
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or negligence in the performance of obligations or duties under such
Pooling and Servicing Agreement, or by reason of reckless disregard of such
obligations or duties. In addition, each Pooling and Servicing Agreement will
provide that none of the master servicer, the special servicer, the REMIC
administrator, any extension adviser or the depositor will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the Pooling and Servicing
Agreement and that in its opinion may involve it in any expense or liability.
However, each of the master servicer, the special servicer, the REMIC
administrator, any extension adviser and the depositor will be permitted, in the
exercise of its discretion, to undertake any such 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 Pooling and Servicing Agreement and the
interests of the related series of certificateholders under the Pooling and
Servicing Agreement. In such event, the legal expenses and costs of such action,
and any liability resulting from such action, will be expenses, costs and
liabilities of the related series of certificateholders, and the master
servicer, the special servicer, the REMIC administrator, any extension adviser
or the depositor, as the case may be, will be entitled to charge the related
Certificate Account for this expense.
Any person into which the master servicer, the special servicer, the REMIC
administrator or the depositor may be merged or consolidated, or any person
resulting from any merger or consolidation to which the master servicer, the
special servicer, the REMIC administrator or the depositor is a party, or any
person succeeding to the business of the master servicer, the special servicer,
the REMIC administrator or the depositor, will be the successor of the master
servicer, the special servicer, the REMIC administrator or the depositor, as the
case may be, under the related Pooling and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, a REMIC
administrator will be entitled to perform any of its duties under the related
Pooling and Servicing Agreement either directly or by or through agents or
attorneys, and the REMIC administrator will not be responsible for any willful
misconduct or gross negligence on the part of any such agent or attorney
appointed by it with due care.
EVENTS OF DEFAULT
Unless otherwise provided in the prospectus supplement for a series of
certificates, Events of Default under the related Pooling and Servicing
Agreement will include, without limitation--
o any failure by the master servicer to distribute or cause to be
distributed to the certificateholders of such series, or to remit to
the trustee for distribution to such certificateholders, any amount
required to be so distributed or remitted, pursuant to, and at the
time specified by, the terms of the Pooling and Servicing Agreement;
o any failure by the special servicer to remit to the master servicer
or the trustee, as applicable, any amount required to be so
remitted, pursuant to, and at the time specified by, the terms of
the Pooling and Servicing Agreement;
o 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 related Pooling and Servicing
Agreement, which failure
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continues unremedied for thirty days after written notice of such
failure has been given to the master servicer or the special
servicer, as the case may be, by any other party to the related
Pooling and Servicing Agreement, or to the master servicer or the
special servicer, as the case may be, with a copy to each other
party to the related Pooling and Servicing Agreement, by
certificateholders entitled to not less than 25% (or such other
percentage specified in the related prospectus supplement) of the
Voting Rights for such series;
o any failure by a REMIC administrator (if other than the trustee)
duly to observe or perform in any material respect any of its
covenants or obligations under the related Pooling and Servicing
Agreement, which failure continues unremedied for thirty days after
written notice of such notice has been given to the REMIC
administrator by any other party to the related Pooling and
Servicing Agreement, or to the REMIC administrator, with a copy to
each other party to the related Pooling and Servicing Agreement, by
certificateholders entitled to not less than 25% (or such other
percentage specified in the related prospectus supplement) of the
Voting Rights for such series;
o certain events involving a determination by a rating agency that the
master servicer or the special servicer is no longer approved by
such rating agency to serve in such capacity; and
o certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities, or similar proceedings in respect of or
relating to the master servicer, the special servicer or the REMIC
administrator (if other than the trustee), and certain actions by or
on behalf of the master servicer, the special servicer or the REMIC
administrator (if other than the trustee) indicating its insolvency
or inability to pay its obligations.
Material variations to the foregoing Events of Default (other than to add
thereto or shorten cure periods or eliminate notice requirements) will be
specified in the related prospectus supplement. Unless otherwise specified in
the related prospectus supplement, when a single entity acts as master servicer,
special servicer and REMIC administrator, or in any two of the foregoing
capacities, for any trust fund, an Event of Default in one capacity will (except
where related only to a Rating Agency's evaluation of the acceptability of such
entity to act in a particular capacity) constitute an event of default in each
capacity.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the master servicer, the
special servicer or a REMIC administrator under a Pooling and Servicing
Agreement, then, in each and every such case, so long as the Event of Default
remains unremedied, the depositor or the trustee will be authorized, and at the
direction of certificateholders of the related series entitled to not less than
51% (or such other percentage specified in the related prospectus supplement) of
the Voting Rights for such series, the trustee will be required, to terminate
all of the rights and obligations of the defaulting party as master servicer,
special servicer or REMIC administrator, as applicable, under the Pooling and
Servicing Agreement, whereupon the trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as master
servicer, special servicer or REMIC administrator, as applicable, under the
Pooling and Servicing Agreement (except that if the defaulting party is required
to make advances under the Pooling and Servicing Agreement regarding delinquent
mortgage loans, but the trustee is prohibited by law from obligating itself to
make such advances, or if the related prospectus supplement so specifies, the
trustee will not be obligated to make such advances) and will be entitled to
similar compensation arrangements. Unless otherwise specified in the related
prospectus supplement, if the trustee is unwilling or unable so to act, it may
(or, at the written request of Certificateholders of the related series entitled
to not less than 51% (or such other percentage specified in the related
prospectus supplement) of the Voting Rights for such series, it will be required
to) appoint, or petition a court of competent jurisdiction to appoint, a loan
servicing institution or other entity that (unless otherwise provided in the
related prospectus supplement) is acceptable to each applicable rating agency to
act as successor to the master servicer, special servicer or REMIC
administrator, as the case may be, under the Pooling and Servicing Agreement.
Pending such appointment, the trustee will be obligated to act in such capacity.
If the same entity is acting as both trustee and REMIC administrator, it
may be removed in both such capacities as described under "--Resignation and
Removal of the Trustee" below.
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No certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the trustee written notice
of default and the continuance of such default and unless the holders of
certificates of any class evidencing not less than 25% of the aggregate
Percentage Interests constituting such class have made written request upon the
trustee to institute such proceeding in its own name as trustee under the
Pooling and Servicing Agreement and have offered to the trustee reasonable
indemnity and the trustee for sixty days after receipt of such request and
indemnity has neglected or refused to institute any such proceeding. However,
the trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Pooling and Servicing Agreement or to institute, conduct or
defend any litigation under the Pooling and Servicing Agreement or in relation
thereto at the request, order or direction of any of the holders of certificates
covered by such Pooling and Servicing Agreement, unless such certificateholders
have offered to the trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred in connection with such
litigation.
AMENDMENT
Except as otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement may be amended by the parties thereto, without
the consent of any of the holders of certificates covered by such Pooling and
Servicing Agreement, (1) to cure any ambiguity, (2) to correct or supplement any
provision in the Pooling and Servicing Agreement which may be inconsistent with
any other provision in the Pooling and Servicing Agreement or to correct any
error, (3) to change the timing and/or nature of deposits in the Certificate
Account, provided that (A) such change would not adversely affect in any
material respect the interests of any Certificateholder, as evidenced by an
opinion of counsel, and (B) such change would not result in the withdrawal,
downgrade or qualification of any of the then-current ratings on the
certificates, as evidenced by a letter from each applicable rating agency, (4)
if a REMIC election has been made with respect to the related trust fund, to
modify, eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the trust fund (or any designated
portion of the trust fund) as a REMIC or to avoid or minimize the risk of
imposition of any tax on the related trust fund, provided that the trustee has
received an opinion of counsel to the effect that (1) such action is necessary
or desirable to maintain such qualification or to avoid or minimize such risk,
and (2) such action will not adversely affect in any material respect the
interests of any holder of certificates covered by the Pooling and Servicing
Agreement, or (B) to restrict the transfer of the REMIC Residual Certificates,
provided that the depositor has determined that the then-current ratings of the
classes of the certificates that have been rated will not be withdrawn,
downgraded or qualified, as evidenced by a letter from each applicable rating
agency, and that any such amendment will not give rise to any tax with respect
to the transfer of the REMIC Residual Certificates to a non-permitted transferee
(See "Certain Federal Income Tax Consequences--REMICs--Tax and Restrictions on
Transfers of REMIC Residual Certificates to Certain Organizations" in this
prospectus supplement), (5) to make any other provisions with respect to matters
or questions arising under such Pooling and Servicing Agreement or any other
change, provided that such action will not adversely affect in any material
respect the interests of any certificateholder, or (6) to amend specified
provisions that are not material to holders of any class of certificates offered
by this prospectus.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of certificates of each class affected
by an amendment evidencing, in each case, not less than 66 2 /3% (or such other
percentage specified in the related prospectus supplement) of the aggregate
Percentage Interests constituting such class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of certificates covered by such Pooling and Servicing Agreement,
except that no such amendment may (1) reduce in any manner the amount of, or
delay the timing of, payments received on mortgage loans which are required to
be distributed on a certificate of any class without the consent of the holder
of such certificate or (2) reduce the aforesaid percentage of certificates of
any class the holders of which are required to consent to any such amendment
without the consent of the holders of all certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if one or more REMIC elections have been
made with respect to the related trust fund, the trustee will not be required to
consent to any amendment to a Pooling and Servicing Agreement without having
first received an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the master servicer, the special servicer, the
depositor, the trustee or any other specified person in accordance with
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such amendment will not result in the imposition of a tax on the related trust
fund or cause such trust fund (or any designated portion of the trust fund) to
fail to qualify as a REMIC.
LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related prospectus supplement, upon
written request of three or more certificateholders of record made for purposes
of communicating with other holders of certificates of the same series with
respect to their rights under the related Pooling and Servicing Agreement, the
trustee or other specified person will afford such certificateholders access
during normal business hours to the most recent list of certificateholders of
that series held by such person. If such list is as of a date more than 90 days
prior to the date of receipt of such certificateholders' request, then such
person, if not the registrar for such series of certificates, will be required
to request from such registrar a current list and to afford such requesting
certificateholders access thereto promptly upon receipt.
THE TRUSTEE
The trustee under each Pooling and Servicing Agreement will be named in
the related prospectus supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as trustee may
have typical banking relationships with the depositor and its affiliates and
with any master servicer, special servicer or REMIC administrator and its
affiliates.
DUTIES OF THE TRUSTEE
The trustee for each series of certificates will make no representation as
to the validity or sufficiency of the related Pooling and Servicing Agreement,
such certificates or any underlying mortgage asset or related document and will
not be accountable for the use or application by or on behalf of any master
servicer or special servicer of any funds paid to the master servicer or special
servicer in respect of the certificates or the underlying mortgage assets. If no
Event of Default has occurred and is continuing, the trustee for each series of
certificates will be required to perform only those duties specifically required
under the related Pooling and Servicing Agreement. However, upon receipt of any
of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling and Servicing Agreement, a
trustee will be required to examine such documents and to determine whether they
conform to the requirements of such agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related prospectus supplement, the
fees and normal disbursements of any trustee may be the expense of the related
master servicer or other specified person or may be required to be borne by the
related trust fund.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the trustee in connection with the trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence on the part of the trustee in the
performance of its obligations and duties under the Pooling and Servicing
Agreement, or by reason of its reckless disregard of such obligations or duties.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of its duties under the Pooling and Servicing Agreement either directly or
by or through agents or attorneys, and the trustee will not be responsible for
any willful misconduct or negligence on the part of any such agent or attorney
appointed by it with due care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The trustee may resign at any time, in which event the depositor will be
obligated to appoint a successor trustee. The depositor may also remove the
trustee if the trustee ceases to be eligible to continue as such under the
Pooling
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and Servicing Agreement or if the trustee becomes insolvent. Upon becoming aware
of such circumstances, the depositor will be obligated to appoint a successor
trustee. The trustee may also be removed at any time by the holders of
certificates of the applicable series evidencing not less than 33 1 /3% (or such
other percentage specified in the related prospectus supplement) of the Voting
Rights for such series. Any resignation or removal of the trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee. Notwithstanding anything in this
prospectus to the contrary, if any entity is acting as both trustee and REMIC
administrator, then any resignation or removal of such entity as the trustee
will also constitute the resignation or removal of such entity as REMIC
administrator, and the successor trustee will serve as successor to the REMIC
administrator as well.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit support may be provided with respect to one or more classes of the
certificates of any series or with respect to the related mortgage assets.
Credit support may be in the form of a letter of credit, the subordination of
one or more classes of certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds and/or cash
collateral accounts, overcollateralization, or another method of credit support
described in the related prospectus supplement, or any combination of the
foregoing. If and to the extent so provided in the related prospectus
supplement, any of the foregoing forms of credit support may provide credit
enhancement for more than one series of certificates.
Unless otherwise provided in the related prospectus supplement for a
series of certificates, the credit support will not provide protection against
all risks of loss and will not guarantee payment to certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related credit support or that are of a type not covered by such credit support,
certificateholders will bear their allocable share of deficiencies. Moreover, if
a form of credit support covers the offered certificates of more than one series
and losses on the related mortgage assets exceed the amount of such credit
support, it is possible that the holders of offered certificates of one (or
more) such series will be disproportionately benefited by such credit support to
the detriment of the holders of offered certificates of one (or more) other such
series.
If credit support is provided with respect to one or more classes of
certificates of a series, or with respect to the related mortgage assets, the
related prospectus supplement will include a description of--
o the nature and amount of coverage under such credit support;
o any conditions to payment under the credit support not otherwise
described in this prospectus;
o the conditions (if any) under which the amount of coverage under
such credit support may be reduced and under which such credit
support may be terminated or replaced; and
o the material provisions relating to such credit support.
Additionally, the related prospectus supplement will set forth certain
information with respect to the obligor, if any, under any instrument of credit
support. See "Risk Factors--Credit Support Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related prospectus supplement, one or more classes
of certificates of a series may be Subordinate Certificates. To the extent
specified in the related prospectus supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Certificates. If so provided in the related prospectus
supplement, the subordination of a class may apply only in the event of certain
types of losses or shortfalls. The related prospectus supplement will set forth
information concerning the method and amount of
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subordination provided by a class or classes of Subordinate Certificates in a
series and the circumstances under which such subordination will be available.
If the mortgage assets in any trust fund are divided into separate groups,
each supporting a separate class or classes of certificates of the related
series, credit support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of mortgage assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of mortgage assets within the trust
fund. The prospectus supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES CONCERNING TO MORTGAGE LOANS
If so provided in the prospectus supplement for a series of certificates,
mortgage loans included in the related trust fund will be covered for certain
default risks by insurance policies or guarantees. The related prospectus
supplement will describe the nature of such default risks and the extent of such
coverage.
LETTER OF CREDIT
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes of certificates will be covered by one or more letters of credit, issued
by a bank or other financial institution (which may be an affiliate of the
depositor) specified in such prospectus supplement. Under a letter of credit,
the providing institution will be obligated to honor draws in an aggregate fixed
dollar amount, net of unreimbursed payments under the letter of credit,
generally equal to a percentage specified in the related prospectus supplement
of the aggregate principal balance of some or all of the related mortgage assets
on the related Cut-off Date or of the initial aggregate Certificate Balance of
one or more classes of certificates. If so specified in the related prospectus
supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments under
the letter of credit and may otherwise be reduced as described in the related
prospectus supplement. The obligations of the providing institution under the
letter of credit for each series of certificates will expire at the earlier of
the date specified in the related prospectus supplement or the termination of
the trust fund.
CERTIFICATE INSURANCE AND SURETY BONDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes of certificates will be covered by insurance policies or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of certificates of the related
series, timely distributions of interest or distributions of principal on the
basis of a schedule of principal distributions set forth in or determined in the
manner specified in the related prospectus supplement. The related prospectus
supplement will describe any limitations on the draws that may be made under any
such instrument.
RESERVE FUNDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes will be covered (to the extent of available funds) by one or more
reserve funds in which cash, a letter of credit, Permitted Investments, a demand
note or a combination will be deposited, in the amounts specified in such
prospectus supplement. If so specified in the related prospectus supplement, the
reserve fund for a series may also be funded over time by a specified amount of
certain collections received on the related mortgage assets.
Amounts on deposit in any reserve fund for a series will be applied for
the purposes, in the manner, and to the extent specified in the related
prospectus supplement. If so specified in the related prospectus supplement,
reserve funds may be established to provide protection only against certain
types of losses and shortfalls. Following each Distribution Date, amounts in a
reserve fund in excess of any amount required to be maintained in such reserve
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funds may be released from the reserve fund under the conditions and to the
extent specified in the related prospectus supplement.
If so specified in the related prospectus supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related prospectus supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related master servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the trust fund unless
otherwise specified in the related prospectus supplement.
CASH COLLATERAL ACCOUNT
If so specified in the related prospectus supplement, all or any portion
of credit enhancement for a series of certificates may be provided by the
establishment of a cash collateral account. A cash collateral account will be
similar to a reserve fund except that generally a cash collateral account is
funded initially by a loan from a cash collateral lender, the proceeds of which
are invested with the cash collateral lender or other eligible institution. The
loan from the cash collateral lender will be repaid from such amounts as are
specified in the related prospectus supplement. Amounts on deposit in the cash
collateral account will be available in generally the same manner described
above with respect to a reserve fund. As specified in the related prospectus
supplement, a cash collateral account may be deemed to be part of the assets of
the related Trust, may be deemed to be part of the assets of a separate cash
collateral trust or may be deemed to be property of the party specified in the
related prospectus supplement and pledged for the benefit of the holders of one
or more classes of certificates of a series.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the prospectus supplement for a series of certificates,
any MBS included in the related trust fund and/or the related underlying
mortgage loans may be covered by one or more of the types of credit support
described in this prospectus. The related prospectus supplement will specify, as
to each such form of credit support, the information indicated above with
respect thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF 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 state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the mortgage loans (or mortgage loans
underlying any MBS) is situated. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of those states. See
"Description of the Trust Funds--Mortgage Loans". For purposes of the following
discussion, "mortgage loan" includes a mortgage loan underlying an MBS.
GENERAL
Each mortgage loan will be evidenced by a note or bond 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 by that mortgage,
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.
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TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a 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 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 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 mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the 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 such leases and rents, 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 and motel room rates are considered accounts
receivable under the Uniform Commercial Code; in cases where hotels or motels
constitute loan security, the rates 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 rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, mortgage loans secured by hotels or
motels may be included in a trust fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates 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 rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without lender's consent or a hearing at which the lender's
interest in the room rates is given adequate protection (e.g., the lender
receives cash payments from otherwise unencumbered funds or a replacement lien
on unencumbered property, in either case equal in value to the amount of room
rates that the debtor proposes to use, or other similar relief). See
"--Bankruptcy Laws".
In the case of office and retail properties, the bankruptcy or insolvency
of a major tenant or a number of smaller tenants may have an adverse impact on
the mortgaged properties affected and the income produced by such mortgaged
properties. Under bankruptcy law, a tenant has the option of assuming
(continuing), or rejecting (terminating) or, subject to certain conditions,
assigning to a third party any unexpired lease. If the tenant assumes its lease,
the tenant must cure all defaults under the lease and provide the landlord with
adequate assurance of its future performance under the lease. If the tenant
rejects the lease, the landlord's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. The
amount of the claim would be limited to the amount owed for unpaid pre-petition
lease payments unrelated to the rejection, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease (but not
to exceed three years' lease payments). If the tenant assigns its lease, the
tenant must cure all defaults under the lease and the proposed assignee must
demonstrate adequate assurance of future performance under the lease.
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PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, 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 the mortgage
loan, and must file continuation statements, generally every five years, to
maintain that perfection. In certain cases, mortgage loans secured in part by
personal property may be included in a trust fund even if the security interest
in such personal property was not perfected or the requisite UCC filings were
allowed to lapse.
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 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.
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 mortgage loans 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 trustee's sale pursuant to a power of sale
typically granted
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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 trustee to sell the property upon
default by the borrower and after notice of sale is given in accordance with the
terms of the mortgage and applicable state law. In some states, prior to such
sale, the 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 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 property may have occurred during the foreclosure proceedings. 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. (The mortgage loans, however, may be nonrecourse. See "Risk
Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans--Limited Recourse Nature of the Mortgage Loans".) 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.
The costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The 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 the property may not equal the lender's investment in the property.
Moreover, 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.
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 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
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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 trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the mortgage loans may be
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 such security;
however, in some of those states, the lender, following judgment on such
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 could 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, requires the lessor to grant
the mortgagee a new lease if the existing lease is rejected in a bankruptcy
proceeding, 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.
Cooperative Shares. Mortgage loans may be secured by a security interest
on the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner 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 canceled 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.
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BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences caused by such
automatic stay can be significant. Also, under the Bankruptcy Code, the filing
of a petition in bankruptcy by or on behalf of a junior lienor may stay the
senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy Code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the Section entitled "--Leases and Rents", the amendments provide
that a pre-petition security interest in rents or hotel revenues extends (unless
the bankruptcy court orders otherwise based on the equities of the case) to such
post-petition rents or revenues and is intended to overrule those cases that
held that a security interest in rents is unperfected under the laws of certain
states until the lender has taken some further action, such as commencing
foreclosure or obtaining a receiver prior to activation of the assignment of
rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (1)
assume the lease and retain it or assign it to a third party or (2) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles. Depending on facts and
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circumstances not wholly in existence at the time a loan is originated or
transferred to the trust fund, the application of any of these doctrines to one
or more of the mortgagors in the context of the bankruptcy of one or more of
their affiliates could result in material impairment of the rights of the
Certificateholders.
For each mortgagor that is described as a "special purpose entity",
"single purpose entity" or "bankruptcy remote entity" in the related prospectus
supplement, the activities that may be conducted by such mortgagor and its
ability to incur debt are restricted by the applicable mortgage or the
organizational documents of such mortgagor in such manner as is intended to make
the likelihood of a bankruptcy proceeding being commenced by or against such
mortgagor remote, and such mortgagor has been organized and is designed to
operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the depositor makes no representation as to
the likelihood of the institution of a bankruptcy proceeding by or in respect of
any mortgagor or the likelihood that the separate existence of any mortgagor
would be respected if there were to be a bankruptcy proceeding in respect of any
affiliated entity of a mortgagor.
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. 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 become sufficiently involved
in the management of such mortgaged property or the operations of the borrower.
Such liability may exist even if the lender did not cause or contribute to the
contamination and regardless of whether or not 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 Act of
1996, amended, among other things, the provisions of CERCLA with respect to
lender liability and the secured creditor exemption. The Act offers substantial
protection of 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 Asset Conservation, Lender Liability and Deposit
Insurance Act of 1996 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
only if it exercises decision making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of operational functions of the mortgaged property. The
Asset Conservation, Lender Liability and Deposit Insurance Act of 1996 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 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.
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In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of the Resource
Conservation and Recovery Act governs underground petroleum storage tanks. Under
the Asset Conservation, Lender Liability and Deposit Insurance Act of 1996, the
protections accorded to lenders under CERCLA are also accorded to the holders of
security interests in underground storage tanks. It should be noted, however,
that liability for cleanup of petroleum contamination may be governed by state
law, which may not provide for any specific protection of secured creditors.
In a few states, transfers of some types of properties are conditioned
upon cleanup 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 in such cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
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 trust fund and occasion a loss to the certificateholders of the
related series.
To reduce the likelihood of such a loss, unless otherwise specified in the
related prospectus supplement, the Pooling and Servicing Agreement will provide
that neither the master servicer nor the special servicer, acting on behalf of
the trustee, may acquire title to a mortgaged property or take over its
operation unless the special servicer, based solely (as to environmental
matters) on a report prepared by a person who regularly conducts environmental
audits, has made the determination that it is appropriate to do so, as described
under "The Pooling and Servicing Agreements--Realization Upon Defaulted Mortgage
Loans".
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 recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each mortgaged property will have been performed in connection
with the origination of the related mortgage loan or at some time prior to the
issuance of the related certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
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. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, 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 the regulations promulgated under the Garn Act.
Accordingly, a master servicer may nevertheless have the right to accelerate the
maturity of a mortgage loan that
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contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the master servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
JUNIOR LIENS; RIGHTS OF HOLDERS OF SENIOR LIENS
If so provided in the related prospectus supplement, mortgage assets for a
series of certificates may include mortgage loans secured by junior liens, and
the loans secured by the related senior liens may not be included in the
mortgage pool. In addition to the risks faced by the holder of a first lien,
holders of mortgage loans secured by junior liens also face the risk that
adequate funds will not be received in connection with a foreclosure on the
related mortgaged property to satisfy fully both the senior liens and the
mortgage loan. In the event that a holder of a senior lien forecloses on a
mortgaged property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the senior liens. The claims of the holders
of the senior liens will be satisfied in full out of proceeds of the liquidation
of the related mortgaged property, if such proceeds are sufficient, before the
trust fund as holder of the junior lien receives any payments in respect of the
mortgage loan. In the event that such proceeds from a foreclosure or similar
sale of the related mortgaged property are insufficient to satisfy all senior
liens and the mortgage loan in the aggregate, the trust fund, as the holder of
the junior lien, and, accordingly, holders of one or more classes of the
certificates of the related series bear (1) the risk of delay in distributions
while a deficiency judgment against the borrower is obtained and (2) the risk of
loss if the deficiency judgment is not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions or the mortgage loan may
be nonrecourse.
The rights of the trust fund (and therefore the certificateholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive rents, hazard insurance and condemnation
proceeds and to cause the property securing the mortgage loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the master servicer asserts its
subordinate interest in a property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgage or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under a hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed to the extent the
junior mortgage or deed of trust so provides. The laws of certain states may
limit the ability of mortgagees or beneficiaries to apply the proceeds of hazard
insurance and partial condemnation awards to the secured indebtedness. In such
states, the mortgagor or trustor must be allowed to use the proceeds of hazard
insurance to repair the damage unless the security of the mortgagee or
beneficiary has been impaired. Similarly, in certain states, the mortgagee or
beneficiary is entitled to the award for a partial condemnation of the real
property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other
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liens between the date of recording of the mortgage or deed of trust and the
date of the future advance, and notwithstanding that the mortgagee or
beneficiary had actual knowledge of such intervening junior mortgages or deeds
of trust and other liens at the time of the advance. Where the mortgagee or
beneficiary is not obligated to advance the additional amounts and has actual
knowledge of the intervening junior mortgages or deeds of trust and other liens,
the advance may be subordinate to such intervening junior mortgages or deeds of
trust and other liens. Priority of advances under a "future advance" clause
rests, in many other states, on state law giving priority to all advances made
under the loan agreement up to a "credit limit" amount stated in the recorded
mortgage.
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
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for prepayment fees
or yield maintenance penalties if the obligation is paid prior to maturity or
prohibit such prepayment for a specified period. In certain states, there are or
may be specific limitations upon the late charges which a lender may collect
from a mortgagor for delinquent payments. Certain states also limit the amounts
that a lender may collect from a mortgagor as an additional charge if the loan
is prepaid. The enforceability under the laws of a number of states and the
Bankruptcy Code of provisions providing for prepayment fees of penalties upon,
or prohibition of, an involuntary prepayment is unclear, and no assurance can be
given that, at the time a prepayment premium is required to be made on a
mortgage loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such prohibition, will be
enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to mortgage loans having higher Mortgage
Rates, may increase the likelihood of refinancing or other early retirements of
the mortgage loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 provides that state usury limitations shall not apply to certain
types of residential (including multifamily) first mortgage loans originated by
certain lenders after March 31, 1980. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980 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 of the Depository Institutions Deregulation and Monetary
Control Act of 1980 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 of the Depository Institutions Deregulation and Monetary
Control Act of 1980. Certain states have taken action to reimpose interest rate
limits and/or to limit discount points or other charges.
No mortgage loan originated in any state in which application of Title V
of the Depository Institutions Deregulation and Monetary Control Act of 1980 has
been expressly rejected or a provision limiting discount points or other charges
has been adopted, will (if originated after that rejection or adoption) be
eligible for inclusion in a trust fund unless (i) such mortgage loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such mortgage loan provides that the terms are to be construed in
accordance with the laws of
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another state under which such interest rate, discount points and charges would
not be usurious and the borrower's counsel has rendered an opinion that such
choice of law provision would be given effect.
CERTAIN LAWS AND REGULATIONS
The mortgaged properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a mortgaged property which could, together with the
possibility of limited alternative uses for a particular mortgaged property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related mortgage loan.
AMERICANS WITH DISABILITIES ACT
Under the ADA, in order to protect individuals with disabilities, public
accommodations (such as hotels, restaurants, shopping centers, hospitals,
schools and social service center establishments) must remove architectural and
communication barriers which are structural in nature from existing places of
public accommodation to the extent "readily achievable." In addition, under the
ADA, alterations to a place of public accommodation or a commercial facility are
to be made so that, to the maximum extent feasible, such altered portions are
readily accessible to and usable by disabled individuals. The "readily
achievable" standard takes into account, among other factors, the financial
resources of the affected site, owner, landlord or other applicable person. In
addition to imposing a possible financial burden on the 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.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of 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), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such borrower's active duty status,
unless a court 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 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 the related series of certificates, and would not be covered by
advances or, unless otherwise specified in the related prospectus supplement,
any form of credit support provided in connection with such certificates. In
addition, the Relief Act imposes limitations that would impair the ability of
the master servicer or special servicer to foreclose on an affected mortgage
loan during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter.
FORFEITURE FOR DRUG AND MONEY LAUNDERING VIOLATIONS
Federal law provides that property purchased or improved with assets
derived from criminal activity or otherwise tainted, or used in the commission
of certain offenses, can be seized and ordered forfeited to the United States of
America. The offenses which can trigger such a seizure and forfeiture include,
among others, violations of the Racketeer Influenced and Corrupt Organizations
Act, the Bank Secrecy Act, the anti-money laundering laws and regulations,
including the USA Patriot Act of 2001 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.
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In the event of a forfeiture proceeding, a lender may be able to establish
its interest in the property by proving that (1) 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 (2) 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 FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of offered
certificates of any series thereof, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the depositor with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth in this
prospectus. Counsel to the depositor for each series will be Cadwalader,
Wickersham & Taft, and a copy of the legal opinion of such counsel rendered in
connection with any series of certificates will be filed by the depositor with
the Securities and Exchange Commission on a Current Report on Form 8-K within 15
days after the Closing Date for such series of certificates. This discussion is
directed primarily to certificateholders that hold the certificates as "capital
assets" within the meaning of Section 1221 of the Code (although portions
thereof may also apply to certificateholders who do not hold certificates as
capital assets) and it does not purport to discuss all federal income tax
consequences that may be applicable to the individual circumstances of
particular investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special treatment under the Code. Further,
the authorities on which this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations, which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given the IRS will not
take contrary positions. In addition to the federal income tax consequences
described in this prospectus, potential investors are advised to consider the
state and local tax consequences, if any, of the purchase, ownership and
disposition of offered certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of offered certificates.
The following discussion addresses securities of two general types: (1)
REMIC Certificates representing interests in a trust fund, or a portion thereof,
that the REMIC administrator will elect to have treated as a REMIC under the
REMIC Provisions of the Code, and (2) Grantor Trust Certificates representing
interests in a Grantor Trust Fund as to which no such election will be made. The
prospectus supplement for each series of certificates will indicate whether a
REMIC election (or elections) will be made for the related trust fund and, if
such an election is to be made, will identify all "regular interests" and
"residual interests" in the REMIC. For purposes of this tax discussion,
references to a "Certificateholder" or a "holder" are to the beneficial owner of
a certificate.
The following discussion is limited in applicability to offered
certificates. Moreover, this discussion applies only to the extent that mortgage
assets held by a trust fund consist solely of mortgage loans. To the extent that
other mortgage assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a trust fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related prospectus
supplement. In addition, if cash flow agreements other than guaranteed
investment contracts are included in a trust fund, the anticipated material tax
consequences associated with such cash flow agreements also will be discussed in
the related prospectus supplement. See "Description of the Trust Funds--Cash
Flow Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the OID Regulations, and in part upon the REMIC
Provisions and the REMIC Regulations. The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the certificates.
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REMICS
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the depositor will give its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related trust fund (or each applicable portion thereof)
will qualify as one or more REMICs and the REMIC Certificates offered with
respect thereto will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in a REMIC within the meaning of the
REMIC Provisions. The following general discussion of the anticipated federal
income tax consequences of the purchase, ownership and disposition of REMIC
Certificates, to the extent it relates to matters of law or legal conclusions
with respect thereto, represents the opinion of counsel to the depositor for the
applicable series as specified in the related prospectus supplement, subject to
any qualifications set forth in this prospectus. In addition, counsel to the
depositor have prepared or reviewed the statements in this prospectus under the
heading "Certain Federal Income Tax Consequences--REMICs," and are of the
opinion that such statements are correct in all material respects. Such
statements are intended as an explanatory discussion of the possible effects of
the classification of any trust fund (or applicable portion thereof) as one or
more REMICs for federal income tax purposes on investors generally and of
related tax matters affecting investors generally, but do not purport to furnish
information in the level of detail or with the attention to an investor's
specific tax circumstances that would be provided by an investor's own tax
advisor. Accordingly, each investor is advised to consult its own tax advisors
with regard to the tax consequences to it of investing in REMIC Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the trust
fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the trust fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any trust fund as
a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related prospectus supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(4)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such certificates would be so
treated. However, to the extent that the REMIC assets constitute mortgages on
property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such certificates are treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. In addition, except as otherwise
provided in the applicable prospectus supplement, the REMIC Regular Certificates
will be "qualified mortgages" for a REMIC within the meaning of Section
860G(a)(3) of the Code and "permitted assets" for a financial asset
securitization investment trust within the meaning of Section 860L(c) of the
Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
REMIC Administrator will report those determinations to Certificateholders in
the manner and at the times required by applicable Treasury regulations.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
trust fund as REMICs for federal income tax purposes. As to each such series of
REMIC Certificates, in the opinion of counsel to the depositor, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the Tiered REMICs will each qualify as a REMIC and
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the REMIC Certificates issued by the Tiered REMICs, will be considered to
evidence ownership of REMIC Regular Certificates or REMIC Residual Certificates
in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to mortgage loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Committee Report indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The Prepayment Assumption used in reporting original issue discount
for each series of REMIC Regular Certificates will be consistent with this
standard and will be disclosed in the related prospectus supplement. However,
neither the depositor nor any other person will make any representation that the
mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will
be the excess of its stated redemption price at maturity over its issue price.
The issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the Closing Date, the issue price
for such class will be the fair market value of such class on the Closing Date.
Under the OID Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on such Certificate
other than "qualified stated interest". "Qualified stated interest" is interest
that is unconditionally payable at least annually (during the entire term of the
instrument) at a single fixed rate, or, as discussed below under "Variable Rate
REMIC Regular Certificates," at a qualified variable rate.
If the accrued interest to be paid on the first Distribution Date is
computed with respect to a period that begins prior to the Closing Date, a
portion of the purchase price paid for a REMIC Regular Certificate will reflect
such accrued interest. In such cases, information returns provided to the
Certificateholders and the IRS will be based on the position that the portion of
the purchase price paid for the interest accrued with respect to periods prior
to the Closing Date is treated as part of the overall cost of such REMIC Regular
Certificate (and not as a separate asset the cost of which is recovered entirely
out of interest received on the next Distribution Date) and that portion of the
interest paid on the first Distribution Date in excess of interest accrued for a
number of days corresponding to the number of days from the Closing Date to the
first Distribution Date should be included in the stated redemption price of
such REMIC Regular Certificate. However, the OID Regulations state that all or
some portion of such accrued interest may be treated as a separate asset the
cost of which is recovered entirely out of interest paid on the
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first Distribution Date. It is unclear how an election to do so would be made
under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "--Taxation
of Owners of REMIC Regular Certificates--Market Discount" below for a
description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of
a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related prospectus supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (1) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (2) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (1) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the mortgage loans being prepaid at a
rate equal to the Prepayment Assumption, (2) using a discount rate equal to the
original yield to maturity of the Certificate and (3) taking into account events
(including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the mortgage loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (1) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at
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the beginning of the accrual period which includes such day and (2) the daily
portions of original issue discount for all days during such accrual period
prior to such day.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Under the OID Regulations,
interest is treated as payable at a variable rate if, generally, (1) the issue
price does not exceed the original principal balance by more than a specified
amount and (2) the interest compounds or is payable at least annually at current
values of (a) one or more "qualified floating rates", (b) a single fixed rate
and one or more qualified floating rates, (c) a single "objective rate", or (d)
a single fixed rate and a single objective rate that is a "qualified inverse
floating rate". A floating rate is a qualified floating rate if variations in
the rate can reasonably be expected to measure contemporaneous variations in the
cost of newly borrowed funds, where the rate is subject to a fixed multiple that
is greater than 0.65, but not more than 1.35. The rate may also be increased or
decreased by a fixed spread or subject to a fixed cap or floor, or a cap or
floor that is not reasonably expected as of the issue date to affect the yield
of the instrument significantly. An objective rate (other than a qualified
floating rate) is a rate that is determined using a single fixed formula and
that is based on objective financial or economic information, provided that the
information is not (1) within the control of the issuer or a related party or
(2) unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate equal to a fixed rate minus a qualified floating
rate that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified floating rate
may nevertheless be an objective rate. A class of REMIC Regular Certificates may
be issued under this prospectus that does not have a variable rate under the OID
Regulations, for example, a class that bears different rates at different times
during the period it is outstanding so that it is considered significantly
"front-loaded" or "back-loaded" within the meaning of the OID Regulations. It is
possible that a class of this type may be considered to bear "contingent
interest" within the meaning of the OID Regulations. The OID Regulations, as
they relate to the treatment of contingent interest, are by their terms not
applicable to REMIC Regular Certificates. However, if final regulations dealing
with contingent interest with respect to REMIC Regular Certificates apply the
same principles as the OID Regulations, those regulations may lead to different
timing of income inclusion than would be the case under the OID Regulations.
Furthermore, application of those principles could lead to the characterization
of gain on the sale of contingent interest REMIC Regular Certificates as
ordinary income. Investors should consult their tax advisors regarding the
appropriate treatment of any REMIC Regular Certificate that does not pay
interest at a fixed rate or variable rate as described in this paragraph.
Under the REMIC Regulations, a REMIC Regular Certificate (1) bearing a
rate that qualifies as a variable rate under the OID Regulations that is tied to
current values of a variable rate (or the highest, lowest or average of two or
more variable rates), including a rate based on the average cost of funds of one
or more financial institutions, or a positive or negative multiple of a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the mortgage loans, including a rate
that is subject to one or more caps or floors, or (2) bearing one or more of
these variable rates for one or more periods or one or more fixed rates for one
or more periods, and a different variable rate or fixed rate for other periods
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the applicable prospectus supplement, REMIC Regular Certificates
that qualify as regular interests under this rule will be treated in the same
manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a REMIC Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "--Original Issue Discount" with the yield to maturity and
future payments on that REMIC Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the REMIC Regular
Certificate based on the initial rate for the relevant class. Unless otherwise
specified in the applicable prospectus supplement, variable interest will be
treated as qualified stated interest, other than variable interest on an
interest-only class, which will be treated as non-qualified stated interest
includible in the stated redemption price at maturity. Ordinary income
reportable for any period will be adjusted based on subsequent changes in the
applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, REMIC Regular Certificates bearing an interest
rate that is a weighted average of the net interest rates on mortgage loans
having fixed or adjustable rates, will be treated as having qualified stated
interest, except to the extent that initial "teaser" rates cause sufficiently
"back-loaded" interest to create more than de minimis original issue discount.
The yield on those REMIC Regular Certificates for purposes of accruing original
issue discount will be a hypothetical
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fixed rate based on the fixed rates, in the case of fixed rate mortgage loans,
and initial "teaser rates" followed by fully indexed rates, in the case of
adjustable rate mortgage loans. In the case of adjustable rate mortgage loans,
the applicable index used to compute interest on the mortgage loans for the
initial interest accrual period will be deemed to be in effect beginning with
the period in which the first weighted average adjustment date occurring after
the issue date occurs. Adjustments will be made in each accrual period either
increasing or decreasing the amount of ordinary income reportable to reflect the
actual pass-through interest rate on the REMIC Regular Certificates.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest and
discount (including de minimis market or original issue discount) in income as
interest, and to amortize premium, based on a constant yield method. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election or thereafter, including de minimis market
discount discussed in the following paragraph. Similarly, a Certificateholder
that made this election for a Certificate that is acquired at a premium would be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such Certificateholder
owns or acquires. See "--Taxation of Owners of REMIC Regular
Certificates--Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest would be irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (1) on the basis of a constant yield
method, (2) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (3) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
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To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" above. Although final Treasury regulations issued
under Section 171 of the Code do not by their terms apply to prepayable
obligations such as REMIC Regular Certificates, the Committee Report states that
the same rules that apply to accrual of market discount (which rules will
require use of a Prepayment Assumption in accruing market discount with respect
to REMIC Regular Certificates without regard to whether such certificates have
original issue discount) will also apply in amortizing bond premium.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their certificates become wholly or partially
worthless as the result of one or more realized losses on the mortgage loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its Certificate Balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the mortgage loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"--Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual
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Certificates will be subject to tax rules that differ significantly from those
that would apply if the REMIC Residual Certificates were treated for federal
income tax purposes as direct ownership interests in the mortgage loans or as
debt instruments issued by the REMIC.
A REMIC Residual Certificateholder generally will be required to report
its daily portion of the taxable income or, subject to the limitations noted in
this discussion, the net loss of the REMIC for each day during a calendar
quarter that such holder owned such REMIC Residual Certificate. For this
purpose, the taxable income or net loss of the REMIC will be allocated to each
day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "--Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC until the
REMIC's termination. Ordinary income derived from REMIC Residual Certificates
will be "portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it is possible that any
such payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions" and
"noneconomic" residual interests discussed below. The fact that the tax
liability associated with the income allocated to REMIC Residual
Certificateholders may exceed the cash distributions received by such REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders' after-tax rate of
return. Such disparity between income and distributions may not be offset by
corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely
offset due to changes in the Code, tax rates or character of the income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the mortgage loans (including interest, market discount and, if
applicable, original issue discount and less premium) and other assets of the
REMIC plus any cancellation of indebtedness income due to the allocation of
realized losses to REMIC Regular Certificates, less the deductions allowed to
the REMIC for interest (including original issue discount and reduced by any
premium on issuance) on the REMIC Regular Certificates (and any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the mortgage loans, bad debt losses with
respect to the mortgage loans and, except as described below, for servicing,
administrative and other expenses.
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For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, such Class's fair market value). Such aggregate basis will be
allocated among the mortgage loans and the other assets of the REMIC in
proportion to their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount". The issue price of a REMIC Certificate received in exchange for an
interest in the mortgage loans or other property will equal the fair market
value of such interests in the mortgage loans or other property. Accordingly, if
one or more classes of REMIC Certificates are retained initially rather than
sold, the REMIC Administrator may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the mortgage
loans and other property held by the REMIC.
The method of accrual by the REMIC of original issue discount income and
market discount income with respect to mortgage loans that it holds will be
equivalent to the method for accruing original issue discount income for holders
of REMIC Regular Certificates (that is, under the constant yield method taking
into account the Prepayment Assumption), but without regard to the de minimis
rule applicable to REMIC Regular Certificates. However, a REMIC that acquires
loans at a market discount must include such market discount in income
currently, as it accrues, on a constant yield basis. See "--Taxation of Owners
of REMIC Regular Certificates" above, which describes a method for accruing such
discount income that is analogous to that required to be used by a REMIC as to
mortgage loans with market discount that it holds.
A mortgage loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis in that mortgage loan, determined
as described in the preceding paragraph, is less than (or greater than) its
stated redemption price. Any such discount will be includible in the income of
the REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing
original issue discount on the REMIC Regular Certificates. It is anticipated
that each REMIC will elect under Section 171 of the Code to amortize any premium
on the mortgage loans. Premium on any mortgage loan to which such election
applies may be amortized under a constant yield method, presumably taking into
account a Prepayment Assumption. Further, such an election would not apply to
any mortgage loan originated on or before September 27, 1985. Instead, premium
on such a mortgage loan should be allocated among the principal payments thereon
and be deductible by the REMIC as those payments become due or upon the
prepayment of such mortgage loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described in that section will not apply.
If a class of REMIC Regular Certificates is issued with an Issue Premium,
the REMIC will have additional income in each taxable year in an amount equal to
the portion of the Issue Premium that is considered to be amortized or repaid in
that year. Although the matter is not entirely certain, it is likely that Issue
Premium would be amortized under a constant yield method in a manner analogous
to the method of accruing original issue discount described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
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Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events. In
general, the "excess inclusions" with respect to a REMIC Residual Certificate
for any calendar quarter will be the excess, if any, of (1) the daily portions
of REMIC taxable income allocable to such REMIC Residual Certificate over (2)
the sum of the "daily accruals" (as defined below) for each day during such
quarter that such REMIC Residual Certificate was held by such REMIC Residual
Certificateholder. The daily accruals of a REMIC Residual Certificateholder will
be determined by allocating to each day during a calendar quarter its ratable
portion of the product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120% of the "long-term
Federal rate" in effect on the Closing Date. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters and decreased
(but not below zero) by any distributions made with respect to such REMIC
Residual Certificate before the beginning of such quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS.
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For REMIC Residual Certificateholders, an excess inclusion (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling and Servicing Agreement that are intended to reduce
the possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future.
In addition to the transferor's investigation of the transferee's
financial condition and the transferee's affidavit, a third requirement has been
added that must be satisfied in one of two alternative ways for the transferor
to have a "safe harbor" against ignoring the transfer. First, proposed Treasury
Regulations, would require that the present value of the anticipated tax
liabilities associated with holding the noneconomic residual interest not exceed
the sum of:
(i) the present value of any consideration given to the transferee
to acquire the interest;
(ii) the present value of the expected future distributions on the
interest; and
(iii) the present value of the anticipated tax savings associated
with holding the interest as the REMIC generates losses.
For purposes of the computations under this "minimum transfer price"
alternative, the transferee is assumed to pay tax at the highest rate of tax
specified in Section 11(b)(1) of the Code (currently 35%). Further, present
values generally are computed using a discount rate equal to the applicable
Federal rate set forth in Section 1274(d) of the Code, compounded semiannually.
However, a lower rate may be used if the transferee can demonstrate that it
regularly borrows, in the course of its trade or business, substantial funds at
such lower rate from unrelated third parties.
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The second alternative appears in Revenue Procedure 2001-12, issued by the
IRS. The revenue procedure restates the minimum transfer price alternative
described in the proposed Treasury regulations discussed above and adds an
"eligible transferee" test as the second alternative test for meeting the safe
harbor. To meet the second alternative, (i) the transferee must be a domestic
"C" corporation (other than a corporation exempt from taxation of a regulated
investment company or real estate investment trust) that meets certain gross and
net asset tests (generally, $100 million of gross assets and $10 million of net
assets for the current year and the two preceding fiscal years); (ii) the
transferee must agree in writing that it will transfer the residual interest
only to a subsequent transferee that is an eligible corporation and meets the
requirements for a safe harbor transfer under the Revenue Procedure; and (iii)
the facts and circumstances known to the transferor on or before the date of the
transfer must not reasonably indicate that the taxes associated with ownership
of the residual interest will not be paid by the transferee. The eligible
transferee test, as well as the minimum transfer price test, are effective
retroactive to February 4, 2000 and apply unless and until changed by final
regulations.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers
should consider the applicability and effect of the proposed regulations and
revenue procedure mentioned above and should consider the possibility that a
purported transfer of such REMIC Residual Certificate by such a purchaser to
another purchaser at some future date may be disregarded in accordance with the
above-described rules which would result in the retention of tax liability by
such purchaser.
The related prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. On January 4, 1995, the IRS issued final
regulations, relating to the requirement that a securities dealer mark to market
securities held for sale to customers. This mark-to-market requirement applies
to all securities owned by a dealer, except to the extent that the dealer has
specifically identified a security as held for investment. The mark-to-market
regulations provide that for purposes of this requirement, any REMIC Residual
Certificate acquired on or after January 4, 1995 will not be treated as a
security and thus generally may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to certain types of holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
such types of holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related prospectus supplement, such fees and expenses
will be allocated to the related REMIC Residual Certificates in their entirety
and not to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (1) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (2) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate 2% of a taxpayer's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (1) 3% of the excess of the
individual's adjusted gross income over such amount or (2) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The amount of
additional taxable income reportable by REMIC Certificateholders that are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable income
of such a holder of a REMIC Certificate that is an individual, estate or trust,
or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees
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and other deductions will be included in such holder's gross income.
Accordingly, such REMIC Certificates may not be appropriate investments for
individuals, estates, or trusts, or pass-through entities beneficially owned by
one or more individuals, estates or trusts. Such prospective investors should
consult with their tax advisors prior to making an investment in such
certificates.
Under tax legislation enacted in 2001, the limitations on deductions under
Section 68 will be phased out beginning in 2006 and will be eliminated after
2009.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described above
under "--Taxation of Owners of REMIC Residual Certificates--Basis Rules, Net
Losses and Distributions". Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
prospectus provides for tax rates for individuals on ordinary income that are
higher than the tax rates for long-term capital gains of individuals for
property held for more than one year. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
a capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (1) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally, a rate based on an average of current yields on
treasury securities having a maturity comparable to that of the certificate
based on the application of the Prepayment Assumption to such certificate),
determined as of the date of purchase of such REMIC Regular Certificate, over
(2) the amount of ordinary income actually includible in the seller's income
prior to such sale. In addition, gain recognized on the sale of a REMIC Regular
Certificate by a seller who purchased such REMIC Regular Certificate at a market
discount will be taxable as ordinary income in an amount not exceeding the
portion of such discount that accrued during the period such REMIC Certificate
was held by such holder, reduced by any market discount included in income under
the rules described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such Section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury Department regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires such REMIC
Residual Certificate, or acquires any other residual interest in a REMIC
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or any similar interest in a "taxable mortgage pool" (as defined in Section
7701(i) of the Code) during the period beginning six months before, and ending
six months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Section 1091 of the Code. In that event, any loss realized by the
REMIC Residual Certificateholder on the sale will not be deductible, but instead
will be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions".
In general, subject to certain specified exceptions a prohibited transaction
means the disposition of a mortgage loan, the receipt of income from a source
other than a mortgage loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset purchased
with the payments on the mortgage loans for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property. Each Pooling
and Servicing Agreement will include provisions designed to prevent the
acceptance of any contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property", determined by reference to the
rules applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
As provided in each Pooling and Servicing Agreement, a REMIC may recognize "net
income from foreclosure property" subject to federal income tax to the extent
that the REMIC Administrator determines that such method of operation will
result in a greater after-tax return to the trust fund than any other method of
operation.
Unless otherwise disclosed in the related prospectus supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related prospectus supplement, and to the
extent permitted by then applicable laws, any prohibited transactions tax or
contributions tax will be borne by the related REMIC administrator, master
servicer, special servicer, manager or trustee, in any case out of its own
funds, provided that such person has sufficient assets to do so, and provided
further that such tax arises out of a breach of such person's obligations under
the related Pooling and Servicing Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by a REMIC
administrator, a master servicer, special servicer, manager or trustee will be
charged against the related trust fund resulting in a reduction in amounts
payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Certain Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (1) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate) of the total
anticipated excess inclusions with respect to such REMIC Residual Certificate
for periods after the transfer and (2) the highest marginal federal income tax
rate applicable to corporations. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a disqualified organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. Moreover, an entity will not qualify as a REMIC unless there
are reasonable arrangements designed to ensure that (1) residual interests in
such entity are not held by disqualified organizations and (2) information
necessary for the application of the tax described herein will be made
available. Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are
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intended to meet this requirement will be included in each Pooling and Servicing
Agreement, and will be discussed in any prospectus supplement relating to the
offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (1) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(2) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (1) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (2) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a REMIC Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by Section 860E(c) of the
Code. An exception to this tax, otherwise available to a pass-through entity
that is furnished certain affidavits by record holders of interests in the
entity and that does not know such affidavits are false, is not available to an
electing large partnership.
For these purposes, a "disqualified organization" means (1) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (2) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (3) any organization described in Section 1381(a)(2)(C) of the
Code. In addition, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity. For
these purposes, an "electing large partnership" means a partnership (other than
a service partnership or certain commodity pools) having more than 100 members
that has elected to apply certain simplified reporting provisions under the
Code.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
mortgage loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related prospectus supplement, the holder of the
largest percentage interest in a class of REMIC Residual Certificates will be
the "tax matters person" with respect to the related REMIC, and the REMIC
administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and will be designated as and will act as agent of, and
attorney-in-fact for, the tax matters person with respect to the REMIC in all
respects.
As the tax matters person, the REMIC administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC tax return may require a
REMIC Residual Certificateholder to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
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existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury Department regulations, the name and address of such
person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury Department regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other nonindividuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. Reporting with
respect to REMIC Residual Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
REMIC's assets will be made as required under the Treasury Department
regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount".
Unless otherwise specified in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 30% (which rate will be reduced periodically to 28%
beginning in 2006) if recipients of such payments fail to furnish to the payor
certain information, including their taxpayer identification numbers, or
otherwise fail to establish an exemption from such tax. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit against
such recipient's federal income tax. Furthermore, certain penalties may be
imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner. The New Regulations,
as described below, will change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. Non-U.S. Persons are urged to contact their own tax advisors
regarding the application to them of backup withholding and information
reporting.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a U.S. Person and is not subject to federal income tax as a result
of any direct or indirect connection to the United States in addition to its
ownership of a REMIC Regular Certificate will not, unless otherwise disclosed in
the related prospectus supplement, be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). It is possible that the IRS may assert that the
foregoing tax exemption should not apply with respect to a REMIC Regular
Certificate held by a REMIC Residual Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual Certificates. If the
holder does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to such holder may
be subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
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Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
The Treasury Department has issued regulations which provide new methods
of satisfying the beneficial ownership certification requirement described
above, including a new series of forms. These regulations became effective
January 1, 2001. These regulations require, in the case of REMIC Regular
Certificates held by a foreign partnership, that (x) the certification described
above be provided by the partners rather than by the foreign partnership and (y)
the partnership provide certain information, including a United States taxpayer
identification number. A look-through rule applies in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors concerning
the application of the certification requirements in the regulations.
Unless otherwise stated in the related prospectus supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, in the opinion of counsel to the depositor for such
series, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of Grantor Trust Certificates, to the extent it
relates to matters of law or legal conclusions with respect thereto, represents
the opinion of counsel to the depositor for the applicable series as specified
in the related prospectus supplement, subject to any qualifications set forth in
this prospectus. In addition, counsel to the depositor has prepared or reviewed
the statements in this prospectus under the heading "Certain Federal Income Tax
Consequences--Grantor Trust Funds," and is of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of any
Grantor Trust Fund as a grantor trust for federal income tax purposes on
investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, each investor is advised to consult
its own tax advisors with regard to the tax consequences to it of investing in
Grantor Trust Certificates.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related prospectus supplement, counsel to the depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (1) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (2) "obligation[s]
(including any participation or certificate of beneficial ownership therein)
which . . . [are] principally secured by an interest in real property" within
the meaning of Section 860G(a)(3) of the Code; and (3) "real estate assets"
within the meaning of Section 856(c)(4)(A) of the Code. In addition, counsel to
the depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of mortgage loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
depositor will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in Grantor Trust
Strip Certificates is material
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should consult their tax advisors regarding whether the Grantor Trust Strip
Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the mortgage loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the mortgage loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (1) 3% of the excess
of the individual's adjusted gross income over such amount or (2) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Under tax legislation enacted in
2001, this limitation on deductions under Section 68 will be phased out
beginning in 2006 and will be eliminated after 2009. Although it is not entirely
clear, it appears that in transactions in which multiple classes of Grantor
Trust Certificates (including Grantor Trust Strip Certificates) are issued, such
fees and expenses should be allocated among the classes of Grantor Trust
Certificates using a method that recognizes that each such class benefits from
the related services. In the absence of statutory or administrative
clarification as to the method to be used, it currently is intended to base
information returns or reports to the IRS and Certificateholders on a method
that allocates such expenses among classes of Grantor Trust Certificates with
respect to each period based on the distributions made to each such class during
that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates or
(2) the depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a mortgage asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related prospectus supplement will include information regarding servicing fees
paid to a master servicer, a special servicer, any sub-servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
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Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "--Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the mortgage loans, would cause the present value of those future payments to
equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's share of future
payments on the mortgage loans will not include any payments made in respect of
any ownership interest in the mortgage loans retained by the depositor, the
master servicer, the special servicer, any sub-servicer or their respective
affiliates, but will include such Certificateholder's share of any reasonable
servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (1) the use of a reasonable
prepayment assumption in accruing original issue discount and (2) adjustments in
the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the mortgage loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a mortgage loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the mortgage loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such Certificateholder's
interest in the mortgage loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount" above. It is
unclear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related prospectus
supplement and on a constant yield computed using a representative initial
offering price for each class of certificates. However, neither the depositor
nor any other person will make any representation that the mortgage loans will
in fact prepay at a rate conforming to such Prepayment Assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
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Under Treasury regulations Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (1) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (2) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the mortgage loans, the related prospectus supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the mortgage loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the mortgage loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in mortgage loans issued with original issue discount.
The original issue discount, if any, on the mortgage loans will equal the
difference between the stated redemption price of such mortgage loans and their
issue price. For a definition of "stated redemption price," see "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount" above. In
general, the issue price of a mortgage loan will be the amount received by the
borrower from the lender under the terms of the mortgage loan, less any "points"
paid by the borrower, and the stated redemption price of a mortgage loan will
equal its principal amount, unless the mortgage loan provides for an initial
"teaser," or below-market interest rate. The determination as to whether
original issue discount will be considered to be de minimis will be calculated
using the same test as in the REMIC discussion. See "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which such
rules will be applied with respect to those mortgage loans by the trustee or
master servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related prospectus
supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to mortgage loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such certificate's allocable portion of the aggregate remaining stated
redemption price of the mortgage loans held in the related trust fund will also
be required to include in gross income such certificate's daily portions of any
original issue discount with respect to such mortgage loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the mortgage loans
held in the related trust fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such mortgage loans. The
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adjusted issue price of a mortgage loan on any given day equals the sum of (1)
the adjusted issue price (or, in the case of the first accrual period, the issue
price) of such mortgage loan at the beginning of the accrual period that
includes such day and (2) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
mortgage loan at the beginning of any accrual period will equal the issue price
of such mortgage loan, increased by the aggregate amount of original issue
discount with respect to such mortgage loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such mortgage loan in
prior accrual periods of amounts included in its stated redemption price.
Unless otherwise provided in the related prospectus supplement, the
trustee or master servicer, as applicable, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue discount
accruing on Grantor Trust Fractional Interest Certificates. See "--Grantor Trust
Reporting" below.
Market Discount. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a mortgage loan is considered to have been purchased at a "market
discount", that is, in the case of a mortgage loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a mortgage loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any mortgage loan, to the payment of stated redemption price on
such mortgage loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the trust fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "--Taxation of Owners of REMIC Regular
Interests--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the mortgage loans should accrue, at the
holder's option: (1) on the basis of a constant yield method, (2) in the case of
a mortgage loan issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total stated interest remaining to be
paid on the mortgage loan as of the beginning of the accrual period, or (3) in
the case of a mortgage loan issued with original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining at the beginning of the accrual period. The prepayment
assumption, if any, used in calculating the accrual of original issue discount
is to be used in calculating the accrual of market discount. The effect of using
a prepayment assumption could be to accelerate the reporting of such discount
income. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect such regulations might have on
the tax treatment of a mortgage loan purchased at a discount in the secondary
market.
Because the mortgage loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above within the exception that it is
less likely that a prepayment assumption will be used for purposes of such rules
with respect to the mortgage loans.
Further, under the rules described above in "--REMICs--Taxation of Owners
of REMIC Regular Certificates--Market Discount", any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in
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income, unless an election has been made to report market discount currently as
it accrues. This rule applies without regard to the origination dates of the
mortgage loans.
Premium. If a Certificateholder is treated as acquiring the underlying
mortgage loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to mortgage loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage
loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the mortgage loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a mortgage loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the mortgage loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the mortgage loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "--Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the mortgage loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Grantor Trust Strip Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Strip Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
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The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related prospectus supplement and on a constant
yield computed using a representative initial offering price for each class of
certificates. However, neither the depositor nor any other person will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
mortgage loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete mortgage loans, or if the Prepayment
Assumption is not used, then when a mortgage loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such mortgage loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the mortgage loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Treasury
Department regulations have been promulgated regarding contingent payment debt
instruments, but it appears that Grantor Trust Strip Certificates, due to their
similarity to other mortgage-backed securities (such as REMIC regular interests
and debt instruments subject to Section 1272(a)(6) of the Code) that are
expressly excepted from the application of such Regulations, may also be
excepted from such regulations. Like the OID Regulations, the contingent payment
regulations do not specifically address securities, such as the Grantor Trust
Strip Certificates, that are subject to the stripped bond rules of Section 1286
of the Code.
If the contingent payment rules similar to those under the OID Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply a "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule. Holders of Grantor Trust Strip Certificates are bound by the issuer's
projected payment schedule. The projected payment schedule consists of all
noncontingent payments and a projected amount for each contingent payment based
on the comparable yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount of
each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate. The
comparable yield referred to above is a rate that, as of the issue date,
reflects the yield at which the issuer would issue a fixed rate debt instrument
with terms and conditions similar to the contingent payment debt instrument,
including general market conditions, the credit quality of the issuer, and the
terms and conditions of the mortgage loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the comparable yield.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary
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income, and (in the case of banks and other financial institutions) except as
provided under Section 582(c) of the Code. The adjusted basis of a Grantor Trust
Certificate generally will equal its cost, increased by any income reported by
the seller (including original issue discount and market discount income) and
reduced (but not below zero) by any previously reported losses, any amortized
premium and by any distributions with respect to such Grantor Trust Certificate.
The Code as of the date of this prospectus generally provides for tax rates of
noncorporate taxpayers on ordinary income that are higher than the rates on
long-term capital gains (generally, property held for more than one year). No
such rate differential exists for corporations. In addition, the distinction
between a capital gain or loss and ordinary income or loss remains relevant for
other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
prospectus supplement, the trustee or master servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying mortgage loans and to interest thereon at the related
pass-through rate. In addition, the trustee or master servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the master servicer, the special servicer or any sub-servicer, and
such other customary factual information as the depositor or the reporting party
deems necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the trustee's
or master servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their certificates at the representative
initial offering price used in preparing such reports.
Backup Withholding. In general, the rules described above in
"--REMICs--Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "--REMICs--Foreign Investors in REMIC Certificates"
above applies to Grantor Trust Certificates except that Grantor Trust
Certificates will, unless otherwise disclosed in the related prospectus
supplement, be eligible for exemption from U.S. withholding tax, subject to the
conditions described in such discussion, only to the extent the related mortgage
loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
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STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
offered certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their tax advisors with respect to the
various tax consequences of investments in the offered certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended, and the
Code impose certain requirements on retirement plans, and on certain other
employee benefit plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans"), and
on persons who are fiduciaries with respect to such Plans, in connection with
the investment of Plan assets. Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)), and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. However, such plans may
be subject to the provisions of other applicable federal and state law
materially similar to ERISA or the Code. Moreover, any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code,
however, is subject to the prohibited transaction rules set forth in Section 503
of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons who have certain specified relationships to the Plan, unless a statutory
or administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
PLAN ASSET REGULATIONS
A Plan's investment in offered certificates may cause the underlying
mortgage assets and other assets included in a related trust fund to be deemed
assets of such Plan. The Plan Asset Regulations provide that when a Plan
acquires an equity interest in an entity, the Plan's assets include both such
equity interest and an undivided interest in each of the underlying assets of
the entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (i.e., Plans and
certain employee benefit plans not subject to ERISA) is not "significant", both
as defined in the Plan Asset Regulations. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if 25%
or more of the value of any class of equity interests in the entity is held by
benefit plan investors. Equity participation in a trust fund will be significant
on any date if immediately after the most recent acquisition of any Certificate,
25% or more of any class of certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the mortgage assets and other assets included in a trust fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the master servicer, any special
servicer, any sub-servicer, the trustee, the obligor under any credit
enhancement mechanism, or certain affiliates thereof may be deemed to be a Plan
"fiduciary" and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the mortgage assets and other
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assets included in a trust fund constitute Plan assets, the purchase of
certificates by a Plan, as well as the operation of the trust fund, may
constitute or involve a prohibited transaction under ERISA or the Code.
The Plan Asset Regulations provide that where a Plan acquires a
"guaranteed governmental mortgage pool certificate", the Plan's assets include
such certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" Ginnie Mae, Freddie Mac, and Fannie Mae Certificates.
Accordingly, even if such MBS included in a trust fund were deemed to be assets
of Plan investors, the mortgages underlying such MBS would not be treated as
assets of such Plans. Private label mortgage participations, mortgage
pass-through certificates or other mortgage-backed securities are not
"guaranteed governmental mortgage pool certificates" within the meaning of the
Plan Asset Regulations; potential Plan investors should consult their counsel
and review the ERISA discussion in the related prospectus supplement before
purchasing certificates if such MBS are included in the trust fund.
The DOL has granted to certain underwriters administrative exemptions,
each an "Exemption", for certain mortgage-backed and asset-backed certificates
underwritten in whole or in part by the underwriters. An Exemption might be
applicable to the initial purchase, the holding, and the subsequent resale by a
Plan of certain certificates, such as the offered certificates, underwritten by
the underwriters, representing interests in pass-through trusts that consist of
certain receivables, loans and other obligations, provided that the conditions
and requirements of the Exemption are satisfied. The loans described in the
Exemptions include mortgage loans such as the mortgage assets. However, it
should be noted that in issuing the Exemptions, the DOL may not have considered
interests in pools of the exact nature as some of the offered certificates. If
all of the conditions of an Exemption are met, whether or not a Plan's assets
would be deemed to include an ownership interest in the mortgage assets, the
acquisition, holding and resale of the offered certificates by Plans would be
exempt from certain of the prohibited transaction provisions of ERISA and the
Code.
INSURANCE COMPANY GENERAL ACCOUNTS
Sections I and III of PTCE 95-60 exempt from the application of the
prohibited transaction provisions of Sections 406(a), 406(b) and 407(a) of ERISA
and Section 4975 of the Code transactions in connection with the servicing,
management and operation of a trust (such as the Trust) in which an insurance
company general account has an interest as a result of its acquisition of
certificates issued by the trust, provided that certain conditions are
satisfied. If these conditions are met, insurance company general accounts would
be allowed to purchase certain classes of certificates which do not meet the
requirements of any of the Exemptions solely because they (1) are subordinated
to other classes of certificates in the trust and/or (2) have not received a
rating at the time of the acquisition in one of the four highest rating
categories from a nationally recognized statistical rating agency. All other
conditions of one of the Exemptions would have to be satisfied in order for PTCE
95-60 to be available. Before purchasing such class of certificates, an
insurance company general account seeking to rely on Sections I and III of PTCE
95-60 should itself confirm that all applicable conditions and other
requirements have been satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c)
to ERISA, which provides certain exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL has issued final regulations
providing guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the offered certificates should consult with their
legal counsel with respect to the applicability of Section 401(c) of ERISA.
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CONSULTATION WITH COUNSEL
Any Plan fiduciary which proposes to purchase offered certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection with any
planned purchase.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code nonetheless will be subject to federal income taxation to the extent
that its income is "unrelated business taxable income" within the meaning of
Section 512 of the Code. All "excess inclusions" of a REMIC allocated to a REMIC
Residual Certificate held by a Plan will be considered unrelated business
taxable income and thus will be subject to federal income tax. See "Certain
Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions".
LEGAL INVESTMENT
If so specified in the related prospectus supplement, the offered
certificates will constitute "mortgage related securities" for purposes of
SMMEA. The appropriate characterization of those offered certificates not
qualifying as "mortgage related securities" under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase those types of offered certificates, may be subject to significant
interpretive uncertainties. Accordingly, investors whose investment authority is
subject to legal investment laws and regulations, regulatory capital
requirements, or review by regulatory authorities should consult their own legal
advisors to determine whether and to what extent the classes of offered
certificates not constituting mortgage related securities constitute legal
investments for them.
Generally, only classes of offered certificates that (1) are rated in one
of the two highest rating categories by any nationally recognized statistical
rating organization and (2) are part of a series evidencing interests in a trust
fund consisting of loans originated by certain types of originators specified in
SMMEA and secured by first liens on real estate, will be "mortgage related
securities" for purposes of SMMEA. Classes of offered certificates qualifying as
"mortgage related securities" will constitute legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities, including depository institutions, insurance companies and pension
funds, created pursuant to or existing under the laws of the United States or of
any state, including the District of Columbia and Puerto Rico, whose authorized
investments are subject to state regulation, to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any of its agencies or instrumentalities constitute
legal investments for those entities.
Under SMMEA, a number of states enacted legislation, on or before the
October 3, 1991 cutoff for those enactments, limiting to various extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities" secured by liens on residential, or mixed
residential and commercial properties, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the definition of "mortgage related security" to include,
in relevant part, offered certificates satisfying the rating and qualified
originator requirements for "mortgage related securities," but evidencing
interests in a trust fund consisting, in whole or in part, of first liens on one
or more parcels of real estate upon which are located one or more commercial
structures, states were authorized to enact legislation, on or before September
23, 2001, specifically referring to Section 347 and prohibiting or restricting
the purchase, holding or investment by state-regulated entities in those types
of offered certificates. Accordingly, the investors affected by any state
legislation overriding the preemptive effect of SMMEA will be authorized to
invest in offered certificates qualifying as "mortgage related securities" only
to the extent provided in that legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in those securities, and national
banks may purchase those securities for their own account without
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regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. ss. 24 (Seventh), subject in each case to those regulations
as the applicable federal regulatory authority may prescribe. In this
connection, the OCC has amended 12 C.F.R. Part 1 to authorize national banks to
purchase and sell for their own account, without limitation as to a percentage
of the bank's capital and surplus (but subject to compliance with certain
general standards in 12 C.F.R. ss. 1.5 concerning "safety and soundness" and
retention of credit information), certain "Type IV securities," defined in 12
C.F.R. ss. 1.2(m) to include certain "commercial mortgage-related securities"
and "residential mortgage-related securities." As so defined, "commercial
mortgage-related security" and "residential mortgage-related security" mean, in
relevant part, "mortgage related security" within the meaning of SMMEA, provided
that, in the case of a "commercial mortgage-related security," it "represents
ownership of a promissory note or certificate of interest or participation that
is directly secured by a first lien on one or more parcels of real estate upon
which one or more commercial structures are located and that is fully secured by
interests in a pool of loans to numerous obligors." In the absence of any rule
or administrative interpretation by the OCC defining the term "numerous
obligors," no representation is made as to whether any class of offered
certificates will qualify as "commercial mortgage-related securities," and thus
as "Type IV securities," for investment by national banks. The NCUA has adopted
rules, codified at 12 C.F.R. Part 703, which permit federal credit unions to
invest in "mortgage related securities" under certain limited circumstances,
other than stripped mortgage related securities, residual interests in mortgage
related securities, and commercial mortgage related securities, unless the
credit union has obtained written approval from the NCUA to participate in the
"investment pilot program" described in 12 C.F.R. ss. 703.140. The OTS has
issued Thrift Bulletin 13a (December 1, 1998), "Management of Interest Rate
Risk, Investment Securities, and Derivatives Activities," which thrift
institutions subject to the jurisdiction of the OTS should consider before
investing in any of the offered certificates.
All depository institutions considering an investment in the offered
certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" of the Federal Financial
Institutions Examination Council, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the OTS, effective May 26, 1998, and by the NCUA,
effective October 1, 1998. That statement sets forth general guidelines which
depository institutions must follow in managing risks (including market, credit,
liquidity, operational (transaction), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by those authorities before purchasing any offered
certificates, as certain series or classes may be deemed unsuitable investments,
or may otherwise be restricted, under those rules, policies or guidelines (in
certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not
"interest-bearing" or "income-paying," and, with regard to any offered
certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain classes of offered certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the offered certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase offered certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the offered certificates) may
adversely affect the liquidity of the offered certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the offered certificates of any class
constitute legal investments or are subject to investment, capital, or other
restrictions and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
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USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates of any
series will be applied by the depositor to the purchase of trust assets or will
be used by the depositor to cover expenses related thereto. The depositor
expects to sell the certificates from time to time, but the timing and amount of
offerings of certificates will depend on a number of factors, including the
volume of mortgage assets acquired by the depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The certificates offered hereby and by the related prospectus supplements
will be offered in series through one or more of the methods described below.
The prospectus supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
depositor from such sale.
The depositor intends that offered certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
offered certificates of a particular series may be made through a combination of
two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters, which may include Banc of America
Securities LLC, an affiliate of the depositor;
2. By placements by the depositor with institutional investors
through dealers; and
3. By direct placements by the depositor with institutional
investors.
In addition, if specified in the related prospectus supplement, the
offered certificates of a series may be offered in whole or in part to the
seller of the related mortgage assets that would comprise the trust fund for
such certificates.
If underwriters are used in a sale of any offered certificates (other than
in connection with an underwriting on a best efforts basis), such certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the depositor whose
identities and relationships to the depositor will be as set forth in the
related prospectus supplement. The managing underwriter or underwriters with
respect to the offer and sale of offered certificates of a particular series
will be set forth on the cover of the prospectus supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such prospectus supplement.
In connection with the sale of offered certificates, underwriters may
receive compensation from the depositor or from purchasers of the offered
certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the offered certificates may be
deemed to be underwriters in connection with such certificates, and any
discounts or commissions received by them from the depositor and any profit on
the resale of offered certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale
of the offered certificates of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the depositor will indemnify the
several underwriters and the underwriters will indemnify the depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
to such liabilities.
The prospectus supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the depositor and purchasers of
offered certificates of such series.
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The depositor anticipates that the offered certificates will be sold
primarily to institutional investors. Purchasers of offered certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
offered certificates. Holders of offered certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
prospectus will be used by Banc of America Securities LLC in connection with
offers and sales related to market-making transactions in offered certificates
previously offered hereunder in transactions with respect to which Banc of
America Securities LLC acts as principal. Banc of America Securities LLC may
also act as agent in such transactions. Sales may be made at negotiated prices
determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the certificates will be passed upon for
the depositor and the underwriter or underwriters by Cadwalader, Wickersham &
Taft. Certain federal income tax matters and other matters will be passed upon
for the depositor by Cadwalader, Wickersham & Taft.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates, and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will be included in this prospectus or in the related prospectus
supplement. The depositor has determined that its financial statements will not
be material to the offering of any offered certificates.
RATING
It is a condition to the issuance of any class of offered certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one rating agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders of all collections on the underlying mortgage assets to
which such holders are entitled. These ratings address the structural, legal and
issuer-related aspects associated with such certificates, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any.
Ratings on mortgage pass-through certificates do not represent any assessment of
the likelihood of principal prepayments by borrowers or of the degree by which
such prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of Stripped Interest Certificates might, in extreme cases fail
to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
AVAILABLE INFORMATION
The depositor has filed with the Securities and Exchange Commission a
Registration Statement (of which this prospectus forms a part) under the
Securities Act of 1933, as amended, with respect to the offered certificates.
This prospectus and the prospectus supplement relating to each series of offered
certificates contain summaries of the material terms of the documents referred
to in this prospectus or in such prospectus supplement, but do not contain all
of the information set forth in the Registration Statement pursuant to the rules
and regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C.
-91-
20549, and at its Midwest Regional Offices located as follows: Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains
reports, proxy and information statements, and other information that has been
filed electronically with the SEC. The Internet address is http://www.sec.gov.
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
prospectus or any related prospectus supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the depositor or any other person. Neither the delivery of this prospectus or
any related prospectus supplement nor any sale made under this prospectus or any
related prospectus supplement shall under any circumstances create an
implication that there has been no change in the information in this prospectus
since the date of this prospectus or in such prospectus supplement since the
date of the prospectus supplement. This prospectus and any related prospectus
supplement are not an offer to sell or a solicitation of an offer to buy any
security in any jurisdiction in which it is unlawful to make such offer or
solicitation.
The master servicer, the trustee or another specified person will cause to
be provided to registered holders of the offered certificates of each series
periodic unaudited reports concerning the related trust fund. If beneficial
interests in a class or series of offered certificates are being held and
transferred in book-entry format through the facilities of The DTC as described
in this prospectus, then unless otherwise provided in the related prospectus
supplement, such reports will be sent on behalf of the related trust fund to a
nominee of DTC as the registered holder of the offered certificates. Conveyance
of notices and other communications by DTC to its participating organizations,
and directly or indirectly through such participating organizations to the
beneficial owners of the applicable offered certificates, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. See "Description of the
Certificates--Reports to Certificateholders" and "--Book-Entry Registration and
Definitive Certificates".
The depositor will file or cause to be filed with the Securities and
Exchange Commission such periodic reports with respect to each trust fund as are
required under the Securities Exchange Act of 1934 and the rules and regulations
of the Securities and Exchange Commission. The depositor intends to make a
written request to the staff of the Securities and Exchange Commission that the
staff either (1) issue an order pursuant to Section 12(h) of the Securities
Exchange Act of 1934, as amended, exempting the depositor from certain reporting
requirements under the Securities Exchange Act of 1934, as amended, with respect
to each trust fund or (2) state that the staff will not recommend that the
Commission take enforcement action if the depositor fulfills its reporting
obligations as described in its written request. If such request is granted, the
depositor will file or cause to be filed with the Securities and Exchange
Commission as to each trust fund the periodic unaudited reports to holders of
the offered certificates referenced in the preceding paragraph; however, because
of the nature of the trust funds, it is unlikely that any significant additional
information will be filed. In addition, because of the limited number of
certificateholders expected for each series, the depositor anticipates that a
significant portion of such reporting requirements will be permanently suspended
following the first fiscal year for the related trust fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The depositor hereby incorporates by reference all documents and reports
filed or caused to be filed by the depositor with respect to a trust fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to the termination of an offering of offered
certificates evidencing interests in that trust fund. The depositor will provide
or cause to be provided without charge to each person to whom this prospectus is
delivered in connection with the offering of one or more classes of offered
certificates, upon written or oral request of such person, a copy of any or all
documents or reports incorporated in this prospectus by reference, in each case
to the extent such documents or reports relate to one or more of such classes of
such offered certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Such requests to the depositor should be directed in writing to its principal
executive offices at the Bank of America Corporate Center, Charlotte, North
Carolina 28255, or by telephone at (704) 386-2400.
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GLOSSARY
The following capitalized terms will have the respective meanings assigned
to them in this "Glossary" section whenever they are used in this prospectus.
"401(c) Regulations" means those regulations issued by the DOL which
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets.
"Accrued Certificate Interest" means for each Distribution Date an amount
equal to interest at the applicable pass-through rate accrued for a specified
period (generally the most recently ended calendar month) on the outstanding
Certificate Balance of such class of certificates immediately prior to such
Distribution Date.
"Accrual Certificates" means one or more classes of certificates that may
not be entitled to distributions of interest until the occurrence of certain
events, such as the retirement of one or more other classes of certificates.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Available Distribution Amount" means unless otherwise provided in the
related prospectus supplement for any series of certificates and any
Distribution Date the total of all payments or other collections (or advances in
lieu of such collections and advances) on, under or in respect of the mortgage
assets and any other assets included in the related trust fund that are
available for distribution to the holders of certificates of such series on such
date.
"Bankruptcy Code" means the U.S. Bankruptcy Code.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Certificate Account" means for the trust fund one or more established and
maintained on behalf of the certificateholders into which all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund will be deposited to the extent described this
prospectus and the related prospectus supplement.
"Certificate Balance" means the initial stated principal amount of each
individual class of certificates for a given series other than real estate
mortgage investment conduit residual certificates or certain classes of stripped
interest certificates.
"Certificate Owner" means the actual purchaser of a book-entry
certificate.
"Closing Date" means date of the initial issuance of the certificates of a
given series.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Property" means office buildings, retail stores and
establishments, hotels or motels, nursing homes, hospitals or other health
care-related facilities, recreational vehicle and mobile home parks, warehouse
facilities, mini-warehouse facilities, self-storage facilities, industrial
plants, parking lots, entertainment or sports arenas, restaurants, marinas,
mixed use or various other types of income-producing properties or unimproved
land comprising some or all of the mortgaged properties included in the trust
fund.
"Committee Report" means the Conference Committee Report accompanying the
Tax Reform Act of 1986.
"Companion Class" means one or more classes of certificate where
distributions of principal with respect to one or more other classes of
certificates may be contingent on the specified principal payment schedule for a
Controlled Amortization Class of the same series and the rate at which payments
and other collections of principal on the mortgage assets in the related trust
fund are received.
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"Controlled Amortization Class" means one or more classes of certificates
where distributions of principal may be made, subject to available funds, based
on a specified principal payment schedule.
"CPR" means the constant prepayment rate model representing an assumed
constant rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans
for the life of such mortgage loans.
"Cut-off Date" means the specified date initial aggregate outstanding
principal balance of the related mortgage assets as of a specified date.
"Debt Service Coverage Ratio" means at any given time for a mortgage loan
the ratio of--
o the Net Operating Income derived from the related mortgaged property
for a twelve-month period to
o the annualized scheduled payments of principal and/or interest on
the mortgage loan and any other loans senior to it that are secured
by the related mortgaged property.
"Determination Date" means the date upon which that all scheduled payments
on the mortgage loans in the trust fund are received or advanced by the master
servicer, special servicer or other specified person will be distributed to
certificateholders of the related series on the next succeeding Distribution
Date.
"Direct Participant" means the securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations that maintain accounts with DTC.
"Distribution Date" means the date as described in the prospectus
supplement upon which distributions on or with respect to the certificates will
be made.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company.
"Due Date" means a specified date upon which scheduled payments of
interest, principal or both are to be made under a mortgage loan and may occur
monthly, quarterly, semi-annually or annually.
"Due Period" means a specified time period (generally corresponding in
length to the period between Distribution Dates).
"Equity Participation" means a provision under a mortgage loan that
entitles the lender to a share of appreciation of the related mortgaged
property, or profits realized from the operation or disposition of such
mortgaged property or the benefit, if any, resulting from the refinancing of the
mortgage loan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Funds" means in general that portion of the amounts distributable
in respect of the certificates of any series on any Distribution Date that
represent--
o interest received or advanced on the mortgage assets in the trust
fund that is in excess of the interest currently accrued on the
certificates of such series; or
o Prepayment Premiums, payments from Equity Participations or any
other amounts received on the mortgage assets in the trust fund that
do not constitute payments of interest or principal.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fannie Mae" means Federal National Mortgage Association.
"Freddie Mac" means Federal Home Loan Mortgage Corporation.
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"Garn Act" means the Garn-St Germain Depository Institutions Act of 1982.
"Ginnie Mae" means Governmental National Mortgage Association.
"Grantor Trust Certificates" means certificates in a trust treated as a
grantor trust under applicable provisions of the Code.
"Grantor Trust Fractional Interest Certificate" means a Grantor Trust
Certificate representing an undivided equitable ownership interest in the
principal of the mortgage loans constituting the related Grantor Trust Fund,
together with interest at a pass-through rate.
"Grantor Trust Fund" means that portion of the trust fund as to which no
REMIC election has been made.
"Grantor Trust Strip Certificate" means a Grantor Trust Certificate
representing ownership of all or a portion of the difference between interest
paid on the mortgage loans constituting the related Grantor Trust Fund (net of
normal administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund.
"Indirect Participant" means those banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly.
"Insurance and Condemnation Proceeds" means proceeds applied to the
restoration of a mortgaged property or released to the related borrower in
connection with the full or partial condemnation of such mortgaged property.
"IRS" means the Internal Revenue Service.
"Issue Premium" means, in the case of a class of REMIC Regular
Certificates issued at a price in excess of the stated redemption price of that
class, the amount of such excess.
"Liquidation Proceeds" means all proceeds received under any hazard, title
or other insurance policy (other than Insurance and Condemnation Proceeds) and
all other amounts received and retained in connection with the liquidation of
defaulted mortgage loans or property acquired in respect of such defaulted
mortgage loans, by foreclosure or otherwise.
"Lock-out Period" means the period in which prepayments are prohibited
under a mortgage loan.
"Loan-to-Value Ratio" means for a mortgage loan the ratio (expressed as a
percentage) of--
o the then outstanding principal balance of the mortgage loan and any
other loans senior that are secured by the related mortgaged
property to
o its fair market value as determined by an appraisal of such property
conducted by or on behalf of the originator in connection with the
origination of the mortgage loan.
"MBS" means mortgage participations, pass-through certificates or other
mortgage-backed securities that may comprise the assets of the trust fund.
"Mortgage Asset Seller" means the entity from whom the depositor purchased
a mortgage asset either directly or indirectly, included in the trust fund. The
Mortgage Asset Seller may or may not be the originator of the related mortgage
loan or the issuer of the MBS and may be an affiliate of the depositor.
"Mortgage Rate" means the rate at which a mortgage loan accrues interest
which may be fixed over its term or that adjusts from time to time, converted at
the borrower's election from an adjustable to a fixed rate, or from a fixed to
an adjustable rate.
"Multifamily Properties" means residential properties consisting of five
or more rental or cooperatively-owned dwelling units in high-rise, mid-rise or
garden apartment buildings or other residential structures comprising some or
all of the mortgaged properties included in the trust fund.
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"Net Operating Income" means for any given period, the total operating
revenues derived from a mortgaged property during such period, minus the total
operating expenses incurred in respect of such mortgaged property during such
period other than --
o noncash items such as depreciation and amortization;
o capital expenditures; and
o debt service on the related mortgage loan or on any other loans that
are secured by such mortgaged property.
"NCUA" means the National Credit Union Administration.
"Notional Amount" means the amount upon which a Stripped Interest
Certificate is calculated to accrue interest which is either--
o based on the principal balances of some or all of the mortgage
assets in the related trust fund; or
o equal to the Certificate Balances of one or more other classes of
certificates of the same series.
"OCC" means the Office of the Comptroller of the Currency.
"OID Regulations" means the Treasury Department regulations issued under
Sections 1271-1273 and 1275 of the Code.
"OTS" means the Office of Thrift Supervision.
"Parties in Interest" means "parties in interest" as defined in ERISA and
"disqualified person" as defined in the Code.
"Percentage Interest" means the undivided percentage interest represented
by an offered certificate of a particular class which will be equal to the
percentage obtained by dividing the initial principal balance or notional amount
of such certificate by the initial Certificate Balance or Notional Amount of
such class.
"Permitted Investments" means government securities and other obligations
that are acceptable to each rating agency that has rated any one or more classes
of certificates of the related series into which funds from the Certificate
Account may be invested.
"Plan" means retirement plans, and on certain other employee benefit plans
and arrangements, including individual retirement accounts, individual
retirement annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA or Section 4975 of the Code.
"Plan Asset Regulations" mean Section 2510.3-101 of the regulations issued
by the DOL.
"Pooling and Servicing Agreement" means pooling and servicing agreement or
other agreement specified in the related prospectus supplement pursuant to which
certificates of each series will be issued.
"Prepayment Assumption" means the prepayment assumption used in reporting
original issue discount for each series of REMIC Regular Certificates or, if
applicable, Grantor Trust Certificates, as disclosed in the related prospectus
supplement.
"Prepayment Interest Shortfall" means the result when a prepayment on any
mortgage loan is distributable to certificateholders on a particular
Distribution Date, but such prepayment is not accompanied by interest thereon to
the Due Date for such mortgage loan in the related Due Period, then the interest
charged to the borrower (net of servicing and administrative fees) may be less
than the corresponding amount of interest accrued and otherwise payable on the
certificates of the related series.
-96-
"Prepayment Premium" means the payment of any premium or yield maintenance
charge in connection with certain prepayments under a mortgage loan.
"PTCE 95-60" means Prohibited Transaction Class Exemption 95-60.
"Purchase Price" means the price as specified in the prospectus supplement
at which a Mortgage Asset Seller will be required to repurchase a mortgage loan
under the conditions set forth in the prospectus supplement.
"Record Date" means last business day of the month preceding the month in
which the applicable Distribution Date occurs.
"Relief Act" means the Soldiers' and Sailors' Relief Act of 1940, as
amended.
"REMIC" means a real estate mortgage investment conduit, within the
meaning of, and formed in accordance with, the REMIC Provisions of the Code.
"REMIC Certificates" means certificates representing interests in a trust
fund, or a portion of the trust fund, that the REMIC administrator will elect to
have treated as REMIC.
"REMIC Provisions" means Sections 860A through 860G of the Code.
"REMIC Regular Certificates" means certificates evidencing or constituting
ownership of "regular interests" in the trust fund or a designated portion of
the trust under the REMIC Provisions.
"REMIC Regulations" means the Treasury Department regulations issued under
the REMIC Provisions.
"REMIC Residual Certificateholder" means the holder of a REMIC Residual
Certificate.
"REMIC Residual Certificates" means certificates evidencing or
constituting ownership of "residual interests" in the trust or a designated
portion of the trust under the REMIC Provisions.
"REO Properties" means mortgaged properties acquired on behalf of the
trust fund through foreclosure, deed-in-lieu of foreclosure or otherwise.
"RICO" means the Racketeer Influenced and Corrupt Organizations statute.
"Senior Certificates" means certificates in a given series that are senior
to one or more other classes of certificates in entitlement to certain
distributions;
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"SPA" means the standard prepayment assumption representing an assumed
variable rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans,.
"Stripped Interest Certificate" means those certificates entitled to
distributions of interest, with disproportionate, nominal or no distributions of
principal.
"Stripped Principal Certificate" means entitled to distributions of
principal, with disproportionate, nominal or no distributions of interest;
"Subordinate Certificates" means certificates in a given series that are
subordinate to one or more other classes of certificates in entitlement to
certain distributions;
"Tiered REMIC" means designated portions of the trust fund treated as two
or more REMICs.
"Treasury Department" means the United States Treasury Department.
"UCC" means for any jurisdiction the Uniform Commercial Code as in effect
in that jurisdiction.
-97-
"U.S. Person" means--
o a citizen or resident of the United States;
o a corporation or partnership created or organized in, or under the
laws of, the United States, any state or the District of Columbia,
including an entity treated as a corporation or partnership for
federal income tax purposes;
o an estate whose income is subject to United States federal income
tax purposes regardless of the source of its income; or
o a trust as to which--
1. a court in the United States is able to exercise primary
supervision over the administration of the trust, and
2. one or more United States persons have the authority to control
all substantial decisions of the trust.
In addition, to the extent provided in the Treasury Department
regulations, a trust will be a U.S. Person if it was in existence on August 20,
1996 and it elected to be treated as a U.S. Person.
"Voting Rights" means the voting rights evidenced by each series of
certificates.
"Warranting Party" means a party that makes certain representations and
warranties regarding the mortgage loans.
-98-
VERSION 2
PROSPECTUS
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 7 IN THIS PROSPECTUS.
Neither the certificates nor the underlying mortgage loans are insured by any
governmental agency.
The certificates will represent interests only in the related trust and will not
represent interests in or obligations of Banc of America Commercial Mortgage
Inc. or any of its affiliates, including Bank of America Corporation.
This prospectus may be used to offer and sell any series of certificates only if
accompanied by the prospectus supplement for that series.
THE TRUST--
o may periodically issue mortgage pass-through certificates in one or
more series with one or more classes; and
o will own--
o multifamily and commercial mortgage loans;
o mortgage-backed securities; and
o other property described in the accompanying prospectus
supplement.
THE CERTIFICATES--
o will represent interests in the trust and will be paid only from the
trust assets;
o provide for the accrual of interest based on a fixed, variable or
adjustable interest rate;
o may be offered through underwriters, which may include Banc of
America Securities LLC, an affiliate of Banc of America Commercial
Mortgage Inc.; and
o will not be listed on any securities exchange.
THE CERTIFICATEHOLDERS--
o will receive interest and principal payments based on the rate of
payment of principal and the timing of receipt of payments on
mortgage loans.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________, 2002
FOR MORE INFORMATION
Banc of America Commercial Mortgage Inc. has filed with the SEC additional
registration materials relating to the certificates. You may read and copy any
of these materials at the SEC's Public Reference Room at the following
locations:
o SEC Public Reference Section
450 Fifth Street, N.W.
Room 1204
Washington, D.C. 20549
o SEC Midwest Regional Offices
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
that contains reports, proxy and information statements, and other information
that has been filed electronically with the SEC. The Internet address is
http://www.sec.gov.
You may also contact Banc of America Commercial Mortgage Inc. in writing
at Bank of America Corporate Center, 100 North Tryon Street, Charlotte, North
Carolina 28255, or by telephone at (704) 386-2400.
See also the sections captioned "Available Information" and "Incorporation
of Certain Information by Reference" appearing at the end of this prospectus.
TABLE OF CONTENTS
PAGE
----
SUMMARY OF PROSPECTUS ..................................................... 1
RISK FACTORS .............................................................. 7
The Limited Liquidity of Your Certificates May Have an Adverse
Impact on Your Ability to Sell Your Certificates .................... 7
The Limited Assets of Each Trust May Adversely Impact Your Ability
To Recover Your Investment in the Event of Loss on the
Underlying Mortgage Assets .......................................... 7
Credit Support is Limited and May Not Be Sufficient to Prevent Loss
on Your Certificates ................................................ 8
Prepayments on the Underlying Mortgage Loans Will Affect the
Average Life of Your Certificates, and the Rate and Timing of
those Prepayments May Be Highly Unpredictable ....................... 8
Certificates Purchased at a Premium or a Discount Will Be Sensitive
to the Rate of Principal Payment .................................... 9
The Nature of Ratings Are Limited and Will Not Guarantee that You
Will Receive Any Projected Return on Your Certificates .............. 10
Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans ...................................................... 10
Inclusion of Delinquent Mortgage Loans in a Mortgage Asset Pool ........ 13
Health Care-Related Properties May Have Certain Risks Related to
Governmental Subsidy and Government Regulation ...................... 13
PROSPECTUS SUPPLEMENT ..................................................... 14
CAPITALIZED TERMS USED IN THIS PROSPECTUS ................................. 14
DESCRIPTION OF THE TRUST FUNDS ............................................ 15
General ................................................................ 15
Mortgage Loans ......................................................... 15
MBS .................................................................... 20
Certificate Accounts ................................................... 21
Credit Support ......................................................... 21
Cash Flow Agreements ................................................... 22
YIELD AND MATURITY CONSIDERATIONS ......................................... 22
General ................................................................ 22
Pass-Through Rate ...................................................... 22
Payment Delays ......................................................... 22
Certain Shortfalls in Collections of Interest .......................... 22
Yield and Prepayment Considerations .................................... 23
Weighted Average Life and Maturity ..................................... 24
Other Factors Affecting Yield, Weighted Average Life and Maturity ...... 25
THE DEPOSITOR ............................................................. 27
DESCRIPTION OF THE CERTIFICATES ........................................... 27
General ................................................................ 27
Distributions .......................................................... 28
Distributions of Interest on the Certificates .......................... 28
Distributions of Principal of the Certificates ......................... 29
Distributions on the Certificates Concerning Prepayment Premiums or
Concerning Equity Participations .................................... 30
Allocation of Losses and Shortfalls .................................... 30
Advances in Respect of Delinquencies ................................... 30
Reports to Certificateholders .......................................... 31
Voting Rights .......................................................... 32
Termination ............................................................ 32
Book-Entry Registration and Definitive Certificates .................... 33
THE POOLING AND SERVICING AGREEMENTS ...................................... 34
General ................................................................ 34
Assignment of Mortgage Loans; Repurchases .............................. 35
Representations and Warranties; Repurchases ............................ 36
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Collection and Other Servicing Procedures .............................. 37
Sub-Servicers .......................................................... 39
Certificate Account .................................................... 39
Modifications, Waivers and Amendments of Mortgage Loans ................ 41
Realization Upon Defaulted Mortgage Loans .............................. 42
Hazard Insurance Policies .............................................. 43
Due-on-Sale and Due-on-Encumbrance Provisions .......................... 44
Servicing Compensation and Payment of Expenses ......................... 44
Evidence as to Compliance .............................................. 45
Certain Matters Regarding the Master Servicer, the Special
Servicer, the REMIC Administrator and the Depositor ................. 46
Events of Default ...................................................... 47
Rights Upon Event of Default ........................................... 48
Amendment .............................................................. 48
List of Certificateholders ............................................. 49
The Trustee ............................................................ 49
Duties of the Trustee .................................................. 49
Certain Matters Regarding the Trustee .................................. 50
Resignation and Removal of the Trustee ................................. 50
DESCRIPTION OF CREDIT SUPPORT ............................................. 50
General ................................................................ 50
Subordinate Certificates ............................................... 51
Insurance or Guarantees Concerning to Mortgage Loans ................... 51
Letter of Credit ....................................................... 51
Certificate Insurance and Surety Bonds ................................. 52
Reserve Funds .......................................................... 52
Cash Collateral Account ................................................ 52
Credit Support with respect to MBS ..................................... 52
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS ................................... 53
General ................................................................ 53
Types of Mortgage Instruments .......................................... 53
Leases and Rents ....................................................... 53
Personalty ............................................................. 54
Foreclosure ............................................................ 54
Bankruptcy Laws ........................................................ 57
Environmental Considerations ........................................... 58
Due-on-Sale and Due-on-Encumbrance Provisions .......................... 60
Junior Liens; Rights of Holders of Senior Liens ........................ 60
Subordinate Financing .................................................. 61
Default Interest and Limitations on Prepayments ........................ 61
Applicability of Usury Laws ............................................ 62
Certain Laws and Regulations ........................................... 62
Americans with Disabilities Act ........................................ 62
Soldiers' and Sailors' Civil Relief Act of 1940 ........................ 62
Forfeiture for Drug and Money Laundering Violations .................... 63
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................... 63
General ................................................................ 63
REMICs ................................................................. 64
Grantor Trust Funds .................................................... 79
STATE AND OTHER TAX CONSEQUENCES .......................................... 87
CERTAIN ERISA CONSIDERATIONS .............................................. 87
General ................................................................ 87
Plan Asset Regulations ................................................. 88
Insurance Company General Accounts ..................................... 88
Consultation With Counsel .............................................. 89
Tax Exempt Investors ................................................... 89
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LEGAL INVESTMENT .......................................................... 89
USE OF PROCEEDS ........................................................... 91
METHOD OF DISTRIBUTION .................................................... 91
LEGAL MATTERS ............................................................. 92
FINANCIAL INFORMATION ..................................................... 92
RATING .................................................................... 92
AVAILABLE INFORMATION ..................................................... 93
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ......................... 94
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SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It does
not contain all the information you need to consider in making your investment
decision. You should carefully review this prospectus and the related prospectus
supplement in their entirety before making any investment in the certificates of
any series. As used in this prospectus, "you" refers to a prospective investor
in certificates, and "we" refers to the depositor, Banc of America Commercial
Mortgage Inc. A "Glossary" appears at the end of this prospectus.
SECURITIES OFFERED........... Mortgage pass-through certificates.
DEPOSITOR.................... Banc of America Commercial Mortgage Inc., a
Delaware corporation and a subsidiary of Bank of
America, N.A., has its principal executive offices
at Bank of America Corporate Center, 100 North
Tryon Street, Charlotte, North Carolina 28255, and
its telephone number is (704) 386-2400.
TRUSTEE...................... The trustee for each series of certificates will
be named in the related prospectus supplement.
MASTER SERVICER.............. If the trust includes mortgage loans, the master
servicer for the corresponding series of
certificates will be named in the prospectus
supplement.
SPECIAL SERVICER............. If the trust includes mortgage loans, the special
servicer for the corresponding series of
certificates will be named, or the circumstances
under which a special servicer may be appointed,
will be described in the prospectus supplement.
MBS ADMINISTRATOR............ If the trust includes mortgage-backed securities,
the entity responsible for administering the
mortgage-backed securities will be named in the
prospectus supplement.
REMIC ADMINISTRATOR.......... The person responsible for the various tax-related
administration duties for a series of certificates
concerning real estate mortgage investment
conduits will be named in the prospectus
supplement.
THE MORTGAGE LOANS........... Each series of certificates will, in general,
consist of a pool of mortgage loans referred to as
a mortgage asset pool secured by first or junior
liens on--
o residential properties consisting of five or
more rental or cooperatively-owned dwelling
units in high-rise, mid-rise or garden apartment
buildings or other residential structures; or
o office buildings, retail stores, hotels or
motels, nursing homes, hospitals or other health
care-related facilities (as described
immediately below), recreational vehicle and
mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage
facilities, industrial plants, parking lots,
entertainment or sports arenas, restaurants,
marinas, mixed use or various other types of
income-producing properties or unimproved land.
The health care-related facilities described in
the second bulleted paragraph above may include--
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o facilities providing acute medical care
services;
o skilled nursing facilities;
o nursing homes;
o congregate care homes;
o assisted living facilities; and
o senior and age restricted housing.
However, no one of the following types of
properties will be overly-represented in the trust
at the time the trust is formed: (1) restaurants;
(2) entertainment or sports arenas; (3) marinas;
or (4) nursing homes, hospitals or other health
care-related facilities.
The mortgage loans will not be guaranteed or
insured by Banc of America Commercial Mortgage
Inc. or any of its affiliates or, unless otherwise
provided in the prospectus supplement, by any
governmental agency or by any other person.
If specified in the prospectus supplement, some
mortgage loans may be delinquent as of the date
the trust is formed.
As described in the prospectus supplement, a
mortgage loan may--
o provide for no accrual of interest or for
accrual of interest at an interest rate that is
fixed over its term or that adjusts from time to
time, or that may be converted at the borrower's
election from an adjustable to a fixed mortgage
rate, or from a fixed to an adjustable mortgage
rate;
o provide for level payments to maturity or for
payments that adjust from time to time to
accommodate changes in the mortgage rate or to
reflect the occurrence of certain events, and
may permit negative amortization;
o be fully amortizing or may be partially
amortizing or nonamortizing, with a balloon
payment due on its stated maturity date;
o may prohibit over its term or for a certain
period prepayments and/or require payment of a
premium or a yield maintenance payment in
connection with certain prepayments; and
o provide for payments of principal, interest or
both, on due dates that occur monthly,
quarterly, semi-annually or at any other
interval as specified in the prospectus
supplement.
Each mortgage loan will have had an original term
to maturity of not more than 40 years. No mortgage
loan will have been originated by Banc of America
Commercial Mortgage Inc., although one of its
affiliates may have originated some of the
mortgage loans.
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If any mortgage loan, or group of related mortgage
loans, involves unusual credit risk, financial
statements or other financial information
concerning the related mortgaged property will be
included in the related prospectus supplement.
As described in the prospectus supplement, the
trust may also consist of mortgage participations,
mortgage pass-through certificates and/or other
mortgage-backed securities that evidence an
interest in, or are secured by a pledge of, one or
more mortgage loans similar to the other mortgage
loans in the trust and which may or may not be
issued, insured or guaranteed by the United States
or any governmental agency.
THE CERTIFICATES............. Each series of certificates will be issued in one
or more classes pursuant to a pooling and
servicing agreement or other agreement specified
in the prospectus supplement and will represent in
total the entire beneficial ownership interest in
the trust.
As described in the prospectus supplement, the
certificates of each series may consist of one or
more classes that--
o are senior or subordinate to one or more other
classes of certificates in entitlement to
certain distributions on the certificates;
o are "stripped principal certificates" entitled
to distributions of principal, with
disproportionate, nominal or no distributions of
interest;
o are "stripped interest certificates" entitled to
distributions of interest, with
disproportionate, nominal or no distributions of
principal;
o provide for distributions of interest or
principal that commence only after the
occurrence of certain events, such as the
retirement of one or more other classes of
certificates of that series;
o provide for distributions of principal 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 assets in
the trust;
o provide for distributions of principal to be
made, subject to available funds, based on a
specified principal payment schedule or other
methodology; or
o provide for distribution based on collections on
the mortgage assets in the trust attributable to
prepayment premiums, yield maintenance payments
or equity participations.
If specified in the prospectus supplement, a
series of certificates may include one or more
"controlled amortization classes," which will
entitle the holders to receive principal
distributions according to a specified principal
payment schedule. Although prepayment risk
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cannot be eliminated entirely for any class of
certificates, a controlled amortization class will
generally provide a relatively stable cash flow so
long as the actual rate of prepayment on the
mortgage loans in the trust remains relatively
constant at the rate of prepayment used to
establish the specific principal payment schedule
for those certificates. Prepayment risk with
respect to a given mortgage asset pool does not
disappear, however, and the stability afforded to
a controlled amortization class comes at the
expense of one or more other classes of the same
series.
Each class of certificates, other than certain
classes of stripped interest certificates and
certain classes of REMIC residual certificates
will have an initial stated principal amount. Each
class of certificates, other than certain classes
of stripped principal certificates and certain
classes of REMIC residual certificates, will
accrue interest on its certificate balance or, in
the case of certain classes of stripped interest
certificates, on a notional amount, based on a
pass-through rate which may be fixed, variable or
adjustable. The prospectus supplement will specify
the certificate balance, notional amount and/or
pass-through rate for each class of certificates.
DISTRIBUTIONS OF INTEREST
ON THE CERTIFICATES........ Interest on each class of certificates (other than
certain classes of stripped principal certificates
and certain classes of REMIC residual
certificates) of each series will accrue at the
applicable pass-through rate on the certificate
balance and will be paid on a distribution date.
However, in the case of certain classes of
stripped interest certificates, the notional
amount outstanding from time to time will be paid
to certificateholders as provided in the
prospectus supplement on a specified distribution
date.
Distributions of interest concerning one or more
classes of certificates may not commence until the
occurrence of certain events, such as the
retirement of one or more other classes of
certificates. Interest accrued concerning a class
of accrual certificates prior to the occurrence of
such an event will either be added to the
certificate balance or otherwise deferred as
described in the prospectus supplement.
Distributions of interest concerning one or more
classes of certificates may be reduced to the
extent of certain delinquencies, losses and other
contingencies described in this prospectus and in
the prospectus supplement.
DISTRIBUTIONS OF PRINCIPAL
OF THE CERTIFICATES........ Each class of certificates of each series (other
than certain classes of stripped interest
certificates and certain classes of REMIC residual
certificates) will have a certificate balance. The
certificate balance of a class of certificates
outstanding from time to time will represent the
maximum amount that the holders are then entitled
to receive in respect of principal from future
cash flow on the assets in the trust. The initial
total certificate balance of all classes of a
series of certificates will not be greater than
the outstanding principal balance of the related
mortgage assets as of a specified cut-off date,
after application of scheduled payments due on or
before that date, whether or not received. As
described in the prospectus supplement,
distributions of principal with respect to the
related series of certificates will be made on
each distribution date to the holders of the class
certificates of the series then entitled until the
certificate balances of those certificates have
been
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reduced to zero. Distributions of principal with
respect to one or more classes of certificates--
o may be made 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 assets in the
trust;
o may not commence until the occurrence of certain
events, such as the retirement of one or more
other classes of certificates of the same
series;
o may be made, subject to certain limitations,
based on a specified principal payment schedule;
or
o may be contingent on the specified principal
payment schedule for another class of the same
series and the rate at which payments and other
collections of principal on the mortgage assets
in the trust are received. Unless otherwise
specified in the prospectus supplement,
distributions of principal of any class of
certificates will be made on a pro rata basis
among all of the certificates of that class.
CREDIT SUPPORT AND CASH
FLOW AGREEMENTS............ If specified in the prospectus supplement, partial
or full protection against certain defaults and
losses on the assets in the trust may be provided
to one or more classes of certificates by (1)
subordination of one or more other classes of
certificates to classes in the same series, or by
(2) one or more other types of credit support,
such as a letter of credit, insurance policy,
guarantee, reserve fund, cash collateral account,
overcollateralization or other credit support. If
so provided in the prospectus supplement, the
trust may include--
o guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate; or
o certain other agreements, such as interest rate
exchange agreements, interest rate cap or floor
agreements, or other agreements designed to
reduce the effects of interest rate fluctuations
on the mortgage assets or on one or more classes
of certificates.
Certain relevant information regarding any
applicable credit support or cash flow agreement
will be set forth in the prospectus supplement for
a series of certificates.
ADVANCES..................... As specified in the prospectus supplement, if the
trust includes mortgage loans, the master
servicer, the special servicer, the trustee, any
provider of credit support, and/or another
specified person may be obligated to make, or have
the option of making, certain advances concerning
delinquent scheduled payments of principal and/or
interest on mortgage loans. Any advances made
concerning a particular mortgage loan will be
reimbursable from subsequent recoveries relating
to the particular mortgage loan and as described
in the prospectus supplement. If specified in the
prospectus supplement, any entity making advances
may be entitled to receive interest for a
specified
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period during which those advances are
outstanding, payable from amounts in the trust. If
the trust includes mortgaged-backed securities,
any comparable advancing obligation of a party to
the related pooling and servicing agreement, or of
a party to the related mortgage-backed securities
agreement, will be described in the prospectus
supplement.
OPTIONAL TERMINATION......... If specified in the prospectus supplement, a
series of certificates may be subject to optional
early termination through the repurchase of the
mortgage assets in the trust. If provided in the
related prospectus supplement, upon the reduction
of the certificate balance of a specified class or
classes of certificates by a specified percentage
or amount, a specified party may be authorized or
required to solicit bids for the purchase of all
of the assets of the trust, or of a sufficient
portion of those assets to retire that class or
classes.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES........... The certificates of each series will constitute or
evidence ownership of either--
o "regular interests" and "residual interests" in
the trust, or a designated portion of the trust,
treated as a REMIC under Sections 860A through
860G of the Code; or
o certificates in a trust treated as a grantor
trust under applicable provisions of the Code.
Investors are advised to consult their tax
advisors and to review "Certain Federal Income Tax
Consequences" in this prospectus and in the
prospectus supplement.
CERTAIN ERISA CONSIDERATIONS. Fiduciaries of retirement plans and certain other
employee benefit plans and arrangements, including
individual retirement accounts, individual
retirement annuities, Keogh plans, and collective
investment funds and separate individual
retirement accounts in which such plans, accounts,
annuities or arrangements are invested, that are
subject to the Employee Retirement Income Security
Act of 1974, as amended, Section 4975 of the
Internal Revenue Code of 1986, or any materially
similar provisions of federal, state or local law
should review with their legal advisors whether
the purchase or holding of certificates could give
rise to a transaction that is prohibited.
LEGAL INVESTMENT............. The certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended, only
if specified in the prospectus supplement.
Investors whose investment authority is subject to
legal restrictions should consult their legal
advisors to determine whether and to what extent
the certificates constitute legal investments for
them.
RATING....................... At their respective dates of issuance, each class
of certificates will be rated as of investment
grade by one or more nationally recognized
statistical rating agencies.
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RISK FACTORS
In considering an investment in the certificates of any series, you should
consider carefully the following risk factors and the risk factors in the
prospectus supplement.
THE LIMITED LIQUIDITY OF YOUR CERTIFICATES MAY HAVE AN ADVERSE IMPACT ON YOUR
ABILITY TO SELL YOUR CERTIFICATES.
The certificates of any series may have limited or no liquidity. You may
be forced to bear the risk of investing in the certificates for an indefinite
period of time. In addition, you may have no redemption rights, and the
certificates are subject to early retirement only under certain circumstances.
Lack of a Secondary Market May Limit the Liquidity of Your Certificate. We
cannot assure you that a secondary market for the certificates will develop or,
if it does develop, that it will provide certificateholders with liquidity of
investment or that it will continue for as long as the certificates remain
outstanding.
The prospectus supplement may indicate that an underwriter intends to
establish a secondary market in the certificates, although no underwriter will
be obligated to do so. Any secondary market may provide less liquidity to
investors than any comparable market for securities relating to single-family
mortgage loans. Unless specified in the prospectus supplement, the certificates
will not be listed on any securities exchange.
The Limited Nature of Ongoing Information Regarding Your Certificate May
Adversely Affect Liquidity. The primary source of ongoing information regarding
the certificates, including information regarding the status of the related
mortgage assets and any credit support for the certificates, will be the
periodic reports to certificateholders to be delivered pursuant to the related
pooling and servicing agreement.
We cannot assure you that any additional ongoing information regarding the
certificates will be available through any other source. The limited nature of
the information concerning a series of certificates may adversely affect
liquidity, even if a secondary market for the certificates does develop.
The Liquidity of Your Certificate May Be Affected by External Sources
Including Interest Rate Movement. If a secondary market does develop for the
certificates, the market value of the certificates will be affected by several
factors, including--
o perceived liquidity;
o the anticipated cash flow (which may vary widely depending upon the
prepayment and default assumptions concerning the underlying
mortgage loans); and
o prevailing interest rates.
The price payable at any given time for certain classes of certificates
may be extremely sensitive to small fluctuations in prevailing interest rates.
The relative change in price for a certificate in response to an upward or
downward movement in prevailing interest rates may not necessarily equal the
relative change in price for the certificate in response to an equal but
opposite movement in those rates. Therefore, the sale of certificates by a
holder in any secondary market that may develop may be at a discount from the
price paid by the holder. We are not aware of any source through which price
information about the certificates will be generally available on an ongoing
basis.
THE LIMITED ASSETS OF EACH TRUST MAY ADVERSELY IMPACT YOUR ABILITY TO RECOVER
YOUR INVESTMENT IN THE EVENT OF LOSS ON THE UNDERLYING MORTGAGE ASSETS.
Unless specified in the prospectus supplement, neither the certificates
nor the mortgage assets in the trust will be guaranteed or insured by Banc of
America Commercial Mortgage Inc. or any of its affiliates, by any governmental
agency or by any other person or entity. No certificate will represent a claim
against or security
-7-
interest in the trust funds for any other series. Therefore, if the related
trust fund has insufficient assets to make payments, no other assets will be
available for payment of the deficiency, and the holders of one or more classes
of the certificates will be required to bear the consequent loss.
Amounts on deposit from time to time in certain accounts constituting part
of the trust, including the certificate account and any accounts maintained as
credit support, may be withdrawn for purposes other than the payment of
principal of or interest on the related series of certificates under certain
conditions. On any distribution occurring after losses or shortfalls in
collections on the mortgage assets have been incurred, all or a portion of those
losses or shortfalls will be borne on a disproportionate basis among classes of
certificates.
CREDIT SUPPORT IS LIMITED AND MAY NOT BE SUFFICIENT TO PREVENT LOSS ON YOUR
CERTIFICATES.
The prospectus supplement for a series of certificates will describe any
credit support. The credit support may not cover all potential losses. For
example, credit support may or may not cover loss by reason of fraud or
negligence by a mortgage loan originator or other parties. Any losses not
covered by credit support may, at least in part, be allocated to one or more
classes of certificates.
A series of certificates may include one or more classes of subordinate
certificates, if provided in the prospectus supplement. Although subordination
is intended to reduce the likelihood of temporary shortfalls and ultimate losses
to holders of senior certificates, the amount of subordination will be limited
and may decline under certain circumstances. In addition, if principal payments
on one or more classes of certificates of a series are made in a specified order
of priority, any related credit support may be exhausted before the principal of
the later-paid classes of certificates of that series have been repaid in full.
The impact of losses and shortfalls experienced with respect to the
mortgage assets may fall primarily upon those classes of certificates having a
later right of payment.
If a form of credit support covers the certificates of more than one
series and losses on the related mortgage assets exceed the amount of the credit
support, it is possible that the holders of certificates of one (or more) series
will disproportionately benefit from that credit support, to the detriment of
the holders of certificates of one (or more) other series.
The amount of any applicable credit support supporting one or more classes
of certificates will be determined on the basis of criteria established by each
rating agency rating such classes of certificates based on an assumed level of
defaults, delinquencies and losses on the underlying mortgage assets and certain
other factors. However, we cannot assure you that the loss experience on the
related mortgage assets will not exceed such assumed levels. If the losses on
the related mortgage assets do exceed such assumed levels, the holders of one or
more classes of certificates will be required to bear such additional losses.
PREPAYMENTS ON THE UNDERLYING MORTGAGE LOANS WILL AFFECT THE AVERAGE LIFE OF
YOUR CERTIFICATES, AND THE RATE AND TIMING OF THOSE PREPAYMENTS MAY BE
HIGHLY UNPREDICTABLE.
As a result of prepayments on the mortgage loans in the trust, the amount
and timing of distributions of principal and/or interest on the certificates of
the related series may be highly unpredictable. Prepayments on the mortgage
loans in the trust will result in a faster rate of principal payments on one or
more classes of the related series of certificates than if payments on those
mortgage loans were made as scheduled. Therefore, the prepayment experience on
the mortgage loans in the trust may affect the average life of one or more
classes of certificates of the related series.
The rate of principal payments on pools of mortgage loans varies among
pools and from time to time is influenced by a variety of economic, demographic,
geographic, social, tax and legal factors. For example, if prevailing interest
rates fall significantly below the mortgage rates borne by the mortgage loans
included in the trust, principal prepayments on those mortgage loans are likely
to be higher than if prevailing interest rates remain at or above the rates
borne by those mortgage loans. Conversely, if prevailing interest rates rise
significantly above the mortgage rates borne by the mortgage loans included in
the trust, then principal prepayments on those mortgage loans are likely to be
lower than if prevailing interest rates remain at or below the mortgage rates
borne by those mortgage loans.
-8-
We cannot assure you what as to the actual rate of prepayment on the
mortgage loans in the trust will be, or that the rate of prepayment will conform
to any model in any prospectus supplement. As a result, depending on the
anticipated rate of prepayment for the mortgage loans in the trust, the
retirement of any class of certificates of the related series could occur
significantly earlier or later, and its average life could be significantly
shorter or longer, than expected.
The extent to which prepayments on the mortgage loans in trust ultimately
affect the average life of any class of certificates of the related series will
depend on the terms and provisions of the certificates. A class of certificates
may provide that on any distribution date the holders of the certificates are
entitled to a pro rata share of the prepayments on the mortgage loans in the
trust fund that are distributable on that date.
A class of certificates that entitles the holders to a disproportionately
large share of the prepayments on the mortgage loans in the trust increases the
likelihood of early retirement of that class if the rate of prepayment is
relatively fast. This type of early retirement risk is sometimes referred to as
"call risk."
A class of certificates that entitles its holders to a disproportionately
small share of the prepayments on the mortgage loans in the trust increases the
likelihood of an extended average life of that class if the rate of prepayment
is relatively slow. This type of prolonged retirement risk is sometimes referred
to as "extension risk."
As described in the prospectus supplement, the respective entitlements of
the various classes of certificate-holders of any series to receive payments
(and, in particular, prepayments) of principal of the mortgage loans in the
trust may vary based on the occurrence of certain events (e.g., the retirement
of one or more classes of certificates of that series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to those mortgage
loans).
A series of certificates may include one or more controlled amortization
classes, which will entitle the holders to receive principal distributions
according to a specified principal payment schedule. Although prepayment risk
cannot be eliminated entirely for any class of certificates, a controlled
amortization class will generally provide a relatively stable cash flow so long
as the actual rate of prepayment on the mortgage loans in the trust remains
relatively constant at the rate of prepayment used to establish the specific
principal payment schedule for the certificates. Prepayment risk concerning a
given mortgage asset pool does not disappear, however, and the stability
afforded to a controlled amortization class comes at the expense of one or more
companion classes of the same series.
As described in the prospectus supplement, a companion class may entitle
the holders to a disproportionately large share of prepayments on the mortgage
loans in the trust when the rate of prepayment is relatively fast, and/or may
entitle the holders to a disproportionately small share of prepayments on the
mortgage loans in the trust when the rate of prepayment is relatively slow. A
companion class absorbs some (but not all) of the call risk and/or extension
risk that would otherwise belong to the related controlled amortization class if
all payments of principal of the mortgage loans in the trust were allocated on a
pro rata basis.
CERTIFICATES PURCHASED AT A PREMIUM OR A DISCOUNT WILL BE SENSITIVE TO THE RATE
OF PRINCIPAL PAYMENT.
A series of certificates may include one or more classes offered at a
premium or discount. Yields on those classes of certificates will be sensitive,
and in some cases extremely sensitive, to prepayments on the mortgage loans in
the trust fund. If the amount of interest payable with respect to a class is
disproportionately large as compared to the amount of principal, as with certain
classes of stripped interest certificates, a holder might fail to recover its
original investment under some prepayment scenarios. The yield to maturity of
any class of certificates may vary from the anticipated yield due to the degree
to which the certificates are purchased at a discount or premium and the amount
and timing of distributions.
You should consider, in the case of any certificate 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. In the case of any certificate purchased at a
premium, you should consider 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.
-9-
THE NATURE OF RATINGS ARE LIMITED AND WILL NOT GUARANTEE THAT YOU WILL RECEIVE
ANY PROJECTED RETURN ON YOUR CERTIFICATES.
Any rating assigned by a rating agency to a class of certificates will
reflect only its assessment of the likelihood that holders of the certificates
will receive payments to which the certificateholders are entitled under the
related pooling and servicing agreement. Such rating will not constitute an
assessment of the likelihood that--
o principal prepayments on the related mortgage loans will be made;
o the degree to which the rate of such prepayments might differ from
that originally anticipated; or
o the likelihood of early optional termination of the trust.
Any rating will not address the possibility that prepayment of the
mortgage loans at a higher or lower rate than anticipated by an investor may
cause such investor to experience a lower than anticipated yield or that an
investor purchasing a certificate at a significant premium might fail to recover
its initial investment under certain prepayment scenarios. Therefore, a rating
assigned by a rating agency does not guarantee or ensure the realization of any
anticipated yield on a class of certificates.
The amount, type and nature of credit support given a series of
certificates will be determined on the basis of criteria established by each
rating agency rating classes of the certificates of such series. Those criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. There can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience, or that
the data derived from a large pool of mortgage loans will accurately predict the
delinquency, foreclosure or loss experience of any particular pool of mortgage
loans. In other cases, such criteria may be based upon determinations of the
values of the properties that provide security for the mortgage loans. However,
we cannot assure you that those values will not decline in the future. As a
result, the credit support required in respect of the certificates of any series
may be insufficient to fully protect the holders of such certificates from
losses on the related mortgage asset pool.
CERTAIN FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS.
Mortgage loans made on the security of multifamily or commercial property
may have a greater likelihood of delinquency and foreclosure, and a greater
likelihood of loss than loans made on the security of an owner-occupied
single-family property. The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower. Therefore, the value of an income-producing property
is directly related to the net operating income derived from such property.
If the net operating income of the property is reduced (for example, if
rental or occupancy rates decline or real estate tax rates or other operating
expenses increase), the borrower's ability to repay the loan may be impaired. A
number of the mortgage loans may be secured by liens on owner-occupied
properties or on properties leased to a single tenant or in which only a few
tenants produce a material amount of the rental income. As the primary component
of the net operating income of a property, rental income (and maintenance
payments from tenant stockholders of a Cooperative) and the value of any
property are subject to the vagaries of the applicable real estate market and/or
business climate. Properties typically leased, occupied or used on a short-term
basis, such as health care-related facilities, hotels and motels, and
mini-warehouse and self-storage facilities, tend to be affected more rapidly by
changes in market or business conditions than do properties leased, occupied or
used for longer periods, such as (typically) warehouses, retail stores, office
buildings and industrial plants. Commercial Properties may be secured by
owner-occupied properties or properties leased to a single tenant. Therefore, a
decline in the financial condition of the borrower or a single tenant may have a
disproportionately greater effect on the net operating income from such
properties than would be the case with respect to properties with multiple
tenants.
Changes in the expense components of the net operating income of a
property due to the general economic climate or economic conditions in a
locality or industry segment, such as (1) increases in interest rates, real
estate and personal property tax rates and other operating expenses including
energy costs, (2) changes in governmental
-10-
rules, regulations and fiscal policies, including environmental legislation, and
(3) acts of God may also affect the net operating income and the value of the
property and the risk of default on the related mortgage loan. In some cases
leases of properties may provide that the lessee, rather than the mortgagor, is
responsible for payment of certain of these expenses. However, because leases
are subject to default risks as well as when a tenant's income is insufficient
to cover its rent and operating expenses, the existence of such "net of expense"
provisions will only temper, not eliminate, the impact of expense increases on
the performance of the related mortgage loan.
Additional considerations may be presented by the type and use of a
particular property. For instance, properties that operate as hospitals and
nursing homes are subject to significant governmental regulation of the
ownership, operation, maintenance and financing of health care institutions.
Hotel, motel and restaurant properties are often operated pursuant to franchise,
management or operating agreements that may be terminable by the franchisor or
operator. The transferability of a hotel's or restaurant's operating, liquor and
other licenses upon a transfer of the hotel or the restaurant, whether through
purchase or foreclosure, is subject to local law requirements.
In addition, the concentration of default, foreclosure and loss risks in
mortgage loans in the trust will generally be greater than for pools of
single-family loans because mortgage loans in the trust generally will consist
of a smaller number of higher balance loans than would a pool of single-family
loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans May Make Recovery Difficult
in the Event that a Mortgage Loan Defaults. We anticipate that some or all of
the mortgage loans included in any trust fund will be nonrecourse loans or loans
for which recourse may be restricted or unenforceable. In this type of mortgage
loan, recourse in the event of borrower default will be limited to the specific
real property and other assets that were pledged to secure the mortgage loan.
However, even with respect to those mortgage loans that provide for recourse
against the borrower and its assets, we cannot assure you that enforcement of
such recourse provisions will be practicable, or that the assets of the borrower
will be sufficient to permit a recovery concerning a defaulted mortgage loan in
excess of the liquidation value of the related property.
Cross-Collateralization Provisions May Have Limitations on Their
Enforceability. A mortgage pool may include groups of mortgage loans which are
cross-collateralized and cross-defaulted. These arrangements are designed
primarily to ensure that all of the collateral pledged to secure the respective
mortgage loans in a cross-collateralized group. Cash flows generated on these
type of mortgage loans are available to support debt service on, and ultimate
repayment of, the total indebtedness. These arrangements seek to reduce the risk
that the inability of one or more of the mortgaged properties securing any such
group of mortgage loans to generate net operating income sufficient to pay debt
service will result in defaults and ultimate losses.
If the properties securing a group of mortgage loans which are
cross-collateralized are not all owned by the same entity, creditors of one or
more of the related borrowers could challenge the cross-collateralization
arrangement as a fraudulent conveyance. Under federal and state fraudulent
conveyance statutes, the incurring of an obligation or the transfer of property
by a person will be subject to avoidance under certain circumstances if the
person did not receive fair consideration or reasonably equivalent value in
exchange for such obligation or transfer and was then insolvent, was rendered
insolvent by such obligation or transfer or had unreasonably small capital for
its business. A creditor seeking to enforce remedies against a property subject
to such cross-collateralization to repay such creditor's claim against the
related borrower could assert that--
o such borrower was insolvent at the time the cross-collateralized
mortgage loans were made; and
o such borrower did not, when it allowed its property to be encumbered
by a lien securing the indebtedness represented by the other
mortgage loans in the group of cross-collateralized mortgage loans,
receive fair consideration or reasonably equivalent value for, in
effect, "guaranteeing" the performance of the other borrowers.
Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, we cannot assure you
that such exchanged "guarantees" would be found to constitute fair consideration
or be of reasonably equivalent value.
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The cross-collateralized mortgage loans may be secured by mortgage liens
on properties located in different states. Because of various state laws
governing foreclosure or the exercise of a power of sale and because foreclosure
actions are usually brought in state court, and the courts of one state cannot
exercise jurisdiction over property in another state, it may be necessary upon a
default under any such mortgage loan to foreclose on the related mortgaged
properties in a particular order rather than simultaneously in order to ensure
that the lien of the related mortgages is not impaired or released.
Increased Risk of Default Associated With Balloon Payments. Some of the
mortgage loans included in the trust may be nonamortizing or only partially
amortizing over their terms to maturity. These types of mortgage loans will
require substantial payments of principal and interest (that is, balloon
payments) at their stated maturity. These loans involve a greater likelihood of
default than self-amortizing loans because the ability of a borrower to make a
balloon payment typically will depend upon its ability either to refinance the
loan or to sell the related property. The ability of a borrower to accomplish
either of these goals will be affected by--
o the value of the related property;
o the level of available mortgage rates at the time of sale or
refinancing;
o the borrower's equity in the related property;
o the financial condition and operating history of the borrower and
the related property;
o tax laws;
o rent control laws (pertaining to certain residential properties);
o Medicaid and Medicare reimbursement rates (pertaining to hospitals
and nursing homes);
o prevailing general economic conditions; and
o the availability of credit for loans secured by multifamily or
commercial property.
Neither Banc of America Commercial Mortgage Inc. nor any of its affiliates
will be required to refinance any mortgage loan.
As specified in the prospectus supplement, the master servicer or the
special servicer will be permitted (within prescribed limits) to extend and
modify mortgage loans that are in default or as to which a payment default is
imminent. Although the master servicer or the special servicer generally will be
required to determine that any such extension or modification is reasonably
likely to produce a greater recovery than liquidation, taking into account the
time value of money, we cannot assure you that any such extension or
modification will in fact increase the present value of receipts from or
proceeds of the affected mortgage loans.
The Lender Under a Mortgage Loan May Have Difficulty Collecting Rents Upon
the Default and/or Bankruptcy of the Related Borrower. Each mortgage loan
included in the trust secured by property that is subject to leases typically
will be secured by an assignment of leases and rents. Under such an assignment,
the mortgagor assigns to the mortgagee its right, title and interest as lessor
under the leases of the related property, and the income derived, as further
security for the related mortgage loan, while retaining a license to collect
rents for so long as there is no default. If the borrower defaults, the license
terminates and the lender is entitled to collect rents. Some state laws may
require that the lender take possession of the property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the borrower, the lender's ability to collect the rents may be adversely
affected.
The Enforceability of Due-on-Sale and Debt-Acceleration Clauses May Be
Limited in Certain Situations. Mortgages may contain a due-on-sale clause, which
permits the lender to accelerate the maturity of the mortgage loan if the
borrower sells, transfers or conveys the related property or its interest in the
property. Mortgages also may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or
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nonmonetary default of the mortgagor. Such clauses are generally enforceable
subject to certain exceptions. The courts of all states will enforce clauses
providing for acceleration in the event of a material payment default. The
equity courts of any state, however, may refuse the foreclosure of a mortgage or
deed of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Adverse Environmental Conditions May Subject a Mortgage Loan to Additional
Risk. Under the laws of certain states, contamination of real property may give
rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether the environmental
damage or threat was caused by the borrower or a prior owner. A lender also
risks such liability on foreclosure of the mortgage.
Certain Special Hazard Losses May Subject Your Certificates to an
Increased Risk of Loss. Unless otherwise specified in a prospectus supplement,
the master servicer and special servicer for the trust will be required to cause
the borrower on each mortgage loan in the trust to maintain such insurance
coverage in respect of the property as is required under the related mortgage,
including hazard insurance. As described in the prospectus supplement, the
master servicer and the special servicer may satisfy its obligation to cause
hazard insurance to be maintained with respect to any property through
acquisition of a blanket policy.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the properties will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms, and therefore will not contain identical terms and conditions, most
such policies typically do not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of risks. Unless the mortgage
specifically requires the mortgagor to insure against physical damage arising
from such causes, then, to the extent any consequent losses are not covered by
credit support, such losses may be borne, at least in part, by the holders of
one or more classes of certificates of the related series.
INCLUSION OF DELINQUENT MORTGAGE LOANS IN A MORTGAGE ASSET POOL.
If provided in the prospectus supplement, the trust fund for a particular
series of certificates may include mortgage loans that are past due. As
specified in the related prospectus supplement, the servicing of such mortgage
loans will be performed by the special servicer. The same entity may act as both
master servicer and special servicer. Credit support provided with respect to a
particular series of certificates may not cover all losses related to such
delinquent mortgage loans, and investors should consider the risk that the
inclusion of such mortgage loans in the trust fund may adversely affect the rate
of defaults and prepayments concerning the subject mortgage asset pool and the
yield on the certificates of such series.
HEALTH CARE-RELATED PROPERTIES MAY HAVE CERTAIN RISKS RELATED TO GOVERNMENTAL
SUBSIDY AND GOVERNMENT REGULATION
Certain types of health care facilities typically receive a substantial
portion of their revenues from government reimbursement programs, primarily
Medicaid and Medicare. Medicaid and Medicare are subject to statutory and
regulatory changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions. Accordingly, we cannot assure you that payments under government
reimbursement programs will, in the future, be sufficient to fully reimburse the
cost of caring for program beneficiaries. If such payments are insufficient, net
operating income of those health care facilities that receive revenues from
those sources, and consequently the ability of the related borrowers to meet
their obligations under any mortgage loans secured thereby, could be adversely
affected.
Health care facilities are generally subject to federal and state laws and
licensing requirements that relate to the adequacy of medical care, distribution
of pharmaceuticals, rate setting, equipment, personnel, operating policies and
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additions to facilities and services. The failure of an operator to maintain or
renew any required license or regulatory approval could prevent it from
continuing operations at a health care facilities or, if applicable, bar it from
participation in government reimbursement programs. Furthermore, under
applicable federal and state laws and regulations, Medicare and Medicaid
reimbursements are generally not permitted to be made to any person other than
the provider who actually furnished the related medical goods and services.
Therefore, in the event of foreclosure, none of the trustee, the master
servicer, the special servicer or a subsequent lessee or operator of a health
care facilities securing a defaulted mortgage loan would generally be entitled
to obtain from federal or state governments any outstanding reimbursement
payments relating to services furnished at such property prior to such
foreclosure. Any of the aforementioned events may adversely affect the ability
of a borrower to meet his obligations under a mortgage loan secured by health
care facilities.
PROSPECTUS SUPPLEMENT
To the extent appropriate, the prospectus supplement relating to each
series of offered certificates will contain--
o a description of the class or classes of such offered certificates,
including the payment provisions with respect to each such class,
the aggregate principal amount (if any) of each such class, the rate
at which interest accrues from time to time (if at all), with
respect to each such class or the method of determining such rate,
and whether interest with respect to each such class will accrue
from time to time on its aggregate principal amount (if any) or on a
specified notional amount (if at all);
o information with respect to any other classes of certificates of the
same series;
o the respective dates on which distributions are to be made;
o information as to the assets, including the mortgage assets,
constituting the related trust fund;
o the circumstances, if any, under which the related trust fund may be
subject to early termination;
o additional information with respect to the method of distribution of
such offered certificates;
o whether one or more REMIC elections will be made and the designation
of the "regular interests" and "residual interests" in each REMIC to
be created and the identity of the person responsible for the
various tax-related duties in respect of each REMIC to be created;
o the initial percentage ownership interest in the related trust fund
to be evidenced by each class of certificates of such series;
o information concerning the trustee of the related trust fund;
o if the related trust fund includes mortgage loans, information
concerning the master servicer and any special servicer of such
mortgage loans and the circumstances under which all or a portion,
as specified, of the servicing of a mortgage loan would transfer
from the master servicer to the special servicer;
o information as to the nature and extent of subordination of any
class of certificates of such series, including a class of offered
certificates; and
o whether such offered certificates will be initially issued in
definitive or book-entry form.
CAPITALIZED TERMS USED IN THIS PROSPECTUS
From time to time we use capitalized terms in this prospectus. Each of
those capitalized terms will have the meaning assigned to it in the "Glossary"
attached to this prospectus.
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DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each trust fund will consist of mortgage assets
which will include--
o various types of multifamily or commercial mortgage loans;
o mortgage participations, pass-through certificates or other
mortgage-backed securities that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily
or commercial mortgage loans; or
o a combination of such mortgage loans and mortgage backed securities.
We will establish each trust fund and select each mortgage asset. We will
purchase mortgage assets to be included in the trust fund and select each
mortgage asset from the Mortgage Asset Seller who may not have originated the
mortgage asset or issued the MBS and may be our affiliate.
We will not insure or guaranty the mortgage assets nor will any of its
affiliates or, unless otherwise provided in the related prospectus supplement,
by any governmental agency or instrumentality or by any other person. The
discussion below under the heading "--Mortgage Loans", unless otherwise noted,
applies equally to mortgage loans underlying any MBS included in a particular
trust fund.
MORTGAGE LOANS
General. The mortgage loans will be evidenced by promissory notes
(referred to in this prospectus as mortgage notes) notes secured by mortgages,
deeds of trust or similar security instruments (referred to in this prospectus
as mortgages) that create first or junior liens on fee or leasehold estates in
properties consisting of--
o residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden
apartment buildings or other residential structures; or
o office buildings, retail stores and establishments, hotels or
motels, nursing homes, hospitals or other health care-related
facilities, recreational vehicle and mobile home parks, warehouse
facilities, mini-warehouse facilities, self-storage facilities,
industrial plants, parking lots, entertainment or sports arenas,
restaurants, marinas, mixed use or various other types of
income-producing properties or unimproved land.
These multifamily properties may include mixed commercial and residential
structures and apartment buildings owned by private cooperative housing
corporations. However, no one of the following types of commercial properties
will represent security for a material concentration of the mortgage loans in
any trust fund, based on principal balance at the time such trust fund is
formed: (1) restaurants; (2) entertainment or sports arenas; (3) marinas; or (4)
nursing homes, hospitals or other health care-related facilities. Unless
otherwise specified in the related prospectus supplement, each mortgage will
create a first priority mortgage lien on a borrower's fee estate in a mortgaged
property. If a mortgage creates a lien on a borrower's leasehold estate in a
property, then, unless otherwise specified in the related prospectus supplement,
the term of any such leasehold will exceed the term of the mortgage note by at
least ten years. Unless otherwise specified in the related prospectus
supplement, each mortgage loan will have been originated by a person other than
us; however, such person may be or may have been our affiliate.
If so provided in the related prospectus supplement, mortgage assets for a
series of certificates may include mortgage loans secured by junior liens, and
the loans secured by the related senior liens may not be included in the
mortgage pool. The primary risk to holders of mortgage loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related senior liens to satisfy fully both the senior
liens and the mortgage loan. In the event that a holder of a senior lien
forecloses on a mortgaged property, the
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proceeds of the foreclosure or similar sale will be applied first to the payment
of court costs and fees in connection with the foreclosure, second to real
estate taxes, third in satisfaction of all principal, interest, prepayment or
acceleration penalties, if any, and any other sums due and owing to the holder
of the senior liens. The claims of the holders of the senior liens will be
satisfied in full out of proceeds of the liquidation of the related mortgaged
property, if such proceeds are sufficient, before the trust fund as holder of
the junior lien receives any payments in respect of the mortgage loan. If the
master servicer were to foreclose on any mortgage loan, it would do so subject
to any related senior liens. In order for the debt related to such mortgage loan
to be paid in full at such sale, a bidder at the foreclosure sale of such
mortgage loan would have to bid an amount sufficient to pay off all sums due
under the mortgage loan and any senior liens or purchase the mortgaged property
subject to such senior liens. In the event that such proceeds from a foreclosure
or similar sale of the related mortgaged property are insufficient to satisfy
all senior liens and the mortgage loan in the aggregate, the trust fund, as the
holder of the junior lien, and, accordingly, holders of one or more classes of
the certificates of the related series bear--
o the risk of delay in distributions while a deficiency judgment
against the borrower is obtained; and
o the risk of loss if the deficiency judgment is not obtained and
satisfied. Moreover, deficiency judgments may not be available in
certain jurisdictions, or the particular mortgage loan may be a
nonrecourse loan, which means that, absent special facts, recourse
in the case of default will be limited to the mortgaged property and
such other assets, if any, that were pledged to secure repayment of
the mortgage loan.
If so specified in the related prospectus supplement, the mortgage assets
for a particular series of certificates may include mortgage loans that are
delinquent as of the date such certificates are issued. In that case, the
related prospectus supplement will set forth, as to each such mortgage loan,
available information as to the period of such delinquency, any forbearance
arrangement then in effect, the condition of the related mortgaged property and
the ability of the mortgaged property to generate income to service the mortgage
debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, as noted above, some or all of the
mortgage loans included in a particular trust fund may be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important factor in evaluating the
likelihood of default on such a loan. The Net Operating Income of a mortgaged
property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related mortgage loan at any given time. As the
primary source of the operating revenues of a nonowner occupied,
income-producing property, rental income (and, with respect to a mortgage loan
secured by a cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial plants. Commercial
Properties may be owner-occupied or leased to a small number of tenants. Thus,
the Net Operating Income of such a mortgaged property may depend substantially
on the financial condition of the borrower or a tenant, and mortgage loans
secured by liens on such properties may pose a greater likelihood of default and
loss than loans secured by liens on Multifamily Properties or on multi-tenant
Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a mortgage loan.
As may be further described in the related prospectus supplement, in some cases
leases of mortgaged properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses. However,
the existence of such "net of expense" provisions will result in stable Net
Operating Income to the borrower/landlord only to the extent that the lessee is
able to absorb operating expense increases while continuing to make rent
payments.
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Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
factor in evaluating the likelihood of loss if a property must be liquidated
following a default. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a mortgaged property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
mortgage loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure
of the likelihood of liquidation loss in a pool of mortgage loans. For example,
the value of a mortgaged property as of the date of initial issuance of the
related series of certificates may be less than the value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
based on--
o the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement
method (the cost of replacing the property at such date);
o the income capitalization method (a projection of value based upon
the property's projected net cash flow),
o or upon a selection from or interpolation of the values derived from
such methods.
Each of these appraisal methods can present analytical difficulties. It is
often difficult to find truly comparable properties that have recently been
sold; the replacement cost of a property may have little to do with its current
market value; and income capitalization is inherently based on inexact
projections of income and expense and the selection of an appropriate
capitalization rate and discount rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of the
likelihood of default and loss, is even more difficult.
Although there may be multiple methods for determining the value of a
mortgaged property, value will in all cases be affected by property performance.
As a result, if a mortgage loan defaults because the income generated by the
related mortgaged property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the mortgaged property will reflect that
and a liquidation loss may occur.
While we believe that the foregoing considerations are important factors
that generally distinguish loans secured by liens on income-producing real
estate from single-family mortgage loans, there can be no assurance that all of
such factors will in fact have been prudently considered by the originators of
the mortgage loans, or that, for a particular mortgage loan, they are complete
or relevant. See "Risk Factors--Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans--General" and "--Certain Factors
Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans--Increased
Risk of Default Associated With Balloon Payments".
Payment Provisions of the Mortgage Loans. All of the mortgage loans will
(1) have had original terms to maturity of not more than 40 years and (2)
provide for scheduled payments of principal, interest or both, to be made on
specified dates that occur monthly, quarterly, semi-annually or annually. A
mortgage loan may--
o provide for no accrual of interest or for accrual of interest at an
interest rate that is fixed over its term or that adjusts from time
to time, or that may be converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate;
o provide for level payments to maturity or for payments that adjust
from time to time to accommodate changes in its interest rate or to
reflect the occurrence of certain events, and may permit negative
amortization;
o may be fully amortizing or may be partially amortizing or
nonamortizing, with a balloon payment due on its stated maturity
date;
o may prohibit over its term or for a certain period prepayments
and/or require payment of a premium or a yield maintenance payment
in connection with certain prepayments, in each case as described in
the related prospectus supplement.
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A mortgage loan may also contain a provision that entitles the lender to a
share of appreciation of the related mortgaged property, or profits realized
from the operation or disposition of such mortgaged property or the benefit, if
any, resulting from the refinancing of the mortgage loan, as described in the
related prospectus supplement. See "Certain Legal Aspects of the Mortgage
Loans--Default Interest and Limitations on Prepayments" in the prospectus
regarding the enforceability of prepayment premiums and yield maintenance
charges.
Mortgage Loan Information in Prospectus Supplements. Each prospectus
supplement will contain certain information pertaining to the mortgage loans in
the related trust fund, which, to the extent then applicable, will generally
include the following:
o the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the mortgage
loans;
o the type or types of property that provide security for repayment of
the mortgage loans;
o the earliest and latest origination date and maturity date of the
mortgage loans;
o the original and remaining terms to maturity of the mortgage loans,
or the respective ranges of such terms to maturity, and the weighted
average original and remaining terms to maturity of the mortgage
loans;
o the Loan-to-Value Ratios of the mortgage loans (either at
origination or as of a more recent date), or the range of the
Loan-to-Value-Ratios, and the weighted average of such Loan-to-Value
Ratios;
o the Mortgage Rates borne by the mortgage loans, or the range of the
Mortgage Rate, and the weighted average Mortgage Rate borne by the
mortgage loans;
o with respect to mortgage loans with adjustable Mortgage Rates, the
index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted
average gross margin, and any limits on Mortgage Rate adjustments at
the time of any adjustment and over the life of such mortgage loan;
o information regarding the payment characteristics of the mortgage
loans, including, without limitation, balloon payment and other
amortization provisions, Lock-out Periods and Prepayment Premiums,
o the Debt Service Coverage Ratios of the mortgage loans (either at
origination or as of a more recent date), or the range Debt Service
Coverage Ratios, and the weighted average of such Debt Service
Coverage Ratios, and
o the geographic distribution of the mortgaged properties on a
state-by-state basis. In appropriate cases, the related prospectus
supplement will also contain certain information available us that
pertains to the provisions of leases and the nature of tenants of
the mortgaged properties. If we are unable to provide the specific
information described above at the time any offered certificates of
a series are initially offered, more general information of the
nature described above will be provided in the related prospectus
supplement, and specific information will be set forth in a report
which will be available to purchasers of those certificates at or
before their initial issuance and will be filed as part of a Current
Report on Form 8-K with the Securities and Exchange Commission
within fifteen days following their issuance.
If any mortgage loan, or group of related mortgage loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related mortgaged property or mortgaged
properties will be included in the related prospectus supplement.
If and to the extent available and relevant to an investment decision in
the offered certificates of the related series, information regarding the
prepayment experience of a master servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related prospectus
supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
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addition, the relevant characteristics of a master servicer's servicing
portfolio may be so materially different from those of the related mortgage
asset pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to maturity and/or prepayment
restrictions) between the two pools of loans could render the master servicer's
prepayment experience irrelevant. Because of the nature of the assets to be
serviced and administered by a special servicer, no comparable prepayment
information will be presented with respect to the special servicer's multifamily
and/or commercial mortgage loan servicing portfolio.
Mortgage Loans Secured by Health Care-Related Properties. The mortgaged
properties may include health care related facilities which include--
o senior housing generally consisting of facilities with respect to
which the residents are ambulatory, handle their own affairs and
typically are couples whose children have left the home and at which
the accommodations are usually apartment style;
o assisted living facilities consisting of typically single or double
room occupancy, dormitory-style housing facilities which provide
food service, cleaning and some personal care and with respect to
which the tenants are able to medicate themselves but may require
assistance with certain daily routines;
o skilled nursing facilities that provide services to post trauma and
frail residents with limited mobility who require extensive medical
treatment; and
o acute care facilities generally consisting of hospital and other
facilities providing short-term, acute medical care services.
Certain types of health care-related properties, particularly acute care
facilities, skilled nursing facilities and some assisted living facilities,
typically receive a substantial portion of their revenues from government
reimbursement programs, primarily Medicaid and Medicare. Medicaid and Medicare
are subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings, policy interpretations, delays by fiscal intermediaries
and government funding restrictions. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers, and
there exist various proposals for national health care reform that could further
limit those payments. Therefore, we cannot assure you that payments under
government reimbursement programs will, in the future, be sufficient to fully
reimburse the cost of caring for program beneficiaries. If such payments are
insufficient, net operating income of those health care-related facilities that
receive revenues from those sources, and consequently the ability of the related
borrowers to meet their obligations under any mortgage loans secured thereby,
could be adversely affected.
Moreover, health care-related facilities are generally subject to federal
and state laws that relate to the adequacy of medical care, distribution of
pharmaceuticals, rate setting, equipment, personnel, operating policies and
additions to facilities and services. In addition, facilities where such care or
other medical services are provided are subject to periodic inspection by
governmental authorities to determine compliance with various standards
necessary to continued licensing under state law and continued participation in
the Medicaid and Medicare reimbursement programs. Providers of assisted living
services are also subject to state licensing requirements in certain states. The
failure of an operator to maintain or renew any required license or regulatory
approval could prevent it from continuing operations at a health care-related
facility or, if applicable, bar it from participation in government
reimbursement programs. Furthermore, under applicable federal and state laws and
regulations, Medicare and Medicaid reimbursements are generally not permitted to
be made to any person other than the provider who actually furnished the related
medical goods and services. Accordingly, in the event of foreclosure, none of
the trustee, the master servicer, the special servicer or a subsequent lessee or
operator of any health care-related facility securing a defaulted mortgage loan
would generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at such
property prior to such foreclosure. Any of the aforementioned events may
adversely affect the ability of the related borrowers to meet their mortgage
loan obligations.
Government regulation applying specifically to acute care facilities,
skilled nursing facilities and certain types of assisted living facilities
includes health planning legislation, enacted by most states, intended, at least
in part, to regulate the supply of nursing beds. The most common method of
control is the requirement that a state authority
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first make a determination of need, evidenced by its issuance of a certificate
of need, before a long-term care provider can establish a new facility, add beds
to an existing facility or, in some states, take certain other actions (for
example, acquire major medical equipment, make major capital expenditures, add
services, refinance long-term debt, or transfer ownership of a facility). States
also regulate nursing bed supply in other ways. For example, some states have
imposed moratoria on the licensing of new beds, or on the certification of new
Medicaid beds, or have discouraged the construction of new nursing facilities by
limiting Medicaid reimbursements allocable to the cost of new construction and
equipment. In general, a certificate of need is site specific and operator
specific; it cannot be transferred from one site to another, or to another
operator, without the approval of the appropriate state agency. Accordingly, if
a mortgage loan secured by a lien on such a health care-related mortgaged
property were foreclosed upon, the purchaser at foreclosure might be required to
obtain a new certificate of need or an appropriate exemption. In addition,
compliance by a purchaser with applicable regulations may in any case require
the engagement of a new operator and the issuance of a new operating license.
Upon a foreclosure, a state regulatory agency may be willing to expedite any
necessary review and approval process to avoid interruption of care to a
facility's residents, but there can be no assurance that any will do so or that
any necessary licenses or approvals will be issued.
Further government regulation applicable to health care-related facilities
is found in the form of federal and state "fraud and abuse" laws that generally
prohibit payment or fee-splitting arrangements between health care providers
that are designed to induce or encourage the referral of patients to, or the
recommendation of, a particular provider for medical products or services.
Violation of these restrictions can result in license revocation, civil and
criminal penalties, and exclusion from participation in Medicare or Medicaid
programs. The state law restrictions in this area vary considerably from state
to state. Moreover, the federal anti- kickback law includes broad language that
potentially could be applied to a wide range of referral arrangements, and
regulations designed to create "safe harbors" under the law provide only limited
guidance. Accordingly, there can be no assurance that such laws will be
interpreted in a manner consistent with the practices of the owners or operators
of the health care-related properties that are subject to such laws.
The operators of health care-related facilities are likely to compete on a
local and regional basis with others that operate similar facilities, some of
which competitors may be better capitalized, may offer services not offered by
such operators, or may be owned by non-profit organizations or government
agencies supported by endowments, charitable contributions, tax revenues and
other sources not available to such operators. The successful operation of a
health care-related facility will generally depend upon the number of competing
facilities in the local market, as well as upon other factors such as its age,
appearance, reputation and management, the types of services it provides and,
where applicable, the quality of care and the cost of that care. The inability
of a health care-related property to flourish in a competitive market may
increase the likelihood of foreclosure on the related mortgage loan, possibly
affecting the yield on one or more classes of the related series of offered
certificates.
MBS
MBS may include (1) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality of the United
States) mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities or (2) certificates issued and/or insured or
guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, the Governmental National Mortgage Association or the
Federal Agricultural Mortgage Corporation, provided that, unless otherwise
specified in the related prospectus supplement, each MBS will evidence an
interest in, or will be secured by a pledge of, mortgage loans that conform to
the descriptions of the mortgage loans contained in this prospectus.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a mortgage asset
pool: (a) either will (1) have been previously registered under the Securities
Act of 1933, as amended, (2) be exempt from such registration requirements or
(3) have been held for at least the holding period specified in Rule 144(k)
under the Securities Act of 1933, as amended; and (b) will have been acquired
(other than from us or any of our affiliates) in bona fide secondary market
transactions.
Any MBS will have been issued pursuant to a MBS agreement which is a
participation and servicing agreement, a pooling and servicing agreement, an
indenture or similar agreement. The issuer of the MBS and/or the servicer of the
underlying mortgage loans will be parties to the MBS agreement, generally
together with a trustee or, in the alternative, with the original purchaser or
purchasers of the MBS.
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The MBS may have been issued in one or more classes with characteristics
similar to the classes of the offered certificates described in this prospectus.
Distributions in respect of the MBS will be made by the issuer of the MBS, the
servicer of the MBS, or the trustee of the MBS agreement or the MBS trustee on
the dates specified in the related prospectus supplement. The issuer of the MBS
or the MBS servicer or another person specified in the related prospectus
supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related prospectus supplement.
Reserve funds, subordination or other credit support similar to that
described for the offered certificates under "Description of Credit Support" may
have been provided with respect to the MBS. The type, characteristics and amount
of such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The prospectus supplement for a series of certificates that evidence
interests in MBS will specify, to the extent available--
o the aggregate approximate initial and outstanding principal
amount(s) and type of the MBS to be included in the trust fund;
o the original and remaining term(s) to stated maturity of the MBS, if
applicable;
o the pass-through or bond rate(s) of the MBS or the formula for
determining such rate(s);
o the payment characteristics of the MBS;
o the issuer of the MBS, servicer of the MBS and trustee of the MBS,
as applicable, of each of the MBS;
o a description of the related credit support, if any;
o the circumstances under which the related underlying mortgage loans,
or the MBS themselves, may be purchased prior to their maturity;
o the terms on which mortgage loans may be substituted for those
originally underlying the MBS;
o the type of mortgage loans underlying the MBS and, to the extent
available and appropriate under the circumstances, such other
information in respect of the underlying mortgage loans described
under "--Mortgage Loans--Mortgage Loan Information in Prospectus
Supplements"; and
o the characteristics of any cash flow agreements that relate to the
MBS.
CERTIFICATE ACCOUNTS
Each trust fund will include one or more accounts established and
maintained on behalf of the certificateholders into which all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund will be deposited to the extent described in this
prospectus and in the related prospectus supplement. See "The Pooling and
Servicing Agreements--Certificate Account".
CREDIT SUPPORT
If so provided in the prospectus supplement for a series of certificates,
partial or full protection against certain defaults and losses on the mortgage
assets in the related trust fund may be provided to one or more classes of
certificates of such series in the form of subordination of one or more other
classes of certificates of such series or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination of subordination and credit support. The
amount and types of credit support, the identity of the entity providing it (if
applicable) and related information with respect to each type of credit support,
if
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any, will be set forth in the prospectus supplement for a series of
certificates. See "Risk Factors--Credit Support Limitations" and "Description of
Credit Support".
CASH FLOW AGREEMENTS
If so provided in the prospectus supplement for a series of certificates,
the related trust fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The related trust fund may also include certain
other agreements, such as interest rate exchange agreements, interest rate cap
or floor agreements, or other agreements designed to reduce the effects of
interest rate fluctuations on the mortgage assets on one or more classes of
certificates. The principal terms of any such cash flow agreement, including,
without limitation, provisions relating to the timing, manner and amount of
payments and provisions relating to the termination of the cash flow agreement,
will be described in the related prospectus supplement. The related prospectus
supplement will also identify the obligor under any such cash flow agreement.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any offered certificate will depend on the price paid by the
certificateholder, the pass-through rate of the certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors--Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a trust fund that consists solely of mortgage loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a class of certificates as will the characteristics and behavior
of comparable mortgage loans, the effect may differ due to the payment
characteristics of the MBS. If a trust fund includes MBS, the related prospectus
supplement will discuss the effect, if any, that the payment characteristics of
the MBS may have on the yield to maturity and weighted average lives of the
offered certificates of the related series.
PASS-THROUGH RATE
The certificates of any class within a series may have a fixed, variable
or adjustable pass-through rate, which may or may not be based upon the interest
rates borne by the mortgage loans in the related trust fund.
The prospectus supplement with respect to any series of certificates will
specify the pass-through rate for each class of offered certificates of such
series or, in the case of a class of offered certificates with a variable or
adjustable pass-through rate, the method of determining the pass-through rate;
the effect, if any, of the prepayment of any mortgage loan on the pass-through
rate of one or more classes of offered certificates; and whether the
distributions of interest on the offered certificates of any class will be
dependent, in whole or in part, on the performance of any obligor under a cash
flow agreement.
PAYMENT DELAYS
With respect to any series of certificates, a period of time will elapse
between the date upon which payments on the mortgage loans in the related trust
fund are due and the Distribution Date on which such payments are passed through
to certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such mortgage loans were distributed to
certificateholders on the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a mortgage loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any series of
certificates and distributable on any Distribution Date will generally
correspond to interest accrued on the mortgage loans to their respective Due
Dates during the related Due Period. If a prepayment on any mortgage loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest to the Due
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Date for such mortgage loan in the related Due Period, then the interest charged
to the borrower (net of servicing and administrative fees) may be less than the
corresponding amount of interest accrued and otherwise payable on the
certificates of the related series. If and to the extent that any such shortfall
is allocated to a class of offered certificates, the yield will be adversely
affected. The prospectus supplement for each series of certificates will
describe the manner in which any such shortfalls will be allocated among the
classes of such certificates. The related prospectus supplement will also
describe any amounts available to offset such shortfalls.
YIELD AND PREPAYMENT CONSIDERATIONS
A certificate's yield to maturity will be affected by the rate of
principal payments on the mortgage loans in the related trust fund and the
allocation the principal payments to reduce the principal balance (or notional
amount, if applicable) of such certificate. The rate of principal payments on
the mortgage loans in any trust fund will in turn be affected by the
amortization schedules of the mortgage loans (which, in the case of mortgage
loans, may change periodically to accommodate adjustments to the corresponding
Mortgage Rates), the dates on which any balloon payments are due, and the rate
of principal prepayments (including for this purpose, voluntary prepayments by
borrowers and also prepayments resulting from liquidations of mortgage loans due
to defaults, casualties or condemnations affecting the related mortgaged
properties, or purchases of mortgage loans out of the related trust fund).
Because the rate of principal prepayments on the mortgage loans in any trust
fund will depend on future events and a variety of factors (as described below),
no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of offered
certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the mortgage loans in the related trust
fund are in turn distributed on such certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the notional amount
of the Stripped Interest Certificates). An investor should consider, in the case
of any offered certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the mortgage loans in the related
trust fund could result in an actual yield to such investor that is lower than
the anticipated yield and, in the case of any offered certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such mortgage loans could result in an actual yield to such investor that is
lower than the anticipated yield. In addition, if an investor purchases an
offered certificate at a discount (or premium), and principal payments are made
in reduction of the principal balance or notional amount of such investor's
offered certificates at a rate slower (or faster) than the rate anticipated by
the investor during any particular period, any consequent adverse effects on
such investor's yield would not be fully offset by a subsequent increase (or
decrease) in the rate of principal payments.
In general, the notional amount of a class of Stripped Interest
Certificates will either -
o be based on the principal balances of some or all of the mortgage
assets in the related trust fund; or
o equal the Certificate Balances of one or more of the other classes
of certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
received on such mortgage assets or distributions are made in reduction of the
Certificate Balances of such classes of certificates, as the case may be.
Consistent with the foregoing, if a class of certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the mortgage loans in
the related trust fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such mortgage loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the offered certificates of a series
include any such certificates, the related prospectus supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The extent of prepayments of principal of the mortgage loans in any trust
fund may be affected by a number of factors, including, without limitation--
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o the availability of mortgage credit, the relative economic vitality
of the area in which the mortgaged properties are located;
o the quality of management of the mortgaged properties;
o the servicing of the mortgage loans; and
o possible changes in tax laws and other opportunities for investment.
In general, those factors which increase the attractiveness of selling a
mortgaged property or refinancing a mortgage loan or which enhance a borrower's
ability to do so, as well as those factors which increase the likelihood of
default under a mortgage loan, would be expected to cause the rate of prepayment
in respect of any mortgage asset pool to accelerate. In contrast, those factors
having an opposite effect would be expected to cause the rate of prepayment of
any mortgage asset pool to slow.
The rate of principal payments on the mortgage loans in any trust fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by prepayment premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its mortgage loan, thereby slowing the rate of
prepayments.
The rate of prepayment on a 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. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of adjustable rate mortgage loans, as prevailing
market interest rates decline, and without regard to whether the Mortgage Rates
on such adjustable rate mortgage loans decline in a manner consistent with the
prevailing 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" such rate or (2) taking advantage of a different
index, margin or rate cap or floor on another adjustable rate mortgage loan.
Therefore, as prevailing market interest rates decline, prepayment speeds would
be expected to accelerate.
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
properties, 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 prepayment of the mortgage loans in any trust fund, as to
the relative importance of such factors, as to the percentage of the principal
balance of such mortgage loans that will be paid as of any date or as to the
overall rate of prepayment on such mortgage loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the mortgage loans in
any trust fund will affect the ultimate maturity and the weighted average life
of one or more classes of the certificates of such series. Unless otherwise
specified in the related prospectus supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
The weighted average life and maturity of a class of certificates of any
series will be influenced by the rate at which principal on the related mortgage
loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of mortgage loans due to default,
casualties or condemnations affecting the related mortgaged properties and
purchases of mortgage loans out of the related trust fund), is paid to such
class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the CPR prepayment model or the SPA prepayment model.
CPR represents an assumed constant rate of prepayment each month (expressed as
an annual percentage) relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such
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loans. SPA represents an assumed variable rate of prepayment each month
(expressed as an annual percentage) relative to the then outstanding principal
balance of a pool of mortgage loans, with different prepayment assumptions often
expressed as percentages of SPA. For example, a prepayment assumption of 100% of
SPA assumes prepayment rates of 0.2% per annum of the then outstanding principal
balance of such loans in the first month of the life of the loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month, and in each month thereafter during the life
of the loans, 100% of SPA assumes a constant prepayment rate of 6% per annum
each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the mortgage loans included in any trust fund will
conform to any particular level of CPR or SPA.
The prospectus supplement with respect to each series of certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of offered certificates of such series with a Certificate Balance,
and the percentage of the initial Certificate Balance of each such class that
would be outstanding on specified Distribution Dates, based on the assumptions
stated in such prospectus supplement, including assumptions that prepayments on
the related mortgage loans are made at rates corresponding to various
percentages of CPR or SPA, or at such other rates specified in such prospectus
supplement. Such tables and assumptions will illustrate the sensitivity of the
weighted average lives of the certificates to various assumed prepayment rates
and will not be intended to predict, or to provide information that will enable
investors to predict, the actual weighted average lives of the certificates.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans included in a particular trust fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related mortgaged property, there is a possibility that mortgage loans that
require balloon payments may default at maturity, or that the maturity of such a
mortgage loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted mortgage loans, the master
servicer or the special servicer, to the extent and under the circumstances set
forth in this prospectus and in the related prospectus supplement, may be
authorized to modify mortgage loans that are in default or as to which a payment
default is imminent. Any defaulted balloon payment or modification that extends
the maturity of a mortgage loan may delay distributions of principal on a class
of offered certificates and thereby extend the weighted average life of such
certificates and, if such certificates were purchased at a discount, reduce the
yield.
Negative Amortization. The weighted average life of a class of
certificates can be affected by mortgage loans that permit negative amortization
to occur (that is, mortgage loans that provide for the current payment of
interest calculated at a rate lower than the rate at which interest accrues,
with the unpaid portion of such interest being added to the related principal
balance). Negative amortization on one or more mortgage loans in any trust fund
may result in negative amortization on the offered certificates of the related
series. The related prospectus supplement will describe, if applicable, the
manner in which negative amortization in respect of the mortgage loans in any
trust fund is allocated among the respective classes of certificates of the
related series. The portion of any mortgage loan negative amortization allocated
to a class of certificates may result in a deferral of some or all of the
interest payable, which deferred interest may be added to the Certificate
Balance of the certificates. In addition, an adjustable rate mortgage loan that
permits negative amortization would be expected during a period of increasing
interest rates to amortize at a slower rate (and perhaps not at all) than if
interest rates were declining or were remaining constant. Such slower rate of
mortgage loan amortization would correspondingly be reflected in a slower rate
of amortization for one or more classes of certificates of the related series.
Accordingly, the weighted average lives of mortgage loans that permit negative
amortization (and that of the classes of certificates to which any such negative
amortization would be allocated or that would bear the effects of a slower rate
of amortization on such mortgage loans) may increase as a result of such
feature.
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Negative amortization may occur in respect of an adjustable rate mortgage
loan that--
o limits the amount by which its scheduled payment may adjust in
response to a change in its Mortgage Rate;
o provides that its scheduled payment will adjust less frequently than
its Mortgage Rate; or
o provides for constant scheduled payments notwithstanding adjustments
to its Mortgage Rate.
Accordingly, during a period of declining interest rates, the scheduled
payment on such a mortgage loan may exceed the amount necessary to amortize the
loan fully over its remaining amortization schedule and pay interest at the then
applicable Mortgage Rate, thereby resulting in the accelerated amortization of
such mortgage loan. Any such acceleration in amortization of its principal
balance will shorten the weighted average life of such mortgage loan and,
correspondingly, the weighted average lives of those classes of certificates
entitled to a portion of the principal payments on such mortgage loan.
The extent to which the yield on any offered certificate will be affected
by the inclusion in the related trust fund of mortgage loans that permit
negative amortization, will depend upon (1) whether such offered certificate was
purchased at a premium or a discount and (2) the extent to which the payment
characteristics of such mortgage loans delay or accelerate the distributions of
principal on such certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the reduction of the notional amount of a
Stripped Interest Certificate). See "--Yield and Prepayment Considerations"
above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the mortgage loans that are foreclosed in relation to the
number and principal amount of mortgage loans that are repaid in accordance with
their terms will affect the weighted average lives of those mortgage loans and,
accordingly, the weighted average lives of and yields on the certificates of the
related series. Servicing decisions made with respect to the mortgage loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of mortgage loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular mortgage loans and thus
the weighted average lives of and yields on the certificates of the related
series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
offered certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the mortgage loans in the related trust
fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of certificates that is required to bear the effects of such
loss or shortfall.
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated among
the respective classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of certificates and/or (2)
establishing a priority of payments among such classes of certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the mortgage
loans in the related trust fund.
Additional Certificate Amortization. In addition to entitling the holders
to a specified portion (which may during specified periods range from none to
all) of the principal payments received on the mortgage assets in the related
trust fund, one or more classes of certificates of any series, including one or
more classes of offered certificates of such series, may provide for
distributions of principal from--
o amounts attributable to interest accrued but not currently
distributable on one or more classes of Accrual Certificates;
o Excess Funds; or
o any other amounts described in the related prospectus supplement.
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The amortization of any class of certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
certificates and, if such certificates were purchased at a premium, reduce the
yield. The related prospectus supplement will discuss the relevant factors to be
considered in determining whether distributions of principal of any class of
certificates out of such sources is likely to have any material effect on the
rate at which such certificates are amortized and the consequent yield with
respect thereto.
THE DEPOSITOR
We are Banc of America Commercial Mortgage Inc., a Delaware corporation
and were organized on December 13, 1995 for the limited purpose of acquiring,
owning and transferring mortgage assets and selling interests in the mortgage
assets or bonds secured by the mortgage assets. We are a subsidiary of Bank of
America, N.A. We maintain our principal office at Bank of America Corporate
Center, Charlotte, North Carolina 28255. Our telephone number is (704) 386-2400.
Unless otherwise noted in the related prospectus supplement, neither we
nor any of our affiliates will insure or guarantee distributions on the
certificates of any series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of certificates will represent the entire beneficial ownership
interest in the trust fund created pursuant to the related pooling and servicing
agreement. As described in the related prospectus supplement, the certificates
of each series, including the certificates of such series being offered for
sale, may consist of one or more classes of certificates that, among other
things:
o provide for the accrual of interest on the Certificate Balance or
Notional Amount at a fixed, variable or adjustable rate;
o constitute Senior Certificates or Subordinate Certificates;
o constitute Stripped Interest Certificates or Stripped Principal
Certificates;
o provide for distributions of interest or principal that commence
only after the occurrence of certain events, such as the retirement
of one or more other classes of certificates of such series;
o provide for distributions of principal 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 assets in the
related trust fund;
o provide for distributions of principal to be made, subject to
available funds, based on a specified principal payment schedule or
other methodology; or
o provide for distributions based on collections on the mortgage
assets in the related trust fund attributable to Prepayment Premiums
and Equity Participations.
If so specified in the related prospectus supplement, a class of
certificates may have two or more component parts, each having characteristics
that are otherwise described in this prospectus as being attributable to
separate and distinct classes. For example, a class of certificates may have a
Certificate Balance on which it accrues interest at a fixed, variable or
adjustable rate. Such class of certificates may also have certain
characteristics attributable to Stripped Interest Certificates insofar as it may
also entitle the holders of Stripped Interest Certificates to distributions of
interest accrued on a Notional Amount at a different fixed, variable or
adjustable rate. In addition, a
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class of certificates may accrue interest on one portion of its Certificate
Balance at one fixed, variable or adjustable rate and on another portion of its
Certificate Balance at a different fixed, variable or adjustable rate.
Each class of offered certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related prospectus
supplement. As provided in the related prospectus supplement, one or more
classes of offered certificates of any series may be issued in fully registered,
definitive form or may be offered in book-entry format through the facilities of
DTC. The offered certificates of each series (if issued in fully registered
definitive form) may be transferred or exchanged, subject to any restrictions on
transfer described in the related prospectus supplement, at the location
specified in the related prospectus supplement, without the payment of any
service charges, other than any tax or other governmental charge payable in
connection with that transfer or exchange. Interests in a class of certificates
offered in book-entry format will be transferred on the book-entry records of
DTC and its participating organizations. If so specified in the related
prospectus supplement, arrangements may be made for clearance and settlement
through Clearstream Banking, societe anonyme, or the Euroclear System (in
Europe) if they are participants in DTC.
DISTRIBUTIONS
Distributions on the certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. The particular components of the Available Distribution
Amount for any series and Distribution Date will be more specifically described
in the related prospectus supplement. Except as otherwise specified in the
related prospectus supplement, the Distribution Date for a series of
certificates will be the 11th day of each month (or, if any such 11th day is not
a business day, the next succeeding business day), commencing in the month
immediately following the month in which such series of certificates is issued.
Except as otherwise specified in the related prospectus supplement,
distributions on the certificates of each series (other than the final
distribution in retirement of any such certificate) will be made to the persons
in whose names such certificates are registered at the close of business on the
Record Date, and the amount of each distribution will be determined as of the
close of business on the date specified in the related prospectus supplement.
All distributions with respect to each class of certificates on each
Distribution Date will be allocated pro rata among the outstanding certificates
in such class in proportion to the respective percentage interests evidenced by
those certificates unless otherwise specified in the related prospectus
supplement. Payments will be made either by wire transfer in immediately
available funds to the account of a certificateholder at a bank or other entity
having appropriate facilities therefor, if such certificateholder has provided
the person required to make such payments with wiring instructions no later than
the related Record Date or such other date specified in the related prospectus
supplement (and, if so provided in the related prospectus supplement, such
certificate-holder holds certificates in the requisite amount or denomination
specified in the prospectus supplement), or by check mailed to the address of
such certificateholder as it appears on the Certificate Register; provided,
however, that the final distribution in retirement of any class of certificates
(whether issued in fully registered definitive form or in book-entry format)
will be made only upon presentation and surrender of such certificates at the
location specified in the notice to certificateholders of such final
distribution.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no pass-through rate) may have a different pass-through
rate, which in each case may be fixed, variable or adjustable. The related
prospectus supplement will specify the pass-through rate or, in the case of a
variable or adjustable pass-through rate, the method for determining the
pass-through rate, for each class of offered certificates. Unless otherwise
specified in the related prospectus supplement, interest on the certificates of
each series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any class of certificates (other
than a class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date or under the
circumstances specified in the related prospectus supplement, and other than any
class of Stripped Principal
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Certificates or REMIC Residual Certificates that is not entitled to any
distributions of interest) will be made on each Distribution Date based on the
Accrued Certificate Interest for such class and such Distribution Date, subject
to the sufficiency of that portion, if any, of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance of such Accrual Certificates on each Distribution Date or
otherwise deferred as described in the related prospectus supplement. Unless
otherwise provided in the related prospectus supplement, the Accrued Certificate
Interest for each Distribution Date on a class of Stripped Interest Certificates
will be similarly calculated except that it will accrue on a Notional Amount.
Reference to a Notional Amount with respect to a class of Stripped Interest
Certificates is solely for convenience in making certain calculations and does
not represent the right to receive any distributions of principal. If so
specified in the related prospectus supplement, the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
one or more classes of the certificates of a series may be reduced to the extent
that any Prepayment Interest Shortfalls, as described under "Yield and Maturity
Considerations--Certain Shortfalls in Collections of Interest", exceed the
amount of any sums that are applied to offset the amount of such shortfalls. The
particular manner in which such shortfalls will be allocated among some or all
of the classes of certificates of that series will be specified in the related
prospectus supplement. The related prospectus supplement will also describe the
extent to which the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the Certificate Balance of) a class of offered certificates may be
reduced as a result of any other contingencies, including delinquencies, losses
and deferred interest on or in respect of the mortgage assets in the related
trust fund. Unless otherwise provided in the related prospectus supplement, any
reduction in the amount of Accrued Certificate Interest otherwise distributable
on a class of certificates by reason of the allocation to such class of a
portion of any deferred interest on or in respect of the mortgage assets in the
related trust fund will result in a corresponding increase in the Certificate
Balance of such class. See "Risk Factors--Effect of Prepayments on Average Life
of Certificates" and "--Effect of Prepayments on Yield of Certificates" and
"Yield and Maturity Considerations--Certain Shortfalls in Collections of
Interest".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of certificates of such class will be
entitled to receive as principal out of the future cash flow on the mortgage
assets and other assets included in the related trust fund. The outstanding
Certificate Balance of a class of certificates will be reduced by distributions
of principal made from time to time and, if and to the extent so provided in the
related prospectus supplement, further by any losses incurred in respect of the
related mortgage assets allocated thereto from time to time. In turn, the
outstanding Certificate Balance of a class of certificates may be increased as a
result of any deferred interest on or in respect of the related mortgage assets
being allocated thereto from time to time, and will be increased, in the case of
a class of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, by the amount of any Accrued
Certificate Interest in respect of such Accrual Certificate (reduced as
described above). The initial aggregate Certificate Balance of all classes of a
series of certificates will not be greater than the aggregate outstanding
principal balance of the related mortgage assets as of a specified date, after
application of scheduled payments due on or before such date, whether or not
received. The initial Certificate Balance of each class of a series of
certificates will be specified in the related prospectus supplement. As and to
the extent described in the related prospectus supplement, distributions of
principal with respect to a series of certificates will be made on each
Distribution Date to the holders of the class or classes of certificates of such
series entitled thereto until the Certificate Balances of such certificates have
been reduced to zero. Distributions of principal with respect to one or more
classes of certificates may be made at a rate that is faster (and, in some
cases, substantially faster) than the rate at which payments or other
collections of principal are received on the mortgage assets in the related
trust fund. Distributions of principal with respect to one or more classes of
certificates may not commence until the occurrence of certain events, such as
the retirement of one or more other classes of certificates of the same series,
or may be made at a rate that is slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal are
received on the mortgage assets in the related trust fund. Distributions of
principal with respect to Controlled Amortization Classes may be made, subject
to available funds, based on a specified principal payment schedule.
Distributions of principal with respect to Companion Classes may be contingent
on the specified principal payment schedule for a Controlled Amortization Class
of the same series and the rate at which payments
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and other collections of principal on the mortgage assets in the related trust
fund are received. Unless otherwise specified in the related prospectus
supplement, distributions of principal of any class of offered certificates will
be made on a pro rata basis among all of the certificates of such class.
DISTRIBUTIONS ON THE CERTIFICATES CONCERNING PREPAYMENT PREMIUMS OR CONCERNING
EQUITY PARTICIPATIONS
If so provided in the related prospectus supplement, Prepayment Premiums
or payments in respect of Equity Participations received on or in connection
with the mortgage assets in any trust fund will be distributed on each
Distribution Date to the holders of the class of certificates of the related
series entitled thereto in accordance with the provisions described in such
prospectus supplement. Alternatively, we or any of our affiliates may retain
such items or by any other specified person and/or may be excluded as trust
assets.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated among
the respective classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of certificates and/or (2)
establishing a priority of payments among such classes of certificates. See
"Description of Credit Support".
ADVANCES IN RESPECT OF DELINQUENCIES
If and to the extent provided in the related prospectus supplement, if a
trust fund includes mortgage loans, the master servicer, the special servicer,
the trustee, any provider of credit support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any balloon payments) and interest that were due on or in
respect of such mortgage loans during the related Due Period and were delinquent
on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the mortgage loans (including amounts drawn under any fund
or instrument constituting credit support) respecting which such advances were
made and such other specific sources as may be identified in the related
prospectus supplement, including, in the case of a series that includes one or
more classes of Subordinate Certificates, if so identified, collections on other
mortgage assets in the related trust fund that would otherwise be distributable
to the holders of one or more classes of such Subordinate Certificates. No
advance will be required to be made by a master servicer, special servicer or
trustee if, in the judgment of the master servicer, special servicer or trustee,
as the case may be, such advance would not be recoverable from recoveries on the
mortgage loans or another specifically identified source; and, if previously
made by a master servicer, special servicer or trustee, such an advance will be
reimbursable thereto from any amounts in the related Certificate Account prior
to any distributions being made to the related series of Certificateholders.
If advances have been made by a master servicer, special servicer, trustee
or other entity from excess funds in a Certificate Account, such master
servicer, special servicer, trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on or prior to any
future Distribution Date to the extent that funds in such Certificate Account on
such Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
prospectus supplement, the obligation of a master servicer, special servicer,
trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related prospectus supplement.
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If and to the extent so provided in the related prospectus supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such prospectus supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the mortgage loans in the related trust fund prior to any payment to the related
series of Certificateholders or as otherwise provided in the related pooling and
servicing agreement and described in such prospectus supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust fund that includes MBS will describe any comparable
advancing obligation of a party to the related pooling and servicing agreement
or of a party to the agreement pursuant to which the MBS was issued.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders
of each class of the offered certificates of a series, a master servicer,
manager or trustee, as provided in the related prospectus supplement, will
forward to each such holder, a Distribution Date Statement that, unless
otherwise provided in the related prospectus supplement, will set forth, among
other things, in each case to the extent applicable:
o the amount of such distribution to holders of such class of offered
certificates that was applied to reduce the Certificate Balance of
such class;
o the amount of such distribution to holders of such class of offered
certificates that was applied to pay Accrued Certificate Interest;
o the amount, if any, of such distribution to holders of such class of
offered certificates that was allocable to (A) Prepayment Premiums
and (B) payments on account of Equity Participations;
o the amount, if any, by which such distribution is less than the
amounts to which holders of such class of offered certificates are
entitled;
o if the related trust fund includes mortgage loans, the aggregate
amount of advances included in such distribution;
o if the related trust fund includes mortgage loans, the amount of
servicing compensation received by the related master servicer (and,
if payable directly out of the related trust fund, by any special
servicer and any sub-servicer) and, if the related trust fund
includes MBS, the amount of administrative compensation received by
the MBS Administrator;
o information regarding the aggregate principal balance of the related
mortgage assets on or about such Distribution Date;
o if the related trust fund includes mortgage loans, information
regarding the number and aggregate principal balance of such
mortgage loans that are delinquent;
o if the related trust fund includes mortgage loans, information
regarding the aggregate amount of losses incurred and principal
prepayments made with respect to such mortgage loans during the
specified period, generally corresponding in length to the period
between Distribution Dates, during which prepayments and other
unscheduled collections on the mortgage loans in the related trust
fund must be received in order to be distributed on a particular
Distribution Date);
o the Certificate Balance or Notional Amount, as the case may be, of
such class of certificates at the close of business on such
Distribution Date, separately identifying any reduction in such
Certificate Balance or Notional Amount due to the allocation of any
losses in respect of the related mortgage assets, any increase in
such Certificate Balance or Notional Amount due to the allocation of
any negative amortization in
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respect of the related mortgage assets and any increase in the
Certificate Balance of a class of Accrual Certificates, if any, in
the event that Accrued Certificate Interest has been added to such
balance;
o if such class of offered certificates has a variable pass-through
rate or an adjustable pass-through rate, the pass-through rate
applicable thereto for such Distribution Date and, if determinable,
for the next succeeding Distribution Date;
o the amount deposited in or withdrawn from any reserve fund on such
Distribution Date, and the amount remaining on deposit in such
reserve fund as of the close of business on such Distribution Date;
o if the related trust fund includes one or more instruments of credit
support, such as a letter of credit, an insurance policy and/or a
surety bond, the amount of coverage under each such instrument as of
the close of business on such Distribution Date; and
o the amount of credit support being afforded by any classes of
Subordinate Certificates.
In the case of information furnished pursuant to the first 3 bulleted
items above, the amounts will be expressed as a dollar amount per specified
denomination of the relevant class of offered certificates or as a percentage.
The prospectus supplement for each series of certificates may describe
additional information to be included in reports to the holders of the offered
certificates of such series.
Within a reasonable period of time after the end of each calendar year,
the master servicer, manager or trustee for a series of certificates, as the
case may be, will be required to furnish to each person who at any time during
the calendar year was a holder of an offered certificate of such series a
statement containing the information set forth in the first 3 bulleted items
above, aggregated for such calendar year or the applicable portion during which
such person was a certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Internal Revenue Code of 1986, as amended,
are from time to time in force. See, however, "--Book-Entry Registration and
Definitive Certificates" below.
If the trust fund for a series of certificates includes MBS, the ability
of the related master servicer, manager or trustee, as the case may be, to
include in any Distribution Date Statement information regarding the mortgage
loans underlying such MBS will depend on the reports received with respect to
such MBS. In such cases, the related prospectus supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the offered certificates of that series
in connection with distributions made to them.
VOTING RIGHTS
The voting rights evidenced by each series of certificates will be
allocated among the respective classes of such series in the manner described in
the related prospectus supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related pooling and
servicing agreement and as otherwise specified in the related prospectus
supplement. See "The Pooling and Servicing Agreements--Amendment". The holders
of specified amounts of certificates of a particular series will have the right
to act as a group to remove the related trustee and also upon the occurrence of
certain events which if continuing would constitute an Event of Default on the
part of the related master servicer, special servicer or REMIC administrator.
See "The Pooling and Servicing Agreements--Events of Default", "--Rights Upon
Event of Default" and "--Resignation and Removal of the Trustee".
TERMINATION
The obligations created by the pooling and servicing agreement for each
series of certificates will terminate following (1) the final payment or other
liquidation of the last mortgage asset subject thereto or the disposition of all
property acquired upon foreclosure of any mortgage loan subject thereto and (2)
the payment (or provision for payment) to the Certificateholders of that series
of all amounts required to be paid to them pursuant to such pooling
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and servicing agreement. Written notice of termination of a pooling and
servicing agreement will be given to each certificateholder of the related
series, and the final distribution will be made only upon presentation and
surrender of the certificates of such series at the location to be specified in
the notice of termination.
If so specified in the related prospectus supplement, a series of
certificates may be subject to optional early termination through the repurchase
of the mortgage assets in the related trust fund by the party or parties
specified in the prospectus supplement, under the circumstances and in the
manner set forth in the prospectus supplement. If so provided in the related
prospectus supplement upon the reduction of the Certificate Balance of a
specified class or classes of certificates by a specified percentage or amount
or upon a specified date, a party designated in the prospectus supplement may be
authorized or required to solicit bids for the purchase of all the mortgage
assets of the related trust fund, or of a sufficient portion of such mortgage
assets to retire such class or classes, under the circumstances and in the
manner set forth in the prospectus supplement.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the prospectus supplement for a series of certificates,
one or more classes of the offered certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" 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 the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations and
facilitate the clearance and settlement of securities transactions between its
participating organizations through electronic computerized book-entry changes
in their accounts, thereby eliminating the need for physical movement of
securities certificates. DTC is owned by a number of its Direct Participants and
by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. The rules applicable to DTC and
its participating organizations are on file with the Securities and Exchange
Commission.
Purchases of book-entry certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the book-entry
certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate is in turn to be recorded on the Direct and Indirect
Participants' records. Certificate Owners will not receive written confirmation
from DTC of their purchases, but Certificate Owners are expected to receive
written confirmations providing details of such transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which each Certificate Owner entered into the transaction. Transfers of
ownership interests in the book-entry certificates are to be accomplished by
entries made on the books of DTC's participating organizations acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the book-entry certificates, except in
the event that use of the book-entry system for the book-entry certificates of
any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the book-entry
certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such certificates are credited, which may or may not be the
Certificate Owners. DTC's participating organizations will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the book-entry certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by DTC's participating organizations to
Certificate Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name", and will be the responsibility of
each such participating organization (and not of DTC, the depositor or any
trustee, master servicer, special servicer or Manager), subject to any statutory
or regulatory
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requirements as may be in effect from time to time. Accordingly, under a
book-entry system, Certificate Owners may receive payments after the related
Distribution Date.
Unless otherwise provided in the related prospectus supplement, the only
Certificateholder of book-entry certificates will be the nominee of DTC, and the
Certificate Owners will not be recognized as certificateholders under the
pooling and servicing agreement. Certificate Owners will be permitted to
exercise the rights of certificateholders under the related pooling and
servicing agreement only indirectly through DTC's participating organization who
in turn will exercise their rights through DTC. We have been informed that DTC
will take action permitted to be taken by a certificateholder under a pooling
and servicing agreement only at the direction of one or more Direct Participants
to whose account with DTC interests in the book-entry certificates are credited.
Because DTC can act only on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in book-entry certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of its interest in book-entry certificates, may be limited
due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related prospectus supplement,
certificates initially issued in book-entry form will be issued in fully
registered definitive form to Certificate Owners or their nominees, rather than
to DTC or its nominee, only if (1) the depositor advises the trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to such certificates and the depositor is unable to
locate a qualified successor or (2) the depositor, at its option, elects to
terminate the book-entry system through DTC with respect to such certificates.
Upon the occurrence of either of the events described in the preceding sentence,
DTC will be required to notify all Direct Participants of the availability
through DTC of Certificates in fully registered form. Upon surrender by DTC of
the certificate or certificates representing a class of book-entry certificates,
together with instructions for registration, the trustee for the related series
or other designated party will be required to issue to the Certificate Owners
identified in such instructions the Certificates in fully registered definitive
form to which they are entitled, and thereafter the holders of such Definitive
Certificates will be recognized as "certificateholders" under and within the
meaning of the related pooling and servicing agreement.
THE POOLING AND SERVICING AGREEMENTS
GENERAL
The certificates of each series will be issued pursuant to a Pooling and
Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the depositor, the trustee, the master servicer, the
special servicer and, if one or more REMIC elections have been made with respect
to the trust fund, the REMIC administrator. However, a Pooling and Servicing
Agreement that relates to a trust fund that includes MBS may include a manager
as a party, but may not include a master servicer, special servicer or other
servicer as a party. All parties to each Pooling and Servicing Agreement under
which certificates of a series are issued will be identified in the related
prospectus supplement. If so specified in the related prospectus supplement, an
affiliate of the depositor, or the mortgage asset seller may perform the
functions of master servicer, special servicer, manager or REMIC administrator.
If so specified in the related prospectus supplement, the master servicer may
also perform the duties of special servicer, and the master servicer, the
special servicer or the trustee may also perform the duties of REMIC
administrator. Any party to a Pooling and Servicing Agreement or any affiliate
of any party may own certificates issued under the Pooling and Servicing
Agreement; however, unless other specified in the related prospectus supplement,
except with respect to required consents to certain amendments to a Pooling and
Servicing Agreement, certificates issued under the Pooling and Servicing
Agreement that are held by the master servicer or special servicer for the
related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit
to the Registration Statement of which this prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the certificates to be issued under the Pooling and Servicing
Agreement and the nature of the related trust fund. The following summaries
describe certain provisions that may appear in a Pooling and Servicing Agreement
under which certificates that evidence interests in mortgage loans will be
issued. The prospectus supplement for a series of certificates will describe any
provision of the related Pooling and Servicing Agreement that materially differs
from the description of the Pooling and Servicing Agreement contained in this
prospectus and,
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if the related trust fund includes MBS, will summarize all of the material
provisions of the related agreement that provided for the issuance of the MBS.
The summaries in this prospectus do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of the Pooling and Servicing Agreement for each series of certificates and the
description of such provisions in the related prospectus supplement. We will
provide a copy of the Pooling and Servicing Agreement (without exhibits) that
relates to any series of certificates without charge upon written request of a
holder of a certificate of such series addressed to it at its principal
executive offices specified in this prospectus under "The Depositor".
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of certificates, we will assign (or
cause to be assigned) to the designated trustee the mortgage loans to be
included in the related trust fund, together with, unless otherwise specified in
the related prospectus supplement, all principal and interest to be received on
or with respect to such mortgage loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The trustee will,
concurrently with such assignment, deliver the certificates to or at our
direction in exchange for the mortgage loans and the other assets to be included
in the trust fund for such series. Each mortgage loan will be identified in a
schedule appearing as an exhibit to the related Pooling and Servicing Agreement.
Such schedule generally will include detailed information that pertains to each
mortgage loan included in the related trust fund, which information will
typically include the address of the related mortgaged property and type of such
property; the Mortgage Rate and, if applicable, the applicable index, gross
margin, adjustment date and any rate cap information; the original and remaining
term to maturity; the amortization term; and the original and outstanding
principal balance.
In addition, unless otherwise specified in the related prospectus
supplement, we will, as to each mortgage loan to be included in a trust fund,
deliver, or cause to be delivered, to the related trustee (or to a custodian
appointed by the trustee as described below) the mortgage note endorsed, without
recourse, either in blank or to the order of such trustee (or its nominee), the
mortgage with evidence of recording indicated (except for any mortgage not
returned from the public recording office), an assignment of the mortgage in
blank or to the trustee (or its nominee) in recordable form, together with any
intervening assignments of the mortgage with evidence of recording (except for
any such assignment not returned from the public recording office), and, if
applicable, any riders or modifications to such mortgage note and mortgage,
together with certain other documents at such times as set forth in the related
Pooling and Servicing Agreement. Such assignments may be blanket assignments
covering mortgages on mortgaged properties located in the same county, if
permitted by law. Notwithstanding the foregoing, a trust fund may include
mortgage loans where the original mortgage note is not delivered to the trustee
if we deliver or cause to be delivered, to the related trustee (or such
custodian) a copy or a duplicate original of the mortgage note, together with an
affidavit certifying that the original mortgage note has been lost or destroyed.
In addition, if we cannot deliver, with respect to any mortgage loan, the
mortgage or any intervening assignment with evidence of recording concurrently
with the execution and delivery of the related Pooling and Servicing Agreement
because of a delay caused by the public recording office, we will deliver, or
cause to be delivered, to the related trustee (or such custodian) a true and
correct photocopy of such mortgage or assignment as submitted for recording. We
will deliver, or cause to be delivered, to the related trustee (or such
custodian) such mortgage or assignment with evidence of recording indicated
after receipt of such mortgage from the public recording office. If we cannot
deliver, with respect to any mortgage loan, the mortgage or any intervening
assignment with evidence of recording concurrently with the execution and
delivery of the related Pooling and Servicing Agreement because such mortgage or
assignment has been lost, we will deliver, or cause to be delivered, to the
related trustee (or such custodian) a true and correct photocopy of such
mortgage or assignment with evidence of recording. Unless otherwise specified in
the related prospectus supplement, assignments of mortgage to the trustee (or
its nominee) will be recorded in the appropriate public recording office, except
in states where, in the opinion of counsel acceptable to the trustee, such
recording is not required to protect the trustee's interests in the mortgage
loan against the claim of any subsequent transferee or any successor to or
creditor of us or the originator of such mortgage loan.
The trustee (or a custodian appointed by the trustee) for a series of
certificates will be required to review the mortgage loan documents delivered to
it within a specified period of days after receipt of the mortgage loan
documents, and the trustee (or such custodian) will hold such documents in trust
for the benefit of the certificateholders of such series. Unless otherwise
specified in the related prospectus supplement, if any such document is found to
be missing or defective, and such omission or defect, as the case may be,
materially and adversely affects the interests of the certificateholders of the
related series, the trustee (or such custodian) will be
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required to notify the master servicer, the special servicer and the depositor,
and one of such persons will be required to notify the relevant mortgage asset
seller. In that case, and if the mortgage asset seller cannot deliver the
document or cure the defect within a specified number of days after receipt of
such notice, then, except as otherwise specified below or in the related
prospectus supplement, the mortgage asset seller will be obligated to repurchase
the related mortgage loan from the trustee at a price generally equal to the
Purchase Price, or at such other price as will be specified in the related
prospectus supplement. If so provided in the prospectus supplement for a series
of certificates, a mortgage asset seller, in lieu of repurchasing a mortgage
loan as to which there is missing or defective loan documentation, will have the
option, exercisable upon certain conditions and/or within a specified period
after initial issuance of such series of certificates, to replace such mortgage
loan with one or more other mortgage loans, in accordance with standards that
will be described in the prospectus supplement. Unless otherwise specified in
the related prospectus supplement, this repurchase or substitution obligation
will constitute the sole remedy to holders of the certificates of any series or
to the related trustee on their behalf for missing or defective mortgage loan
documentation, and neither we nor, unless it is the mortgage asset seller, the
master servicer or the special servicer will be obligated to purchase or replace
a mortgage loan if a mortgage asset seller defaults on its obligation to do so.
The trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the mortgage loans
in any trust fund and to maintain possession of and, if applicable, to review
the documents relating to such mortgage loans, in any case as the agent of the
trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the certificates will be set forth in the related prospectus
supplement. Any such custodian may be one of our affiliates.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the prospectus supplement for a series of
certificates, the depositor will, with respect to each mortgage loan in the
related trust fund, make or assign, or cause to be made or assigned, certain
representations and warranties covering, by way of example--
o the accuracy of the information set forth for such mortgage loan on
the schedule of mortgage loans appearing as an exhibit to the
related Pooling and Servicing Agreement;
o the enforceability of the related mortgage note and mortgage and the
existence of title insurance insuring the lien priority of the
related mortgage;
o the Warranting Party's title to the mortgage loan and the authority
of the Warranting Party to sell the mortgage loan; and
o the payment status of the mortgage loan.
It is expected that in most cases the Warranting Party will be the
mortgage asset seller; however, the Warranting Party may also be an affiliate of
the mortgage asset seller, the depositor or an affiliate of the depositor, the
master servicer, the special servicer or another person acceptable to the
depositor. The Warranting Party, if other than the mortgage asset seller, will
be identified in the related prospectus supplement.
Unless otherwise provided in the related prospectus supplement, each
Pooling and Servicing Agreement will provide that the master servicer and/or
trustee will be required to notify promptly any Warranting Party of any breach
of any representation or warranty made by it in respect of a mortgage loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related prospectus supplement, it will be
obligated to repurchase such mortgage loan from the trustee at the applicable
Purchase Price. If so provided in the prospectus supplement for a series of
certificates, a Warranting Party, in lieu of repurchasing a mortgage loan as to
which a breach has occurred, will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
series of certificates, to replace such mortgage loan with one or more other
mortgage loans, in accordance with standards that will be described in the
prospectus supplement. Unless otherwise specified in the related prospectus
supplement, this repurchase or substitution obligation will constitute the sole
remedy available to holders of the certificates of any series or to the related
trustee on their behalf for a breach of representation and warranty by a
Warranting Party, and neither the
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depositor nor the master servicer, in either case unless it is the Warranting
Party, will be obligated to purchase or replace a mortgage loan if a Warranting
Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a mortgage loan as of a date prior to the date upon which the related
series of certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the depositor will not
include any mortgage loan in the trust fund for any series of certificates if
anything has come to the depositor's attention that would cause it to believe
that the representations and warranties made in respect of such mortgage loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the mortgage loans
in any trust fund were made will be specified in the related prospectus
supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
Unless otherwise specified in the related prospectus supplement, the
master servicer and the special servicer for any mortgage pool, directly or
through sub-servicers, will each be obligated under the related Pooling and
Servicing Agreement to service and administer the mortgage loans in such
mortgage pool for the benefit of the related certificateholders, in accordance
with applicable law and further in accordance with the terms of such Pooling and
Servicing Agreement, such mortgage loans and any instrument of credit support
included in the related trust fund. Subject to the foregoing, the master
servicer and the special servicer will each have full power and authority to do
any and all things in connection with such servicing and administration that it
may deem necessary and desirable.
As part of its servicing duties, each of the master servicer and the
special servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the mortgage loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such mortgage loans
and held for its own account, provided (1) such procedures are consistent with
the terms of the related Pooling and Servicing Agreement and (2) do not impair
recovery under any instrument of credit support included in the related trust
fund. Consistent with the foregoing, the master servicer and the special
servicer will each be permitted, in its discretion, unless otherwise specified
in the related prospectus supplement, to waive any Prepayment Premium, late
payment charge or other charge in connection with any mortgage loan.
The master servicer and the special servicer for any trust fund, either
separately or jointly, directly or through sub-servicers, will also be required
to perform as to the mortgage loans in such trust fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling and Servicing Agreement,
for payment of taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items; attempting to collect
delinquent payments; supervising foreclosures; negotiating modifications;
conducting property inspections on a periodic or other basis; managing (or
overseeing the management of) mortgaged properties acquired on behalf of such
trust fund through foreclosure, deed-in-lieu of foreclosure or otherwise; and
maintaining servicing records relating to such mortgage loans. The related
prospectus supplement will specify when and the extent to which servicing of a
mortgage loan is to be transferred from the master servicer to the special
servicer. In general, and subject to the discussion in the related prospectus
supplement, a special servicer will be responsible for the servicing and
administration of--
o mortgage loans that are delinquent in respect of a specified number
of scheduled payments;
o mortgage loans as to which the related borrower has entered into or
consented to bankruptcy, appointment of a receiver or conservator or
similar insolvency proceeding, or the related borrower has become
the subject of a decree or order for such a proceeding which shall
have remained in force undischarged or unstayed for a specified
number of days; and
o REO Properties.
If so specified in the related prospectus supplement, a Pooling and
Servicing Agreement also may provide that if a default on a mortgage loan has
occurred or, in the judgment of the related master servicer, a payment default
is reasonably foreseeable, the related master servicer may elect to transfer the
servicing of the mortgage loan, in whole or in part, to the related special
servicer. Unless otherwise provided in the related prospectus supplement, when
the circumstances no longer warrant a special servicer's continuing to service a
particular mortgage loan (e.g., the
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related borrower is paying in accordance with the forbearance arrangement
entered into between the special servicer and such borrower), the master
servicer will resume the servicing duties with respect thereto. If and to the
extent provided in the related Pooling and Servicing Agreement and described in
the related prospectus supplement, a special servicer may perform certain
limited duties in respect of mortgage loans for which the master servicer is
primarily responsible (including, if so specified, performing property
inspections and evaluating financial statements); and a master servicer may
perform certain limited duties in respect of any mortgage loan for which the
special servicer is primarily responsible (including, if so specified,
continuing to receive payments on such mortgage loan (including amounts
collected by the special servicer)), making certain calculations with respect to
such mortgage loan and making remittances and preparing certain reports to the
trustee and/or certificateholders with respect to such mortgage loan. Unless
otherwise specified in the related prospectus supplement, the master servicer
will be responsible for filing and settling claims in respect of particular
mortgage loans under any applicable instrument of credit support. See
"Description of Credit Support".
A mortgagor's failure to make required mortgage loan payments may mean
that operating income is insufficient to service the mortgage debt, or may
reflect the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make mortgage loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related mortgaged property. In general, the related special servicer will be
required to monitor any mortgage loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related mortgaged property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related mortgaged property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the special
servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the special servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a mortgaged property in
lieu of foreclosure) on behalf of the certificateholders of the related series
may vary considerably depending on the particular mortgage loan, the mortgaged
property, the mortgagor, the presence of an acceptable party to assume the
mortgage loan and the laws of the jurisdiction in which the mortgaged property
is located. If a mortgagor files a bankruptcy petition, the special servicer may
not be permitted to accelerate the maturity of the mortgage loan or to foreclose
on the related mortgaged property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
mortgaged properties, easements, consents to alteration or demolition and other
similar matters. In general, the master servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectibility of, the related mortgage
loan. Any fee collected by the master servicer for processing such request will
be retained by the master servicer as additional servicing compensation.
In the case of mortgage loans secured by junior liens on the related
mortgaged properties, unless otherwise provided in the related prospectus
supplement, the master servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under a
senior lien for the protection of the related trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related prospectus supplement, the master servicer
also will be required to notify any superior lienholder in writing of the
existence of the mortgage loan and request notification of any action (as
described below) to be taken against the mortgagor or the mortgaged property by
the superior lienholder. If the master servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related senior lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured by that senior lien, or has filed or
intends to file an election to have the related mortgaged property sold or
foreclosed, then, unless otherwise specified in the related prospectus
supplement, the master servicer and the special servicer will each be required
to take, on behalf of the related trust fund, whatever actions are necessary to
protect the interests of the related certificateholders and/or to preserve the
security of the related mortgage loan, subject to the application of the REMIC
Provisions. Unless otherwise specified in the related prospectus supplement, the
master servicer or special servicer, as applicable, will be required to advance
the necessary funds to cure the default or reinstate the senior lien, if such
advance is in the best interests of the related
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certificateholders and the master servicer or special servicer, as applicable,
determines such advances are recoverable out of payments on or proceeds of the
related mortgage loan.
SUB-SERVICERS
A master servicer or special servicer may delegate its servicing
obligations in respect of the mortgage loans to one or more third-party
sub-servicers; provided that, unless otherwise specified in the related
prospectus supplement, such master servicer or special servicer will remain
obligated under the related Pooling and Servicing Agreement. A sub-servicer for
any series of certificates may be an affiliate of the depositor. Unless
otherwise provided in the related prospectus supplement, each subservicing
agreement between a master servicer and a sub-servicer must provide for
servicing of the applicable mortgage loans consistent with the related Pooling
and Servicing Agreement. Unless otherwise provided in the related prospectus
supplement, the master servicer and special servicer in respect of any mortgage
asset pool will each 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 such removal to be in the best interests of
certificateholders.
Unless otherwise provided in the related prospectus supplement, a master
servicer or special servicer will be solely liable for all fees owed by it to
any sub-servicer, irrespective of whether the master servicer's or special
servicer's compensation pursuant to the related Pooling and Servicing Agreement
is sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the
master servicer or special servicer, as the case may be, that retained it for
certain expenditures which it makes, generally to the same extent such master
servicer or special servicer would be reimbursed under a Pooling and Servicing
Agreement. See "--Certificate Account" and "--Servicing Compensation and Payment
of Expenses".
CERTIFICATE ACCOUNT
General. The master servicer, the trustee and/or the special servicer
will, as to each trust fund that includes mortgage loans, establish and maintain
or cause to be established and maintained the corresponding Certificate Account,
which will be established so as to comply with the standards of each rating
agency that has rated any one or more classes of certificates of the related
series. A Certificate Account may be maintained as an interest-bearing or a
noninterest-bearing account and the funds held in the Certificate Account may be
invested pending each succeeding Distribution Date in United States government
securities and other obligations that are acceptable to each rating agency that
has rated any one or more classes of certificates of the related series. Unless
otherwise provided in the related prospectus supplement, any interest or other
income earned on funds in a Certificate Account will be paid to the related
master servicer, trustee or special servicer as additional compensation. A
Certificate Account may be maintained with the related master servicer, special
servicer, trustee or mortgage asset seller or with a depository institution that
is an affiliate of any of the foregoing or of the depositor, provided that it
complies with applicable rating agency standards. If permitted by the applicable
rating agency, a Certificate Account may contain funds relating to more than one
series of mortgage pass-through certificates and may contain other funds
representing payments on mortgage loans owned by the related master servicer or
special servicer or serviced by either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related prospectus supplement, the following
payments and collections received or made by the master servicer, the trustee or
the special servicer subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date) are to be deposited in the Certificate Account for
each trust fund that includes mortgage loans, within a certain period following
receipt (in the case of collections on or in respect of the mortgage loans) or
otherwise as provided in the related Pooling and Servicing Agreement--
o all payments on account of principal, including principal
prepayments, on the mortgage loans;
o all payments on account of interest on the mortgage loans, including
any default interest collected, in each case net of any portion of
such default interest retained by the master servicer or the special
servicer as its servicing compensation or as compensation to the
trustee;
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o all 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 in connection with the full or
partial condemnation of a mortgaged property (other than proceeds
applied to the restoration of the property or released to the
related borrower) and all other amounts received and retained in
connection with the liquidation of defaulted mortgage loans or
property acquired in respect of such defaulted mortgage loans, by
foreclosure or otherwise, together with the net operating income
(less reasonable reserves for future expenses) derived from the
operation of any mortgaged properties acquired by the trust fund
through foreclosure or otherwise;
o any amounts paid under any instrument or drawn from any fund that
constitutes credit support for the related series of certificates;
o any advances made with respect to delinquent scheduled payments of
principal and interest on the mortgage loans;
o any amounts paid under any cash flow agreement;
o all proceeds of the purchase of any mortgage loan, or property
acquired in respect of a mortgage loan, by the depositor, any
mortgage asset seller or any other specified person as described
under "--Assignment of Mortgage Loans; Repurchases" and
"--Representations and Warranties; Repurchases", all proceeds of the
purchase of any defaulted mortgage loan as described under
"--Realization Upon Defaulted Mortgage Loans", and all proceeds of
any mortgage asset purchased as described under "Description of the
Certificates--Termination";
o to the extent that any such item does not constitute additional
servicing compensation to the master servicer or the special
servicer and is not otherwise retained by the depositor or another
specified person, any payments on account of modification or
assumption fees, late payment charges, Prepayment Premiums or Equity
Participations with respect to the mortgage loans;
o all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance
policy as described under "--Hazard Insurance Policies";
o any amount required to be deposited by the master servicer, the
special servicer or the trustee in connection with losses realized
on investments for the benefit of the master servicer, the special
servicer or the trustee, as the case may be, of funds held in the
Certificate Account; and
o any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling and Servicing Agreement
and described in the related prospectus supplement.
Withdrawals. Unless otherwise provided in the related Pooling and
Servicing Agreement and described in the related prospectus supplement, a master
servicer, trustee or special servicer may make withdrawals from the Certificate
Account for each trust fund that includes mortgage loans for any of the
following purposes--
o to make distributions to the certificateholders on each Distribution
Date;
o to pay the master servicer or the special servicer any servicing
fees not previously retained by the master servicer or the special
servicer, such payment to be made out of payments and other
collections of interest on the particular mortgage loans as to which
such fees were earned;
o to reimburse the master servicer, the special servicer or any other
specified person for unreimbursed advances of delinquent scheduled
payments of principal and interest made by it, and certain
unreimbursed servicing expenses incurred by it, with respect to
particular mortgage loans in the trust fund and particular
properties acquired in respect of the trust fund. Reimbursement for
advances made or expenses incurred that are related to particular
mortgage loans or properties will normally only be made out of
amounts that represent late payments collected on those mortgage
loans, Liquidation Proceeds, Insurance and Condemnation Proceeds
collected on those mortgage loans and properties, any form of credit
support
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related to those mortgaged loans and net income collected on those
properties. However, if in the judgment of the master servicer, the
special servicer or such other person, as applicable, the advances
and/or expenses will not be recoverable from the above amounts, the
reimbursement will be made from amounts collected on other mortgage
loans in the same trust fund or, if and to the extent so provided by
the related Pooling and Servicing Agreement and described in the
related prospectus supplement, only from that portion of amounts
collected on such other mortgage loans that is otherwise
distributable on one or more classes of Subordinate Certificates of
the related series;
o if and to the extent described in the related prospectus supplement,
to pay the master servicer, the special servicer or any other
specified person interest accrued on the advances and servicing
expenses described in the bulleted clause immediately listed above
incurred by it while such remain outstanding and unreimbursed;
o to pay for costs and expenses incurred by the trust fund for
environmental site assessments performed with respect to mortgaged
properties that constitute security for defaulted mortgage loans,
and for any containment, clean-up or remediation of hazardous wastes
and materials present on such mortgaged properties, as described
under "--Realization Upon Defaulted Mortgage Loans";
o to reimburse the master servicer, the special servicer, the REMIC
administrator, the depositor, the trustee, or any of their
respective directors, officers, employees and agents, as the case
may be, for certain expenses, costs and liabilities incurred
thereby, as and to the extent described under "--Certain Matters
Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor" and "--Certain Matters Regarding
the Trustee";
o if and to the extent described in the related prospectus supplement,
to pay the fees of the trustee, the REMIC administrator and any
provider of credit support;
o if and to the extent described in the related prospectus supplement,
to reimburse prior draws on any form of credit support;
o to pay the master servicer, the special servicer or the trustee, as
appropriate, interest and investment income earned in respect of
amounts held in the Certificate Account as additional compensation;
o to pay any servicing expenses not otherwise required to be advanced
by the master servicer, the special servicer or any other specified
person;
o if one or more elections have been made to treat the trust fund or
designated portions of the trust fund as a REMIC, to pay any
federal, state or local taxes imposed on the trust fund or its
assets or transactions, as and to the extent described under
"Certain Federal Income Tax Consequences--REMICs--Prohibited
Transactions Tax and Other Taxes";
o to pay for the cost of various opinions of counsel obtained pursuant
to the related Pooling and Servicing Agreement for the benefit of
certificateholders;
o to make any other withdrawals permitted by the related Pooling and
Servicing Agreement and described in the related prospectus
supplement; and
o to clear and terminate the Certificate Account upon the termination
of the trust fund.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
The master servicer and the special servicer may each agree to modify,
waive or amend any term of any mortgage loan serviced by it in a manner
consistent with the applicable "Servicing Standard" as defined in the related
prospectus supplement; provided that, unless otherwise set forth in the related
prospectus supplement, the modification, waiver or amendment will--
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o not affect the amount or timing of any scheduled payments of
principal or interest on the mortgage loan;
o will not, in the judgment of the master servicer or the special
servicer, as the case may be, materially impair the security for the
mortgage loan or reduce the likelihood of timely payment of amounts
due; and
o will not adversely affect the coverage under any applicable
instrument of credit support.
Unless otherwise provided in the related prospectus supplement, the
special servicer also may agree to any other modification, waiver or amendment
if, in its judgment,--
o a material default on the mortgage loan has occurred or a payment
default is reasonably foreseeable or imminent;
o such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the mortgage loan, taking
into account the time value of money, than would liquidation; and
o unless inconsistent with the applicable "servicing standard", such
modification, waiver or amendment will not materially adversely
affect the coverage under any applicable instrument of credit
support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a mortgage loan has occurred, the special servicer, on
behalf of the trustee, may 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 comparably convert ownership of, or acquire
title to the related mortgaged property, by operation of law or otherwise. In
connection with such foreclosure or other conversion of ownership, the special
servicer shall follow the servicing standard. A Pooling and Servicing Agreement
may grant the special servicer the right to direct the master servicer to
advance costs and expenses to be incurred in any such proceedings, and such
advances may be subject to reimbursement requirements. A Pooling and Servicing
Agreement may require the special servicer to consult with independent counsel
regarding the order and manner should foreclose upon or comparably proceed
against such properties if a mortgage loan or group of cross-collateralized
mortgage loans are secured by real properties in multiple states including
certain states with a statute, rule or regulation comparable to California's
"one action" rule. Unless otherwise provided in the related prospectus
supplement, when applicable state law permits the special servicer to select
between judicial and non-judicial foreclosure in respect of any mortgaged
property, a special servicer may make such selection so long as the selection is
made in a manner consistent with the servicing standard. Unless otherwise
specified in the related prospectus supplement, the special servicer may not,
however, 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 trustee, for the benefit
of the related series of Certificateholders, or any other specified person to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or an "operator" of such mortgaged property within the meaning of
certain federal environmental laws, unless the special servicer has previously
received a report prepared by a person who regularly conducts environmental
audits (which report will be an expense of the trust fund) and either:
(1) such report indicates that (a) the mortgaged property is in
compliance with applicable environmental laws and regulations and (b)
there are no circumstances or conditions present at the mortgaged property
that have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(2) the special servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the mortgaged property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (1)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value
of money, than not taking such actions. See "Certain Legal Aspects of
Mortgage Loans--Environmental Considerations".
A Pooling and Servicing Agreement may grant to the master servicer, the
special servicer, a provider of credit support and/or the holder or holders of
certain classes of the related series of certificates a right of first refusal
to
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purchase from the trust fund, at a predetermined price (which, if less than the
Purchase Price, will be specified in the related prospectus supplement), any
mortgage loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related prospectus
supplement, the special servicer may offer to sell any defaulted mortgage loan
if and when the special servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
mortgaged property. In the absence of any such sale, the special servicer will
generally be required to proceed against the related mortgaged property, subject
to the discussion above.
Unless otherwise provided in the related prospectus supplement, if title
to any mortgaged property is acquired by a trust fund as to which a REMIC
election has been made, the special servicer, on behalf of the trust fund, will
be required to sell the mortgaged property before the close of the third
calendar year following the year of acquisition, unless (1) the IRS grants an
extension of time to sell such property or (2) the trustee receives an opinion
of independent counsel to the effect that the holding of the property by the
trust fund for longer than such period will not result in the imposition of a
tax on the trust fund or cause the trust fund (or any designated portion of the
trust fund) to fail to qualify as a REMIC under the Code at any time that any
certificate is outstanding. Subject to the foregoing and any other tax-related
limitations, the special servicer will generally be required to attempt to sell
any mortgaged property so acquired on the same terms and conditions it would if
it were the owner. Unless otherwise provided in the related prospectus
supplement, if title to any mortgaged property is acquired by a trust fund as to
which a REMIC election has been made, the special servicer will also be required
to ensure that the mortgaged property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the
trust fund of any income from nonpermitted assets as described in Code Section
860F(a)(2)(B), and that the trust fund does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2), with
respect to such property unless the method of operation that produces such
income would produce a greater after-tax return than a different method of
operation of such property. If the trust fund acquires title to any mortgaged
property, the special servicer, on behalf of the trust fund, may be required to
retain an independent contractor to manage and operate such property. The
retention of an independent contractor, however, will not relieve the special
servicer of its obligation to manage such mortgaged property as required under
the related Pooling and Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted mortgage
loan are less than the outstanding principal balance of the defaulted mortgage
loan plus interest accrued plus the aggregate amount of reimbursable expenses
incurred by the special servicer and/or the master servicer in connection with
such mortgage loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting credit support, the trust fund will realize
a loss in the amount of such shortfall. The special servicer and/or the master
servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted mortgage loan, prior to the distribution of such
Liquidation Proceeds to certificateholders, any and all amounts that represent
unpaid servicing compensation in respect of the mortgage loan, unreimbursed
servicing expenses incurred with respect to the mortgage loan and any
unreimbursed advances of delinquent payments made with respect to the mortgage
loan. In addition, if and to the extent set forth in the related prospectus
supplement, amounts otherwise distributable on the certificates may be further
reduced by interest payable to the master servicer and/or special servicer on
such servicing expenses and advances.
Except as otherwise provided in the prospectus supplement, if any
mortgaged property suffers damage such that the proceeds, if any, of the related
hazard insurance policy are insufficient to restore fully the damaged property,
neither the special servicer nor the master servicer will be required to expend
its own funds to effect such restoration.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will require the master servicer (or the special
servicer with respect to mortgage loans serviced by the special servicer) to use
reasonable efforts to cause each mortgage loan borrower to maintain a hazard
insurance policy that provides for such coverage as is required under the
related mortgage or, if the mortgage permits the holder to dictate to the
borrower the insurance coverage to be maintained on the related mortgaged
property, such coverage as is consistent with the master servicer's (or special
servicer's) normal servicing procedures. Unless otherwise specified in the
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related prospectus supplement, such coverage generally will be in an amount
equal to the lesser of the principal balance owing on such mortgage loan and the
replacement cost of the related mortgaged property. The ability of a master
servicer (or special servicer) to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information concerning covered
losses is furnished by borrowers. All amounts collected by a master servicer (or
special servicer) under any such policy (except for amounts to be applied to the
restoration or repair of the mortgaged property or released to the borrower in
accordance with the master servicer's (or special servicer's) normal servicing
procedures and/or to the terms and conditions of the related mortgage and
mortgage note) will be deposited in the related Certificate Account. The Pooling
and Servicing Agreement may provide that the master servicer (or special
servicer) may satisfy its obligation to cause each borrower to maintain such a
hazard insurance policy by maintaining a blanket policy insuring against hazard
losses on the mortgage loans in a trust fund, which may contain a deductible
clause (not in excess of a customary amount). If such blanket policy contains a
deductible clause, the master servicer (or special servicer) will be required,
in the event of a casualty covered by such blanket policy, to deposit in the
related Certificate Account all additional sums that would have been deposited
in the Certificate Account under an individual policy but were not because of
such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the mortgaged properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a mortgaged
property may not be insured for losses arising from any such cause unless the
related mortgage specifically requires, or permits the holder to require, such
coverage.
The hazard insurance policies covering the mortgaged properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (1) the
replacement cost of the improvements less physical depreciation and (2) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the mortgage loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the mortgage loan upon any sale or
other transfer of the related mortgaged property made without the lender's
consent. Certain of the mortgage loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the mortgage loan
upon the creation of any other lien or encumbrance upon the mortgaged property.
Unless otherwise provided in the related prospectus supplement, the master
servicer (or special servicer) will determine whether to exercise any right the
trustee may have under any such provision in a manner consistent with the master
servicer's (or special servicer's) normal servicing procedures. Unless otherwise
specified in the related prospectus supplement, the master servicer or special
servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
mortgaged property. See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale
and Due-on-Encumbrance Provisions".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related prospectus supplement, a master
servicer's primary servicing compensation with respect to a series of
certificates will come from the periodic payment to it of a specified portion of
the interest payments on each mortgage loan in the related trust fund, including
mortgage loans serviced by the related special servicer. If and to the extent
described in the related prospectus supplement, a special servicer's primary
compensation with respect to a series of certificates may consist of any or all
of the following components--
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o a specified portion of the interest payments on each mortgage loan
in the related trust fund, whether or not serviced by it;
o an additional specified portion of the interest payments on each
mortgage loan then currently serviced by it; and
o subject to any specified limitations, a fixed percentage of some or
all of the collections and proceeds received with respect to each
mortgage loan which was at any time serviced by it, including
mortgage loans for which servicing was returned to the master
servicer.
Insofar as any portion of the master servicer's or special servicer's
compensation consists of a specified portion of the interest payments on a
mortgage loan, such compensation will generally be based on a percentage of the
principal balance of such mortgage loan outstanding from time to time and,
accordingly, will decrease with the amortization of the mortgage loan. As
additional compensation, a master servicer or special servicer may be entitled
to retain all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the related Certificate
Account. A more detailed description of each master servicer's and special
servicer's compensation will be provided in the related prospectus supplement.
Any sub-servicer will receive as its sub-servicing compensation a portion of the
servicing compensation to be paid to the master servicer or special servicer
that retained such sub-servicer.
In addition to amounts payable to any sub-servicer, a master servicer or
special servicer may be required, to the extent provided in the related
prospectus supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related trust fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the trustee and any custodians appointed by the trustee and payment of expenses
incurred in connection with distributions and reports to certificateholders.
Certain other expenses, including certain expenses related to mortgage loan
defaults and liquidations and, to the extent so provided in the related
prospectus supplement, interest on such expenses at the rate specified in the
prospectus supplement, may be required to be borne by the trust fund.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, there will be furnished to the related trustee
a report of a firm of independent certified public accountants stating that (1)
it has obtained a letter of representation regarding certain matters from the
management of the master servicer which includes an assertion that the master
servicer has complied with certain minimum mortgage loan servicing standards (to
the extent applicable to commercial and multifamily mortgage loans), identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America, with respect to the master
servicer's servicing of commercial and multifamily mortgage loans during the
most recently completed calendar year and (2) on the basis of an examination
conducted by such firm in accordance with standards established by the American
Institute of Certified Public Accountants, such representation is fairly stated
in all material respects, subject to such exceptions and other qualifications
that, in the opinion of such firm, such standards require it to report. In
rendering its report such firm may rely, as to the matters relating to the
direct servicing of commercial and multifamily mortgage loans by sub-servicers,
upon comparable reports of firms of independent public accountants rendered on
the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those sub-servicers.
The prospectus supplement may provide that additional reports of independent
certified public accountants relating to the servicing of mortgage loans may be
required to be delivered to the trustee.
Each Pooling and Servicing Agreement will also provide that, on or before
a specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, the master servicer and
special servicer shall each deliver to the related trustee an annual statement
signed by one or more officers of the master servicer or the special servicer,
as the case may be, to the effect that, to the best knowledge of each such
officer, the master servicer or the special servicer, as the case may be, has
fulfilled in all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and
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the nature and status of such default. Such statement may be provided as a
single form making the required statements as to more than one Pooling and
Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, copies of
the annual accountants' statement and the annual statement of officers of a
master servicer or special servicer may be obtained by certificateholders upon
written request to the trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER, THE REMIC
ADMINISTRATOR AND THE DEPOSITOR
Any entity serving as master servicer, special servicer or REMIC
administrator under a Pooling and Servicing Agreement may be an affiliate of the
depositor and may have other normal business relationships with the depositor or
the depositor's affiliates. Unless otherwise specified in the prospectus
supplement for a series of certificates, the related Pooling and Servicing
Agreement will permit the master servicer, the special servicer and any REMIC
administrator to resign from its obligations under the Pooling and Servicing
Agreement only upon a determination that such obligations are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it. No such resignation
will become effective until the trustee or other successor has assumed the
obligations and duties of the resigning master servicer, special servicer or
REMIC administrator, as the case may be, under the Pooling and Servicing
Agreement. The master servicer and special servicer for each trust fund will 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 related Pooling
and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will further provide that none of the master
servicer, the special servicer, the REMIC administrator, the depositor, any
extension adviser or any director, officer, employee or agent of any of them
will be under any liability to the related trust fund or Certificateholders for
any action taken, or not taken, in good faith pursuant to the Pooling and
Servicing Agreement or for errors in judgment; provided, however, that none of
the master servicer, the special servicer, the REMIC administrator, the
depositor, any extension adviser or any such person will be protected against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of obligations or duties under
the Pooling and Servicing Agreement or by reason of reckless disregard of such
obligations and duties. Unless otherwise specified in the related prospectus
supplement, each Pooling and Servicing Agreement will further provide that the
master servicer, the special servicer, the REMIC administrator, the depositor,
any extension adviser and any director, officer, employee or agent of any of
them will be entitled to indemnification by the related trust fund against any
loss, liability or expense incurred in connection with any legal action that
relates to such Pooling and Servicing Agreement or the related series of
certificates; provided, however, that such indemnification will not extend to
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or negligence in the performance of obligations or duties under such
Pooling and Servicing Agreement, or by reason of reckless disregard of such
obligations or duties. In addition, each Pooling and Servicing Agreement will
provide that none of the master servicer, the special servicer, the REMIC
administrator, any extension adviser or the depositor will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the Pooling and Servicing
Agreement and that in its opinion may involve it in any expense or liability.
However, each of the master servicer, the special servicer, the REMIC
administrator, any extension adviser and the depositor will be permitted, in the
exercise of its discretion, to undertake any such 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 Pooling and Servicing Agreement and the
interests of the related series of certificateholders under the Pooling and
Servicing Agreement. In such event, the legal expenses and costs of such action,
and any liability resulting from such action, will be expenses, costs and
liabilities of the related series of certificateholders, and the master
servicer, the special servicer, the REMIC administrator, any extension adviser
or the depositor, as the case may be, will be entitled to charge the related
Certificate Account for this expense.
Any person into which the master servicer, the special servicer, the REMIC
administrator or the depositor may be merged or consolidated, or any person
resulting from any merger or consolidation to which the master servicer, the
special servicer, the REMIC administrator or the depositor is a party, or any
person succeeding to the business of
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the master servicer, the special servicer, the REMIC administrator or the
depositor, will be the successor of the master servicer, the special servicer,
the REMIC administrator or the depositor, as the case may be, under the related
Pooling and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, a REMIC
administrator will be entitled to perform any of its duties under the related
Pooling and Servicing Agreement either directly or by or through agents or
attorneys, and the REMIC administrator will not be responsible for any willful
misconduct or gross negligence on the part of any such agent or attorney
appointed by it with due care.
EVENTS OF DEFAULT
Unless otherwise provided in the prospectus supplement for a series of
certificates, Events of Default under the related Pooling and Servicing
Agreement will include, without limitation--
o any failure by the master servicer to distribute or cause to be
distributed to the certificateholders of such series, or to remit to
the trustee for distribution to such certificateholders, any amount
required to be so distributed or remitted, pursuant to, and at the
time specified by, the terms of the Pooling and Servicing Agreement;
o any failure by the special servicer to remit to the master servicer
or the trustee, as applicable, any amount required to be so
remitted, pursuant to, and at the time specified by, the terms of
the Pooling and Servicing Agreement;
o 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 related Pooling and Servicing
Agreement, which failure continues unremedied for thirty days after
written notice of such failure has been given to the master servicer
or the special servicer, as the case may be, by any other party to
the related Pooling and Servicing Agreement, or to the master
servicer or the special servicer, as the case may be, with a copy to
each other party to the related Pooling and Servicing Agreement, by
certificateholders entitled to not less than 25% (or such other
percentage specified in the related prospectus supplement) of the
Voting Rights for such series;
o any failure by a REMIC administrator (if other than the trustee)
duly to observe or perform in any material respect any of its
covenants or obligations under the related Pooling and Servicing
Agreement, which failure continues unremedied for thirty days after
written notice of such notice has been given to the REMIC
administrator by any other party to the related Pooling and
Servicing Agreement, or to the REMIC administrator, with a copy to
each other party to the related Pooling and Servicing Agreement, by
certificateholders entitled to not less than 25% (or such other
percentage specified in the related prospectus supplement) of the
Voting Rights for such series;
o certain events involving a determination by a rating agency that the
master servicer or the special servicer is no longer approved by
such rating agency to serve in such capacity; and
o certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities, or similar proceedings in respect of or
relating to the master servicer, the special servicer or the REMIC
administrator (if other than the trustee), and certain actions by or
on behalf of the master servicer, the special servicer or the REMIC
administrator (if other than the trustee) indicating its insolvency
or inability to pay its obligations.
Material variations to the foregoing Events of Default (other than to add
thereto or shorten cure periods or eliminate notice requirements) will be
specified in the related prospectus supplement. Unless otherwise specified in
the related prospectus supplement, when a single entity acts as master servicer,
special servicer and REMIC administrator, or in any two of the foregoing
capacities, for any trust fund, an Event of Default in one capacity will (except
where related only to a Rating Agency's evaluation of the acceptability of such
entity to act in a particular capacity) constitute an event of default in each
capacity.
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RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the master servicer, the
special servicer or a REMIC administrator under a Pooling and Servicing
Agreement, then, in each and every such case, so long as the Event of Default
remains unremedied, the depositor or the trustee will be authorized, and at the
direction of certificateholders of the related series entitled to not less than
51% (or such other percentage specified in the related prospectus supplement) of
the Voting Rights for such series, the trustee will be required, to terminate
all of the rights and obligations of the defaulting party as master servicer,
special servicer or REMIC administrator, as applicable, under the Pooling and
Servicing Agreement, whereupon the trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as master
servicer, special servicer or REMIC administrator, as applicable, under the
Pooling and Servicing Agreement (except that if the defaulting party is required
to make advances under the Pooling and Servicing Agreement regarding delinquent
mortgage loans, but the trustee is prohibited by law from obligating itself to
make such advances, or if the related prospectus supplement so specifies, the
trustee will not be obligated to make such advances) and will be entitled to
similar compensation arrangements. Unless otherwise specified in the related
prospectus supplement, if the trustee is unwilling or unable so to act, it may
(or, at the written request of Certificateholders of the related series entitled
to not less than 51% (or such other percentage specified in the related
prospectus supplement) of the Voting Rights for such series, it will be required
to) appoint, or petition a court of competent jurisdiction to appoint, a loan
servicing institution or other entity that (unless otherwise provided in the
related prospectus supplement) is acceptable to each applicable rating agency to
act as successor to the master servicer, special servicer or REMIC
administrator, as the case may be, under the Pooling and Servicing Agreement.
Pending such appointment, the trustee will be obligated to act in such capacity.
If the same entity is acting as both trustee and REMIC administrator, it
may be removed in both such capacities as described under "--Resignation and
Removal of the Trustee" below.
No certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the trustee written notice
of default and the continuance of such default and unless the holders of
certificates of any class evidencing not less than 25% of the aggregate
Percentage Interests constituting such class have made written request upon the
trustee to institute such proceeding in its own name as trustee under the
Pooling and Servicing Agreement and have offered to the trustee reasonable
indemnity and the trustee for sixty days after receipt of such request and
indemnity has neglected or refused to institute any such proceeding. However,
the trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Pooling and Servicing Agreement or to institute, conduct or
defend any litigation under the Pooling and Servicing Agreement or in relation
thereto at the request, order or direction of any of the holders of certificates
covered by such Pooling and Servicing Agreement, unless such certificateholders
have offered to the trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred in connection with such
litigation.
AMENDMENT
Except as otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement may be amended by the parties thereto, without
the consent of any of the holders of certificates covered by such Pooling and
Servicing Agreement, (1) to cure any ambiguity, (2) to correct or supplement any
provision in the Pooling and Servicing Agreement which may be inconsistent with
any other provision in the Pooling and Servicing Agreement or to correct any
error, (3) to change the timing and/or nature of deposits in the Certificate
Account, provided that (A) such change would not adversely affect in any
material respect the interests of any Certificateholder, as evidenced by an
opinion of counsel, and (B) such change would not result in the withdrawal,
downgrade or qualification of any of the then-current ratings on the
certificates, as evidenced by a letter from each applicable rating agency, (4)
if a REMIC election has been made with respect to the related trust fund, to
modify, eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the trust fund (or any designated
portion of the trust fund) as a REMIC or to avoid or minimize the risk of
imposition of any tax on the related trust fund, provided that the trustee has
received an opinion of counsel to the effect that (1) such action is necessary
or desirable to maintain such qualification or to avoid or minimize such risk,
and (2) such action will not adversely affect in any material respect the
interests of any holder of certificates covered by the Pooling and Servicing
Agreement, or (B) to restrict the transfer of the REMIC Residual Certificates,
provided that the depositor has determined that the then-current ratings of the
classes of the certificates that have been rated will not be
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withdrawn, downgraded or qualified, as evidenced by a letter from each
applicable rating agency, and that any such amendment will not give rise to any
tax with respect to the transfer of the REMIC Residual Certificates to a
non-permitted transferee (See "Certain Federal Income Tax
Consequences--REMICs--Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations" in this prospectus supplement), (5) to
make any other provisions with respect to matters or questions arising under
such Pooling and Servicing Agreement or any other change, provided that such
action will not adversely affect in any material respect the interests of any
certificateholder, or (6) to amend specified provisions that are not material to
holders of any class of certificates offered by this prospectus.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of certificates of each class affected
by an amendment evidencing, in each case, not less than 66 2 /3% (or such other
percentage specified in the related prospectus supplement) of the aggregate
Percentage Interests constituting such class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of certificates covered by such Pooling and Servicing Agreement,
except that no such amendment may (1) reduce in any manner the amount of, or
delay the timing of, payments received on mortgage loans which are required to
be distributed on a certificate of any class without the consent of the holder
of such certificate or (2) reduce the aforesaid percentage of certificates of
any class the holders of which are required to consent to any such amendment
without the consent of the holders of all certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if one or more REMIC elections have been
made with respect to the related trust fund, the trustee will not be required to
consent to any amendment to a Pooling and Servicing Agreement without having
first received an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the master servicer, the special servicer, the
depositor, the trustee or any other specified person in accordance with such
amendment will not result in the imposition of a tax on the related trust fund
or cause such trust fund (or any designated portion of the trust fund) to fail
to qualify as a REMIC.
LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related prospectus supplement, upon
written request of three or more certificateholders of record made for purposes
of communicating with other holders of certificates of the same series with
respect to their rights under the related Pooling and Servicing Agreement, the
trustee or other specified person will afford such certificateholders access
during normal business hours to the most recent list of certificateholders of
that series held by such person. If such list is as of a date more than 90 days
prior to the date of receipt of such certificateholders' request, then such
person, if not the registrar for such series of certificates, will be required
to request from such registrar a current list and to afford such requesting
certificateholders access thereto promptly upon receipt.
THE TRUSTEE
The trustee under each Pooling and Servicing Agreement will be named in
the related prospectus supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as trustee may
have typical banking relationships with the depositor and its affiliates and
with any master servicer, special servicer or REMIC administrator and its
affiliates.
DUTIES OF THE TRUSTEE
The trustee for each series of certificates will make no representation as
to the validity or sufficiency of the related Pooling and Servicing Agreement,
such certificates or any underlying mortgage asset or related document and will
not be accountable for the use or application by or on behalf of any master
servicer or special servicer of any funds paid to the master servicer or special
servicer in respect of the certificates or the underlying mortgage assets. If no
Event of Default has occurred and is continuing, the trustee for each series of
certificates will be required to perform only those duties specifically required
under the related Pooling and Servicing Agreement. However, upon receipt of any
of the various certificates, reports or other instruments required to be
furnished to it
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pursuant to the related Pooling and Servicing Agreement, a trustee will be
required to examine such documents and to determine whether they conform to the
requirements of such agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related prospectus supplement, the
fees and normal disbursements of any trustee may be the expense of the related
master servicer or other specified person or may be required to be borne by the
related trust fund.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the trustee in connection with the trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence on the part of the trustee in the
performance of its obligations and duties under the Pooling and Servicing
Agreement, or by reason of its reckless disregard of such obligations or duties.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of its duties under the Pooling and Servicing Agreement either directly or
by or through agents or attorneys, and the trustee will not be responsible for
any willful misconduct or negligence on the part of any such agent or attorney
appointed by it with due care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The trustee may resign at any time, in which event the depositor will be
obligated to appoint a successor trustee. The depositor may also remove the
trustee if the trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the trustee becomes insolvent. Upon
becoming aware of such circumstances, the depositor will be obligated to appoint
a successor trustee. The trustee may also be removed at any time by the holders
of certificates of the applicable series evidencing not less than 33 1 /3% (or
such other percentage specified in the related prospectus supplement) of the
Voting Rights for such series. Any resignation or removal of the trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee. Notwithstanding anything in this
prospectus to the contrary, if any entity is acting as both trustee and REMIC
administrator, then any resignation or removal of such entity as the trustee
will also constitute the resignation or removal of such entity as REMIC
administrator, and the successor trustee will serve as successor to the REMIC
administrator as well.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit support may be provided with respect to one or more classes of the
certificates of any series or with respect to the related mortgage assets.
Credit support may be in the form of a letter of credit, the subordination of
one or more classes of certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds and/or cash
collateral accounts, overcollateralization, or another method of credit support
described in the related prospectus supplement, or any combination of the
foregoing. If and to the extent so provided in the related prospectus
supplement, any of the foregoing forms of credit support may provide credit
enhancement for more than one series of certificates.
Unless otherwise provided in the related prospectus supplement for a
series of certificates, the credit support will not provide protection against
all risks of loss and will not guarantee payment to certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related credit support or that are of a type not covered by such credit support,
certificateholders will bear their allocable share of deficiencies. Moreover, if
a form of credit support covers the offered certificates of more than one series
and losses on the related mortgage assets exceed the amount of such credit
support, it is possible that the holders of offered certificates of one (or
more) such series will be
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disproportionately benefited by such credit support to the detriment of the
holders of offered certificates of one (or more) other such series.
If credit support is provided with respect to one or more classes of
certificates of a series, or with respect to the related mortgage assets, the
related prospectus supplement will include a description of--
o the nature and amount of coverage under such credit support;
o any conditions to payment under the credit support not otherwise
described in this prospectus;
o the conditions (if any) under which the amount of coverage under
such credit support may be reduced and under which such credit
support may be terminated or replaced; and
o the material provisions relating to such credit support.
Additionally, the related prospectus supplement will set forth certain
information with respect to the obligor, if any, under any instrument of credit
support. See "Risk Factors--Credit Support Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related prospectus supplement, one or more classes
of certificates of a series may be Subordinate Certificates. To the extent
specified in the related prospectus supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Certificates. If so provided in the related prospectus
supplement, the subordination of a class may apply only in the event of certain
types of losses or shortfalls. The related prospectus supplement will set forth
information concerning the method and amount of subordination provided by a
class or classes of Subordinate Certificates in a series and the circumstances
under which such subordination will be available.
If the mortgage assets in any trust fund are divided into separate groups,
each supporting a separate class or classes of certificates of the related
series, credit support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of mortgage assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of mortgage assets within the trust
fund. The prospectus supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES CONCERNING TO MORTGAGE LOANS
If so provided in the prospectus supplement for a series of certificates,
mortgage loans included in the related trust fund will be covered for certain
default risks by insurance policies or guarantees. The related prospectus
supplement will describe the nature of such default risks and the extent of such
coverage.
LETTER OF CREDIT
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes of certificates will be covered by one or more letters of credit, issued
by a bank or other financial institution (which may be an affiliate of the
depositor) specified in such prospectus supplement. Under a letter of credit,
the providing institution will be obligated to honor draws in an aggregate fixed
dollar amount, net of unreimbursed payments under the letter of credit,
generally equal to a percentage specified in the related prospectus supplement
of the aggregate principal balance of some or all of the related mortgage assets
on the related Cut-off Date or of the initial aggregate Certificate Balance of
one or more classes of certificates. If so specified in the related prospectus
supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments under
the letter of credit and may otherwise be reduced as described in the related
prospectus supplement. The obligations of the providing institution under the
letter of credit for each series of certificates will expire at the earlier of
the date specified in the related prospectus supplement or the termination of
the trust fund.
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CERTIFICATE INSURANCE AND SURETY BONDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes of certificates will be covered by insurance policies or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of certificates of the related
series, timely distributions of interest or distributions of principal on the
basis of a schedule of principal distributions set forth in or determined in the
manner specified in the related prospectus supplement. The related prospectus
supplement will describe any limitations on the draws that may be made under any
such instrument.
RESERVE FUNDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes will be covered (to the extent of available funds) by one or more
reserve funds in which cash, a letter of credit, Permitted Investments, a demand
note or a combination will be deposited, in the amounts specified in such
prospectus supplement. If so specified in the related prospectus supplement, the
reserve fund for a series may also be funded over time by a specified amount of
certain collections received on the related mortgage assets.
Amounts on deposit in any reserve fund for a series will be applied for
the purposes, in the manner, and to the extent specified in the related
prospectus supplement. If so specified in the related prospectus supplement,
reserve funds may be established to provide protection only against certain
types of losses and shortfalls. Following each Distribution Date, amounts in a
reserve fund in excess of any amount required to be maintained in such reserve
funds may be released from the reserve fund under the conditions and to the
extent specified in the related prospectus supplement.
If so specified in the related prospectus supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related prospectus supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related master servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the trust fund unless
otherwise specified in the related prospectus supplement.
CASH COLLATERAL ACCOUNT
If so specified in the related prospectus supplement, all or any portion
of credit enhancement for a series of certificates may be provided by the
establishment of a cash collateral account. A cash collateral account will be
similar to a reserve fund except that generally a cash collateral account is
funded initially by a loan from a cash collateral lender, the proceeds of which
are invested with the cash collateral lender or other eligible institution. The
loan from the cash collateral lender will be repaid from such amounts as are
specified in the related prospectus supplement. Amounts on deposit in the cash
collateral account will be available in generally the same manner described
above with respect to a reserve fund. As specified in the related prospectus
supplement, a cash collateral account may be deemed to be part of the assets of
the related Trust, may be deemed to be part of the assets of a separate cash
collateral trust or may be deemed to be property of the party specified in the
related prospectus supplement and pledged for the benefit of the holders of one
or more classes of certificates of a series.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the prospectus supplement for a series of certificates,
any MBS included in the related trust fund and/or the related underlying
mortgage loans may be covered by one or more of the types of credit support
described in this prospectus. The related prospectus supplement will specify, as
to each such form of credit support, the information indicated above with
respect thereto, to the extent such information is material and available.
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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 state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the mortgage loans (or mortgage loans
underlying any MBS) is situated. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of those states. See
"Description of the Trust Funds--Mortgage Loans". For purposes of the following
discussion, "mortgage loan" includes a mortgage loan underlying an MBS.
GENERAL
Each mortgage loan will be evidenced by a note or bond 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 by that mortgage,
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 subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a 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 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 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 mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the 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 such leases and rents, 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 and motel room rates are considered accounts
receivable under the Uniform Commercial Code; in cases where hotels or motels
constitute loan security, the rates 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 rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, mortgage loans secured by hotels or
motels may be included in a trust fund
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even if the security interest in the room rates was not perfected or the
requisite UCC filings were allowed to lapse. Even if the lender's security
interest in room rates 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
rates following a default. In the bankruptcy setting, however, the lender will
be stayed from enforcing its rights to collect room rates, but those room rates
(in light of certain revisions to the Bankruptcy Code which are effective for
all bankruptcy cases commenced on or after October 22, 1994) constitute "cash
collateral" and therefore cannot be used by the bankruptcy debtor without
lender's consent or a hearing at which the lender's interest in the room rates
is given adequate protection (e.g., the lender receives cash payments from
otherwise unencumbered funds or a replacement lien on unencumbered property, in
either case equal in value to the amount of room rates that the debtor proposes
to use, or other similar relief). See "--Bankruptcy Laws".
In the case of office and retail properties, the bankruptcy or insolvency
of a major tenant or a number of smaller tenants may have an adverse impact on
the mortgaged properties affected and the income produced by such mortgaged
properties. Under bankruptcy law, a tenant has the option of assuming
(continuing), or rejecting (terminating) or, subject to certain conditions,
assigning to a third party any unexpired lease. If the tenant assumes its lease,
the tenant must cure all defaults under the lease and provide the landlord with
adequate assurance of its future performance under the lease. If the tenant
rejects the lease, the landlord's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. The
amount of the claim would be limited to the amount owed for unpaid pre-petition
lease payments unrelated to the rejection, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease (but not
to exceed three years' lease payments). If the tenant assigns its lease, the
tenant must cure all defaults under the lease and the proposed assignee must
demonstrate adequate assurance of future performance under the lease.
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, 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 the mortgage
loan, and must file continuation statements, generally every five years, to
maintain that perfection. In certain cases, mortgage loans secured in part by
personal property may be included in a trust fund even if the security interest
in such personal property was not perfected or the requisite UCC filings were
allowed to lapse.
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 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.
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
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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 mortgage loans 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 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 trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the 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 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 property may have occurred during the foreclosure proceedings. 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. (The mortgage loans, however, may be nonrecourse. See "Risk
Factors--Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans--Limited Recourse Nature of the Mortgage Loans".) 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.
The costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The 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 the
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property may not equal the lender's investment in the property. Moreover,
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.
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 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 trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the mortgage loans may be
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 such security;
however, in some of those states, the lender, following judgment on such
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 could 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, requires the lessor to grant
the mortgagee a new lease if the existing lease is rejected in a bankruptcy
proceeding, 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
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"mortgageable" ground lease. Certain mortgage loans, however, may be secured by
ground leases which do not contain these provisions.
Cooperative Shares. Mortgage loans may be secured by a security interest
on the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner 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 canceled 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 Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences caused by such
automatic stay can be significant. Also, under the Bankruptcy Code, the filing
of a petition in bankruptcy by or on behalf of a junior lienor may stay the
senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy Code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the Section entitled "--Leases and Rents", the amendments provide
that a pre-petition security interest in rents or hotel revenues extends (unless
the bankruptcy court orders otherwise based on the equities of the case) to such
post-petition rents or revenues and is intended to overrule those cases that
held
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that a security interest in rents is unperfected under the laws of certain
states until the lender has taken some further action, such as commencing
foreclosure or obtaining a receiver prior to activation of the assignment of
rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (1)
assume the lease and retain it or assign it to a third party or (2) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles. Depending on facts and circumstances not wholly in existence at the
time a loan is originated or transferred to the trust fund, the application of
any of these doctrines to one or more of the mortgagors in the context of the
bankruptcy of one or more of their affiliates could result in material
impairment of the rights of the Certificateholders.
For each mortgagor that is described as a "special purpose entity",
"single purpose entity" or "bankruptcy remote entity" in the related prospectus
supplement, the activities that may be conducted by such mortgagor and its
ability to incur debt are restricted by the applicable mortgage or the
organizational documents of such mortgagor in such manner as is intended to make
the likelihood of a bankruptcy proceeding being commenced by or against such
mortgagor remote, and such mortgagor has been organized and is designed to
operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the depositor makes no representation as to
the likelihood of the institution of a bankruptcy proceeding by or in respect of
any mortgagor or the likelihood that the separate existence of any mortgagor
would be respected if there were to be a bankruptcy proceeding in respect of any
affiliated entity of a mortgagor.
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. 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 become sufficiently involved
in the management of such mortgaged property or the operations of the borrower.
Such liability may exist even if the lender did not cause or contribute to the
contamination and regardless of whether or not the lender has actually taken
possession of a
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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 Act of
1996, amended, among other things, the provisions of CERCLA with respect to
lender liability and the secured creditor exemption. The Act offers substantial
protection of 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 Asset Conservation, Lender Liability and Deposit
Insurance Act of 1996 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
only if it exercises decision making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of operational functions of the mortgaged property. The
Asset Conservation, Lender Liability and Deposit Insurance Act of 1996 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 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.
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of the Resource
Conservation and Recovery Act governs underground petroleum storage tanks. Under
the Asset Conservation, Lender Liability and Deposit Insurance Act of 1996, the
protections accorded to lenders under CERCLA are also accorded to the holders of
security interests in underground storage tanks. It should be noted, however,
that liability for cleanup of petroleum contamination may be governed by state
law, which may not provide for any specific protection of secured creditors.
In a few states, transfers of some types of properties are conditioned
upon cleanup 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 in such cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
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 trust fund and occasion a loss to the certificateholders of the
related series.
To reduce the likelihood of such a loss, unless otherwise specified in the
related prospectus supplement, the Pooling and Servicing Agreement will provide
that neither the master servicer nor the special servicer, acting on behalf of
the trustee, may acquire title to a mortgaged property or take over its
operation unless the special servicer, based solely (as to environmental
matters) on a report prepared by a person who regularly conducts environmental
audits, has made the determination that it is appropriate to do so, as described
under "The Pooling and Servicing Agreements--Realization Upon Defaulted Mortgage
Loans".
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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 recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each mortgaged property will have been performed in connection
with the origination of the related mortgage loan or at some time prior to the
issuance of the related certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
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. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, 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 the regulations promulgated under the Garn Act.
Accordingly, a master servicer 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 master servicer's
ability to demonstrate that a sale threatens its legitimate security interest.
JUNIOR LIENS; RIGHTS OF HOLDERS OF SENIOR LIENS
If so provided in the related prospectus supplement, mortgage assets for a
series of certificates may include mortgage loans secured by junior liens, and
the loans secured by the related senior liens may not be included in the
mortgage pool. In addition to the risks faced by the holder of a first lien,
holders of mortgage loans secured by junior liens also face the risk that
adequate funds will not be received in connection with a foreclosure on the
related mortgaged property to satisfy fully both the senior liens and the
mortgage loan. In the event that a holder of a senior lien forecloses on a
mortgaged property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the senior liens. The claims of the holders
of the senior liens will be satisfied in full out of proceeds of the liquidation
of the related mortgaged property, if such proceeds are sufficient, before the
trust fund as holder of the junior lien receives any payments in respect of the
mortgage loan. In the event that such proceeds from a foreclosure or similar
sale of the related mortgaged property are insufficient to satisfy all senior
liens and the mortgage loan in the aggregate, the trust fund, as the holder of
the junior lien, and, accordingly, holders of one or more classes of the
certificates of the related series bear (1) the risk of delay in distributions
while a deficiency judgment against the borrower is obtained and (2) the risk of
loss if the deficiency judgment is not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions or the mortgage loan may
be nonrecourse.
The rights of the trust fund (and therefore the certificateholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive rents, hazard insurance and condemnation
proceeds and to cause the property securing the mortgage loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the master servicer asserts its
subordinate interest in a property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted
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senior loan in full, adding the amounts expended to the balance due on the
junior loan. Absent a provision in the senior mortgage, no notice of default is
required to be given to the junior mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgage or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under a hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed to the extent the
junior mortgage or deed of trust so provides. The laws of certain states may
limit the ability of mortgagees or beneficiaries to apply the proceeds of hazard
insurance and partial condemnation awards to the secured indebtedness. In such
states, the mortgagor or trustor must be allowed to use the proceeds of hazard
insurance to repair the damage unless the security of the mortgagee or
beneficiary has been impaired. Similarly, in certain states, the mortgagee or
beneficiary is entitled to the award for a partial condemnation of the real
property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
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
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for prepayment fees
or yield maintenance penalties if the obligation is paid prior to maturity or
prohibit such prepayment for a specified period. In certain states, there are or
may be specific limitations upon the late charges
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which a lender may collect from a mortgagor for delinquent payments. Certain
states also limit the amounts that a lender may collect from a mortgagor as an
additional charge if the loan is prepaid. The enforceability under the laws of a
number of states and the Bankruptcy Code of provisions providing for prepayment
fees of penalties upon, or prohibition of, an involuntary prepayment is unclear,
and no assurance can be given that, at the time a prepayment premium is required
to be made on a mortgage loan in connection with an involuntary prepayment, the
obligation to make such payment, or the provisions of any such prohibition, will
be enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to mortgage loans having higher Mortgage
Rates, may increase the likelihood of refinancing or other early retirements of
the mortgage loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 provides that state usury limitations shall not apply to certain
types of residential (including multifamily) first mortgage loans originated by
certain lenders after March 31, 1980. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980 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 of the Depository Institutions Deregulation and Monetary
Control Act of 1980 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 of the Depository Institutions Deregulation and Monetary
Control Act of 1980. Certain states have taken action to reimpose interest rate
limits and/or to limit discount points or other charges.
No mortgage loan originated in any state in which application of Title V
of the Depository Institutions Deregulation and Monetary Control Act of 1980 has
been expressly rejected or a provision limiting discount points or other charges
has been adopted, will (if originated after that rejection or adoption) be
eligible for inclusion in a trust fund unless (i) such mortgage loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such mortgage loan provides that the terms are to be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the borrower's counsel has
rendered an opinion that such choice of law provision would be given effect.
CERTAIN LAWS AND REGULATIONS
The mortgaged properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a mortgaged property which could, together with the
possibility of limited alternative uses for a particular mortgaged property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related mortgage loan.
AMERICANS WITH DISABILITIES ACT
Under the ADA, in order to protect individuals with disabilities, public
accommodations (such as hotels, restaurants, shopping centers, hospitals,
schools and social service center establishments) must remove architectural and
communication barriers which are structural in nature from existing places of
public accommodation to the extent "readily achievable." In addition, under the
ADA, alterations to a place of public accommodation or a commercial facility are
to be made so that, to the maximum extent feasible, such altered portions are
readily accessible to and usable by disabled individuals. The "readily
achievable" standard takes into account, among other factors, the financial
resources of the affected site, owner, landlord or other applicable person. In
addition to imposing a possible financial burden on the 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.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of 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
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origination of the mortgage loan), may not be charged interest (including fees
and charges) above an annual rate of 6% during the period of such borrower's
active duty status, unless a court 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 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 the related series of
certificates, and would not be covered by advances or, unless otherwise
specified in the related prospectus supplement, any form of credit support
provided in connection with such certificates. In addition, the Relief Act
imposes limitations that would impair the ability of the master servicer or
special servicer to foreclose on an affected mortgage loan during the borrower's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter.
FORFEITURE FOR DRUG AND MONEY LAUNDERING VIOLATIONS
Federal law provides that property purchased or improved with assets
derived from criminal activity or otherwise tainted, or used in the commission
of certain offenses, can be seized and ordered forfeited to the United States of
America. The offenses which can trigger such a seizure and forfeiture include,
among others, violations of the Racketeer Influenced and Corrupt Organizations
Act, the Bank Secrecy Act, the anti-money laundering laws and regulations,
including the USA Patriot Act of 2001 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 (1) 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 (2) 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 FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of offered
certificates of any series thereof, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the depositor with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth in this
prospectus. Counsel to the depositor for each series will be Cadwalader,
Wickersham & Taft, and a copy of the legal opinion of such counsel rendered in
connection with any series of certificates will be filed by the depositor with
the Securities and Exchange Commission on a Current Report on Form 8-K within 15
days after the Closing Date for such series of certificates. This discussion is
directed primarily to certificateholders that hold the certificates as "capital
assets" within the meaning of Section 1221 of the Code (although portions
thereof may also apply to certificateholders who do not hold certificates as
capital assets) and it does not purport to discuss all federal income tax
consequences that may be applicable to the individual circumstances of
particular investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special treatment under the Code. Further,
the authorities on which this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations, which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given the IRS will not
take contrary positions. In addition to the federal income tax consequences
described in this prospectus, potential investors are advised to consider the
state and local tax consequences, if any, of the purchase, ownership and
disposition of offered certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of offered certificates.
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The following discussion addresses securities of two general types: (1)
REMIC Certificates representing interests in a trust fund, or a portion thereof,
that the REMIC administrator will elect to have treated as a REMIC under the
REMIC Provisions of the Code, and (2) Grantor Trust Certificates representing
interests in a Grantor Trust Fund as to which no such election will be made. The
prospectus supplement for each series of certificates will indicate whether a
REMIC election (or elections) will be made for the related trust fund and, if
such an election is to be made, will identify all "regular interests" and
"residual interests" in the REMIC. For purposes of this tax discussion,
references to a "Certificateholder" or a "holder" are to the beneficial owner of
a certificate.
The following discussion is limited in applicability to offered
certificates. Moreover, this discussion applies only to the extent that mortgage
assets held by a trust fund consist solely of mortgage loans. To the extent that
other mortgage assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a trust fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related prospectus
supplement. In addition, if cash flow agreements other than guaranteed
investment contracts are included in a trust fund, the anticipated material tax
consequences associated with such cash flow agreements also will be discussed in
the related prospectus supplement. See "Description of the Trust Funds--Cash
Flow Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the OID Regulations, and in part upon the REMIC
Provisions and the REMIC Regulations. The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the certificates.
REMICS
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the depositor will give its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related trust fund (or each applicable portion thereof)
will qualify as one or more REMICs and the REMIC Certificates offered with
respect thereto will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in a REMIC within the meaning of the
REMIC Provisions. The following general discussion of the anticipated federal
income tax consequences of the purchase, ownership and disposition of REMIC
Certificates, to the extent it relates to matters of law or legal conclusions
with respect thereto, represents the opinion of counsel to the depositor for the
applicable series as specified in the related prospectus supplement, subject to
any qualifications set forth in this prospectus. In addition, counsel to the
depositor have prepared or reviewed the statements in this prospectus under the
heading "Certain Federal Income Tax Consequences--REMICs," and are of the
opinion that such statements are correct in all material respects. Such
statements are intended as an explanatory discussion of the possible effects of
the classification of any trust fund (or applicable portion thereof) as one or
more REMICs for federal income tax purposes on investors generally and of
related tax matters affecting investors generally, but do not purport to furnish
information in the level of detail or with the attention to an investor's
specific tax circumstances that would be provided by an investor's own tax
advisor. Accordingly, each investor is advised to consult its own tax advisors
with regard to the tax consequences to it of investing in REMIC Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the trust
fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the trust fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any trust fund as
a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related prospectus supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(4)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion
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that the assets of the REMIC underlying such certificates would be so treated.
However, to the extent that the REMIC assets constitute mortgages on property
not used for residential or certain other prescribed purposes, the REMIC
Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such certificates are treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. In addition, except as otherwise
provided in the applicable prospectus supplement, the REMIC Regular Certificates
will be "qualified mortgages" for a REMIC within the meaning of Section
860G(a)(3) of the Code and "permitted assets" for a financial asset
securitization investment trust within the meaning of Section 860L(c) of the
Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
REMIC Administrator will report those determinations to Certificateholders in
the manner and at the times required by applicable Treasury regulations.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
trust fund as REMICs for federal income tax purposes. As to each such series of
REMIC Certificates, in the opinion of counsel to the depositor, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC Certificates issued
by the Tiered REMICs, will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to mortgage loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Committee Report indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The Prepayment Assumption used in reporting original issue discount
for each series of REMIC Regular Certificates will be consistent with this
standard and will be disclosed in the related prospectus supplement. However,
neither the depositor nor any other person will make any representation that the
mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will
be the excess of its stated redemption price at maturity over its issue price.
The issue price of a particular class of REMIC Regular Certificates will be the
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first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the Closing Date, the issue price
for such class will be the fair market value of such class on the Closing Date.
Under the OID Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on such Certificate
other than "qualified stated interest". "Qualified stated interest" is interest
that is unconditionally payable at least annually (during the entire term of the
instrument) at a single fixed rate, or, as discussed below under "Variable Rate
REMIC Regular Certificates," at a qualified variable rate.
If the accrued interest to be paid on the first Distribution Date is
computed with respect to a period that begins prior to the Closing Date, a
portion of the purchase price paid for a REMIC Regular Certificate will reflect
such accrued interest. In such cases, information returns provided to the
Certificateholders and the IRS will be based on the position that the portion of
the purchase price paid for the interest accrued with respect to periods prior
to the Closing Date is treated as part of the overall cost of such REMIC Regular
Certificate (and not as a separate asset the cost of which is recovered entirely
out of interest received on the next Distribution Date) and that portion of the
interest paid on the first Distribution Date in excess of interest accrued for a
number of days corresponding to the number of days from the Closing Date to the
first Distribution Date should be included in the stated redemption price of
such REMIC Regular Certificate. However, the OID Regulations state that all or
some portion of such accrued interest may be treated as a separate asset the
cost of which is recovered entirely out of interest paid on the first
Distribution Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made unilaterally by a
Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "--Taxation
of Owners of REMIC Regular Certificates--Market Discount" below for a
description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of
a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related prospectus supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (1) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (2) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (1) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the mortgage loans being prepaid at a
rate equal to the Prepayment
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Assumption, (2) using a discount rate equal to the original yield to maturity of
the Certificate and (3) taking into account events (including actual
prepayments) that have occurred before the close of the accrual period. For
these purposes, the original yield to maturity of the Certificate will be
calculated based on its issue price and assuming that distributions on the
Certificate will be made in all accrual periods based on the mortgage loans
being prepaid at a rate equal to the Prepayment Assumption. The adjusted issue
price of a REMIC Regular Certificate at the beginning of any accrual period will
equal the issue price of such Certificate, increased by the aggregate amount of
original issue discount that accrued with respect to such Certificate in prior
accrual periods, and reduced by the amount of any distributions made on such
REMIC Regular Certificate in prior accrual periods of amounts included in the
stated redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (1) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (2) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Under the OID Regulations,
interest is treated as payable at a variable rate if, generally, (1) the issue
price does not exceed the original principal balance by more than a specified
amount and (2) the interest compounds or is payable at least annually at current
values of (a) one or more "qualified floating rates", (b) a single fixed rate
and one or more qualified floating rates, (c) a single "objective rate", or (d)
a single fixed rate and a single objective rate that is a "qualified inverse
floating rate". A floating rate is a qualified floating rate if variations in
the rate can reasonably be expected to measure contemporaneous variations in the
cost of newly borrowed funds, where the rate is subject to a fixed multiple that
is greater than 0.65, but not more than 1.35. The rate may also be increased or
decreased by a fixed spread or subject to a fixed cap or floor, or a cap or
floor that is not reasonably expected as of the issue date to affect the yield
of the instrument significantly. An objective rate (other than a qualified
floating rate) is a rate that is determined using a single fixed formula and
that is based on objective financial or economic information, provided that the
information is not (1) within the control of the issuer or a related party or
(2) unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate equal to a fixed rate minus a qualified floating
rate that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified floating rate
may nevertheless be an objective rate. A class of REMIC Regular Certificates may
be issued under this prospectus that does not have a variable rate under the OID
Regulations, for example, a class that bears different rates at different times
during the period it is outstanding so that it is considered significantly
"front-loaded" or "back-loaded" within the meaning of the OID Regulations. It is
possible that a class of this type may be considered to bear "contingent
interest" within the meaning of the OID Regulations. The OID Regulations, as
they relate to the treatment of contingent interest, are by their terms not
applicable to REMIC Regular Certificates. However, if final regulations dealing
with contingent interest with respect to REMIC Regular Certificates apply the
same principles as the OID Regulations, those regulations may lead to different
timing of income inclusion than would be the case under the OID Regulations.
Furthermore, application of those principles could lead to the characterization
of gain on the sale of contingent interest REMIC Regular Certificates as
ordinary income. Investors should consult their tax advisors regarding the
appropriate treatment of any REMIC Regular Certificate that does not pay
interest at a fixed rate or variable rate as described in this paragraph.
Under the REMIC Regulations, a REMIC Regular Certificate (1) bearing a
rate that qualifies as a variable rate under the OID Regulations that is tied to
current values of a variable rate (or the highest, lowest or average of two or
more variable rates), including a rate based on the average cost of funds of one
or more financial institutions, or a positive or negative multiple of a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the mortgage loans, including a rate
that is subject to one or more caps or floors, or (2) bearing one or more of
these variable rates for one or more periods or one or more fixed rates for
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one or more periods, and a different variable rate or fixed rate for other
periods qualifies as a regular interest in a REMIC. Accordingly, unless
otherwise indicated in the applicable prospectus supplement, REMIC Regular
Certificates that qualify as regular interests under this rule will be treated
in the same manner as obligations bearing a variable rate for original issue
discount reporting purposes.
The amount of original issue discount with respect to a REMIC Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "--Original Issue Discount" with the yield to maturity and
future payments on that REMIC Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the REMIC Regular
Certificate based on the initial rate for the relevant class. Unless otherwise
specified in the applicable prospectus supplement, variable interest will be
treated as qualified stated interest, other than variable interest on an
interest-only class, which will be treated as non-qualified stated interest
includible in the stated redemption price at maturity. Ordinary income
reportable for any period will be adjusted based on subsequent changes in the
applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, REMIC Regular Certificates bearing an interest
rate that is a weighted average of the net interest rates on mortgage loans
having fixed or adjustable rates, will be treated as having qualified stated
interest, except to the extent that initial "teaser" rates cause sufficiently
"back-loaded" interest to create more than de minimis original issue discount.
The yield on those REMIC Regular Certificates for purposes of accruing original
issue discount will be a hypothetical fixed rate based on the fixed rates, in
the case of fixed rate mortgage loans, and initial "teaser rates" followed by
fully indexed rates, in the case of adjustable rate mortgage loans. In the case
of adjustable rate mortgage loans, the applicable index used to compute interest
on the mortgage loans for the initial interest accrual period will be deemed to
be in effect beginning with the period in which the first weighted average
adjustment date occurring after the issue date occurs. Adjustments will be made
in each accrual period either increasing or decreasing the amount of ordinary
income reportable to reflect the actual pass-through interest rate on the REMIC
Regular Certificates.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest and
discount (including de minimis market or original issue discount) in income as
interest, and to amortize premium, based on a constant yield method. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election or thereafter, including de minimis market
discount discussed in the following paragraph. Similarly, a Certificateholder
that made this election for a Certificate that is acquired at a premium would be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that such Certificateholder
owns or acquires. See "--Taxation of Owners of REMIC Regular
Certificates--Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest would be irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
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Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (1) on the basis of a constant yield
method, (2) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (3) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" above. Although final Treasury regulations issued
under Section 171 of the Code do not by their terms apply to prepayable
obligations such as REMIC Regular Certificates, the Committee Report states that
the same rules that apply to accrual of market discount (which rules will
require use of a Prepayment Assumption in accruing market discount with respect
to REMIC Regular Certificates without regard to whether such certificates have
original issue discount) will also apply in amortizing bond premium.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their certificates become wholly or partially
worthless as the result of one or more realized losses on the mortgage loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's
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Certificate becomes wholly worthless (i.e., until its Certificate Balance has
been reduced to zero) and that the loss will be characterized as a short-term
capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the mortgage loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"--Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates
will be subject to tax rules that differ significantly from those that would
apply if the REMIC Residual Certificates were treated for federal income tax
purposes as direct ownership interests in the mortgage loans or as debt
instruments issued by the REMIC.
A REMIC Residual Certificateholder generally will be required to report
its daily portion of the taxable income or, subject to the limitations noted in
this discussion, the net loss of the REMIC for each day during a calendar
quarter that such holder owned such REMIC Residual Certificate. For this
purpose, the taxable income or net loss of the REMIC will be allocated to each
day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "--Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC until the
REMIC's termination. Ordinary income derived from REMIC Residual Certificates
will be "portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it is possible that any
such payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds
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sufficient to pay any federal income taxes due as a result of their ownership of
REMIC Residual Certificates or unrelated deductions against which income may be
offset, subject to the rules relating to "excess inclusions" and "noneconomic"
residual interests discussed below. The fact that the tax liability associated
with the income allocated to REMIC Residual Certificateholders may exceed the
cash distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return. Such disparity between income and
distributions may not be offset by corresponding losses or reductions of income
attributable to the REMIC Residual Certificateholder until subsequent tax years
and, then, may not be completely offset due to changes in the Code, tax rates or
character of the income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the mortgage loans (including interest, market discount and, if
applicable, original issue discount and less premium) and other assets of the
REMIC plus any cancellation of indebtedness income due to the allocation of
realized losses to REMIC Regular Certificates, less the deductions allowed to
the REMIC for interest (including original issue discount and reduced by any
premium on issuance) on the REMIC Regular Certificates (and any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the mortgage loans, bad debt losses with
respect to the mortgage loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, such Class's fair market value). Such aggregate basis will be
allocated among the mortgage loans and the other assets of the REMIC in
proportion to their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount". The issue price of a REMIC Certificate received in exchange for an
interest in the mortgage loans or other property will equal the fair market
value of such interests in the mortgage loans or other property. Accordingly, if
one or more classes of REMIC Certificates are retained initially rather than
sold, the REMIC Administrator may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the mortgage
loans and other property held by the REMIC.
The method of accrual by the REMIC of original issue discount income and
market discount income with respect to mortgage loans that it holds will be
equivalent to the method for accruing original issue discount income for holders
of REMIC Regular Certificates (that is, under the constant yield method taking
into account the Prepayment Assumption), but without regard to the de minimis
rule applicable to REMIC Regular Certificates. However, a REMIC that acquires
loans at a market discount must include such market discount in income
currently, as it accrues, on a constant yield basis. See "--Taxation of Owners
of REMIC Regular Certificates" above, which describes a method for accruing such
discount income that is analogous to that required to be used by a REMIC as to
mortgage loans with market discount that it holds.
A mortgage loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis in that mortgage loan, determined
as described in the preceding paragraph, is less than (or greater than) its
stated redemption price. Any such discount will be includible in the income of
the REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing
original issue discount on the REMIC Regular Certificates. It is anticipated
that each REMIC will elect under Section 171 of the Code to amortize any premium
on the mortgage loans. Premium on any mortgage loan to which such election
applies may be amortized under a constant yield method, presumably taking into
account a Prepayment Assumption. Further, such an election would not apply to
any mortgage loan originated on or before September 27, 1985. Instead, premium
on such a mortgage loan should be allocated among the principal payments thereon
and be deductible by the REMIC as those payments become due or upon the
prepayment of such mortgage loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de
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minimis rule and the adjustments for subsequent holders of REMIC Regular
Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) described in that section
will not apply.
If a class of REMIC Regular Certificates is issued with an Issue Premium,
the REMIC will have additional income in each taxable year in an amount equal to
the portion of the Issue Premium that is considered to be amortized or repaid in
that year. Although the matter is not entirely certain, it is likely that Issue
Premium would be amortized under a constant yield method in a manner analogous
to the method of accruing original issue discount described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual
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Certificate would have in the hands of an original holder see "--Taxation of
Owners of REMIC Residual Certificates--General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events. In
general, the "excess inclusions" with respect to a REMIC Residual Certificate
for any calendar quarter will be the excess, if any, of (1) the daily portions
of REMIC taxable income allocable to such REMIC Residual Certificate over (2)
the sum of the "daily accruals" (as defined below) for each day during such
quarter that such REMIC Residual Certificate was held by such REMIC Residual
Certificateholder. The daily accruals of a REMIC Residual Certificateholder will
be determined by allocating to each day during a calendar quarter its ratable
portion of the product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120% of the "long-term
Federal rate" in effect on the Closing Date. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters and decreased
(but not below zero) by any distributions made with respect to such REMIC
Residual Certificate before the beginning of such quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling and Servicing Agreement that are intended to reduce
the possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future.
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In addition to the transferor's investigation of the transferee's
financial condition and the transferee's affidavit, a third requirement has been
added that must be satisfied in one of two alternative ways for the transferor
to have a "safe harbor" against ignoring the transfer. First, proposed Treasury
Regulations, would require that the present value of the anticipated tax
liabilities associated with holding the noneconomic residual interest not exceed
the sum of:
(i) the present value of any consideration given to the transferee
to acquire the interest;
(ii) the present value of the expected future distributions on the
interest; and
(iii) the present value of the anticipated tax savings associated
with holding the interest as the REMIC generates losses.
For purposes of the computations under this "minimum transfer price"
alternative, the transferee is assumed to pay tax at the highest rate of tax
specified in Section 11(b)(1) of the Code (currently 35%). Further, present
values generally are computed using a discount rate equal to the applicable
Federal rate set forth in Section 1274(d) of the Code, compounded semiannually.
However, a lower rate may be used if the transferee can demonstrate that it
regularly borrows, in the course of its trade or business, substantial funds at
such lower rate from unrelated third parties.
The second alternative appears in Revenue Procedure 2001-12, issued by the
IRS. The revenue procedure restates the minimum transfer price alternative
described in the proposed Treasury regulations discussed above and adds an
"eligible transferee" test as the second alternative test for meeting the safe
harbor. To meet the second alternative, (i) the transferee must be a domestic
"C" corporation (other than a corporation exempt from taxation of a regulated
investment company or real estate investment trust) that meets certain gross and
net asset tests (generally, $100 million of gross assets and $10 million of net
assets for the current year and the two preceding fiscal years); (ii) the
transferee must agree in writing that it will transfer the residual interest
only to a subsequent transferee that is an eligible corporation and meets the
requirements for a safe harbor transfer under the Revenue Procedure; and (iii)
the facts and circumstances known to the transferor on or before the date of the
transfer must not reasonably indicate that the taxes associated with ownership
of the residual interest will not be paid by the transferee. The eligible
transferee test, as well as the minimum transfer price test, are effective
retroactive to February 4, 2000 and apply unless and until changed by final
regulations.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers
should consider the applicability and effect of the proposed regulations and
revenue procedure mentioned above and should consider the possibility that a
purported transfer of such REMIC Residual Certificate by such a purchaser to
another purchaser at some future date may be disregarded in accordance with the
above-described rules which would result in the retention of tax liability by
such purchaser.
The related prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. On January 4, 1995, the IRS issued final
regulations, relating to the requirement that a securities dealer mark to market
securities held for sale to customers. This mark-to-market requirement applies
to all securities owned by a dealer, except to the extent that the dealer has
specifically identified a security as held for investment. The mark-to-market
regulations provide that for purposes of this requirement, any REMIC Residual
Certificate acquired on or after January 4, 1995 will not be treated as a
security and thus generally may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to certain types of holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
such types of holders of the related REMIC Regular
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Certificates. Unless otherwise stated in the related prospectus supplement, such
fees and expenses will be allocated to the related REMIC Residual Certificates
in their entirety and not to the holders of the related REMIC Regular
Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (1) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (2) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate 2% of a taxpayer's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (1) 3% of the excess of the
individual's adjusted gross income over such amount or (2) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The amount of
additional taxable income reportable by REMIC Certificateholders that are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable income
of such a holder of a REMIC Certificate that is an individual, estate or trust,
or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult with
their tax advisors prior to making an investment in such certificates.
Under tax legislation enacted in 2001, the limitations on deductions under
Section 68 will be phased out beginning in 2006 and will be eliminated after
2009.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described above
under "--Taxation of Owners of REMIC Residual Certificates--Basis Rules, Net
Losses and Distributions". Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
prospectus provides for tax rates for individuals on ordinary income that are
higher than the tax rates for long-term capital gains of individuals for
property held for more than one year. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
a capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (1) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally, a rate based on an average of current yields on
treasury securities having a maturity comparable to that of the certificate
based on the application of the Prepayment Assumption to such certificate),
determined as of the date of purchase of such REMIC Regular Certificate, over
(2) the amount of ordinary income actually includible in the seller's income
prior to such sale. In addition, gain recognized on the sale of a REMIC Regular
Certificate by a seller who purchased such REMIC Regular Certificate at a market
discount will be taxable as ordinary income in an amount not exceeding the
portion of such discount that accrued during the period such REMIC Certificate
was held by such holder, reduced by any market discount included in income under
the rules described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium".
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REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such Section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury Department regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires such REMIC
Residual Certificate, or acquires any other residual interest in a REMIC or any
similar interest in a "taxable mortgage pool" (as defined in Section 7701(i) of
the Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions".
In general, subject to certain specified exceptions a prohibited transaction
means the disposition of a mortgage loan, the receipt of income from a source
other than a mortgage loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset purchased
with the payments on the mortgage loans for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property. Each Pooling
and Servicing Agreement will include provisions designed to prevent the
acceptance of any contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property", determined by reference to the
rules applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
As provided in each Pooling and Servicing Agreement, a REMIC may recognize "net
income from foreclosure property" subject to federal income tax to the extent
that the REMIC Administrator determines that such method of operation will
result in a greater after-tax return to the trust fund than any other method of
operation.
Unless otherwise disclosed in the related prospectus supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related prospectus supplement, and to the
extent permitted by then applicable laws, any prohibited transactions tax or
contributions tax will be borne by the related REMIC administrator, master
servicer, special servicer, manager or trustee, in any case out of its own
funds, provided that such person has sufficient assets to do so, and provided
further that such tax arises out of a breach of such person's obligations under
the related Pooling and Servicing Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by a REMIC
administrator, a master servicer, special servicer, manager or trustee will be
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charged against the related trust fund resulting in a reduction in amounts
payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Certain Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (1) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate) of the total
anticipated excess inclusions with respect to such REMIC Residual Certificate
for periods after the transfer and (2) the highest marginal federal income tax
rate applicable to corporations. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a disqualified organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. Moreover, an entity will not qualify as a REMIC unless there
are reasonable arrangements designed to ensure that (1) residual interests in
such entity are not held by disqualified organizations and (2) information
necessary for the application of the tax described herein will be made
available. Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are intended to meet this requirement will be
included in each Pooling and Servicing Agreement, and will be discussed in any
prospectus supplement relating to the offering of any REMIC Residual
Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (1) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(2) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (1) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (2) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a REMIC Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by Section 860E(c) of the
Code. An exception to this tax, otherwise available to a pass-through entity
that is furnished certain affidavits by record holders of interests in the
entity and that does not know such affidavits are false, is not available to an
electing large partnership.
For these purposes, a "disqualified organization" means (1) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (2) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (3) any organization described in Section 1381(a)(2)(C) of the
Code. In addition, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity. For
these purposes, an "electing large partnership" means a partnership (other than
a service partnership or certain commodity pools) having more than 100 members
that has elected to apply certain simplified reporting provisions under the
Code.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
mortgage loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis
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in such Certificate, such REMIC Residual Certificateholder should (but may not)
be treated as realizing a loss equal to the amount of such difference, and such
loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related prospectus supplement, the holder of the
largest percentage interest in a class of REMIC Residual Certificates will be
the "tax matters person" with respect to the related REMIC, and the REMIC
administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and will be designated as and will act as agent of, and
attorney-in-fact for, the tax matters person with respect to the REMIC in all
respects.
As the tax matters person, the REMIC administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC tax return may require a
REMIC Residual Certificateholder to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury Department regulations, the name and address of such
person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury Department regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other nonindividuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. Reporting with
respect to REMIC Residual Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
REMIC's assets will be made as required under the Treasury Department
regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount".
Unless otherwise specified in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 30% (which rate will be reduced periodically to 28%
beginning in 2006) if recipients of such payments fail to furnish to the payor
certain information, including their taxpayer identification numbers, or
otherwise fail to establish an exemption from such tax. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit against
such recipient's federal income tax. Furthermore, certain penalties may be
imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner. The New Regulations,
as described below, will change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding.
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Non-U.S. Persons are urged to contact their own tax advisors regarding the
application to them of backup withholding and information reporting.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a U.S. Person and is not subject to federal income tax as a result
of any direct or indirect connection to the United States in addition to its
ownership of a REMIC Regular Certificate will not, unless otherwise disclosed in
the related prospectus supplement, be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). It is possible that the IRS may assert that the
foregoing tax exemption should not apply with respect to a REMIC Regular
Certificate held by a REMIC Residual Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual Certificates. If the
holder does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to such holder may
be subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
The Treasury Department has issued regulations which provide new methods
of satisfying the beneficial ownership certification requirement described
above, including a new series of forms. These regulations became effective
January 1, 2001. These regulations require, in the case of REMIC Regular
Certificates held by a foreign partnership, that (x) the certification described
above be provided by the partners rather than by the foreign partnership and (y)
the partnership provide certain information, including a United States taxpayer
identification number. A look-through rule applies in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors concerning
the application of the certification requirements in the regulations.
Unless otherwise stated in the related prospectus supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, in the opinion of counsel to the depositor for such
series, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of Grantor Trust Certificates, to the extent it
relates to matters of law or legal conclusions with respect thereto, represents
the opinion of counsel to the depositor for the applicable series as specified
in the related prospectus supplement, subject to any qualifications set forth in
this prospectus. In addition, counsel to the depositor has prepared or reviewed
the statements in this prospectus under the heading "Certain Federal Income Tax
Consequences--Grantor Trust Funds," and is of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of any
Grantor Trust Fund as a grantor trust for federal income tax purposes on
investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, each investor is advised to consult
its own tax advisors with regard to the tax consequences to it of investing in
Grantor Trust Certificates.
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Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related prospectus supplement, counsel to the depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (1) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (2) "obligation[s]
(including any participation or certificate of beneficial ownership therein)
which . . . [are] principally secured by an interest in real property" within
the meaning of Section 860G(a)(3) of the Code; and (3) "real estate assets"
within the meaning of Section 856(c)(4)(A) of the Code. In addition, counsel to
the depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of mortgage loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
depositor will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in Grantor Trust
Strip Certificates is material should consult their tax advisors regarding
whether the Grantor Trust Strip Certificates, and the income therefrom, will be
so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the mortgage loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the mortgage loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (1) 3% of the excess
of the individual's adjusted gross income over such amount or (2) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Under tax legislation enacted in
2001, this limitation on deductions under Section 68 will be phased out
beginning in 2006 and will be eliminated after 2009. Although it is not entirely
clear, it appears that in transactions in which multiple classes of Grantor
Trust Certificates (including Grantor Trust Strip Certificates) are issued, such
fees and expenses should be allocated among the classes of Grantor Trust
Certificates using a method that recognizes that each such class benefits from
the related services. In the absence of statutory or administrative
clarification as to the method to be used, it currently is intended to base
information returns or reports to the IRS and Certificateholders on a method
that allocates such expenses among classes of Grantor Trust Certificates with
respect to each period based on the distributions made to each such class during
that period.
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The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates or
(2) the depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a mortgage asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related prospectus supplement will include information regarding servicing fees
paid to a master servicer, a special servicer, any sub-servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "--Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the mortgage loans, would cause the present value of those future payments to
equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's share of future
payments on the mortgage loans will not include any payments made in respect of
any ownership interest in the mortgage loans retained by the depositor, the
master servicer, the special servicer, any sub-servicer or their respective
affiliates, but will include such Certificateholder's share of any reasonable
servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (1) the use of a reasonable
prepayment assumption in accruing original issue discount and (2) adjustments in
the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the mortgage loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
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If a prepayment assumption is not used, then when a mortgage loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the mortgage loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such Certificateholder's
interest in the mortgage loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount" above. It is
unclear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related prospectus
supplement and on a constant yield computed using a representative initial
offering price for each class of certificates. However, neither the depositor
nor any other person will make any representation that the mortgage loans will
in fact prepay at a rate conforming to such Prepayment Assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
Under Treasury regulations Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (1) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (2) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the mortgage loans, the related prospectus supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the mortgage loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the mortgage loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in mortgage loans issued with original issue discount.
The original issue discount, if any, on the mortgage loans will equal the
difference between the stated redemption price of such mortgage loans and their
issue price. For a definition of "stated redemption price," see "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount" above. In
general, the issue price of a mortgage loan will be the amount received by the
borrower from the lender under the terms of the mortgage loan, less any "points"
paid by the borrower, and the stated redemption price of a mortgage loan will
equal its principal amount, unless the mortgage loan provides for an initial
"teaser," or below-market interest rate. The determination as to whether
original issue discount will be considered to be de minimis will be calculated
using the same test as in the REMIC discussion. See "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which such
rules will be applied with respect to those mortgage loans by the trustee or
master servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
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If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related prospectus
supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to mortgage loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such certificate's allocable portion of the aggregate remaining stated
redemption price of the mortgage loans held in the related trust fund will also
be required to include in gross income such certificate's daily portions of any
original issue discount with respect to such mortgage loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the mortgage loans
held in the related trust fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such mortgage loans. The adjusted
issue price of a mortgage loan on any given day equals the sum of (1) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such mortgage loan at the beginning of the accrual period that
includes such day and (2) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
mortgage loan at the beginning of any accrual period will equal the issue price
of such mortgage loan, increased by the aggregate amount of original issue
discount with respect to such mortgage loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such mortgage loan in
prior accrual periods of amounts included in its stated redemption price.
Unless otherwise provided in the related prospectus supplement, the
trustee or master servicer, as applicable, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue discount
accruing on Grantor Trust Fractional Interest Certificates. See "--Grantor Trust
Reporting" below.
Market Discount. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a mortgage loan is considered to have been purchased at a "market
discount", that is, in the case of a mortgage loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a mortgage loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any mortgage loan, to the payment of stated redemption price on
such mortgage loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the trust fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "--Taxation of Owners of REMIC Regular
Interests--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the mortgage loans should accrue, at the
holder's option: (1) on the basis of a constant yield method, (2) in the case of
a mortgage loan issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total stated interest remaining to be
paid on the mortgage loan as of the beginning of the accrual period, or (3) in
the case of a mortgage loan issued with original issue discount, in
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an amount that bears the same ratio to the total remaining market discount as
the original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a mortgage loan purchased at a discount in the
secondary market.
Because the mortgage loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above within the exception that it is
less likely that a prepayment assumption will be used for purposes of such rules
with respect to the mortgage loans.
Further, under the rules described above in "--REMICs--Taxation of Owners
of REMIC Regular Certificates--Market Discount", any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the mortgage loans.
Premium. If a Certificateholder is treated as acquiring the underlying
mortgage loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to mortgage loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage
loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the mortgage loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a mortgage loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the mortgage loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the mortgage loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
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discussion under "--Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the mortgage loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Grantor Trust Strip Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Strip Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related prospectus supplement and on a constant
yield computed using a representative initial offering price for each class of
certificates. However, neither the depositor nor any other person will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
mortgage loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete mortgage loans, or if the Prepayment
Assumption is not used, then when a mortgage loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such mortgage loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the mortgage loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Treasury
Department regulations have been promulgated regarding contingent payment debt
instruments, but it appears that Grantor Trust Strip Certificates, due to their
similarity to other mortgage-backed securities (such as REMIC regular interests
and debt instruments subject to Section 1272(a)(6) of the Code) that are
expressly excepted from the application of such Regulations, may also be
excepted from such regulations. Like the OID Regulations, the contingent payment
regulations do not specifically address securities, such as the Grantor Trust
Strip Certificates, that are subject to the stripped bond rules of Section 1286
of the Code.
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If the contingent payment rules similar to those under the OID Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply a "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule. Holders of Grantor Trust Strip Certificates are bound by the issuer's
projected payment schedule. The projected payment schedule consists of all
noncontingent payments and a projected amount for each contingent payment based
on the comparable yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount of
each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate. The
comparable yield referred to above is a rate that, as of the issue date,
reflects the yield at which the issuer would issue a fixed rate debt instrument
with terms and conditions similar to the contingent payment debt instrument,
including general market conditions, the credit quality of the issuer, and the
terms and conditions of the mortgage loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the comparable yield.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this prospectus generally provides for
tax rates of noncorporate taxpayers on ordinary income that are higher than the
rates on long-term capital gains (generally, property held for more than one
year). No such rate differential exists for corporations. In addition, the
distinction between a capital gain or loss and ordinary income or loss remains
relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
prospectus supplement, the trustee or master servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying mortgage loans and to interest thereon at the related
pass-through rate. In addition, the trustee or master servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the master servicer, the special servicer or any sub-servicer, and
such other customary factual information as the
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depositor or the reporting party deems necessary or desirable to enable holders
of Grantor Trust Certificates to prepare their tax returns and will furnish
comparable information to the IRS as and when required by law to do so. Because
the rules for accruing discount and amortizing premium with respect to the
Grantor Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the trustee's or master servicer's, as the
case may be, information reports of such items of income and expense. Moreover,
such information reports, even if otherwise accepted as accurate by the IRS,
will in any event be accurate only as to the initial Certificateholders that
bought their certificates at the representative initial offering price used in
preparing such reports.
Backup Withholding. In general, the rules described above in
"--REMICs--Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "--REMICs--Foreign Investors in REMIC Certificates"
above applies to Grantor Trust Certificates except that Grantor Trust
Certificates will, unless otherwise disclosed in the related prospectus
supplement, be eligible for exemption from U.S. withholding tax, subject to the
conditions described in such discussion, only to the extent the related mortgage
loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
offered certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their tax advisors with respect to the
various tax consequences of investments in the offered certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended, and the
Code impose certain requirements on retirement plans, and on certain other
employee benefit plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans"), and
on persons who are fiduciaries with respect to such Plans, in connection with
the investment of Plan assets. Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)), and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. However, such plans may
be subject to the provisions of other applicable federal and state law
materially similar to ERISA or the Code. Moreover, any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code,
however, is subject to the prohibited transaction rules set forth in Section 503
of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons who have certain specified relationships to the Plan, unless a statutory
or administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty
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imposed pursuant to Section 502(i) of ERISA, unless a statutory or
administrative exemption is available. These prohibited transactions generally
are set forth in Section 406 of ERISA and Section 4975 of the Code.
PLAN ASSET REGULATIONS
A Plan's investment in offered certificates may cause the underlying
mortgage assets and other assets included in a related trust fund to be deemed
assets of such Plan. The Plan Asset Regulations provide that when a Plan
acquires an equity interest in an entity, the Plan's assets include both such
equity interest and an undivided interest in each of the underlying assets of
the entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (i.e., Plans and
certain employee benefit plans not subject to ERISA) is not "significant", both
as defined in the Plan Asset Regulations. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if 25%
or more of the value of any class of equity interests in the entity is held by
benefit plan investors. Equity participation in a trust fund will be significant
on any date if immediately after the most recent acquisition of any Certificate,
25% or more of any class of certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the mortgage assets and other assets included in a trust fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the master servicer, any special
servicer, any sub-servicer, the trustee, the obligor under any credit
enhancement mechanism, or certain affiliates thereof may be deemed to be a Plan
"fiduciary" and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the mortgage assets and other assets included in
a trust fund constitute Plan assets, the purchase of certificates by a Plan, as
well as the operation of the trust fund, may constitute or involve a prohibited
transaction under ERISA or the Code.
The Plan Asset Regulations provide that where a Plan acquires a
"guaranteed governmental mortgage pool certificate", the Plan's assets include
such certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" Ginnie Mae, Freddie Mac, and Fannie Mae Certificates.
Accordingly, even if such MBS included in a trust fund were deemed to be assets
of Plan investors, the mortgages underlying such MBS would not be treated as
assets of such Plans. Private label mortgage participations, mortgage
pass-through certificates or other mortgage-backed securities are not
"guaranteed governmental mortgage pool certificates" within the meaning of the
Plan Asset Regulations; potential Plan investors should consult their counsel
and review the ERISA discussion in the related prospectus supplement before
purchasing certificates if such MBS are included in the trust fund.
The DOL has granted to certain underwriters administrative exemptions,
each an "Exemption", for certain mortgage-backed and asset-backed certificates
underwritten in whole or in part by the underwriters. An Exemption might be
applicable to the initial purchase, the holding, and the subsequent resale by a
Plan of certain certificates, such as the offered certificates, underwritten by
the underwriters, representing interests in pass-through trusts that consist of
certain receivables, loans and other obligations, provided that the conditions
and requirements of the Exemption are satisfied. The loans described in the
Exemptions include mortgage loans such as the mortgage assets. However, it
should be noted that in issuing the Exemptions, the DOL may not have considered
interests in pools of the exact nature as some of the offered certificates. If
all of the conditions of an Exemption are met, whether or not a Plan's assets
would be deemed to include an ownership interest in the mortgage assets, the
acquisition, holding and resale of the offered certificates by Plans would be
exempt from certain of the prohibited transaction provisions of ERISA and the
Code.
INSURANCE COMPANY GENERAL ACCOUNTS
Sections I and III of PTCE 95-60 exempt from the application of the
prohibited transaction provisions of Sections 406(a), 406(b) and 407(a) of ERISA
and Section 4975 of the Code transactions in connection with the servicing,
management and operation of a trust (such as the Trust) in which an insurance
company general account has an interest as a result of its acquisition of
certificates issued by the trust, provided that certain conditions are
satisfied. If these conditions are met, insurance company general accounts would
be allowed to purchase certain
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classes of certificates which do not meet the requirements of any of the
Exemptions solely because they (1) are subordinated to other classes of
certificates in the trust and/or (2) have not received a rating at the time of
the acquisition in one of the four highest rating categories from a nationally
recognized statistical rating agency. All other conditions of one of the
Exemptions would have to be satisfied in order for PTCE 95-60 to be available.
Before purchasing such class of certificates, an insurance company general
account seeking to rely on Sections I and III of PTCE 95-60 should itself
confirm that all applicable conditions and other requirements have been
satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c)
to ERISA, which provides certain exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL has issued final regulations
providing guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the offered certificates should consult with their
legal counsel with respect to the applicability of Section 401(c) of ERISA.
CONSULTATION WITH COUNSEL
Any Plan fiduciary which proposes to purchase offered certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection with any
planned purchase.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code nonetheless will be subject to federal income taxation to the extent
that its income is "unrelated business taxable income" within the meaning of
Section 512 of the Code. All "excess inclusions" of a REMIC allocated to a REMIC
Residual Certificate held by a Plan will be considered unrelated business
taxable income and thus will be subject to federal income tax. See "Certain
Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions".
LEGAL INVESTMENT
If so specified in the related prospectus supplement, the offered
certificates will constitute "mortgage related securities" for purposes of
SMMEA. The appropriate characterization of those offered certificates not
qualifying as "mortgage related securities" under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase those types of offered certificates, may be subject to significant
interpretive uncertainties. Accordingly, investors whose investment authority is
subject to legal investment laws and regulations, regulatory capital
requirements, or review by regulatory authorities should consult their own legal
advisors to determine whether and to what extent the classes of offered
certificates not constituting mortgage related securities constitute legal
investments for them.
Generally, only classes of offered certificates that (1) are rated in one
of the two highest rating categories by any nationally recognized statistical
rating organization and (2) are part of a series evidencing interests in a trust
fund consisting of loans originated by certain types of originators specified in
SMMEA and secured by first liens on real estate, will be "mortgage related
securities" for purposes of SMMEA. Classes of offered certificates qualifying as
"mortgage related securities" will constitute legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities, including depository institutions, insurance companies and pension
funds, created pursuant to or existing under the laws of the United States or of
any state, including the District of Columbia and Puerto Rico, whose authorized
investments are subject to state regulation, to the same
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extent that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any of its agencies or
instrumentalities constitute legal investments for those entities.
Under SMMEA, a number of states enacted legislation, on or before the
October 3, 1991 cutoff for those enactments, limiting to various extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities" secured by liens on residential, or mixed
residential and commercial properties, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the definition of "mortgage related security" to include,
in relevant part, offered certificates satisfying the rating and qualified
originator requirements for "mortgage related securities," but evidencing
interests in a trust fund consisting, in whole or in part, of first liens on one
or more parcels of real estate upon which are located one or more commercial
structures, states were authorized to enact legislation, on or before September
23, 2001, specifically referring to Section 347 and prohibiting or restricting
the purchase, holding or investment by state-regulated entities in those types
of offered certificates. Accordingly, the investors affected by any state
legislation overriding the preemptive effect of SMMEA will be authorized to
invest in offered certificates qualifying as "mortgage related securities" only
to the extent provided in that legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in those securities, and national
banks may purchase those securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
ss. 24 (Seventh), subject in each case to those regulations as the applicable
federal regulatory authority may prescribe. In this connection, the OCC has
amended 12 C.F.R. Part 1 to authorize national banks to purchase and sell for
their own account, without limitation as to a percentage of the bank's capital
and surplus (but subject to compliance with certain general standards in 12
C.F.R. ss. 1.5 concerning "safety and soundness" and retention of credit
information), certain "Type IV securities," defined in 12 C.F.R. ss. 1.2(m) to
include certain "commercial mortgage-related securities" and "residential
mortgage-related securities." As so defined, "commercial mortgage-related
security" and "residential mortgage-related security" mean, in relevant part,
"mortgage related security" within the meaning of SMMEA, provided that, in the
case of a "commercial mortgage-related security," it "represents ownership of a
promissory note or certificate of interest or participation that is directly
secured by a first lien on one or more parcels of real estate upon which one or
more commercial structures are located and that is fully secured by interests in
a pool of loans to numerous obligors." In the absence of any rule or
administrative interpretation by the OCC defining the term "numerous obligors,"
no representation is made as to whether any class of offered certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The NCUA has adopted rules,
codified at 12 C.F.R. Part 703, which permit federal credit unions to invest in
"mortgage related securities" under certain limited circumstances, other than
stripped mortgage related securities, residual interests in mortgage related
securities, and commercial mortgage related securities, unless the credit union
has obtained written approval from the NCUA to participate in the "investment
pilot program" described in 12 C.F.R. ss. 703.140. The OTS has issued Thrift
Bulletin 13a (December 1, 1998), "Management of Interest Rate Risk, Investment
Securities, and Derivatives Activities," which thrift institutions subject to
the jurisdiction of the OTS should consider before investing in any of the
offered certificates.
All depository institutions considering an investment in the offered
certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" of the Federal Financial
Institutions Examination Council, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the OTS, effective May 26, 1998, and by the NCUA,
effective October 1, 1998. That statement sets forth general guidelines which
depository institutions must follow in managing risks (including market, credit,
liquidity, operational (transaction), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by those authorities before purchasing any offered
certificates, as certain series or classes may be deemed unsuitable investments,
or may otherwise be restricted, under those rules, policies or guidelines (in
certain instances irrespective of SMMEA).
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The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not
"interest-bearing" or "income-paying," and, with regard to any offered
certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain classes of offered certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the offered certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase offered certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the offered certificates) may
adversely affect the liquidity of the offered certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the offered certificates of any class
constitute legal investments or are subject to investment, capital, or other
restrictions and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates of any
series will be applied by the depositor to the purchase of trust assets or will
be used by the depositor to cover expenses related thereto. The depositor
expects to sell the certificates from time to time, but the timing and amount of
offerings of certificates will depend on a number of factors, including the
volume of mortgage assets acquired by the depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The certificates offered hereby and by the related prospectus supplements
will be offered in series through one or more of the methods described below.
The prospectus supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
depositor from such sale.
The depositor intends that offered certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
offered certificates of a particular series may be made through a combination of
two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters, which may include Banc of America
Securities LLC, an affiliate of the depositor;
2. By placements by the depositor with institutional investors
through dealers; and
3. By direct placements by the depositor with institutional
investors.
In addition, if specified in the related prospectus supplement, the
offered certificates of a series may be offered in whole or in part to the
seller of the related mortgage assets that would comprise the trust fund for
such certificates.
If underwriters are used in a sale of any offered certificates (other than
in connection with an underwriting on a best efforts basis), such certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the depositor whose
identities and relationships to the depositor will be as set forth in the
related prospectus supplement. The managing underwriter or underwriters with
respect to the offer and sale of
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offered certificates of a particular series will be set forth on the cover of
the prospectus supplement relating to such series and the members of the
underwriting syndicate, if any, will be named in such prospectus supplement.
In connection with the sale of offered certificates, underwriters may
receive compensation from the depositor or from purchasers of the offered
certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the offered certificates may be
deemed to be underwriters in connection with such certificates, and any
discounts or commissions received by them from the depositor and any profit on
the resale of offered certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale
of the offered certificates of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the depositor will indemnify the
several underwriters and the underwriters will indemnify the depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
to such liabilities.
The prospectus supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the depositor and purchasers of
offered certificates of such series.
The depositor anticipates that the offered certificates will be sold
primarily to institutional investors. Purchasers of offered certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
offered certificates. Holders of offered certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
prospectus will be used by Banc of America Securities LLC in connection with
offers and sales related to market-making transactions in offered certificates
previously offered hereunder in transactions with respect to which Banc of
America Securities LLC acts as principal. Banc of America Securities LLC may
also act as agent in such transactions. Sales may be made at negotiated prices
determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the certificates will be passed upon for
the depositor and the underwriter or underwriters by Cadwalader, Wickersham &
Taft. Certain federal income tax matters and other matters will be passed upon
for the depositor by Cadwalader, Wickersham & Taft.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates, and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will be included in this prospectus or in the related prospectus
supplement. The depositor has determined that its financial statements will not
be material to the offering of any offered certificates.
RATING
It is a condition to the issuance of any class of offered certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one rating agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders of all collections on the underlying mortgage assets to
which such holders are entitled. These ratings address the structural, legal and
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issuer-related aspects associated with such certificates, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any.
Ratings on mortgage pass-through certificates do not represent any assessment of
the likelihood of principal prepayments by borrowers or of the degree by which
such prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of Stripped Interest Certificates might, in extreme cases fail
to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
AVAILABLE INFORMATION
The depositor has filed with the Securities and Exchange Commission a
Registration Statement (of which this prospectus forms a part) under the
Securities Act of 1933, as amended, with respect to the offered certificates.
This prospectus and the prospectus supplement relating to each series of offered
certificates contain summaries of the material terms of the documents referred
to in this prospectus or in such prospectus supplement, but do not contain all
of the information set forth in the Registration Statement pursuant to the rules
and regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Midwest
Regional Offices located as follows: Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an internet site that contains reports, proxy and information
statements, and other information that has been filed electronically with the
SEC. The Internet address is http://www.sec.gov.
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
prospectus or any related prospectus supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the depositor or any other person. Neither the delivery of this prospectus or
any related prospectus supplement nor any sale made under this prospectus or any
related prospectus supplement shall under any circumstances create an
implication that there has been no change in the information in this prospectus
since the date of this prospectus or in such prospectus supplement since the
date of the prospectus supplement. This prospectus and any related prospectus
supplement are not an offer to sell or a solicitation of an offer to buy any
security in any jurisdiction in which it is unlawful to make such offer or
solicitation.
The master servicer, the trustee or another specified person will cause to
be provided to registered holders of the offered certificates of each series
periodic unaudited reports concerning the related trust fund. If beneficial
interests in a class or series of offered certificates are being held and
transferred in book-entry format through the facilities of The DTC as described
in this prospectus, then unless otherwise provided in the related prospectus
supplement, such reports will be sent on behalf of the related trust fund to a
nominee of DTC as the registered holder of the offered certificates. Conveyance
of notices and other communications by DTC to its participating organizations,
and directly or indirectly through such participating organizations to the
beneficial owners of the applicable offered certificates, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. See "Description of the
Certificates--Reports to Certificateholders" and "--Book-Entry Registration and
Definitive Certificates".
The depositor will file or cause to be filed with the Securities and
Exchange Commission such periodic reports with respect to each trust fund as are
required under the Securities Exchange Act of 1934 and the rules and regulations
of the Securities and Exchange Commission. The depositor intends to make a
written request to the staff of the Securities and Exchange Commission that the
staff either (1) issue an order pursuant to Section 12(h) of the Securities
Exchange Act of 1934, as amended, exempting the depositor from certain reporting
requirements under the Securities Exchange Act of 1934, as amended, with respect
to each trust fund or (2) state that the staff will not recommend that the
Commission take enforcement action if the depositor fulfills its reporting
obligations as
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described in its written request. If such request is granted, the depositor will
file or cause to be filed with the Securities and Exchange Commission as to each
trust fund the periodic unaudited reports to holders of the offered certificates
referenced in the preceding paragraph; however, because of the nature of the
trust funds, it is unlikely that any significant additional information will be
filed. In addition, because of the limited number of certificateholders expected
for each series, the depositor anticipates that a significant portion of such
reporting requirements will be permanently suspended following the first fiscal
year for the related trust fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The depositor hereby incorporates by reference all documents and reports
filed or caused to be filed by the depositor with respect to a trust fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to the termination of an offering of offered
certificates evidencing interests in that trust fund. The depositor will provide
or cause to be provided without charge to each person to whom this prospectus is
delivered in connection with the offering of one or more classes of offered
certificates, upon written or oral request of such person, a copy of any or all
documents or reports incorporated in this prospectus by reference, in each case
to the extent such documents or reports relate to one or more of such classes of
such offered certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Such requests to the depositor should be directed in writing to its principal
executive offices at the Bank of America Corporate Center, Charlotte, North
Carolina 28255, or by telephone at (704) 386-2400.
GLOSSARY
The following capitalized terms will have the respective meanings assigned
to them in this "Glossary" section whenever they are used in this prospectus.
"401(c) Regulations" means those regulations issued by the DOL which
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets.
"Accrued Certificate Interest" means for each Distribution Date an amount
equal to interest at the applicable pass-through rate accrued for a specified
period (generally the most recently ended calendar month) on the outstanding
Certificate Balance of such class of certificates immediately prior to such
Distribution Date.
"Accrual Certificates" means one or more classes of certificates that may
not be entitled to distributions of interest until the occurrence of certain
events, such as the retirement of one or more other classes of certificates.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Available Distribution Amount" means unless otherwise provided in the
related prospectus supplement for any series of certificates and any
Distribution Date the total of all payments or other collections (or advances in
lieu of such collections and advances) on, under or in respect of the mortgage
assets and any other assets included in the related trust fund that are
available for distribution to the holders of certificates of such series on such
date.
"Bankruptcy Code" means the U.S. Bankruptcy Code.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Certificate Account" means for the trust fund one or more established and
maintained on behalf of the certificateholders into which all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund will be deposited to the extent described this
prospectus and the related prospectus supplement.
"Certificate Balance" means the initial stated principal amount of each
individual class of certificates for a given series other than real estate
mortgage investment conduit residual certificates or certain classes of stripped
interest certificates.
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"Certificate Owner" means the actual purchaser of a book-entry
certificate.
"Closing Date" means date of the initial issuance of the certificates of a
given series.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Property" means office buildings, retail stores and
establishments, hotels or motels, nursing homes, hospitals or other health
care-related facilities, recreational vehicle and mobile home parks, warehouse
facilities, mini-warehouse facilities, self-storage facilities, industrial
plants, parking lots, entertainment or sports arenas, restaurants, marinas,
mixed use or various other types of income-producing properties or unimproved
land comprising some or all of the mortgaged properties included in the trust
fund.
"Committee Report" means the Conference Committee Report accompanying the
Tax Reform Act of 1986.
"Companion Class" means one or more classes of certificate where
distributions of principal with respect to one or more other classes of
certificates may be contingent on the specified principal payment schedule for a
Controlled Amortization Class of the same series and the rate at which payments
and other collections of principal on the mortgage assets in the related trust
fund are received.
"Controlled Amortization Class" means one or more classes of certificates
where distributions of principal may be made, subject to available funds, based
on a specified principal payment schedule.
"CPR" means the constant prepayment rate model representing an assumed
constant rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans
for the life of such mortgage loans.
"Cut-off Date" means the specified date initial aggregate outstanding
principal balance of the related mortgage assets as of a specified date.
"Debt Service Coverage Ratio" means at any given time for a mortgage loan
the ratio of--
o the Net Operating Income derived from the related mortgaged property
for a twelve-month period to
o the annualized scheduled payments of principal and/or interest on
the mortgage loan and any other loans senior to it that are secured
by the related mortgaged property.
"Determination Date" means the date upon which that all scheduled payments
on the mortgage loans in the trust fund are received or advanced by the master
servicer, special servicer or other specified person will be distributed to
certificateholders of the related series on the next succeeding Distribution
Date.
"Direct Participant" means the securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations that maintain accounts with DTC.
"Distribution Date" means the date as described in the prospectus
supplement upon which distributions on or with respect to the certificates will
be made.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company.
"Due Date" means a specified date upon which scheduled payments of
interest, principal or both are to be made under a mortgage loan and may occur
monthly, quarterly, semi-annually or annually.
"Due Period" means a specified time period (generally corresponding in
length to the period between Distribution Dates).
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"Equity Participation" means a provision under a mortgage loan that
entitles the lender to a share of appreciation of the related mortgaged
property, or profits realized from the operation or disposition of such
mortgaged property or the benefit, if any, resulting from the refinancing of the
mortgage loan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Funds" means in general that portion of the amounts distributable
in respect of the certificates of any series on any Distribution Date that
represent--
o interest received or advanced on the mortgage assets in the trust
fund that is in excess of the interest currently accrued on the
certificates of such series; or
o Prepayment Premiums, payments from Equity Participations or any
other amounts received on the mortgage assets in the trust fund that
do not constitute payments of interest or principal.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fannie Mae" means Federal National Mortgage Association.
"Freddie Mac" means Federal Home Loan Mortgage Corporation.
"Garn Act" means the Garn-St Germain Depository Institutions Act of 1982.
"Ginnie Mae" means Governmental National Mortgage Association.
"Grantor Trust Certificates" means certificates in a trust treated as a
grantor trust under applicable provisions of the Code.
"Grantor Trust Fractional Interest Certificate" means a Grantor Trust
Certificate representing an undivided equitable ownership interest in the
principal of the mortgage loans constituting the related Grantor Trust Fund,
together with interest at a pass-through rate.
"Grantor Trust Fund" means that portion of the trust fund as to which no
REMIC election has been made.
"Grantor Trust Strip Certificate" means a Grantor Trust Certificate
representing ownership of all or a portion of the difference between interest
paid on the mortgage loans constituting the related Grantor Trust Fund (net of
normal administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund.
"Indirect Participant" means those banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly.
"Insurance and Condemnation Proceeds" means proceeds applied to the
restoration of a mortgaged property or released to the related borrower in
connection with the full or partial condemnation of such mortgaged property.
"IRS" means the Internal Revenue Service.
"Issue Premium" means, in the case of a class of REMIC Regular
Certificates issued at a price in excess of the stated redemption price of that
class, the amount of such excess.
"Liquidation Proceeds" means all proceeds received under any hazard, title
or other insurance policy (other than Insurance and Condemnation Proceeds) and
all other amounts received and retained in connection with the liquidation of
defaulted mortgage loans or property acquired in respect of such defaulted
mortgage loans, by foreclosure or otherwise.
"Lock-out Period" means the period in which prepayments are prohibited
under a mortgage loan.
"Loan-to-Value Ratio" means for a mortgage loan the ratio (expressed as a
percentage) of--
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o the then outstanding principal balance of the mortgage loan and any
other loans senior that are secured by the related mortgaged
property to
o its fair market value as determined by an appraisal of such property
conducted by or on behalf of the originator in connection with the
origination of the mortgage loan.
"MBS" means mortgage participations, pass-through certificates or other
mortgage-backed securities that may comprise the assets of the trust fund.
"Mortgage Asset Seller" means the entity from whom the depositor purchased
a mortgage asset either directly or indirectly, included in the trust fund. The
Mortgage Asset Seller may or may not be the originator of the related mortgage
loan or the issuer of the MBS and may be an affiliate of the depositor.
"Mortgage Rate" means the rate at which a mortgage loan accrues interest
which may be fixed over its term or that adjusts from time to time, converted at
the borrower's election from an adjustable to a fixed rate, or from a fixed to
an adjustable rate.
"Multifamily Properties" means residential properties consisting of five
or more rental or cooperatively-owned dwelling units in high-rise, mid-rise or
garden apartment buildings or other residential structures comprising some or
all of the mortgaged properties included in the trust fund.
"Net Operating Income" means for any given period, the total operating
revenues derived from a mortgaged property during such period, minus the total
operating expenses incurred in respect of such mortgaged property during such
period other than --
o noncash items such as depreciation and amortization;
o capital expenditures; and
o debt service on the related mortgage loan or on any other loans that
are secured by such mortgaged property.
"NCUA" means the National Credit Union Administration.
"Notional Amount" means the amount upon which a Stripped Interest
Certificate is calculated to accrue interest which is either--
o based on the principal balances of some or all of the mortgage
assets in the related trust fund; or
o equal to the Certificate Balances of one or more other classes of
certificates of the same series.
"OCC" means the Office of the Comptroller of the Currency.
"OID Regulations" means the Treasury Department regulations issued under
Sections 1271-1273 and 1275 of the Code.
"OTS" means the Office of Thrift Supervision.
"Parties in Interest" means "parties in interest" as defined in ERISA and
"disqualified person" as defined in the Code.
"Percentage Interest" means the undivided percentage interest represented
by an offered certificate of a particular class which will be equal to the
percentage obtained by dividing the initial principal balance or notional amount
of such certificate by the initial Certificate Balance or Notional Amount of
such class.
"Permitted Investments" means government securities and other obligations
that are acceptable to each rating agency that has rated any one or more classes
of certificates of the related series into which funds from the Certificate
Account may be invested.
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"Plan" means retirement plans, and on certain other employee benefit plans
and arrangements, including individual retirement accounts, individual
retirement annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA or Section 4975 of the Code.
"Plan Asset Regulations" mean Section 2510.3-101 of the regulations issued
by the DOL.
"Pooling and Servicing Agreement" means pooling and servicing agreement or
other agreement specified in the related prospectus supplement pursuant to which
certificates of each series will be issued.
"Prepayment Assumption" means the prepayment assumption used in reporting
original issue discount for each series of REMIC Regular Certificates or, if
applicable, Grantor Trust Certificates, as disclosed in the related prospectus
supplement.
"Prepayment Interest Shortfall" means the result when a prepayment on any
mortgage loan is distributable to certificateholders on a particular
Distribution Date, but such prepayment is not accompanied by interest thereon to
the Due Date for such mortgage loan in the related Due Period, then the interest
charged to the borrower (net of servicing and administrative fees) may be less
than the corresponding amount of interest accrued and otherwise payable on the
certificates of the related series.
"Prepayment Premium" means the payment of any premium or yield maintenance
charge in connection with certain prepayments under a mortgage loan.
"PTCE 95-60" means Prohibited Transaction Class Exemption 95-60.
"Purchase Price" means the price as specified in the prospectus supplement
at which a Mortgage Asset Seller will be required to repurchase a mortgage loan
under the conditions set forth in the prospectus supplement.
"Record Date" means last business day of the month preceding the month in
which the applicable Distribution Date occurs.
"Relief Act" means the Soldiers' and Sailors' Relief Act of 1940, as
amended.
"REMIC" means a real estate mortgage investment conduit, within the
meaning of, and formed in accordance with, the REMIC Provisions of the Code.
"REMIC Certificates" means certificates representing interests in a trust
fund, or a portion of the trust fund, that the REMIC administrator will elect to
have treated as REMIC.
"REMIC Provisions" means Sections 860A through 860G of the Code.
"REMIC Regular Certificates" means certificates evidencing or constituting
ownership of "regular interests" in the trust fund or a designated portion of
the trust under the REMIC Provisions.
"REMIC Regulations" means the Treasury Department regulations issued under
the REMIC Provisions.
"REMIC Residual Certificateholder" means the holder of a REMIC Residual
Certificate.
"REMIC Residual Certificates" means certificates evidencing or
constituting ownership of "residual interests" in the trust or a designated
portion of the trust under the REMIC Provisions.
"REO Properties" means mortgaged properties acquired on behalf of the
trust fund through foreclosure, deed-in-lieu of foreclosure or otherwise.
"RICO" means the Racketeer Influenced and Corrupt Organizations statute.
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"Senior Certificates" means certificates in a given series that are senior
to one or more other classes of certificates in entitlement to certain
distributions;
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"SPA" means the standard prepayment assumption representing an assumed
variable rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans,.
"Stripped Interest Certificate" means those certificates entitled to
distributions of interest, with disproportionate, nominal or no distributions of
principal.
"Stripped Principal Certificate" means entitled to distributions of
principal, with disproportionate, nominal or no distributions of interest;
"Subordinate Certificates" means certificates in a given series that are
subordinate to one or more other classes of certificates in entitlement to
certain distributions;
"Tiered REMIC" means designated portions of the trust fund treated as two
or more REMICs.
"Treasury Department" means the United States Treasury Department.
"UCC" means for any jurisdiction the Uniform Commercial Code as in effect
in that jurisdiction.
"U.S. Person" means--
o a citizen or resident of the United States;
o a corporation or partnership created or organized in, or under the
laws of, the United States, any state or the District of Columbia,
including an entity treated as a corporation or partnership for
federal income tax purposes;
o an estate whose income is subject to United States federal income
tax purposes regardless of the source of its income; or
o a trust as to which--
1. a court in the United States is able to exercise primary
supervision over the administration of the trust, and
2. one or more United States persons have the authority to control
all substantial decisions of the trust.
In addition, to the extent provided in the Treasury Department
regulations, a trust will be a U.S. Person if it was in existence on August 20,
1996 and it elected to be treated as a U.S. Person.
"Voting Rights" means the voting rights evidenced by each series of
certificates.
"Warranting Party" means a party that makes certain representations and
warranties regarding the mortgage loans.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses expected to be incurred in connection with the issuance
and distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below.
Filing Fee for Registration Statement ........................... $ 92.00
Legal Fees and Expenses ......................................... 200,000.00
Accounting Fees and Expenses .................................... 80,000.00
Trustee's Fees and Expenses
(including counsel fees) .................................. 40,000.00
Blue Sky Fees and Expenses ...................................... 6,000.00
Printing and Engraving Fees ..................................... 40,000.00
Rating Agency Fees .............................................. 100,000.00
Miscellaneous ................................................... 12,000.00
Total ........................................................... $478,092.00
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Registrant is liable to the trust fund or the
certificateholders referred to therein, except for such person's own willful
misfeasance, bad faith, gross negligence in the performance of duties or
reckless disregard of obligations and duties. The Pooling and Servicing
Agreements will further provide that, with the exceptions stated above, a
director, officer, employee or agent of the Registrant is entitled to be
indemnified against any loss, liability or expense incurred in connection with
legal action relating to such Pooling and Servicing Agreements and related
certificates other than such expenses related to particular mortgage assets as
described therein.
Any underwriters who execute an Underwriting Agreement in the form
filed as Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
Subsection (a) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 145 further provides that to the extent a present or former
director or officer of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith; that
indemnification or advancement of expenses provided for by Section 145 shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled; and empowers the corporation to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under Section 145.
The By-Laws of the Registrant provide, in effect, that to the extent
and under the circumstances permitted by applicable law, including subsections
(a) and (b) of Section 145 of the General Corporation Law of the State of
Delaware, the Registrant (i) shall indemnify and hold harmless each person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative by reason of the fact that he is or was a director or officer,
or his testator or intestate is or was a director or officer of the Registrant,
against expenses, judgments, fines and amounts paid in settlement, and (ii)
shall indemnify and hold harmless each person who was or is a party or is
threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
ITEM 16. EXHIBITS
Exhibits--
1.1 - Form of Underwriting Agreement.
3.1 - Certificate of Incorporation.
3.2 - By-Laws.
4.1 - Form of Pooling and Servicing Agreement.
5.1 - Opinion of Cadwalader, Wickersham & Taft with respect to legality.
8.1 - Opinion of Cadwalader, Wickersham & Taft with respect to certain
tax matters (included with Exhibit 5.1).
23.2 - Consent of Cadwalader, Wickersham & Taft (included with Exhibit
5.1).
24.1 - Power of Attorney (included on the signature page).
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ITEM 17. UNDERTAKINGS
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) of this section do
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(B) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the this Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(C) The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(D) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing
3
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Charlotte, State of North Carolina, on the
29th day of May 2002.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
By: /s/ William L. Maxwell
------------------------------------
William L. Maxwell
Director (President)
Each of the undersigned directors and officers of Banc of America
Commercial Mortgage Inc. hereby severally constitutes and appoints David A.
Gertner, Bruce M. Ambler Jr., Manish Parwani, and Stephen Hogue, and each of
them as agents and attorneys-in-fact of the undersigned, in any and all
capacities, with full power of substitution, to sign any and all pre- or
post-effective amendments to this Registration Statement, any subsequent
Registration Statement for the same offering which may be filed pursuant to Rule
462(b) under Securities Act of 1933, as amended, and any and all pre- or
post-effective amendments thereto, and to file the same with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said agents and attorneys-in-fact, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said agent and attorney-in-fact, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ William L. Maxwell Director (President) May 29, 2002
- ------------------------
William L. Maxwell
/s/ William A. Hodges Director May 29, 2002
- ------------------------
William A. Hodges
/s/ James E. Naumann Chief Accounting May 29, 2002
- ------------------------ Officer and Chief
James E. Naumann Financial Officer
INDEX TO EXHIBITS
Exhibit Number Exhibit
-------------- -------
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation
3.2 By-laws
4.1 Form of Pooling and Servicing Agreement
5.1 Opinion of Cadwalader, Wickersham & Taft with respect
to legality
8.1 Opinion of Cadwalader, Wickersham & Taft with respect
to certain tax matters (included with Exhibit 5.1)
23.2 Consent of Cadwalader, Wickersham & Taft (included
with Exhibit 5.1)
24.1 Power of Attorney (included with Form S-3 (Part II))