Executive Summary

Executive Summary
April 27, 1999

The Capital Markets Mortgage — an integral part of the original Capital Markets Initiatives initially released to the public markets by The Capital Consortium in June 1996 — has enjoyed widespread, nationwide use by numerous traditional Main Street portfolio, as well as Wall Street securitization, lenders. This document has been used by various commercial mortgage conduit programs for pooling and securitization. It has also been used (with appropriate large loan modifications to the document) in many large single-borrower or multiple, affiliated-borrower pools as well as many property-specific, single-asset transactions.

Over the past several years, the Capital Markets Mortgage has had the benefit of extensive primary market usage and capital markets exposure. Since its initial release, the Mortgage has been subject to credit rating agency scrutiny and B-piece buyer due diligence in the loans pooled and securitized, been put to real-world use by real estate lenders (Main Street as well as Wall Street), and met current credit rating agency requirements and capital markets investor issues.

The specific modifications to the Capital Markets Mortgage are enumerated in Exhibit A (attached). These modifications have also been incorporated in the generic Capital Markets Deed of Trust and Deed to Secure Debt. The Capital Consortium is also issuing two new forms — a Promissory Note and generic Assignment of Leases and Rents — that contain terminology and definitions consistent with the Mortgage.

But this document, like the capital markets themselves, is not static. To be an effective tool, the Capital Markets Mortgage and other elements of the Capital Markets Initiatives must remain dynamic and subject to revision by The Consortium so that these templates address actual market needs or issues as they arise.

In the near future The Capital Consortium also intends to issue two additional forms — a generic Reserve and Security Agreement and a Nonrecourse Carveout Guaranty for use with the Capital Markets Mortgage documents. Eventually, The Capital Consortium will also provide the public with a streamlined, generic Environmental Indemnity form to afford greater consistency in the market.

Ultimately, the creation of a ratable mortgage template for the capital markets should enhance the lender’s understanding of the pricing and indicative capital market value of the loan asset it is creating as well as improve the borrower’s understanding of the rate and proceeds offered to it by the lender.

Although these documents are for a loan secured by a fee estate transaction, other documents are available for leasehold estate transaction and a joint fee and leashold estate transaction.

Updates to the Capital Markets Mortgage are available on the Internet from The Capital Consortium and are being published by the Consortium in conjunction with the American College of Real Estate Lawyers.

Executive Summary

Exhibit a

Outline of Changes to the
Mortgage and Security Agreement

Page	Article	Section	Title	Description

2	1	1.1(f)	Leases and Rents	References in this section have been changed from citations of the Bankruptcy Code to a broader provision of Creditors Rights Laws. This provides broader lender protection in the event of a borrower bankruptcy filing.
5	2	2.4	Payments	A provision has been added that states that the lender is not required to accept a cash payment to avoid money laundry issues.
5	3	3.3	Borrower Covenants	Clarification of terms are included in this Article at the recommendation of the Insurance Committee of American College of Real Estate Lawyers.
8	3	3.3(d)	Insurance	This provision was modified to clarify that in the event of a foreclosure, a deficiency judgment may be entered for any proceeds fro insurance.
8	3	3.4(a)	Payment of Taxes, etc.	A provision has been added to eliminate the option of not establishing an escrow account.
10	3	3.7	Restoration After Casualty/Condemnation	This section was revised at the request of the ACREL Insurance Committee and specific.
15	3	3.11(a)	Compliance with Laws	This section modifies the definition of applicable laws to exclude laws not affecting the Property.
16	3	3.12(a)(I)	Books and Records	This section now requires quarterly rent rolls after the loan has been securitized or sold.
18	3	3.17	Management	This section has been added to provide clarification of management requirements and roles.
19	3	3.18	Principal Place of Business	This section adds the requirements regarding borrower changing its site of business.
19	4	4.2	ERISA	ERISA provisions have been reinstated to the document.
19	4	4.3	Single Purpose Entity	Intentionally left blank to be completed by individual lender for specific rating requirements.
27	8	8.1	Transfer Definitions	The provision was revised to add definitions and covered additions requested by rating agencies.
32	11	11.1(h)	Remedies	This section expanded the definition of books and records.
36	12	12.1	Environmental Hazards	This section clarified definitions for environmental hazards.
38	13	13.1	General Indemnification	Indemnification has been modified to run to Investors.
40	14	14.6	Waiver of Trial by Jury	This section now covers a waiver of a jury trial by both the borrower and the lender.
40	14	14.7	Waiver of Foreclosure Defense	This section adds the waiver of a foreclosure defense by the borrower for lender’s failure to foreclose each tenant.
42	20	20.1	General Definitions	Definitions have been streamlined.