Loan and REO Liquidation Reporting Best Practices

Transcription

1 Loan and REO Liquidation Reporting Best Practices OVERVIEW The global economic downturn in prior years resulted in an increase in the volume of specially serviced assets in the CMBS market, which led to challenges for Servicers to report consistent and timely details regarding liquidated assets. As a result, Bondholders requested more transparency and disclosure regarding the circumstances related to Loan and REO resolutions (liquidations). In response to Bondholders concerns, CREFC introduced in January 2013, the Loan and REO Liquidation Reports which enable Special Servicers to deliver effectively to Bondholders more detailed information such as fees, affiliate transactions, and the Special Servicer s rationale for actions taken on final Loan or REO resolutions. CREFC created narrative language to provide logistical clarification for Special Servicers on the reporting process, and each Special Servicer developed a form based on CREFC s templates to produce and include the level of detail investors were seeking. Establishing a process to proactively report details regarding Loan and REO resolutions provided increased transparency and disclosure, but Servicers and Bondholders recognized the need to establish consistent practices to improve the consistency and depth of information included in the Loan and REO Liquidation Reports. This document contains best practices for CMBS Special Servicers, Master Servicers and Certificate Administrators to: 1) Clarify the types of resolutions to be reported in the Loan and REO Liquidation Reports 2) Confirm the timing in which the reports should be sent by the Special Servicer to the Master Servicer and Certificate Administrator 3) Provide guidelines to locate Loan and REO Liquidation Reports from Certificate Administrators websites 4) Create a database to identify current contact information and submission requirements for the various Master Servicers and Certificate Administrators 5) Provide Loan and REO Liquidation Report examples for typical resolution scenarios RESOLUTION SCENARIOS Upon the occurrence of the Final Recovery Determination, the Special Servicer should complete a Loan or REO Liquidation Report and submit with the corresponding CREFC Realized Loss form. (Not applicable for partial liquidations). To clarify, the following liquidation scenarios should have a Liquidation Report completed by the Special Servicer: Multi-property collateralized Loan/REO; upon final sale of remaining collateral Full Payoffs/Discounted Payoffs (even those with no realized loss to the Trust) LIQUIDATION REPORTING TIME FRAME The Special Servicer should provide the Liquidation Reports to BOTH the Master Servicer and the Certificate Administrator either in the reporting period in which such resolution occurs but no later than the following reporting period. For transactions that do not have a Certificate Administrator, the Special Servicer will continue to send the templates to the Master Servicer at a minimum. In addition, the Master Servicers will also send the Liquidation Reports in their monthly reporting package to the Certificate Administrators. It is recommended that the Certificate Administrators upload the Liquidation Reports to their website by the Distribution Date for the reporting period in which the Liquidation Report was received. There may be times in which the Certificate Administrator will upload the Liquidation Report prior to the Distribution Date for that reporting period. Furthermore, Certificate Administrators should try to maintain the standardized naming convention of the Liquidation Report established by the Special Servicer when uploading the reports to their sites. If the 1

2 Certificate Administrator changes the name of the Liquidation Report established by the Special Servicer, it is preferred for ease of reference that the revised name be similar to the name established by the Special Servicer. The Special Servicer responsible for an asset upon the occurrence of the Final Recovery Determination should produce the Liquidation Report for that asset even if that Special Servicer is subsequently replaced. LIQUIDATION REPORTS ON CERTIFICATE ADMINISTRATOR WEBSITES The below link contains information on where to locate the Loan and REO Liquidation Reports on a Certificate Administrator s website and if a report name has been changed. Click here to access the table. MASTER SERVICER/CERTIFICATE ADMINISTRATOR ADDRESSES The below link contains the current addresses for the Special Servicer to reference when sending the Loan or REO Liquidation Reports to the Master Servicers and Certificate Administrators. Click here to access the table. LOAN AND REO LIQUIDATION REPORT EXAMPLES Refer to Exhibit A for Liquidation Report Examples on typical resolution scenarios. These examples have been provided as reference for the type of content to include in a Liquidation Report for the applicable resolution. Information on all of the Pari Passu and Participation Loan components should be included in the Liquidation Report for the lead component. 2

3 Exhibit A Loan Liquidation Report Example #1 (Note Sale) Transaction Loan Name / Property Name Prosup # / Loan # Liquidation Code / Date 03 Liquidation/ Disposition / 8/7/2013 Preparation Date 9/9/2013 Reporting iod i.e. Determination Date September 2013 Scheduled Balance at Liquidation $4,901,957 Advances Outstanding at Liquidation $653,752 Transacted with Borrower, Third Party or SS Affiliate Third Party Payoff / Purchase Price $2,150,000 Broker Name Grey Company Total Broker Fees (%) 4% Total Fees to Special Servicer Affiliated Entities N/A Collateral Description: Insert general description of the collateral property. Collateral Valuation: Insert firm name, report date and valuation data in the table. Appraisal Appraisal Appraisal Appraisal BOV Firm 1 Firm 2 Firm 3 Firm 4 Firm 1 Date Date Date Date Date 3

4 Collateral Condition: Insert firm name, report date and a status comment in the table. Inspection Environmental Report Engineering/PCR Firm B Firm C Firm A Date Date Date Property Operation Information: The below table can also include annualized and budgeted financial information. Occupancy Total Revenue Total Operating Expenses Net Operating Income Scheduled Debt Service DSCR NOI Original U/W Substantiation: Occupancy at the property has eroded in recent years with no new leasing since July of The local economy has suffered a deep recession and has not recovered at this point. New tenant prospects are limited and the local demographics are not attractive to most national retailers. According to CoStar, vacancy in the market is approximately 15%, and vacancy within the property s direct competitive set is 20%. Ownership is a TIC structure and members are not willing to contribute any additional funds to reposition the center. Moreover, TICs are associated with additional bankruptcy risk. Foreclosure process is expected to take 4-5 months. Despite being only 52% occupied, the appraisal assumes the property is stabilized at 50% due to limited prospects for the center. No new leasing has been completed since July of Asset was adequately exposed to the market through an auction marketing process that received 301 views with 24 signed confidentiality agreements. A total of 4 bidders put down deposits and 7 live bids were placed during the auction by 2 distinct bidders. Special Servicer believes that third-party value points were overestimated. Third-party vendors asserted that cap rates between 10.0% and 11.5% (or greater) on in-place income were warranted due to the tertiary nature of the market and dearth of tenant activity. Although near-term in-place income supported a value of $2.7MM at 11%, Dollar General indicated that it intended to vacate when its lease expired in June of 2014, which would reduce the implied cap rate to 9.5%. Special Servicer believes the market heavily discounted the Dollar General tenant, resulting in a lower as-is market value for the asset. Furthermore, because investment activity within the immediate market is virtually non-existent, third-party vendors used comparable sales from other markets (some hundreds of miles away) to estimate value. 4

5 THE INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND IS INTENDED ONLY FOR THOSE PARTIES ENTITLED TO THIS INFORMATION PURSUANT TO THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT AND/OR THE RELATED INTERCREDITOR AGREEMENT. ANY PERSON OBTAINING THIS INFORMATION IS PROHIBITED FROM DISCLOSING, COPYING OR DISTRIBUTING THE INFORMATION TO ANY OTHER PERSON. THE INFORMATION CONTAINED IN THIS REPORT IS FOR INFORMATIONAL PURPOSES ONLY AND NEITHER THE TRUSTEE NOR THE SPECIAL SERVICER MAKES ANY WARRANTY WITH RESPECT TO ITS CONTENT, ACCURACY, COMPLETENESS OR TIMELINESS, OR USE FOR ANY SPECIFIC PURPOSE. NEITHER THE TRUSTEE NOR THE SPECIAL SERVICER IS RESPONSIBLE FOR, AND EACH EXPRESSLY DISCLAIMS ALL LIABILITY FOR, DAMAGES OF ANY KIND ARISING OUT OF THE USE, REFERENCE TO, OR RELIANCE ON THE INFORMATION CONTAINED HEREIN. ANY PARTY ACCESSING THIS INFORMATION ACKNOWLEDGES THAT THIS INFORMATION IS BEING PROVIDED AS PART OF THE DUTIES OF THE SPECIAL SERVICER UNDER THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT, AND THEREFORE IS SUBJECT TO THE INDEMNIFICATION AND EXCULPATION FROM LIABILITY AS SET FORTH THEREIN. 5

6 Loan Liquidation Report Example #2 (Full Payoff) Transaction Loan Name / Property Name Prosup # / Loan # Liquidation Code / Date R64 - Full Payoff / 9/16/2013 Preparation Date 11/1/2013 Reporting iod i.e. Determination Date November 2013 Scheduled Balance at Liquidation $11,658, Advances Outstanding at Liquidation $1,304, Transacted with Borrower, Third Party or SS Affiliate Borrower (sale of property to Third Party through a Bankruptcy Plan) Payoff / Purchase Price $15,345, Broker Name XYX International (for Borrower) Total Broker Fees (%) 1.5% Total Fees to Special Servicer Affiliated Entities $0 Collateral Description: Insert general description of the collateral property. Collateral Valuation: Insert firm name, report date and valuation data in the table. Appraisal Appraisal Appraisal Appraisal BOV Firm 1 Firm 2 Firm 3 Firm 4 Firm 1 Date Date Date Date Date 6

7 Collateral Condition: Insert firm name, report date and a status comment in the table. Inspection Environmental Report Engineering/PCR Firm A Firm B Firm C Date Date Date Property Operation Information: The below table can also include annualized and budgeted financial information. Occupancy Total Revenue Total Operating Expenses Net Operating Income Scheduled Debt Service DSCR NOI Original U/W Substantiation: The Net Present of the recommended action (a sale of the Property through the Bankruptcy Court) totals $14,609,500 which is superior to the Net Present of the alternative scenario of $14,553,073, which assumes the Noteholder receives the Undisputed Claim amount upon sale of the Property and litigates the Disputed Claim amount incurring $100,000 in legal fees and being awarded the full amount of the pre-petition default interest totaling $603,954. THE INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND IS INTENDED ONLY FOR THOSE PARTIES ENTITLED TO THIS INFORMATION PURSUANT TO THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT AND/OR THE RELATED INTERCREDITOR AGREEMENT. ANY PERSON OBTAINING THIS INFORMATION IS PROHIBITED FROM DISCLOSING, COPYING OR DISTRIBUTING THE INFORMATION TO ANY OTHER PERSON. THE INFORMATION CONTAINED IN THIS REPORT IS FOR INFORMATIONAL PURPOSES ONLY AND NEITHER THE TRUSTEE NOR THE SPECIAL SERVICER MAKES ANY WARRANTY WITH RESPECT TO ITS CONTENT, ACCURACY, COMPLETENESS OR TIMELINESS, OR USE FOR ANY SPECIFIC PURPOSE. NEITHER THE TRUSTEE NOR THE SPECIAL SERVICER IS RESPONSIBLE FOR, AND EACH EXPRESSLY DISCLAIMS ALL LIABILITY FOR, DAMAGES OF ANY KIND ARISING OUT OF THE USE, REFERENCE TO, OR RELIANCE ON THE INFORMATION CONTAINED HEREIN. ANY PARTY ACCESSING THIS INFORMATION ACKNOWLEDGES THAT THIS INFORMATION IS BEING PROVIDED AS PART OF THE DUTIES OF THE SPECIAL SERVICER UNDER THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT, AND THEREFORE IS SUBJECT TO THE INDEMNIFICATION AND EXCULPATION FROM LIABILITY AS SET FORTH THEREIN. 7

8 Loan Liquidation Report Example #3 (SS Affiliate Note Sale) Transaction Loan Name / Property Name Prosup # / Loan # Liquidation Code / Date 03 Liquidation / Disposition / 09/11/2013 Preparation Date 10/23/2013 Reporting iod i.e. Determination Date November 2013 Scheduled Balance at Liquidation $65,000, Advances Outstanding at Liquidation $1,059, Transacted with Borrower, Third Party or SS Affiliate SS Affiliate Payoff / Purchase Price $56,342, Broker Name Total Broker Fees (%) Total Fees to Special Servicer Affiliated Entities NA NA $10, Collateral Description: Insert general description of the collateral property. Collateral Valuation: Insert firm name, report date and valuation data in the table. Appraisal Appraisal Appraisal Appraisal BOV Firm 1 Firm 2 Firm 3 Firm 4 Firm 1 Date Date Date Date Date 8

9 Collateral Condition: Insert firm name, report date and a status comment in the table. Inspection Environmental Report Engineering/PCR Firm A Firm B Firm C Date Date Date Property Operation Information: The table can also include annualized and budgeted financial information. Occupancy Total Revenue Total Operating Expenses Net Operating Income Scheduled Debt Service DSCR NOI Original U/W Substantiation: The $56,600,000 Fair established by the Special Servicer was confirmed by the Master Servicer pursuant to the PSA. THE INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND IS INTENDED ONLY FOR THOSE PARTIES ENTITLED TO THIS INFORMATION PURSUANT TO THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT AND/OR THE RELATED INTERCREDITOR AGREEMENT. ANY PERSON OBTAINING THIS INFORMATION IS PROHIBITED FROM DISCLOSING, COPYING OR DISTRIBUTING THE INFORMATION TO ANY OTHER PERSON. THE INFORMATION CONTAINED IN THIS REPORT IS FOR INFORMATIONAL PURPOSES ONLY AND NEITHER THE TRUSTEE NOR THE SPECIAL SERVICER MAKES ANY WARRANTY WITH RESPECT TO ITS CONTENT, ACCURACY, COMPLETENESS OR TIMELINESS, OR USE FOR ANY SPECIFIC PURPOSE. NEITHER THE TRUSTEE NOR THE SPECIAL SERVICER IS RESPONSIBLE FOR, AND EACH EXPRESSLY DISCLAIMS ALL LIABILITY FOR, DAMAGES OF ANY KIND ARISING OUT OF THE USE, REFERENCE TO, OR RELIANCE ON THE INFORMATION CONTAINED HEREIN. ANY PARTY ACCESSING THIS INFORMATION ACKNOWLEDGES THAT THIS INFORMATION IS BEING PROVIDED AS PART OF THE DUTIES OF THE SPECIAL SERVICER UNDER THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT, AND THEREFORE IS SUBJECT TO THE INDEMNIFICATION AND EXCULPATION FROM LIABILITY AS SET FORTH THEREIN. 9

10 REO Liquidation Report Example #1 (REO Sale) Transaction Loan Name / Property Name Prosup # / Loan # REO Date 12/21/2011 Liquidation Code / Date 03 / Liquidation / 3/8/2013 Preparation Date 3/21/2013 Reporting iod i.e. Determination Date April 2013 Scheduled Balance at Liquidation $1,765, Transacted with Third Party or SS Affiliate Third Party Purchase Price $615, Broker Name Townley Associates Total Broker Fees (%) 3% Total Fees to Special Servicer Affiliated Entities $0.00 Collateral Description: Insert general description of collateral property. Collateral Valuation: Insert the firm name, date of report and valuation data in the table. Appraisal Appraisal Appraisal Appraisal BOV Firm 1 Firm 2 Firm 3 Firm 4 Firm 1 Date Date Date Date Date 10

11 Collateral Condition: Insert firm name, report date and a status comment in the table. Inspection Environmental Report Engineering Report Firm A Firm B Firm C Date Date Date Property Operation Information: The table can also include annualized and budgeted financial information. Original U/W Annualized Occupancy Effective Gross Revenue Total Operating Expenses Net Operating Income Scheduled Debt Service DSCR - NOI Substantiation: Former borrower had allowed the property to fall into disrepair. Occupancy at foreclosure was 50%. Tenants were small businesses with a high delinquency rates and vandalism was frequent. In 2012 the value dropped to $850,000 and BOV s ranged from $575,000 to $650,000. In November 2012 the largest tenant required a rent reduction of $1,900 per month in order to keep the business operational. The sale price is within the range of the BOV s and the property had been widely marketed. The sale of the property for $615,000 maximizes recovery by disposing of an REO property in poor condition with decreasing income. The loan had previously been deemed non-recoverable THE INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND IS INTENDED ONLY FOR THOSE PARTIES ENTITLED TO THIS INFORMATION PURSUANT TO THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT AND/OR THE RELATED INTERCREDITOR AGREEMENT. ANY PERSON OBTAINING THIS INFORMATION IS PROHIBITED FROM DISCLOSING, COPYING OR DISTRIBUTING THE INFORMATION TO ANY OTHER PERSON. THE INFORMATION CONTAINED IN THIS REPORT IS FOR INFORMATIONAL PURPOSES ONLY AND NEITHER THE 11

12 TRUSTEE NOR THE SPECIAL SERVICER MAKES ANY WARRANTY WITH RESPECT TO ITS CONTENT, ACCURACY, COMPLETENESS OR TIMELINESS, OR USE FOR ANY SPECIFIC PURPOSE. NEITHER THE TRUSTEE NOR THE SPECIAL SERVICER IS RESPONSIBLE FOR, AND EACH EXPRESSLY DISCLAIMS ALL LIABILITY FOR, DAMAGES OF ANY KIND ARISING OUT OF THE USE, REFERENCE TO, OR RELIANCE ON THE INFORMATION CONTAINED HEREIN. ANY PARTY ACCESSING THIS INFORMATION ACKNOWLEDGES THAT THIS INFORMATION IS BEING PROVIDED AS PART OF THE DUTIES OF THE SPECIAL SERVICER UNDER THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT, AND THEREFORE IS SUBJECT TO THE INDEMNIFICATION AND EXCULPATION FROM LIABILITY AS SET FORTH THEREIN 12

13 REO Liquidation Report Example #2 (Multi Property Collateralized) Transaction Loan Name / Property Name Prosup # / Loan # REO Date 2/7/2012, 8/2/2011, 11/1/2011, 11/1/2011, 11/1/2011 Liquidation Code / Date 03 Liquidation / Disposition / 11/21/13 (Final) Preparation Date 2/24/2014 Reporting iod / Determination Date March 2014 Scheduled Balance at Liquidation $44,349, Transacted with Third Party or SS Affiliate Third Party Purchase Price $22,144, Broker Name 123 Real (Broker) XYX State (Co-Broker) Total Broker Fees (%) 1.75% Total Fees to Special Servicer Affiliated Entities $168,875 Collateral Description: Insert general description of collateral property(s). Collateral Valuation: Insert a valuation table for each property and include firm name, report date and valuation data. Appraisal Appraisal Appraisal Appraisal BOV Firm 1 Firm 2 Firm 3 Firm 4 Firm 1 Date Date Date Date Date 13

14 Collateral Condition: Insert a condition table for each property and include firm name, report date and a status comment. Inspection Environmental Report Engineering Report Firm A Firm B Firm C Date Date Date Property Operation Information: Insert a valuation table for each property. The table can also include annualized and budgeted financial information. Original U/W Annualized Occupancy Effective Gross Revenue Total Operating Expenses Net Operating Income Scheduled Debt Service DSCR - NOI Substantiation: Gross Sales Price of $19,300,000 on 11/21/2013 was the final sale of five properties securing three cross-collateralized loans (previous sales were completed by the prior Special Servicer which current Special Servicer replaced in January 2013). The combined Net Proceeds (after closings costs, expenses, advances and other liquidation expenses) for these five properties was $22,144,072 which represented 49.9% of the remaining principal $44,349,266. Prior sales were as follows: Property 1 was sold on 8/27/2012 for a Gross Sales Price of $7,075,000. Property 2 was sold on 4/11/2012 for a Gross Sales Price of $11,500,000. Property 3 was sold on 8/9/2012 for a Gross Sales Price of $15,000,000. Property 4 was sold on 4/11/2012 for a Gross Sales Price of $4,450,000. Upon final liquidation of the loans, the overall loss severities were calculated for the three loans to be approximately 60% for XYX Property, 61% for Property 1, and 52% for Properties 2-4, with the proceeds allocated pro rata across the three loans. THE INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND IS INTENDED ONLY FOR THOSE PARTIES ENTITLED TO THIS INFORMATION PURSUANT TO THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT AND/OR THE RELATED INTERCREDITOR AGREEMENT. ANY PERSON OBTAINING THIS INFORMATION IS PROHIBITED FROM DISCLOSING, COPYING OR DISTRIBUTING THE INFORMATION TO ANY OTHER PERSON. THE INFORMATION CONTAINED IN THIS REPORT IS FOR INFORMATIONAL PURPOSES ONLY AND NEITHER THE 14

15 TRUSTEE NOR THE SPECIAL SERVICER MAKES ANY WARRANTY WITH RESPECT TO ITS CONTENT, ACCURACY, COMPLETENESS OR TIMELINESS, OR USE FOR ANY SPECIFIC PURPOSE. NEITHER THE TRUSTEE NOR THE SPECIAL SERVICER IS RESPONSIBLE FOR, AND EACH EXPRESSLY DISCLAIMS ALL LIABILITY FOR, DAMAGES OF ANY KIND ARISING OUT OF THE USE, REFERENCE TO, OR RELIANCE ON THE INFORMATION CONTAINED HEREIN. ANY PARTY ACCESSING THIS INFORMATION ACKNOWLEDGES THAT THIS INFORMATION IS BEING PROVIDED AS PART OF THE DUTIES OF THE SPECIAL SERVICER UNDER THE TERMS OF THE RELATED POOLING AND SERVICING AGREEMENT, AND THEREFORE IS SUBJECT TO THE INDEMNIFICATION AND EXCULPATION FROM LIABILITY AS SET FORTH THEREIN 15