The Top 10 Loan Documentation Mistakes

Your State Association Presents Lenders Learn TM The Top 10 Loan Documentation Mistakes Program Materials Use this document to follow along with the webinar. Please test your system before the broadcast. Be sure to print enough copies for all listeners. September 7, 2016 Presenter: Robin Russell Technical Support (for faster service please submit inquiries via email or online): (Registration & Tech Support): Email- support@conferenceedge.com, Phone- (877)988-7526 FOR ADDITIONAL ASSISTANCE PLEASE REFER TO OUR FAQs

About Lenders Learn TM Lenders Learn TM provides lenders and compliance officers with a deep understanding of secured lending. For each of the 15 core courses (30 hours total), attendees receive a copy of the slides and at least one chapter from Robin s new 2016 Multistate Secured Lending Guide. Once you have completed the core curriculum, you will have a 17 chapter reference. Whether your bank registers for one or all 15 webinars, you will find the information practical and valuable. See below for 2016 broadcast dates. 1: Basic Business Entities (1/21) 2: The UCC for Lenders (2/3) 3: Loan Doc 101: The Basics (2/10) 4: Loan Doc 101: Business Collateral (2/23) 5 & 6: Loan Doc 101: Perfection by Possession & Control (2/18) 7 & 8: Basic RE Loan Documentation (3/2 & 3/3) 9: Oil & Gas Lending (4/6) 10: Agricultural Lending (4/18) 11: Commercial Loan Documentation (5/3 & 5/4) 12: Letters of Credit (5/17) 13: Lending to Municipalities (8/24) 14, 15, 16: Basic Bankruptcy for Bankers (11/2) 17: Loan Participations (11/15) Also Recommended: Advanced Commercial Loan Documentation (6/1) Top Loan Documentation Mistakes (9/7) Understanding Commercial Loan Documents (9/20) Understanding Real Estate Loan Documents (9/22) Commercial Real Estate Loan Documentation (12/7) All programs will be recorded and available for viewing after the broadcast date. If you would like to complete the Lenders Learn TM curriculum and missed the webinar, please visit the on-demand catalog to register.

The Top 10 Loan Documentation Mistakes Robin Russell Andrews Kurth LLP 1

Robin Russell ROBIN RUSSELL Robin is a fellow in the American College of Bankruptcy. She combines a depth of experience in bankruptcy restructuring and litigation with financial transactions. She has represented corporate debtors, liquidating trustees, bondholders, unsecured creditors' committees, bank groups, private equity funds, landlords, trade creditors and bidders for estate assets in Chapter 11 and Chapter 7 bankruptcy proceedings and has litigated fraudulent conveyance and preference claims in bankruptcy and district court. She has also represented banks, institutional lenders and corporate borrowers in commercial loan transactions and debt restructurings. Robin is the principal author of Thomson Reuters Texas Practice Guides for both Creditors Rights and Financial Transactions and the Texas Bankers Association s Texas Secured Lending Guide, Texas Real Estate Lending Guide, Texas Problem Loan Guide and Texas Account Documentation Guide. She is a frequent speaker on banking, bankruptcy and financial restructuring related topics, an elected member of the American Law Institute and has served as a Chapter 7 Trustee. Robin received her LL.M. in Banking Law from Boston University and her J.D. from Baylor University where she was Editor in Chief of the Baylor Law Review and the highest ranking graduate in her class. Prior to joining the firm she clerked for the Texas Supreme Court. 2 2

Notice This presentation is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that neither the presenter nor your State Bankers Association is engaged in rendering legal, accounting or other professional advice or service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought from a Declaration of Principles Adopted by the American Bar Association and a committee of Publishers and Associations. 3 3

How Do I Become A Secured Creditor? Lien a/k/a Attachment + Perfection = Secured Status Security Agreement + UCC-1 Deed of Trust + Recording in County Ship Mortgage + Coast Guard Filing Aircraft Security Agreement + FAA Filing Investment Property + Account Control Agreement Security Agreement 4 4

Attachment Bank gives value Debtor has rights in collateral Debtor has signed written agreement granting lien 5 5

So Why Do I Want To Be A Secured Creditor? 6 6

The Covered Dish Supper Rules of Priority Possessory Lienholder PMSI Secured Unsecured Equity 7 7

Bankruptcy 101 Assets fmv 500,000 Liabilities 2,000,000 Bank Debt 500,000 Trade Debt 750,000 Judgment 750,000 If Bank is secured and perfected - 100% recovery If Bank unsecured or unperfected - 25% recovery 8 8

Top 10 Mistakes 1. Misclassification of collateral 2. Filing the perfection document in the wrong location 3. Using the wrong borrower/debtor name 4. Not obtaining the proper authorization documentation 5. Having a bad collateral description 6. Improper assessment of lien position 7. Failing to amend your UCC-1 8. Failing to continue or terminate your UCC-1 9. Leaving items to post closing or making exceptions 10. Inadvertently waiving rights 9 9

Avoiding Mistake #1: Proper Classification of Collateral 10 10

Business Collateral Inventory Warehouse Receipts and Bills of Lading Farm Products Warehouse Receipts and Bills of Lading Deposit Accounts Accounts Government Contracts Instruments Investment Property Cash Chattel Paper Letter of Credit Rights General Intangibles Tort Claims Equipment Fixtures Motor Vehicles Boats Vessels Aircraft Rolling Stock 11 11

Types of Collateral Inventory Accounts U.S. Government Contracts Chattel Paper Equipment Fixtures Leasehold Improvements General Intangibles Instruments Deposit Accounts Investment Property Documents: Warehouse Receipts and Bills of Lading Agricultural Collateral/Farm Products Consumer Goods Life Insurance Motor Vehicles Manufactured Homes Boats and Vessels Aircraft Rolling Stock Oil and Gas Tort Claims Letter of Credit Rights Guaranties and Third Party Pledges of Collateral 12 12

What Types of Collateral Are Covered by the UCC-1? The UCC covers five types of tangible personal property: Inventory Equipment Fixtures Farm Products Consumer Goods Intangible personal property is divided into the following classifications under the UCC: Accounts (If accounts represent amounts due from the U.S. government, they may be subject to special rules for Government Contracts) Chattel Paper General Intangibles Instruments Investment Property Deposit Accounts (Commercial) Letter of Credit Rights Commercial Tort Claims 13 13

What Types of Collateral are Not Covered by the UCC-1? Tangible personal property includes the following types of collateral not exclusively covered by the UCC: Motor Vehicles Manufactured Homes Boats and Vessels Aircraft Rolling Stock (i.e., railroad cars) Intangible personal property also includes the following types of collateral not subject to the UCC: Life Insurance Deposit Accounts (Consumer) Non Commercial Tort Claims 14 14

Avoiding Mistake #2: Filing in the Right Location 15 15

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Methods Of Perfection File UCC-1 Possession Control Notation on Title Non-UCC Filings 17 17

Basic UCC-1 Filing Location Rules A debtor who is an individual is located in the state of the individual s principal residence. A registered organization that is organized under the law of a state is located in that state. A debtor that is a nonregistered organization (i.e., a general partnership) and has only one place of business is located in the state of its place of business. A debtor that is a nonregistered organization and has more than one place of business is located in the state of its chief executive office. 18 18

Additional UCC-1 Filing Locations A registered organization that is organized under the law of the United States and a branch or agency of a bank that is not organized under the law of the United States or a state are located: in the state that the law of the United States designates, if the law designates a state of location; in the state that the registered organization, branch, or agency designates, if the law of the United States authorizes the registered organization, branch, or agency to designate its state of location; or in the District of Columbia, if neither of the above applies (ex. Citizen of foreign country). A branch or agency of a bank that is not organized under the law of the United States or a state is located in the state in which the branch or agency is licensed, if all branches and agencies of the bank are licensed in only one state. The United States is located in the District of Columbia. A foreign air carrier is located at the designated office of the agent upon which service of process may be made on behalf of the carrier. 19 19

Special UCC-1 Filing Location Issues A registered organization continues to be located in the jurisdiction notwithstanding: the suspension, revocation, forfeiture, or lapse of the registered organization s status as such in its jurisdiction of organization; or the dissolution, winding up, or cancellation of the existence of the registered organization. A debtor who ceases to exist, have a residence or have a place of business continues to be located in the jurisdiction where it last existed, resided or did business. 20 20

At What Point in Time Do I File a UCC-1? May file before security agreement signed Should file before funds advanced 21 21

Avoiding Mistakes #3 and #4: Using the Debtor s Name Right and Obtaining Proper Authorization Documentation 22 22

Who is your Debtor? The person who owns the property being pledged to you. This is not always the borrower. It may be a guarantor or a third party only pledging collateral. 23 23

Debtor Name The most important element when preparing a UCC-1 financing statement is the debtor name. The debtor name should be nothing more and nothing less than the legal name of the debtor. Do not abbreviate words in the debtor name unless the legal debtor name contains abbreviations. 24 24

Individual Exact full legal name Goes By Nickname = John Lee Doe = J.L. Doe = Bubba Doe Debtor for UCC-1 = John Lee Doe 25 25

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Sole Proprietorship d/b/a An individual doing business under an assumed name John Lee Doe d/b/a John s Auto d/b/a Autoworld d/b/a John s Flowers 27 27

Authorization Documents Required for Sole Proprietorship Assumed Name Certificate Sole Proprietorship Resolution of Authority 28 28

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What if my loan officer wants to put the d/b/a in the loan documents? Correct > John Lee Doe* * individually and doing business under any assumed name including, without limitation, John s Auto Wrong > John Lee Doe d/b/a John s Auto 31 31

UCC-1? General partner personally liable for partnership debts UCC-1? general partner John Doe Robert Brown John s Auto UCC-1 If all partner s surnames are not in partnership name (i.e., Doe & Brown Auto) then in most states the partnership name (i.e., John s Auto) is considered an assumed name. 32 32

Authorization Documents Required for General Partnership/Joint Venture Partnership Agreement Partnership Resolution of Authority Assumed Name Certificate 33 33

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John s Corporate Shell, Inc. General Partner John Doe Jane Doe Limited Partners Bob Smith Liable for debts of limited partnership Not liable for debts of limited partnership John s Auto, LP John s Auto, L.P. by its general partner John s Corporate Shell, Inc. Signature By: Title: John Doe, President 36 36

Authorization Documents Required for Limited Partnership Limited Partnership Agreement Certificate of Limited Partnership or Certificate of Formation Certificate of Fact: Status Partnership Resolution of Authority Certificate of Authority to Transact Business in all states in which entity does business Certificate of Fact: Assumed Name 37 37

Shareholder Shareholder Shareholder John s Auto, Inc. John s Auto, Inc. Signature By: Title: 38 38

Authorization Documents Required for Corporation Certificate of Formation or Articles or Certificate of Incorporation Bylaws Certificate of Fact: Status Certificate of Franchise Tax Account Status Resolutions of the Board of Directors Certificate of Authority to Transaction Business Certificate of Fact: Assumed Name 39 39

Corporate Resolutions A meeting was held on a certain date The corporation made a decision to request a loan from the lender The loan will benefit the corporation Certain officers designated by name and title are authorized to execute loan documents on behalf of the corporation Pledging of corporate assets as collateral is authorized *Funding of any loan should not occur prior to receipt of a properly executed corporate borrowing resolution. Otherwise, the borrowing could be challenged as unauthorized. 40 40

Best Practices Checklist Has the Bank satisfied itself prior to funding that: The borrowing under consideration is permitted Officers who are signing have been properly authorized Corporation does not have a maximum indebtedness clause which will be violated (from another credit arrangement or board action) All conditions precedent to borrowing have been met Exact corporate name on loan documents matches with documents on file related to the corporation, Liens and security interests in collateral are proper and within the powers of the corporation as granted by its Board. 41 41

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Member Member Member John s Auto, L.L.C. John s Auto, L.L.C. Signature By: Title: Manager 44 44

Authorization Documents Required for Limited Liability Company Articles of Organization or Certificate of Formation Regulations or Company Agreement Certificate of Fact: Status Certificate of Franchise Tax Account Status Resolutions of the Members Certificate of Authority to Transact Business in all states in which entity does business Certificate of Fact: Assumed Name 45 45

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Agent Acting under Power of Attorney durable v. nondurable powers of attorney broad powers v. limited powers effective now v. effective later and later even if the principal becomes incompetent or incapacitated when the principal becomes incompetent or incapacitated a P of A cannot survive the death of the principal 48 48

Trust/Custodial Relationships Trustee legal title Custodian Trust Property UTMA Property Beneficiary income stream (general intangible) beneficial owner Minor John Doe, Trustee The Doe Family Trust Name Diana Doe as Custodian under UTMA for Sterling Doe 49 49

Authorization Documents Required for Trust Trust Agreement Confirmation that loan proceeds are for benefit of beneficiary 50 50

Beneficiary of a Trust A trust interest is a general intangible A spendthrift trust prohibits the beneficiary from pledging the trust interest as collateral for a loan The Bank may take a lien on the property purchased with loan proceeds as collateral but not the trust interest The Bank may consider the trust distributions in determining creditworthiness 51 51

Avoiding Mistake #5: Correct Collateral Description 52 52

Requirements Of A Lien Document Mandatory Identify parties Identify what obligation is being secured Identify collateral Contain words of grant granting lien on collateral In writing Signed by owner of collateral Optional Representations/Warranties Covenants Events of Default Remedies 53 53

COVENANTS Duties Toward Property possession good repair payment of taxes access to inspect collateral notification of loss access to books and records nondisposition (unless ordinary course) recordation of security interest on chattel paper proper collection and settlement of accounts no commingling of proceeds direct payment of accounts receivable list of buyers for Farm Security Act notices insurance Other Duties authorization of secured party to file financing statement authorization of secured party to protect collateral 54 54

Representations and Warranties valid existence as entity authorization to execute and perform past, present and future name ownership of collateral use of property (personal, business, agricultural) 55 55

UCC-1 Financing Statement Requirements To be effective, a Financing Statement must: give the name of the debtor(s), give the name of the secured party, give a description of the collateral, provide a mailing address for the debtor and the Secured Party of record, indicate whether the debtor is an individual or an organization, or, if the debtor is an organization, provide the type of organization and the jurisdiction of organization of the debtor, signature of debtor not required. 56 56

Collateral Description A collateral description in the UCC-1 (but not the security agreement) on commercial collateral may simply state all assets or all property. A UCC-1 on consumer goods requires a description of the specific consumer good. A security interest in a consumer s investment property requires specific identification of the account. A commercial tort claim must be specifically described. 57 57

Name of Record Owner If the name of the record owner is required in the UCC-1, it should be obtained through an abstract or title company or from a recent real estate tax bill or some similar document. A mailing or street address is not sufficient as a description. The following is an example of a legal description of real property: Lot Fifty-Six (56), in Block Five (5), Plat of Bayou Woods, Section (8), in Harris County, Texas, according to the map thereof recorded in Volume 224, Page 15, of the Map Records of Harris County, Texas. 58 58

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Avoiding Mistake #6: Proper Assessment of Lien Position 62 62

Types of Lien Searches UCC Secretary of State or other Central Filing Office County Real Estate Records Review of Certificate of Title Special Filing Office 63 63

Where Do I Conduct a Lien Search? Lien searches are done in the locations for UCC-1 Financing Statements in the state where the debtor is located. A lien search is done on the legal name of the Debtor. 64 64

What Names Do I Search? An incomplete debtor name may result in a failure to disclose all the desired information. Example #1: Example #2: Real Name: Autoworld, Inc. Name Searched: Autoworld, Corp Result: Filings against Autoworld Inc. will be shown because Inc. and Corp. are currently considered ancillary information by the Texas Secretary of State. Real Name: Autoworld of Texas, Inc. Name Searched: Autoworld of California; Result: Filings against Autoworld of Texas not shown. 65 65

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Liens Not Disclosed By UCC Lien Search Liens filed at the county level such as state tax liens and liens on fixtures. Liens perfected by possession, such as liens on chattel paper and certificated securities. Liens on special classes of collateral such as ships, aircraft, rolling stock, motor vehicles and manufactured homes. UCC-1 filings on the debtor in states not searched. Nonownership of the collateral by the debtor. A lien against the prior owner of the collateral. 69 69

General Rules of Priority secured v. unsecured > secured wins perfected v. unperfected > perfected wins possession v. filing > possession wins first to file > wins pre-existing security interest > wins purchase money security > wins as to interest (PMSI) specific collateral 70 70

First-to-File (Subordination) John s Auto, Inc. 9/8/03 UCC-1 filed by John Doe, Sr. John s Auto, Inc. 8/10/07 UCC-1 filed by Bank #1 Subordination 71 71

Purchase Money Security Interest Equipment and Fixtures file UCC-1 within 20 days of possession Inventory file UCC-1 before debtor takes possession (i.e., pre-filing) notification to other lien holders within last five years Farm Products pre-filing notification to other lien holders within last six months Consumer Goods 72 72

Purchase Money Security Interest John s Auto, Inc. 9/8/03 UCC-1 John Doe, Sr. John s Auto, Inc. 8/10/07 UCC-1 filed by Bank #1 on all assets John s Auto, Inc. 12/8/09 UCC-1 filed by Bank #2 PMSI on specific office equipment 73 73

Possessory Liens John s Auto, Inc. 9/8/03 UCC-1 John Doe, Sr. John s Auto, Inc. 8/10/07 UCC-1 filed by Bank #1 on all assets John s Auto, Inc. 12/8/09 UCC-1 filed by Bank #2 PMSI on specific office equipment John s Auto, Inc. 4/15/12 Equipment taken to repair shop John s Auto, Inc. 1/10/14 Rent is unpaid 74 74

What are Proceeds? Proceeds include whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds of collateral. Insurance payable due to loss or damage to collateral is proceeds if the debtor is the beneficiary. Money, checks, deposit accounts and the like are cash proceeds. All other proceeds of collateral are noncash proceeds. 75 75

Requirements for Continued Perfection of a Security Interest in Proceeds The Bank s security interest continues in collateral, notwithstanding the sale, exchange or other disposition thereof by the borrower unless the disposition was authorized by the Bank in the security agreement or otherwise. Bank s security interest continues described below, in any identifiable proceeds of the collateral, including collections received by the borrower. The Bank s security interest in proceeds becomes unperfected on the 21 st day after the borrower receives the proceeds unless: A UCC-1 covers the original collateral and the proceeds are collateral in which a security interest may be perfected by filing a UCC-1 in the same office in which the original UCC-1 was filed. The proceeds are identifiable cash proceeds; or A security interest in the proceeds is perfected before the expiration of the 20- day period. 76 76

Illustration of Perfection Requirements For Proceeds If the Bank has a security interest in medical equipment which it has perfected by the filing of a financing statement describing medical equipment and the borrower exchanges some of the medical equipment for office equipment, the Bank will have a continuously perfected security interest in the office equipment. On the other hand, if the borrower sells the medical equipment and uses the cash to buy a car, the Bank s perfected security interest in the car will lapse at the end of the 20 days, because there will be no notation on the certificate of title to indicate that the Bank has a security interest in the office equipment. If the borrower sells an x-ray machine for cash and then uses the cash to buy the vaccine, the Bank will have a continuously perfected security interest in the vaccine because it is inventory as described in the financing statement. 77 77

Personal Property Lien Subordination 78 78

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Examples of Title Verification Documentation Bill of Sale Invoice Title Deed of Trust 81 81

Avoiding Mistake #7: Knowing When to Amend Your UCC-1 82 82

UCC-3 Form UCC-3 is used to make changes in the original UCC-1 Financing Statement. A UCC-3 is a multipurpose form used to renew, transfer, amend or terminate a UCC-1. 83 83

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When Do I Need to Amend a UCC-1? Add collateral Delete collateral (i.e., a partial release) Reflect an address change Anytime the UCC-1 becomes seriously misleading 85 85

Addition of Collateral An Amendment filed on Form UCC-3 may be used to add other collateral. A clear description of any collateral to be added must be included. An Amendment adding collateral is effective as to the added collateral only from the date of filing the Amendment. 86 86

What is Seriously Misleading? John s Auto Inc. UCC-1 5/8/08 Jane Anne Doe Autoworld, Inc. 1/1/10 4 months Jane Anne Smith 5/1/10 no longer perfected on after acquired 8/21/10 Bank #2 files UCC-1 on Autoworld, Inc. 87 87

Change Corporate Structure of Debtor If the debtor changes its location to another jurisdiction the Bank must refile in the new location within four months. EXAMPLE: Debtor is a general partnership whose chief executive office is in Texas. Bank perfects a security interest by filing in Texas. Debtor moves its chief executive office to New Mexico. Bank has four months to refile in New Mexico. If the original debtor merges with another entity resulting in a new debtor located in a different state (example, Delaware corporation merges into Texas corporation), the following rules will apply: The Secured Party has one year to file a UCC-1 in the new state (in the above example, Texas) unless the name of the new debtor is seriously misleading when compared to the name of the original debtor. In this event the Secured Party has only four months to file in the new state to file or risk the loss of a perfection with respect to after-acquired property. 88 88

Refiling of Expired Financing Statements A new Financing Statement may be filed where the original filing has lapsed. Priority established with the original filing would not be maintained as the new filing would not relate back to the file date of the original filing. An intervening lien would take priority over the lapsed financing statement 89 89

Transfer of Collateral by Borrower The UCC does not require a refiling in the name of a transferee in the case of a transfer of the collateral by the borrower to a transferee located in the same state as the borrower. It is advisable for the Bank to file Form UCC-3 when the transfer is made subject to the Bank s security interest or to file Form UCC-1 when a transfer is made by the borrower to a transferee who executes an assumption agreement. If the original debtor transfers the collateral to a transferee located in a different state, the Secured Party has one year to file in the new state to maintain perfection and priority. Example: Delaware corporation transfers to California limited partnership Bank has one year to refile in California. 90 90

Avoiding Mistake #8: Knowing When to Continue or Terminate Your UCC-1 91 91

How Long Does My UCC-1 Last? A Form UCC-1 Financing Statement is effective for five (5) years and may be extended for additional five year periods during the six-month window prior to expiration of the previous five-year period. A UCC-1 filed in connection with a public-finance transaction is effective for 30 years. A UCC-1 on fixtures filed in the County Real Property Records is effective for five years. A fixture financing statement contained within a mortgage or deed of trust it is effective for the term of the mortgage or deed of trust. 92 92

Termination/Total Release A Termination Statement may be filed where all secured parties wish to terminate a financing statement, or where one or more, but not all, secured parties wish to totally release their lien against the debtor. The termination is only effective as to the secured parties who are named in item 9 of form UCC-3. 93 93

Termination Consumer Bank (i.e., secured party) must file termination within 20 days after authenticated demand but no later than one month after no outstanding obligation and no commitment to advance Business Bank must send debtor termination statements or file them within 20 days after authenticated demand if no commitment to advance no outstanding obligation 94 94

Continuation Central Filing: UCC-1 good for five (5) years County Real Estate Records (on fixtures) in most states good for longer of UCC-1 or length of deed of trust Bankruptcy filing continuation does not violate automatic stay 95 95

Total or Partial Assignment An assignment may be made by One or more secured parties A secured party may assign all (Total Assignment) or part (Partial Assignment) of their interest under a Financing Statement. The Form UCC-3 must set forth the name and address of the assignee and identify the secured party making the assignment (Item 9). For a Partial Assignment, a description of the specific collateral assigned must be included. 96 96

Avoiding Mistake #9: Don t Make Exceptions or Leave Items Until Post Closing 97 97

Guarantees Must be in writing Must be supported by consideration Guarantees signed after funding are not supported by consideration 98 98

Review Checklists Make certain promissory note, lien document and guaranty contain no errors, all blanks have been filled in, all blocks checked and all signatures obtained and witnessed or notarized, if required. Loan officers or their counsel must review the lien searches so the bank will be in first lien position. Check collateral specific documents required. 99 99

Review Checklists (continued) Obtain Borrower s affidavit regarding no bankruptcies, judgments or other legal actions pending. Existing insurance policies should be reviewed for adequacy of coverage. Bank to be named as mortgagee and loss payee on casualty policy. Prepare regulatory disclosures and notices (if consumer). Determine valuation of collateral is acceptable to bank prior to closing. Take assignment of any building leases. 100 100

Review Checklists (continued) Get up-to-date financial statements from all makers, co-makers and guarantors. Obtain authorizing documents for non-natural person borrowers (corporation, partnership, LLC) Confirm UCC-1s and/or mortgage/deed of trust are properly filed. 101 101

Avoiding Mistake #10: Documenting Default Waivers 102 102

Documenting Default Waivers Defaults monetary = payments nonmonetary = covenants, representations, etc. Cure Periods None (principal payment, voluntary bankruptcy) 3 to 90 days for others Under some agreements Default becomes Event of Default after expiration of cure period 103 103

The Alternatives Bank waives default for specified period to allow borrower to come back into compliance Bank begins to negotiate workout, renewal, extension, etc. Bank begins collection process (i.e., sue, foreclose, etc.) 104 104

Legal Action upon Default Notice of Default Demand for Payment Notice of Intent to Accelerate Notice of Acceleration Abandonment of Acceleration Reinstatement 105 105

Elements of Waiver A right of the bank (i.e., to call default and accelerate) Knowledge of its existence - Right set forth in loan document - Bank aware of breach Bank engages in conduct inconsistent with claiming the right 106 106

Course of Dealing Effect of Failure to Take Action could constitute a waiver Waivers should be limited and documented Effect of Acceptance of Post-Default Payments 107 107

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