If you feel you may be a victim of CMBS loan servicer or lender misconduct our experienced attorneys can help.
CMBS borrowers experiencing default, foreclosure, loan modifications, or special servicing are at high risk of special servicer misconduct and fiduciary rights violations. Our experienced CMBS loan attorneys specialize in CMBS loan litigation, modification, refinance, documentation review, performance monitoring, and preserving the legal rights of CMBS borrowers. Contact our office today at 800.669.7782.
How Do CMBS Loans Work?
Commercial Mortgage-Backed Securities (CMBS) loans are commercial mortgage loans sold by lenders on the secondary market. CMBS loans are commonly used to finance commercial office space, multiple-family housing, hotels, shopping centers, healthcare centers, and apartment buildings.
CMBS loans are serviced according to the terms of a Pooling and Service Agreement (PSA). Once a CMBS loan is funded, the lender packages and sells it. Pooled CMBS loans are then divided into bonds and segregated into different classes (tranches) by yield and payment priority.
Certificates purchased by Bondholders produce cash flow, allowing issuers to recoup their initial loan-issuing costs. CMBS loan interest and principal payments also generate cash flow. Servicers collect this cash and deliver it to the trustee, who then sends the payments (minus expenses and fees) to investors, the holders of the CMBS Bonds.
Advantages for CMBS Loan Borrowers:
- Higher Loan to Value Ratios (LTV)
- Increased Capital Availability
- Lower Interest Rates
- Personal Liability limited to Spring Guarantees
Disadvantages for CMBS Loan Borrowers:
- High Prepayment Penalty
- No Future Advances
- No Lender-Borrower Relationship
- Lockbox or Cash Flow Control
- Servicer Control
- Servicer Fees
The following are some of the issues borrowers may encounter: CMBS servicer control issues, conflict of interest, payment allocations, alleged defaults, shoddy risk disclosures, and CMBS quality misrepresentation.
What is a CMBS Special Servicer?
A CMBS Loan can be transferred to special servicing for a variety of reasons. For instance, when a CMBS Borrower poses a request about a CMBS loan to the master servicer, the issue is often escalated to Special Servicing. A transfer to Special Servicing can also occur when the CMBS Lender claims a default under the Loan Documents. The Master Servicer oversees the loan administration and has little authority over loan modifications and other Borrower-driven requests. CMBS modification issues, waivers, and reinstatements are handled by a Special Servicer who, once involved, gains substantial authority over the CMBS loan.
The longer a loan is in Special Servicing, the more the Special Servicer earns. There is little to no incentive for a Special Servicer to resolve a borrower’s concerns and issues in an expeditious fashion.
Under most Pooling and Service Agreements, Special Servicers can and do impose numerous fees and (unlike banks) even bid on and acquire the mortgaged property without the Borrower’s approval (at fair value – not best value) prior to a foreclosure sale. The Special Servicer will attempt to reassign payments, allowing it to place and keep a Borrower in default—even when timely payments are being made under the Loan Documents.
Default interest, late fees, appraisal fees, special servicing fees, modification fees, reinstatement fees, and forbearance fees can make it impossible for a CMBS Borrower to escape Special Servicing. Special Servicers may even seek to acquire the property for their own portfolios.
Special servicers can also initiate foreclosure on behalf of the CMBS Trust. Special Servicers may offer to delay the foreclosure and prepare a pre-negotiation agreement, forbearance agreement or modification agreement which often include waivers of all Borrower defenses in addition to a confidentiality clause, preventing the Borrower from suing or speaking with others about their case.
In some cases, the Special Servicer, in conjunction with the Bond Holders, will sell the note instead of foreclosing, resulting in the Borrower potentially losing claims during transfer.
Special Services have a duty to the bondholders, the trust owners. Special servicers also have an obligation to be fair and equitable in their dealings with CMBS Borrowers. However, the CMBS Borrower is the most at risk of all CMBS parties.
If your CMBS loan is due or you need to modify your loan, speak with us first. Contact our office today at 800.669.7782.
Common Types of CMBS Borrower Disputes
We represent CMBS Borrowers defending against CBMS foreclosure actions. Further, we bring lawsuits against Master Servicers, Special Servicers, CMBS Trusts and other involved parties in the following, non-exhaustive, list of CMBS claims:
Breach of CMBS Contract Claims
Breaches of loan provisions, including failure to release reserve funds and limiting or removing access to tenant improvement and other reserves.
Improper foreclosure
Foreclosing on a security agreement or mortgage without following proper notice or legal requirements or without the existence of an actual default.
Improper Declaration of Default.
Improperly declaring a loan in default despite the fact that no event of default has occurred, or the event of default was the result of the CMBS Lender’s conduct, followed by the improper transfer of the Loan to Special Servicing.
Wrongful interference
Wrongfully interfering with a CMBS Borrower’s business operations, contractual relationship with third parties, and prospective contractual relationships with third parties.
CMBS Payment Disputes
Improper classification or distribution of payments, wrongful application of funds to default interest, and other fees to create an alleged payment default.
CMBS Cashflow Claims
Servicers improperly retain payments or funds collected in a Lockbox, creating escrow accounts rather than applying funds to payment obligations, thereby drastically increasing the alleged default interest, and other fees the Lender will claim are due.
Our CMBS Loan Legal Services
In addition to CMBS litigation, we work to help CMBS Borrowers mitigate risks and avoid problems through CMBS assessment, modification, and possible refinance.
CMBS Litigation
In most states, Special Servicers have a fiduciary duty to the bondholders, not the CMBS Borrower. However, special servicers have a duty of fair dealing and good faith, and the borrower holds numerous legal rights protecting their interests.
With quick action and the aid of strong counsel, CMBS borrowers can fight and recoup losses resulting from Special Servicer misconduct. We accept CMBS cases across the United States and welcome the opportunity to work with you and your existing counsel. Contact our office today at 800.669.7782.
CMBS Loan Modification and Refinance
When initiating CMBS loan modification, forbearance, or refinancing, it is vital to retain an experienced CMBS lawyer before approaching the master servicer or special servicer.
A modification request could trigger a default even if your loan is current. A lender may not quickly refinance the loan even when rents are servicing the debt. Special Servicers often have an economic interest that is inconsistent with the CMBS Borrowers and may have a right to defeasance, a form of prepayment penalty. When working through the defeasance process, we can help ensure that you are taking the right steps w to end your relationship with your CMBS Lender.
Don’t wait! Call us before you are in a technical default or have your loan transferred to special servicing. The earlier we get involved, the more options you have. Contact our office today at 800.669.7782.
CMBS Documentation Review
Our CMBS experts conduct careful reviews of CMBS servicing and PSA agreements, CMBS loan risks, CMBS disclosures, loan quality, contract language, due diligence, scope of warranties and representations, notice requirements, repurchase obligations after a breach, personal guarantees and indemnity rights and responsibilities.
CMBS Performance Monitoring
Our CMBS experts conduct thorough and ongoing assessments of CMBS performance to detect early indications of losses and advise on managing potential red flags.
Few real estate lawyers have experience with CMBS servicing, REMIC rules, PSA agreements, and originator trust law. Our experts specialize in the detailed analysis of CMBS documentation, performance monitoring, and the legal rights of CMBS borrowers.
If a CMBS loan modification and refinance isn’t possible, or if you are in foreclosure, we are ready to defend your rights in court. Unlike most lender liability law firms, we do not represent loan servicers or banks.
Act Quickly! In some cases, CMBS claims are time-sensitive and must adhere to governing statute of limitations.
If you feel you may be a victim of CMBS loan servicer or lender misconduct, you could be entitled to financial compensation. All inquiries are fully confidential and protected by attorney-client privilege. For more information, contact our office today at 800.669.7782.