commercial-loan-sales

name

commercial-loan-sales

description

Guidance for tasks involving the sale, purchase, and assignment of commercial mortgage loans between lenders. Use this skill whenever a user is working on a commercial real estate loan sale or purchase transaction—including drafting or reviewing loan sale agreements, assignment and assumption agreements, allonges, assignments of security instruments, due diligence checklists, confidentiality agreements, closing documents, third-party notices, or any supporting schedules and exhibits. Also trigger when the user asks about loan sale deal structure, pricing mechanics, seller or buyer representations and warranties, escrow arrangements, post-closing obligations, or the bidding process for mortgage loan sales. This skill covers private bilateral loan sales between institutional or private lenders and does NOT apply to securitizations (CMBS), warehouse lending facilities, or transactions subject to federal securities laws.

Commercial Mortgage Loan Sales

Overview

This skill provides guidance for drafting, reviewing, negotiating, and analyzing documents in the sale and purchase of one or more commercial real estate mortgage loans from one lender to another. It covers the full transaction lifecycle: offer and bidding, agreement drafting, due diligence, closing, and post-closing matters.

Scope and Limitations

This skill applies to private, bilateral loan sales between institutional or private commercial real estate lenders. It does not cover:

• Securitizations or CMBS transactions (governed by federal securities laws).
• Warehouse lending or repurchase facilities.
• Sales subject to the Securities Act of 1933 or Exchange Act of 1934.
• Tax implications (parties should consult tax professionals).

Key Assumptions

Unless the user specifies otherwise, assume:

• The loan sale is arm's-length between two unaffiliated US entities.
• The loan documents do not prohibit or condition the lender's right to sell.
• The sale is "AS-IS" / "WITH ALL FAULTS" without seller recourse.
• The purchase price is all-cash.
• Buyer's rights are generally not assignable except to an affiliate.
• A deposit is due at contract execution.
• The buyer has a short due diligence period (typically 2–10 business days).
• The loan is sold on a servicer-released basis.
• No seller obligations survive closing (other than post-closing cooperation).
• All buyer obligations, including closing, are time of the essence.

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Transaction Lifecycle

1. Sale Offer and Bidding

Private Offerings: The seller offers the loan directly to a known buyer or group of investors. Often signals a discounted sale where the seller prefers discretion.

Auction Sales: Sold on a mortgage exchange with multiple bidders. Bidders submit a proposed markup of the loan sale agreement alongside their bid price. The winning bid depends on both price and the nature/extent of contract markups.

Confidentiality: Sellers require a signed confidentiality agreement before sharing any loan information. Key negotiation points include term duration, scope of confidential information, authorized parties, exceptions (publicly available info, court orders), enforcement remedies, and return/destruction obligations.

2. Loan Sale Agreement Structure

The loan sale agreement is the central document. For detailed section-by-section guidance, see references/loan-sale-agreement.md.

Core Sections:

Section	Purpose
Recitals	Transaction description and consideration
§1 Purchase and Sale	Central obligations; defines Assigned Rights and Obligations
§2 No Recourse; AS-IS	Disclaimer of all representations except as in §5
§3 Purchase Price	Price structure, deposit, balance due at closing
§4 Due Diligence	Period, scope, termination rights, excluded materials
§5 Seller Representations	Minimal: ownership, authority, OFAC, FIRPTA
§6 Buyer Reps/Covenants	Formation, authority, no reliance, broker fees, servicing
§7 Closing	Deliverables, prorations, costs, remedies
§8 General Provisions	Governing law, notices, confidentiality, time of essence

Schedules and Exhibits:

Attachment	Content
Schedule 1	Schedule of Loans (or Intentionally Deleted for single loan)
Schedule 2	Schedule of Loan Documents
Schedule 3	Seller's Wiring Instructions
Schedule 4	Schedule of Due Diligence Materials
Exhibit A	Confidentiality Agreement (optional)
Exhibit B	Assignment and Assumption of Loan(s)
Exhibit C	Allonge to Promissory Note(s)
Exhibit D	Assignment of Security Instrument(s)
Exhibit E	Notice of Loan Sale to Borrower
Exhibit F	Notice of Loan Sale to Taxing Authorities (optional)

3. Purchase Price Mechanics

Price can be structured as:

• Fixed price with no adjustments (signals sign-and-close deal).
• Fixed price with prorations for amounts received/paid through closing.
• Percentage of outstanding balance (common in portfolio or discount sales), with or without prorations—requires seller representation on balances.

Valuation Date: For single loans with prorations, typically the closing date. For portfolios, a cutoff date before closing allows time for final calculations.

Deposit: Typically 10%+ of purchase price; may be waived between institutional lenders. Non-refundable after the due diligence period expires except for seller default.

Escrow and Reserve Balances: Should be transferred to buyer at closing. No purchase price adjustment needed since these funds belong to neither party, unless they are not transferred (in which case buyer gets a credit).

4. Due Diligence

For the comprehensive due diligence checklist, see references/due-diligence.md.

Scope: Limited compared to real property sales. Buyer has no access to the property, borrower, or tenants. Buyer relies on loan documents, seller-provided materials, and public records.

Period: Typically 2–10 business days. Buyer has unconditional right to terminate until the period ends. After expiration, the deposit becomes non-refundable.

Materials: Negotiated on Schedule 4. Sellers want to limit; buyers want breadth. Start with the loan closing binder index. Key items include loan documents, title policy, survey, property condition reports, Phase I environmental, legal opinions, borrower certificates, financial statements, rent rolls, and servicing files.

Excluded Materials: Sellers may exclude internal work product, attorney-client privileged materials, credit analyses, internal valuations and appraisals, and regulatory reports.

Independent Investigation: Buyer must perform its own due diligence including title searches, lien/judgment searches, OFAC screening, UCC searches, court docket reviews, and online research on borrower/property.

5. Seller Representations and Warranties

Sellers make minimal representations—typically limited to:

• Ownership of the loan and authority to sell (§5(a))
• No prior assignment or encumbrance (§5(b))
• OFAC compliance (§5(c))
• FIRPTA certification—not a foreign person (§5(d))

Representations sellers should AVOID:

• Enforceability of loan documents
• Perfection or priority of mortgage lien
• Condition of the property
• Formation or status of any borrower party
• Accuracy of due diligence materials

Optional additional representations buyers may request (especially if price is near par): outstanding principal balance, loan status (default, cross-collateralization, receivership), notices of casualty/condemnation/litigation/bankruptcy.

6. Buyer Representations, Warranties, and Covenants

Buyers typically represent/covenant:

• Due formation, existence, and good standing (with state-certified certificates)
• Power, authority, and due execution
• No conflicting obligations or required third-party consents
• Enforceable obligations
• OFAC compliance
• No reliance on seller (sophisticated purchaser acknowledgment)
• Broker fee responsibility and indemnification
• Assumption of loan servicing obligations
• Authorization for seller to send post-closing notices

7. Closing

For detailed closing deliverables and mechanics, see references/closing.md.

Mechanics: Usually escrow closing; less commonly in person. All buyer obligations are time of the essence. Closing date is typically a date certain.

Seller Delivers:

• Assignment and Assumption Agreement (4 originals, executed and acknowledged)
• Original Loan Documents (or lost note affidavit + copy if note is missing)
• Allonge(s) for each promissory note
• Assignment(s) of security instrument(s) (in recordable form)
• Third-party notices (to borrower, taxing authorities)
• UCC-3 Assignment(s)
• Escrow and reserve balances (if applicable)
• FIRPTA certificate (optional but recommended)

Buyer Delivers:

• Purchase price (wire transfer)
• Certificates of formation and good standing
• Officer's certificate with resolutions/incumbency
• Executed counterpart of Assignment and Assumption Agreement

8. Post-Closing

Surviving obligations are minimal by design—primarily limited to:

• Post-closing cooperation
• Broker fee indemnification
• Buyer indemnification for breach of no-access covenant

Seller notices: To borrower (required), taxing authorities (if tax escrow exists), servicers, administrators, and consultants.

Buyer notices: To title insurer (confirm continuing coverage), property insurers, and demand letter to borrower directing notification of tenants, property managers, easement holders, and other interested parties.

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Document Drafting Guidance

Assignment and Assumption Agreement

The main closing document evidencing the buyer's assumption of lender obligations. See references/closing.md for details. Key points:

• Bilateral agreement (requires both parties' signatures)
• Effective date left blank until closing if transaction closes in escrow
• Buyer assumes all obligations; seller is released
• Not typically recorded (but should be acknowledged in case recording is later needed)
• Functions like a deed in a real property sale—deems all seller duties fulfilled

Allonge to Promissory Note

Endorses the note to make the buyer the payee. Each note gets its own allonge. Allonges evidence the chain of ownership and are inseparable from the note.

Assignment of Security Instrument

Must comply with applicable state and local recording requirements for the county where the mortgaged property is located. Must be in recordable form (executed, acknowledged).

Describing Loans on Schedule 1

Each loan description should include:

• Lender name
• Borrower name
• Loan amount (original principal for permanent loans; maximum principal for construction/future-advance loans)
• Loan effective date
• Mortgaged property description (county/state; add street address if multiple properties in same county)

For portfolio sales, give each loan a defined name for easy reference. Avoid referring to loans by number in case automatic numbering changes references.

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Representing Buyer vs. Seller: Key Perspectives

If Representing the Seller

• Verify loan documents permit free sale and disclosure without borrower consent.
• Limit representations to seller's own status (ownership, authority, OFAC, FIRPTA).
• Never represent or warrant lien perfection, priority, or enforceability.
• Exercise caution responding to due diligence inquiries—avoid interpretations or opinions that could negate AS-IS disclaimers.
• Restrict due diligence materials to what is reasonable; exclude privileged/proprietary items.
• Reserve the right to adjourn closing if any possibility of document delivery delays.
• Prepare all third-party notices and escrow closing documents early.
• Ensure signature blocks are on separate unnumbered pages.
• Confirm wiring instructions before finalizing Schedule 3.

If Representing the Buyer

• Confirm the seller is the same entity as the lender in the loan documents and title policy.
• Review complete chain of custody and all prior assignments.
• Negotiate aggressively for broader due diligence materials, especially historical documents.
• Begin independent due diligence (title search, public records, online research) as early as possible—even before signing.
• Request original assignable documents at closing (title policy, survey, construction reports).
• Verify mortgagee title insurance continues to cover the successor lender (2006+ policy jackets automatically cover unrelated successors).
• Ensure agreement addresses material adverse events between due diligence expiration and closing.
• Confirm the buyer qualifies to transact business and hold/service loans in all applicable jurisdictions.
• Plan post-closing notices to title insurer, property insurers, and borrower demand letter.

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Reference Files

For detailed guidance on specific topics, read these reference files:

File	When to Read
references/loan-sale-agreement.md	When drafting, reviewing, or negotiating a loan sale agreement section by section
references/due-diligence.md	When preparing or reviewing buyer's due diligence checklist and materials
references/closing.md	When preparing for closing, reviewing deliverables, or drafting closing documents