Reserves
Interest Reserves: Some lenders prefer to holdback either a few months of interest or a specific dollar amount of interest to be used to pay the monthly interest only payments. This is most commonly used when the property has no cash flow such as with a construction loan. Instead of the borrower making monthly payments to the lender, the Debt Service Reserve will be used to make monthly payments until the funds are depleted.
This option allows the user to select on a loan by loan basis whether the lender will withhold funds as a generic lender holdback subject to a variety of conditions that the user MANUALLY enters. The actual language will be entered into the Loan Agreement and REQUIRES MANUAL EDITING by the user before the documents can be provided to the Borrower.
This option allows the user to select on a loan by loan basis whether to include a Capital Expenditure Reserve.
A CapEx reserve is typically used for multifamily and/or commercial real estate loans. It’s money set aside specifically to pay for things like buying new equipment or making major repairs or improvements to the property. Lenders sometimes require borrowers to create and fund a CapEx reserve as a way to ensure that the property stays in good shape and continues to be a good investment. If this option is selected, a borrower may request funds once per month from the lender for these purposes.
This option allows the user to select on a loan by loan basis whether to include an Occupancy Reserve. If the borrower intends or the lender requires the borrower to vacate tenants from the collateral property, the lender can withhold funds from the loan proceeds at the time of funding. If the tenants vacate the property and surrender possession of the property back to the owner, prior to the date entered by the user, these funds will be delivered to the borrower.
This option allows the user to select on a loan by loan basis whether the lender will withhold funds from the loan proceeds in the amount entered to be used to pay property taxes through the Maturity Date of the loan.
The Borrower is required to pay property taxes first and can then seek these funds to be released from the loan servicer.
This is NOT an impound account. Users should select “Are there any tax/insurance or other impounds?” within the Special Loan Features section if they intend on including tax impounds.
This option allows the user to select on a loan by loan basis whether to include an Appraisal Reserve. This is used if the lender is relying on an After Repair Value (ARV), and an appraisal will not be completed prior to loan closing. The reserve funds will be released to the borrower assuming the borrower has obtained an appraisal showing the minimum ARV meets or exceeds the amount determined by the user. If not, Lender may retain the portion of the reserve necessary to keep the ARV ratio below 70%.
This option allows the user to select on a loan by loan basis whether to include a Tenant Improvement Reserve. A Tenant Improvement Reserve (aka TI Reserve) is typically used for commercial real estate loans. It’s money set aside specifically for tenant improvement projects or updates the borrower (as a landlord) is obligated to complete for their tenant.
This option allows the user to select on a loan by loan basis whether the lender will withhold funds from the loan proceeds in the amount entered to be used to pay property insurance through the Maturity Date of the loan. The borrower is required to pay property insurance first and can then seek these funds to be released from the loan servicer.
This is NOT an impound account. Users should select “Are there any tax/insurance or other impounds?” within the Special Loan Features section if they intend on including insurance impounds.
This option allows the user to select on a loan by loan basis whether to include a Default Reserve. In the event that your borrower defaults on the loan, the lender has the right to use the reserved funds to cover the costs of a) making required interest payments, 2) making protective advances, or 3) paying down the principal amount.
Construction
Simple: The Simple Construction Reserve provides limited provisions covering administration of the reserve, including disbursement requirements. Use this option where the reserve amount is smaller, no draw schedule is needed, and/or there is a limited number of individuals engaged in construction.
Standard: The Comprehensive Construction Reserve provides significant provisions covering administration of the reserve, including disbursement requirements. Use this option where the construction project is more involved, the reserve amount is larger, a draw schedule is needed, and/or lender wants borrower to meet conditions prior to disbursements.
Extensive: The Construction Loan Agreement includes all provisions contained in the Comprehensive Construction Reserve, but adds additional requirements related to the administration of the Construction Reserve including insurance and draw requirements. Use this option where the construction is more complex (including ground up or major rehab projects). Also, the CLA includes a Contingency Reserve provision, if desired, to cover unexpected construction costs.
For construction loans, lender can choose to charge interest only on the amounts advanced to the borrower, commonly referred to as non-dutch interest, or the lender can choose to charge interest on the entire loan amount, commonly referred to as dutch interest.
Answer yes to this question if the lender is only charging interest on amounts advanced to the borrower. By selecting “Yes” the loan documents will update the monthly payment amounts by taking the loan amount and subtracting the construction reserve amount and will display this payment amount as the initial payment. The loan documents will also update the daily interest calculation for per diem interest. As the lender makes construction advances under the loan the documents state that the monthly payments will increase over time.
If the user answers No to this question and is charging interest on the entire loan amount (dutch interest) then the monthly payments will be calculated on the entire loan amount including any construction funds being reserved by lender. The monthly payments will remain the same during the loan term as interest is being charged on the entire loan amount.
Inserts language which allows lender to holdback a percentage of each disbursement (defaulted to 10%) to ensure that all construction costs are paid. The retained amounts would be disbursed as part of the final disbursement once all conditions have been met.
Will lender be using a third party to manage the Construction Reserve?
Allows the lender to take a collateral assignment of all permits and construction agreements and creates a recordable document that is separate from the Security Instrument.
NOTE: this document may not be accepted for recording in some jurisdictions per various county / state recording requirements or may require revision to conform to such requirements.
Allows the lender to take a collateral assignment of any construction contract(s). This can facilitate taking over construction in the event of default.
Allows the lender to take a collateral assignment of the design/architect contract. This can facilitate taking over construction in the event of default.
Fees
This option allows the user to select on a loan by loan basis whether to include a Termination Fee.
A Termination Fee is similar to an Exit Fee, except the fee is automatically waived if no Event of Default occurs during the loan term and the borrower repays the entire loan at maturity.
This fee is often used to incentivize the borrower to repay the loan and is used in lieu or in addition to charging default interest. The fee may be unenforceable.
This option allows the user to select on a loan by loan basis whether to defer the Broker Fee to be paid at loan maturity instead of at loan origination.
This option allows the user to select on a loan by loan basis whether to defer the Origination Fee to be paid at loan maturity instead of at loan origination.
Exit Fee:
Selecting “Yes” will require borrower to pay a fee upon the earlier of (i) the Maturity Date; (ii) Borrower’s prepayment of the loan in full prior to Maturity; (iii) a transfer of Borrower interest in the real property; or (iv) an Event of Default.
Exit Fees are often used when a Borrower cannot pay some or all of the origination fee at loan closing and instead is assessed a fee at loan payoff.
Unlike a Termination Fee, this fee is not automically waived at loan payoff.
Select “Yes” to add language within the loan documents that specifies the borrower is to be responsible for paying all servicing costs.
Special Loan Features
- Penalty in Months (Guaranteed Interest)
- Yearly Step-Down (Linear)
- Strict Penalty in Months/ Percentage/ Specific Amount (Lockout)
- Yearly Step-Down (Non-Linear)
Indicate whether you have negotiated a conditional optional extension of the maturity date with borrower. This will insert language into the loan documents where the borrower may request extensions of the loan so long as they have performed certain conditions such as keeping the loan current.
This option allows the user to select on a loan by loan basis whether the loan is an SBA loan with corresponding SBA loan documentation. Additional language and documents are added.
This option allows the user to select on a loan by loan basis whether to include provisions permitting cannabis related activity at the property.
When enabled, this option adds language to the loan agreement which requires borrower to promise to not operate its cannabis related business until it has all applicable licenses or permits.
This option allows the user to select on a loan by loan basis whether to include a new document for the borrower, lender, and property manager to sign which, among other things, requires the property manager to agree that their fees owed by borrower are junior in priority to the borrower’s payments under the loan.
This option is reserved for when the lender and borrower are affiliates of one another. Selecting this feature in the interview will remove instructions to obtain a title policy and all other loan documents (including personal guaranties) other than the Loan Agreement, Note, and Mortgage.
Please consult with the Lightning Docs team before using this option as it eliminates serious protections for the Lender and is not to be used for a customary arms-length transaction.
This option allows the user to select whether a certain property is leased by the borrower rather than owned, meaning the mortgage will be a “Leasehold Mortgage” – that is, the mortgage secures the borrower’s rights under their lease and not the ownership of the property itself.
This is more often used in commercial real estate, or for residential property in certain limited geographic locations where leaseholds are more common.
This selection will add additional language to the loan documents and produce a recommendation for two additional documents: Ground Lease Estoppel and Leasehold Mortgage Agreement. These documents should be executed in advance of closing and must be produced separately. Please contact an attorney for assistance.
This option allows the user to select on a loan by loan basis whether to include a Rental Income Lockbox account in which the rent received by the borrower as the landlord of the property are deposited into an account mutually controlled by the borrower and the lender.
Utilizing this feature will require additional documentation and coordination with the chosen bank.
Once enabled, there are 3 further options: Hard Lockbox, Soft Lockbox, and Springing Lockbox.
Indicate whether borrower will be required to make payments toward property insurance and taxes, in addition to monthly loan payments, which will be held by lender or loan servicer and used to pay property insurance and taxes as they come due.
UCCs
Collateral Security Agreements are used for securing personal property in addition to the real property as additional collateral.
Equity Pledge Agreements are used for securing ownership interests in a company (typically the borrower) as additional collateral.
Fixture Filings are used to provide additional assurance that personal property affixed to the real estate is secured as collateral as well.
Guaranties
Full Recourse Guaranty: If borrower defaults payments on the loan, Guarantor becomes financially responsible for the repayment of the principal balance, along with any accrued unpaid interest.
Limited Recourse Guaranty: This Guarantor becomes financially responsible if your borrower commits certain bad acts, such as bankruptcy, fraud, etc. This Guarantor is only responsible for covering the costs of said bad acts and has no financial obligation to repay any of the unpaid principal balance, or unpaid interest that may have accrued during the loan term.
Springing Guaranty: This type of Guaranty is a combination of both Full and Limited Guaranties. If your borrower commits certain bad acts the Guarantor will be responsible for the repayment of the principal balance, accrued unpaid interest, AND the bad acts committed by the borrower.
Miscellaneous
Enabling this option allows the user on a loan by loan basis to enter owners of properties who are not going also the borrowers under the loan. For example, if a trust owns the property but the individual trustees are the borrowers. The Non-Borrower Property Owners are liable under the mortgage but not the payment obligations under the loan itself.
Insert a table with release prices for each individual property: If the loan is secured by multiple properties, selecting “yes” this option will produce a table in the Loan Agreement which will include the address of each property and the minimum release price to release each individual property. A new dialogue will also appear in the interview where you will insert the individual release prices for each property. You will complete this dialogue after entering all the properties for this loan.
Release collateral if Borrower pays all net proceeds from any sale:
Selecting this answer will insert language into the Loan Agreement permitting the borrower to release individual lots of a single property and/or entire separate properties so long as the borrower provides the net proceeds of any sale to the lender.
When a sale of a lot or property occurs, the lender will produce a reduced payoff demand to the title company permitting the release of a parcel or an entire property so long at the lender receives every dollar that the borrower was set to receive through the sale. This amount pays down the loan and any remaining collateral for the loan will still be secured.
Otherwise, if a Borrower wants to sell a property under a cross collateralized loan or a lot under a large development project, the Borrower must pay off the entire loan amount and cannot make a partial payment to the Lender.
Enabling this permission does not enable or disable an actual question in the interview.
Rather, simply having this permission enabled will produce a “Review Checklist” document in the document stack.
This document will show: Governing Law; Arbitration County; Default Rate; Borrower(s) name, address and their signature block; the Security Instrument signature block; the Guarantor(s) name, address, and signature block; and Entity Certificate signature block (if any).
The purpose of this document is to help a QA/QC party to review the documents for accuracy because if any of this information is inaccurate in the checklist it will also be inaccurate in the loan documents.
This option will allow you to select on a loan by loan basis whether the sale and assignment of the loan to an investor is being made as collateral for an underlying obligation between the seller (assignor) and the purchaser (assignee).
This option is typically used when the loan is being assigned to a warehouse lender and the Assignment is not being made as a “true” assignment of the loan but rather solely for collateral purposes.
This option turns on the ability to select between three interest calculation methods: 30/360, Actual/360, and Actual/365.
Normally monthly payments are established by creating a fictitious year of 360 days with even 30-day months. The payments are always the same each month even though there are a different number of actual days in each month. This is considered the standard method to calculate monthly payments. DSCR loans should always use 30/360.
Some bridge lenders prefer to charge a daily interest rate and they can do so in one of two ways:
Actual/360: Instead of dividing the year into 30-day months, this method takes the yearly payment divided by 360 days and charges the daily amount each day so that the payments in a 30-day month are different than a 31-day month. Doing so will charge the borrower 5 extra days of interest each year.
OR
Actual/365: In this method, the annual payment is divided by 365 days and similar to 360/Actual, the monthly payments will change based on how many calendar days are in each month. The actual amount paid over the year is the same as 30/360.
This option allows the user to select on a loan by loan basis whether the lender requires the borrower to be a Special Purpose Entity and to include certain provisions to the loan documents.
When required in the loan documents, this option adds additional events of default if borrower were to make any changes to the entity structure, or enter into certain other contracts.
If the user further selects a “Permit Borrower to use Recycled SPE” then additional language is added as borrower representations about the existence and financial and legal status of the entity.
This option allows the user to select on a loan by loan basis whether to include a Debt Service Coverage Ratio requirement.
For rental properties or other cash flowing real estate, certain mortgage lenders require the borrower to maintain a minimum Debt Service Coverage Ratio for the life of the loan and the failure to maintain this ratio is an Event of Default under the Loan Documents.
Certain documents require initials between paragraphs within the document such as the Loan Agreement, Note, and Mortgage/Deed of Trust.
Other documents require the borrower complete the document in their own handwriting such as the Certificate of Non-Owner Occupancy, Business Purpose Certificate, and Language Capacity Declaration.
Enabling this feature will permit the user on a loan by loan basis to insert a coverpage to these documents alerting the notary that these documents cannot just be signed but additional entries in the documents must be done.
This option allows the user to select on a loan by loan basis whether to include a separate “Borrower Certification and Authorization” form.
This document requires the borrower to certify that they understand lender may verify any information provided to it. Lender can share this information with third parties including investors. The borrower also authorizes the sharing of this information and to receive phone, text, and email communications.
This option will allow you to select on a loan by loan basis whether to include a Loan Subordination Agreement / Intercreditor Agreement.
A loan subordination/intercreditor agreement is used when there are multiple loans secured by the same property and the lenders choose to enter into an agreement confirming their rights between each other.
You may further choose between language types that are either more friendly to a senior lender or more friendly to a junior lender.
A Shtar Iska/Heter Iska is a Jewish religious compliance document that allows lenders and borrowers who are both Jewish to comply with Jewish law that prohibits the payment and acceptance of interest on loans between Jewish people.
This option allows you to select on a loan-by-loan basis whether to include this form.
If the loan includes a construction holdback and the user includes a guaranty as part of the interview, construction completion requirements automatically populate in the personal guaranty for that guarantor.
This option is only to be used when a THIRD PARTY to the transaction (i.e. someone other than any guarantors) are also obligated to complete construction at the property.
An additional stand-alone guaranty of completion will be produced for that third party.
This option allows the user to select on a loan by loan basis whether to include a First Payment Letter – an additional and separate document which specifies the amount of the very first payment on the loan and the date of which monthly payments begin.
This feature is often used for DSCR loans when the lender would like to include references to tax and insurance impounds in addition to the principal and interest payments.
This option will allow you to select on a loan by loan basis whether to include an automatic extension of the maturity date.
There can only be one (1) automatic extension, but the length of the extension, the fee charged (if any), and the increase in the interest rate (if any) may be determined by the user. When used in connection with a variable interest rate, new intereset rate specified (if any) will replace the MARGIN percentage. When used in connection with a Step-Up interest rate, the new interest rate (if any) will replace the then-current rate.
This automatic extension feature is not compatible with the Bridge to Perm feature.
A line of credit provides the borrower an ability to borrow up to a certain amount of funds based on certain conditions provided in the loan documents. The borrower is only charged interest on the funds the borrower receives under the loan.
Enabling this feature allows the user to select on a loan-by-loan basis to utilize line of credit documentation rather than a closed end loan with a fixed amount advanced at closing.
This feature enables the user to select on a loan by loan basis whether the borrower’s interest-only payments can be deferred for the term of the loan. This feature also allows the user to select whether the deferred payments should compound or capitalize.
Enabling this permission will show “Will the interest rate automatically increase during the loan term (Step Up)?” in the loan interview under the Standard Loan Terms page. Users will determine on a loan-by-loan basis whether to use this feature if enabled.
The feature is used when a lender would like the interest rate to change after a fixed time period during the loan and the lender knows the exact rate they would like the Note to change to (i.e. from 6% fixed to 9% fixed after 3 months).
Note that even with this permission on, interest rate step is still incompatible with variable rate loans, and will thus be hidden in the interview if variable rate is selected.
Normally a borrower would first take out a Bridge/Fix and Flip/Construction loan, then stabilize the property and complete any construction.
Once the property is stabilized, typically with a tenant in place, that same borrower typically seeks permanent lower cost financing usually through the form of a DSCR loan.
This feature combines both loan features into a single loan. An initial bridge loan which is interest-only, and typically contains a construction period, which then automatically converts to a 30 year perm loan.
Enabling this feature allows the user to select on a loan-by-loan basis to utilize line of credit documentation rather than a closed end loan with a fixed amount advanced at closing.
Select “Yes” if the interest rate can change during the loan term based on changes in an interest rate “Index.”
MERS: refers to Mortgage Electronic Registration Systems, Inc., a company which acts as a nominee for the lender. MERS requires their address and a variety of other changes to the loan documents to comply with MERS requirements. Selecting this option will apply those changes automatically. The lender simply must enter their MERS numbers and will not need to make other changes to make the loan documents MERS compliant.
The lender must still submit the final documents to MERS after loan closing.
Selecting MERS here will not affect loan assignments. Use the separate MERS function for assignments for such purpose.
If selected, the loan documents will include a Federal W-9 Request for Taxpayer Identification Number and Certification Form with the loan documents.
The form will pre-populate with the borrower’s name and address.
This feature is used when a specific individual(s) is referenced by different names throughout various documents. For example: “Matthew” also being called “Matt”