loan and reo liquidation reporting best practices overview · loan and reo liquidation reporting...

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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

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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 EMAIL ADDRESSES

The below link contains the current email 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.

http://www.crefc.org/uploadedFiles/CMSA_Site_Home/Industry_Standards/CMSA-Investor_Reporting_Package/LIQUIDATION_REPORTS_ON_CERTIFICATE_ADMINISTRATOR_WEBSITES.xls

http://www.crefc.org/uploadedFiles/CMSA_Site_Home/Industry_Standards/CMSA-Investor_Reporting_Package/MASTER_SERVICER_CERTIFICATE_ADMINISTRATOR_EMAIL_ADDRESSES.xls

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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 Period 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

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

4

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.

Original U/W FYE YYYY FYE

YYYY FYE YYYY

FYE

YYYY

Occupancy

Total Revenue

Total Operating Expenses

Net Operating Income

Scheduled Debt Service

DSCR – NOI

Substantiation:

Occupancy at the property has eroded in recent years with no new leasing since July of 2010.

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 2010.

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.

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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.

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Loan Liquidation Report – Example #2 (Full Payoff)

Transaction


Prosup # / Loan #

Liquidation Code / Date R64 - Full Payoff / 9/16/2013


Reporting Period i.e. Determination Date November 2013

Scheduled Balance at Liquidation $11,658,539.39

Advances Outstanding at Liquidation $1,304,249.55


or SS Affiliate

Borrower (sale of property to Third Party through a Bankruptcy Plan)

Payoff / Purchase Price $15,345,789.80

Broker Name XYX International (for Borrower)

Total Broker Fees (%) 1.5%


Entities

$0






As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

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Firm A Firm B Firm C

Date Date Date

Property Operation Information: The below table can also include annualized and budgeted financial

information.


YYYY FYE YYYY

FYE

YYYY

Occupancy

Total Revenue




DSCR – NOI

Substantiation:

The Net Present Value of the recommended action (a sale of the Property through the Bankruptcy Court) totals

$14,609,500 which is superior to the Net Present Value 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.
















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Loan Liquidation Report – Example #3 (SS Affiliate Note Sale)

Transaction


Prosup # / Loan #

Liquidation Code / Date 03 Liquidation / Disposition / 09/11/2013


Reporting Period i.e. Determination Date November 2013


Advances Outstanding at Liquidation $1,059,438.74


or SS Affiliate

SS Affiliate

Payoff / Purchase Price $56,342,923.51

Broker Name NA

Total Broker Fees (%) NA


Entities

$10,257.29






As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

9




Date Date Date

Property Operation Information: The table can also include annualized and budgeted financial information.


YYYY FYE YYYY

FYE

YYYY

Occupancy

Total Revenue




DSCR – NOI

Substantiation:

The $56,600,000 Fair Value established by the Special Servicer was confirmed by the Master Servicer pursuant

to the PSA.
















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REO Liquidation Report – Example #1 (REO Sale)

Transaction


Prosup # / Loan #

REO Date 12/21/2011

Liquidation Code / Date 03 / Liquidation / 3/8/2013


Reporting Period i.e. Determination Date April 2013


Transacted with Third Party or SS

Affiliate

Third Party

Purchase Price $615,000.00

Broker Name Townley Associates

Total Broker Fees (%) 3%


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.




As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

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Inspection Environmental Report Engineering Report


Date Date Date

Property Operation Information: The table can also include annualized and budgeted financial information.

Original

U/W

FYE

YYYY

FYE

YYYY

FYE

YYYY

FYE

YYYY Annualized

Occupancy

Effective Gross

Revenue

Total Operating

Expenses



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







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EXCULPATION FROM LIABILITY AS SET FORTH THEREIN

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REO Liquidation Report – Example #2 (Multi Property Collateralized)

Transaction


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)


Reporting Period / Determination Date March 2014


Transacted with Third Party or SS

Affiliate

Third Party

Purchase Price $22,144,072.19

Broker Name 123 Real (Broker) XYX State (Co-Broker)

Total Broker Fees (%) 1.75%


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.




As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

As-Is

Value

Per

Unit

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Collateral Condition: Insert a condition table for each property and include firm name, report date and a status

comment.

Inspection Environmental Report Engineering Report


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

FYE

YYYY

FYE

YYYY

FYE

YYYY

FYE

YYYY Annualized

Occupancy

Effective Gross

Revenue

Total Operating

Expenses



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.







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EXCULPATION FROM LIABILITY AS SET FORTH THEREIN

loan and reo liquidation reporting best practices overview · loan and reo liquidation reporting...

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