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Small Balance Loan Agreement Changes Effective November 28

November 28, 2016

The new Small Balance Loan Agreement and Guide provisions have been published and are ready to use. The New Loan Agreement (11-8-16) will be required for all loans where the Commitment has an Effective Date of November 28 or later. A summary of these changes is below.

1. Priority Repair Dates

Effective on loans with Commitments dated on or after November 28, we will no longer require Priority Repair due dates. Property conditions evaluated during underwriting will be used to inform the overall credit quality of the loan. This will reduce the administrative burden on Borrowers and Servicers as they will no longer need to separately confirm that they have completed individual repair items.

  • Priority Repairs are still identified in the Property Condition Report (PCR). However, we will no longer repeat those Priority Repairs in the Commitment and Loan Agreement. The Loan Agreement will refer to the PCR and incorporate the Priority Repairs into the Loan Agreement by reference to the PCR.
  • The Loan Agreement now directs Borrowers to complete the Priority Repairs (including the PR-90 Repairs) as soon as practical.
    • While the Priority Repairs do not have a timeline for completion, the Borrower will have recourse liability for completion cost of the identified priority repairs and for any subsequent damage that results from Borrower’s failure to complete those repairs.
    • If the scope of the Priority Repairs is material, the Borrower is required to escrow funds equal to 100 percent of the estimated cost of repairs. The materiality threshold is $25K for loans up to $2.5M and 1 percent of the UPB for loans greater than $2.5M.
    • Repair and replacement escrows will now be held in the same account.
  • SBL Servicers are required to review the list of Priority Repairs from the PCR with the Borrower at the first and subsequent inspections and identify as part of those inspections the Priority Repairs that Borrower has completed and those that remain outstanding.

2. Midyear Rent Rolls

Borrowers will now be required to submit a midyear rent roll after the second quarter of each year. This will improve our ability to monitor asset performance without adding a significant reporting burden for Borrowers.

3. 20% Displacement Threshold

Borrowers are encouraged to re-invest in and improve their SBL properties. However, significant tenant displacement can be a material risk to income generation at the property. To ensure that Lender is aware of and able to monitor material renovations that involve significant tenant displacement, Borrowers must now obtain Lender consent for any renovation project that will displace more than 20 percent of the tenants.

If you have any questions about these Loan Agreement changes, please contact Filicia Davenport.

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