The Lenders Servicing of Your Loan

When funding for your project has completed the Lender will be administering your loan in accordance with the terms and conditions as set out in your commitment letter. The commitment letter is the founding document that contains all of the essential information with respect to your loan. As such, when questions or changes, you may have, arise regarding your loan it is best to review the commitment letter prior to contacting the Lender for clarification or change requests. To further understand what your responsibilities are; most Lenders will be assessing or providing the following:

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Undertaking 

 

What is it?

Undertaking is a guarantee given by a borrower to the Lender to complete mandatory repairs on the property by a certain date.

However, an undertaking is not exclusive to mandatory repairs. It may also include rental achievement, zoning, work orders, fire department inspections, property management, property tax confirmations, BCA Report, Asbestos Survey and property being leased.

 

Canadian Mortgage Housing Corporation (CMHC): If the loan is CMHC insured, the mandatory repairs are outlined in Schedule B of the CMHC Certificate of Insurance (COI) Conditions.

 

Conventional: If the Loan is Conventional, the mandatory repairs are outlined in the Phase 1 Environmental Report or the Building Condition Report. 

 

Why is it important?

The undertaking helps to ensure that:

• The property is being maintained to high standard

• The property is being properly managed

• Health and Safety repairs are completed to municipal standards

• No liens are registered on title as a result of non- payment of property taxes or violation of work orders

 

Financial Requirements

 

What is it?

The Mortgage Commitment and/or CMHC Certificate of Insurance (COI) states that the lender may request financial updates from the Borrower annually or when necessary. The Lenders' Commitment Letter mandates annual Financial reporting within 120 days of the corporate fiscal year end. If the Borrower is an individual, reporting is mandated each calendar year.

 

The specific required documents include:

1. Financial Statements from the Borrower and the Guarantor(s):

   • Balance Sheet and supporting schedules

   • Detailed statement of Income and Expenditures

   • Statement of Change in Cash Flow

     • Note:

       If the Borrower is NOT a holding company as determined by reviewing the Credit Binder, there will be no Financial Statements required for the guarantors, unless specifically requested by the investor. In this case, only Financial Statements for the Borrower are mandatory.

       If the Borrower is a holding company as determined by reviewing the Credit Binder, there will be no Financial Statements available for the Borrower. In this case, Financial Statements for the Guarantors are mandatory.

2. Net Worth Statements in the case of an individual Borrower or Guarantor

3. Operating Statements relating to the property, including:

   • Detailed statement of Income

   • Expenditures and supporting schedules

4. Current Rent Roll for the property

 

In addition to the statements above:

• Confirmation that there has been no change of control, amalgamation, merger, reorganization or change of name

• Confirmation that no further encumbrances have been registered against the property

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Why is it important?

The undertaking helps to ensure that:

• Guarantors have filed taxes and are up to date on filing

• The lender has visibility into properties that the borrower may have with other lenders that are approaching renewal

• Nursing Homes/LTC facilities have been inspected and have up to date licenses

 

Insurance Requirements

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What is it?

Commercial Insurance is a contract between an insurance company and a customer for a specified period. The insurance provides protection against risks associated with the physical structure and operating the property as a business.

 

Generally the Lender insurance requirements include:

• Fire insurance

• Rental insurance (Loss of Income)

• Boiler and Machinery/Equipment Breakdown

• Flood and Earthquake insurance

• Commercial General Liability insurance

• All Insurers must have an A.M rating of B+ or better

 

Why is it important?

Insurance helps to ensure that:

• The Borrower maintains adequate coverage to protect himself and the Lender

 

Property Tax

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What is it?

Can I pay my own Property Taxes?

Borrowers can pay their own property taxes on an exception basis only. Typically a Lender requires that borrowers be registered with the municipal Tax Installment Payment Plan (TIPP). For more information, contact your Lender.

 

Did you receive my tax bill?

For most municipalities, your Lender receives batch reporting, which lists all properties that require taxes to be paid in that jurisdiction. They typically do not receive individual tax bills. In order to confirm that your property tax has been included in the reporting or to have your Lender request a copy of your tax bill, contact your Lender.

 

Did you pay my bill?

A Lender only pays your tax installments on your behalf if that agreement has been outlined in your Commitment Letter. If that is outlined in your Commitment Letter and you require evidence of taxes paid, contact your Lender.

 

Can I request funds from my Tax Balance account?

The tax account is re-calculated annually based on your property’s historic tax installment amounts and projected future annual amounts. With these annual re-calculations and the payment of tax installments, the balance in your tax account is as close to $0 as possible. If you would like more information on your tax calculations or did not receive your annual Tax Re-calculation Letter, contact your Lender.

 

Payments/Pre-payments/Banking Changes

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What is it?

Payment Date Change is designed to accommodate a Borrower’s cash flow and can occur at any time during the mortgage term. For commercial loans, the payment date can only be changed from the 1st to the 15th of the month. There is an Interest adjustment required at the time of the change to bridge the existing payment date and the new payment date.

 

Pre-payment penalty is a sum charged to the borrower for paying off a mortgage before the end of its term. The pre-payment penalty clause is stipulated in the Commitment Letter. If pre-payment is allowed, the commonly accepted practice is to charge the greater of the Interest Rate Differential (IRD) or three months of interest.

 

Banking Information Change allows the borrower to make a change to the account from which funds are debited. To ensure that the new banking information is processed correctly, any banking info change must be provided in writing with a copy of a void cheque. The borrower can also provide a certified pre-authorized letter from his local bank or credit union branch.

 

Why is it important?

Payment Date Changes help to ensure that:

• The Borrower has increased flexibility to collect rents and payments

 

Pre-payment Penalty helps to ensure that:

• The Lender is protected from loss should the borrower not honor his contract

• The borrower is aware of the financial consequences associated with breaking the contract

 

Banking Info Change helps to ensure that:

• The borrower has the flexibility to avoid non-sufficient fund charges

 

Mortgage Information

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What is it?

The Annual Statement is a comprehensive review of a borrower’s annual activities. Shareholders and other interested parties can access information about the company’s activities and financial performance.

 

The Mortgage Information Statement shows the details of the current mortgage including balance, current interest rate, amount remaining on the mortgage term, amortization and borrower’s contact information. The borrower can request this statement.

 

The Amortization Schedule shows the amounts of principal and interest due at regular intervals, as well as the outstanding principal balance of the loan after each payment is made.

 

Why is it important?

The Annual Statement helps to ensure that:

• There is transparency regarding the allocation of payments

• The borrower can use this statement for accounting/tax purposes

 

The Mortgage Information Statement helps to ensure that:

• There is transparency regarding the allocation of payments

• The borrower can use this statement for accounting/tax purposes

 

The Amortization Schedule helps to ensure that:

• There is transparency regarding the allocation of payments for the duration of the term

 

Amending your Mortgage

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What is it?

In certain circumstance your mortgage may be altered based on the terms and conditions laid out in your commitment letter.

 

The commitment is a contract between the Lender and the Borrower. The Lender uses this commitment as the source for all decision making throughout the duration of the mortgage amortization period. The commitment covers everything from payment type (fixed, floating, amortizing, interest only), pre-payment parameters, insurance requirements, type of annual review documents to be collected, undertaking requirements, etc.

 

Why is it important?

It is important to note that the commitment is attached to the mortgage (rather than the borrower) for the entire amortization period.

• If the loan is assumed the current Borrower is replaced by the Purchaser of the property.

• If the loan is renewed the terms and conditions of the commitment are extended for a new term in accordance with the renewal agreement.

• If the loan is refinanced the terms of the existing commitment is discharged and new terms are registered with the mortgage.

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