Loan Closing Guidelines for Lender Subsidiaries of Protective Life Corporation
- Protective Life Insurance Company
- West Coast Life Insurance Company
- Protective Life and Annuity Insurance Company
Legal and Title Documents
Due Diligence Requirements
These guidelines are for use in connection with the closing of mortgage loans pursuant to loan commitments issued by one of the life insurance company lenders affiliated with Protective Life Corporation. These guidelines and attached forms are standardized and can be used for most closings, however they may require some modification due to the particular circumstances of a property or loan commitment. "We" refers to the Lender issuing your commitment. "You" refers to the Borrower.
Approval of Appraisers/Environmental & Structural Engineers All appraisers must be MAI certified. All environmental and inspecting engineers must be licensed professional engineers. We maintain lists of approved appraisers and environmental and structural engineering firms (see Approved Firms section). Request for Approval (“RFA”) forms are sent out with the loan commitments to permit early processing of approval requests if your appraiser, environmental, or engineering firm is not on our approved list (see Forms section).
We require an acceptable Tri-Party Agreement from the borrower and the construction or other interim lender for forward loan commitments (those to be closed more than 90 days after commitment, generally involving new construction or extensive renovation). The Tri-Party Agreement must provide that the borrower will not seek other financing or otherwise frustrate the closing of the permanent loan. To facilitate the construction loan closing and construction schedule, you should arrange to provide us with all items that the construction lender requires us to pre-approve.
We maintain a computer-networked closing checklist so that our staff can document the receipt and current approval status of all items required for closing. When the closing process is initiated, we will send you a checklist tailored to your particular deal.
We will select outside legal counsel to represent us in the loan transaction. All expenses in connection with the loan (including, but not limited to, our attorneys' fees, recording fees, survey costs, title insurance premiums and the costs of the appraisal, environmental and property condition survey reports) are paid by the Borrower. Our outside legal counsel bills at an hourly rate. Counsel's fee depends on the complexity of the documents and title issues and the number of required revisions. Therefore, we are unable to agree to any cap on legal expenses.
Top of Page
Legal and Title Documents
Basic Loan Documents
All loans are structured using the following basic loan documents: promissory note, mortgage and security agreement (or deed to secure debt/deed of trust, depending on the jurisdiction), present assignment of rents and leases (with a license for Borrower to collect rents if no loan default), indemnification for the nonrecourse carveouts, Borrower's affidavit, environmental indemnification and UCC financing statements. The environmental indemnification contains indemnities which survive the full payment of the loan and foreclosure or transfer of the property or interest therein, but relate only to environmental releases or conditions first occurring prior to a permitted transfer where the transferee provides an acceptable substitute indemnitor.
Nonrecourse Liability/Exceptions - This section identifies items where you and/or principal(s) are personally liable in a nonrecourse loan.
Borrower will have no personal liability for the payment of the principal, interest, prepayment fee or Premium, if any, provided for in the Loan, except as provided in the following paragraph.
Borrower and the Principal(s) must, jointly and severally, absolutely and unconditionally covenant and agree to pay, indemnify and hold Lender harmless against any and all damage, loss, liability, costs and expenses which Lender may suffer or to which Lender may become subject, plus interest thereon at the After-Maturity Rate, which arise out of or are based upon:
||failure by Borrower or the Principal(s) to perform the obligations contained in the Loan Documents to prevent waste, keep the Property free of any hazardous waste as required by any applicable governmental authority, maintain insurance coverage, pay over insurance and condemnation proceeds, and pay ad valorem taxes and assessments with respect to the Property;
||fraud or misrepresentation by Borrower, any general partner or the Principal(s) to the Lender prior to or during the term of the Loan;
||misappropriation or conversion of any security for this Loan;
||collection of rents, issues or profits from the Property in contravention of the terms and provisions of the Loan Documents unless the same are applied to the Loan;
||the obligation of Borrower or any indemnitor to indemnify Lender under any environmental indemnification agreement executed in favor of Lender; and
||an act or omission of the Borrower or any Principal resulting in a termination of or offset/reduction of rent under an anchor tenant lease.
* additional carveouts may be required upon review of the due diligence
Prepayment Premium - Our promissory note provides for a yield maintenance prepayment premium running to the Call Date or Maturity Date (as applicable). In the event of a default or voluntary prepayment, the premium language is as follows:
1. Prepayment/Default Premium
(a) Voluntary Prepayment. Borrower shall have the privilege of prepaying the debt evidenced and secured hereby in full, but not in part, on any installment payment date, upon sixty (60) days' prior written notice by Borrower to Lender, upon condition that Borrower pays to Lender a prepayment fee equal to the Premium set forth in Paragraph 2 below.
(b) Default. In the event of default hereunder and acceleration by Lender, Lender shall have the right to the Premium described in Paragraph 2 below. In the event of default hereunder and following acceleration of maturity by Lender, a tender of payment of the amount necessary to satisfy the entire unpaid principal balance declared due and payable must include the Premium described in Paragraph 2 below.
(c) Provided, however, that no Premium shall be payable due to payment resulting from the application of condemnation or casualty proceeds to a reduction of the indebtedness secured pursuant to the Loan Documents.
2. Premium Amount. At all times prior to the [Call \ Maturity] Date defined above, as of the date of a voluntary prepayment as set forth in Paragraph 1(a) above or as of the date of acceleration for default under this note or under any of the other Loan Documents ("Premium Determination Date"), in addition to any amounts paid or payable or prepaid or otherwise due under the Loan Documents, a "Premium" shall be due and payable, equal to the greater of:
(a) one percent (1%) of the then unpaid principal balance: or
(b) "Yield Maintenace" (which shall in no event be less than zero), which shall be calculated by:
(i) subtracting from the interest rate then in effect under this Note, the annualized yield on a United States Treasury bill, note or bond with a maturity date closest to the [Call \ Maturity] Date, as such yield ("Treasury Rate") is reported on the Bloomberg Professional service (or if no longer published the in the Wall Street Journal or a similar nationally recognized electronic service or publication selected by Lender reporting daily Treasury yields) five (5) business days preceding the Premium Determination Date ("Rate Differential");
(ii) calculating the "Monthly Interest Differential" for each month of the loan term from the Premium Determination Date to the [Call \ Maturity] Date by multiplying one-twelfth of the Rate Differential by the scheduled unpaid principal balance of this Note at each month (assuming payment of all scheduled monthly payments when due); and
(iii) using one-twelfth of the Treasury Rate, discounting to present value the right to receive the Monthly Interest Differential for each month (with prorations for partial months) between the Premium Determination Date and the [Call \Maturity] Date.
(c) No Premium shall be payable if a Premium Determination Date occurs within the ninety (90) day period prior to or any time after the [Call \ Maturity] Date.
A legal opinion is required for each loan closing. The opinion must cover the legality of the loan transaction and provide, among other things, that all documents used in structuring the loan are valid, binding and enforceable in accordance with their terms. The opinion must specifically provide that the loan does not violate any applicable usury statutes. If the Borrower's attorney is not licensed to practice in the state where the property is located, the Borrower must retain local counsel in that state to give the enforceability and state law opinions.
We require an acceptable ALTA Loan Policy (or equivalent in Texas, Florida and California) issued by an approved national title insurer, insuring the Loan as a valid first lien on the security (unless another priority is specified in the loan commitment) without exception other than taxes not yet due and payable and such other exceptions as we approve. The title policy must contain such endorsements and affirmative coverage as we require, including but not limited to a general comprehensive endorsement. A title insurance commitment with photocopies of all title exceptions must be furnished in sufficient time prior to closing to permit review, comment and revisions.
Entity Documents/Borrower's Authority
If the Borrower is a corporation, partnership, fiduciary or other entity, you must furnish:
- copies (reflecting any recordation information) of the Borrower's organizational documentation;
- satisfactory evidence of the authority of Borrower and persons executing documents on its behalf to enter into the Loan and pledge the Project as security (borrowing resolution is required); and
- current certificates of good standing/existence/qualification from the state of domicile and the state where the property is located.
Required Easements and Restrictions
If the land and improvements that will secure the loan are part of a larger commercial development or in any way rely on other property (e.g. for access, utility lines, drainage, parking, etc.), the property must have such appurtenant easements as required for the operation of the property. If the leases for the project contain provisions which restrict the use or leasing of other property not encumbered by the our mortgage, then the other property must be appropriately restricted through a declaration of easements, covenants and restrictions ("ECR") containing terms and provisions necessary or desirable, in our opinion, for the operation of the project and compliance with the requirements of project leases.
Top of Page
Due Diligence Requirements
[Note: All reports and due diligence items must be addressed as follows: “Protective Life Insurance Company and its subsidiaries”]
As a condition to funding the Loan, Borrower must furnish a Self-Contained Appraisal Report which includes the following:
(a) Three Approaches to Value (1) Income Approach with supporting market income and expense data with analyses and adjustments and existing lease analyses; (2) Sales Comparison Approach with the supporting comparable sales data with analyses and adjustments;(3) Cost Approach with Land Value and Building Replacement Cost or Insurable Value
(b) Photographs of the Following (1) Subject Property (2) Adjoining Properties (3) Street Views (c) Neighborhood Analyses, Site Plans, and a copy of Survey
The Effective Date of the value conclusion cannot be later than the date of loan closing. If the Effective Date is a future value (i.e. Prospective Value) and is predicated on certain Hypothetical Conditions to occur in the future, (for example, completion of construction, lease-up, stabilization or economic considerations), then when such conditions are met and prior to any funding, Borrower must furnish to Lender a Recertification Value. If the Value, Date of Value or analysis changes, Borrower must furnish the Lender an update (see USPAP Advisory Opinion 3) of the previous appraisal to a current date or value or a new appraisal. The update or the new appraisal report must reflect whether or not: a) the conditions upon which the value was predicated have been fulfilled; b) there have been significant changes in the market and c) the appraiser's value conclusion has changed. The appraiser must have an MAI designation and must be approved by Lender in advance. All Appraisal Reports, updates and Recertification of Values must be addressed to the Client (i.e. Borrower, Bank, Mortgage Banker) and Lender and one of its officers (Intended User) and any additional Intended Users designated by the Client. If any of the analysis or conclusions are from a previous report the appraiser must submit a letter from the Client authorizing the Lender to rely on the previous report.
For projects constructed or substantially renovated within one year prior to closing, we require an architect's certificate (signed and under seal) certifying completion of the entire project in accordance with the approved plans and specifications and the recommendations contained in any pre-construction soil test report. The certificate must also cover compliance of the project with all current regulations of any governmental agency having jurisdiction over the Project and state that the improvements do not contain hazardous materials or contaminants. A preferred form is included in the Forms section of our website.
Property Condition Assessment (PCA)
For projects constructed more than one year prior to closing, we require a Property Condition Assessment ("PCA") conducted by a licensed engineer that we have approved. The PCA must be conducted in accordance with the current ASTM protocol and cover the following areas: building code, safety and ADA compliance; evaluation of structural, roof, HVAC, mechanical, electrical and plumbing systems; site improvements; sewer and drainage systems. The PCA must contain the (a) engineer's estimate of the cost of curing any immediate code or safety violations or immediate repairs necessary for the integrity and operation of the Project and (b) a grid containing the estimated remaining useful life of major components of the Project and the timeline and cost of replacing/repairing same.
Environmental Site Assessment
We require an acceptable Phase I environmental site assessment report performed by an environmental engineering firm that we have approved. The assessment must be conducted in accordance with the current ASTM protocol. This report should be addressed to us and be dated or updated to no later than 180 days prior to closing. If the report is not addressed to us, you must also provide a reliance letter from the environmental firm addressed to the lender which acknowledges that lender will rely on the report and on any prior reports cited in the final Phase I report. The report must contain findings, clear conclusions and specific recommendations regarding environmental impairment or the need for further testing or remediation.
Plans & Specifications
We require a complete set of plans and specifications, under seal and approved by the city or other appropriate local authority and all anchor tenants, suitable for rebuilding in the event of a casualty.
An electronic copy (.pdf or other format suitable for archiving) is preferred.
Utility availability letters must be provided for new construction projects. For all projects, the survey must show the location of all utility lines and easements. We may require a Utility Facility Endorsement to our title policy.
We require a copy of the pre-construction soil test report for the project and any additional information necessary to provide satisfactory evidence that the project site's soil conditions or any fill used at the site were and are adequate to support the improvements without adverse settlement or other adverse effect on the improvements. Evidence must be provided that the soil conditions were taken into account in the design and construction of the improvements (through the Architect's Certificate or PCA).
We require satisfactory evidence that the project complies with all applicable state and local laws, ordinances, rules and regulations pertaining to zoning, building codes, safety, health and environmental matters and has been approved by all governmental agencies having jurisdiction over the Project and its compliance.
Evidence to be provided by the Borrower will include:
- Copy of Certificates of Occupancy for all tenant spaces
- Zoning Certificate or other acceptable zoning letter from the city or jurisdiction in which the project is located. The zoning evidence must cover compliance with permitted uses of the buildings and compliance with required building setbacks, parking requirements/ratios and any other compliance matter imposed by local authorities
- Copy of all portions of the applicable zoning ordinance affecting the project and copies of any variances
- Other evidence required by the Lender to establish compliance with applicable laws/regulations
An ALTA as-built survey is required for each project. The survey must include all areas related to the property by cross-easements and restrictions, with an approved certification by a registered surveyor, dated not earlier than 60 days prior to closing, delineating boundary lines of the project and locating all improvements, all utilities, means of access, easements, parking spaces and showing any other physical matters affecting the title and use of the project. The survey must contain a certification as to whether the project is in a special flood hazard area.
Our survey specifications are included in the Forms section of our website. These specifications are intended to assure that the survey plat accurately depicts the property and all easements, utility lines and other survey matters in a readable format. If the surveyor has any particular concerns or any specification will significantly add to the cost of the survey, please contact our in-house closing attorney.
Top of Page
Property, Liability, Rent And Flood Insurance:
As a condition to funding, Borrower must furnish an all-risk or special risk property insurance policy with a replacement cost endorsement or replacement cost valuation basis section with no more than a $10,000.00 deductible and no terrorism exclusions, and a comprehensive general liability policy in amounts and with terms acceptable to Lender. The property policy must provide a property limit equal to: (a) the cost approach to valuation as provided by the appraisal as defined in Part II of this Commitment less land and approved soft costs, or (b) the outstanding balance of the note, whichever is less. If the property policy provides a limit equal to item (b) above, the policy must provide an agreed amount endorsement. The proceeds of all property insurance policies must be payable to Lender under a standard mortgagee clause.
If the property is located in a flood hazard Zone "A" or in any other location in which Lender requires flood coverage, flood insurance in an amount acceptable to Lender must also be provided subject to Lender's right to approve the survey. If the property is located in earthquake zones "3" or "4" as depicted by the Seismic Zone Map of the United States, Earthquake Insurance in an amount acceptable to Lender must be provided. Loss of Rents Insurance providing one years coverage must also be provided. The Lender will also be named as a Loss payee on the rents coverage and as an additional insured on the comprehensive general liability policy.
The casualty insurance company must meet the following basic requirements:
- Have a minimum rating of "A+" according to Best's Insurance Reports - Property/Casualty Edition;
- Have a claims paying rating of at least single "A" by two approved rating agencies;
- Must be a stock company or a non-assessable mutual company located in a country acceptable to Lender; and
- Must be licensed in the state where the property is located.
In addition, Lender will not allow any carrier or self-insurer to provide a policy limit in excess of 10% of its policyholders surplus on any one risk. A tenant will be allowed to self-insure through a wholly owned subsidiary as long as the tenant's tangible net worth exceeds $100,000,000.00.
The policy and carrier requirements outlined in this section must be met on any policy submitted prior to closing and any renewal thereof.
Top of Page
We require that the leases listed on the exhibit to the loan commitment and any other tenant leases necessary to meet the lease-up requirements of the loan commitment be in full force and effect. The required tenants must have accepted the premises and be open for business and paying full rent without concession or setoff. The terms and provisions of all leases must be acceptable to us including, without limitation, the lease term, square footage, minimum annual rent and expense payments listed on the exhibit to the loan commitment.
We require certified copies of all leases and a certified rent roll.
Each lease must be bona-fide and arms-length. Neither the Borrower or any principal or guarantor may have any ownership interest (beneficial or otherwise) in any tenant nor control over any tenant ("control" meaning no contracted right to influence the business operations of tenant other than as specified in the leases presented to Lender) nor any lending or other relationship with any tenant, except as specified in the leases presented to us.
Unless specifically addressed in the loan commitment, any tenant space which is unoccupied on the date of funding must be completed in all respects, except for floor and wall coverings.
We require an acceptable estoppel certificate from each tenant. Also, each tenant must subordinate its lease to the lien of our mortgage by executing an acceptable Subordination, Attornment and Non-Disturbance Agreement ("SNDA"). Our standard forms of estoppel and SNDA are included in the Forms section of our website. (A number of national and/or regional tenants have their own forms that may also be acceptable.) Please clear these with our in-house closing attorney prior to execution.
Top of Page
Refund of Commitment Fees
We hold the refundable loan commitment fee without interest until after the loan is closed and all required documents and materials used in structuring the loan (such as the recorded documents, title policy and any other post-closing items) are received, reviewed and approved by us. Our experience shows that delay or mistakes in the issuance of the title insurance policy creates the most delay in commitment fee refunds. The Borrower's attorney should monitor the issuance of the title policy post-closing so as not to unduly delay the refund.
Monthly Payments/Monetary Defaults
All regular monthly installments are due on the first day of each calendar month. A late charge of 4% of the installment is imposed if the installment is not received by the 10th of the month (unless state law dictates another period). There is no grace period unless state law so mandates. We will not agree to give notice of monetary defaults. Failure to maintain insurance, pay taxes and pay over insurance or condemnation awards are considered monetary defaults.
Borrower and Principals' Identity/USA Patriot Act & OFAC
As a condition to funding, we must receive and approve our Borrower/Principal Certification form, completed and executed by Borrower, the Principals and any guarantors of the loan, together with all other information and documentation concerning the identity of the Borrower, its direct or indirect owners, the Principals, any guarantors and all persons or entities related to the foregoing as we may require in connection with our compliance with the USA Patriot Act of 2001, the laws administered by the U.S. Treasury Department's Office of Foreign Assets Control or any similar or related law, rule or regulation.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OBTAINING A LOAN
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who obtains a loan.
What this means for you: When you apply for a loan, we will ask you for your name, address, taxpayer identification numbers and other information that will allow us to identify you. We may also ask to see identifying documents.