United States: Navigating The Choppy Waters Of The CMBS Loan Assumption Process: 10 Ways To Bring Calm To The Storm

Last Updated: September 28 2017
Article by Arren Goldman and Mitchell S. Kaplan

The commercial mortgage backed security loan assumption process initially may appear to be time consuming and cumbersome, but with the proper understanding, guidance, and expectations, it is one that can be managed so that all parties can benefit without unreasonable delay. This article addresses 10 ways to make the process more manageable for all parties involved.

At first glance, the assumption of a commercial mortgage backed security ("CMBS") loan may appear to be a difficult task. Given the parties involved—master servicers, special servicers, rating agencies and their counsel, for starters—and the documentation required— assumption agreements, guaranties and opinion letters, among others—it is understandable why some purchasers and sellers may approach the loan assumption process with trepidation.1

However, if both the seller of the property and the loan-assuming purchaser understand the process and timing going in, an ostensibly daunting task may become substantially easier. This article addresses 10 ways to make the process more manageable for all parties involved.


1) Understand the Time Frames and Parties Involved

Assuming a somewhat traditional CMBS loan assumption scenario (i.e., one in which a master servicer, special servicer and rating agencies are involved), it is important that all parties understand the process and likely timing from start to finish. This is important in order to manage expectations of all parties and to enable the seller and purchaser to build in sufficient time frames in their purchase contract for completing the transaction.

In short, the process will be initiated by the submission of an application to a master servicer. The initial submission likely will include financials for the incoming sponsor, a copy of the purchase and sale agreement, certain organizational documents and information regarding the new sponsor's intentions with respect to property operations, property management, its choice of clearing bank, and possibly capital improvements and leasing plans. The master servicer will then send this information to an underwriter for review.

After underwriting is complete (the underwriting process may include direct discussions between the underwriter and new sponsor), the master servicer will send a recommendation to the special servicer. The special servicer will typically have 10 or 15 business days to approve or deny consent to the assumption or request additional information2 in order to evaluate the submission, and the special servicer will generally have to obtain the consent of the most junior bondholder (which also will have a specific time period, less than the 10 or 15 business days, in which to respond) prior to the special servicer granting its consent.

Assuming the special servicer approves the request, which approval may be subject to satisfaction of certain conditions, requests for no downgrade letters will then be sent by the master servicer to the rating agencies. Although the master and special servicer are each held to a "servicing standard" in granting or withholding consent, the junior bondholder is not held to such a standard. All of this will take place while master servicer's counsel gathers required diligence and negotiates and prepares documents for closing, such as an assumption agreement, replacement guarantees and various opinion letters. The entire process likely will take approximately 10-12 weeks.

Again, the process described herein is for a somewhat traditional CMBS loan assumption scenario. Under some pooling and servicing agreements or trust and servicing agreements, the assumption process may vary significantly.

For instance, an assumption of a loan below a certain dollar threshold may not require a no downgrade letter from the rating agencies. Additionally, the special servicer's role may vary greatly depending upon the terms of the servicing agreement. Its role may be one of the following: (i) total control of the assumption process, (ii) the right to consent to the assumption transaction which is processed by the master servicer or (iii) the right to confirm master servicer's determination that certain assumption conditions in the loan documents have been satisfied. For purposes of this article, we have generally assumed the first scenario referenced in the foregoing sentence. In any event, it is important to ask master servicer's counsel, at the outset, about the process specified in the applicable agreement.

Addressing the remaining issues below in the manner suggested may prevent the process from being delayed or even putting the entire sale of the property and corresponding loan assumption in jeopardy.

2) Consider All Loan Document Provisions, Including Those in Ancillary Loan Documents, and Potential Loan Modifications Early in the Process

It is important that a party assuming a CMBS loan review and understand, early in the process, each of the provisions in the loan documents.

For starters, the requirements and deliverables for an assumption set forth in the loan documents must be carefully reviewed. Additionally, provisions such as those regarding property management and permitted transfers must be carefully analyzed as well. If changes to these or any other provisions are required or desired by the assuming borrower, such proposed changes must be discussed as early as possible with the master servicer.

Although an assuming borrower will generally not have the ability to renegotiate the terms of the CMBS loan documents, if there are legitimate business reasons for changes to specific terms, such as modifications to the permitted transfer provisions or changes to the financial reporting sections due to a different equity ownership structure of the new borrower/sponsor, the servicers likely will consider such requests. Such proposed requests must be presented to the master servicer to evaluate as part of its underwriting and to include in its recommendation to the special servicer, and therefore, must come early in the process to avoid potentially significant delays.

When reviewing the loan document provisions prior to commencing the loan assumption process, particular attention should be paid to the provisions regarding a replacement guarantor. Does the replacement guarantor meet the standards in loan documents (if any financial thresholds are specified in detail as opposed to "acceptable to Lender")? Will the replacement guarantor be able to meet all of the financial covenants and reporting requirements in a timely manner going forward? Is it a different or similar entity structure to the current guarantor?

3) Know all about Rating Agencies, Rule 17g-5 and Opinion Letters

Not only is it important to know if rating agency no downgrade letters are required for an assumption transaction (in terms of additional level of review and timing expectations), but it is equally important to know if the loan is categorized as a "17g-5" loan.3

Most pooling and servicing agreements drafted after 2009 will have 17g-5 provisions which prohibit the master and special servicers from communicating directly with the rating agencies, except under certain very limited circumstances and subject to certain strict requirements. Instead, the servicers must post documents and communications to a website run by a "17g-5 information provider." It is important to understand that the required 17g-5 procedures may cause delays during the assumption process, particularly if rating agencies have questions or additional document requests.

The loan documents will also set forth requirements with respect to delivery of opinion letters on behalf of the new borrower and replacement guarantors. Certain opinion letters will require review by the rating agencies. For larger CMBS loans (generally $20MM or more), new non-consolidation opinions likely will be required and will have to be reviewed by the rating agencies.

Additionally, to the extent a nonconsolidation opinion is required, it will generally be included with a master servicer's initial submission to the rating agencies, so it is important to draft, negotiate and agree upon a form of non-consolidation opinion prior to a package being ready to be sent by the master servicer to the rating agencies.

Similarly, Delaware state law and authority to file opinions for the assuming borrower may also be required. This may require the retention of separate Delaware counsel and the negotiation of such opinions and should be started early.

4) Assumption Agreement—Be Prepared for What Will Be Required

From a CMBS loan servicing standpoint, the key document in an assumption transaction typically will be an assumption agreement. It is important for both sellers and purchasers to understand that the master servicer will expect certain representations, reaffirmations, and confirmations from each of the parties.

For example, an outgoing seller will be expected to represent that there are no defaults with respect to the loan and loan documents and to confirm that the representations it made at closing are true, correct and complete as of the day of the assumption.

Carve-out guarantors often will be released from matters arising after the closing of the assumption, but will have to reaffirm his/her/its obligations for all matters prior to such date. Furthermore, the new borrower must recognize that it is assuming all obligations of the original borrower under the loan documents from the date of the original loan closing and not just obligations arising after the closing of the assumption, although the new recourse carve-out guarantors will generally only be responsible for acts or omissions that occur on and after the closing of the purchase and sale transaction.

5) Cash Management—Start Early

Simply stated, cash management is a crucial lead-time issue for a CMBS loan assumption. If cash management is in place, an incoming sponsor should decide early on which bank will serve as the clearing bank. The process of obtaining and negotiating a clearing account agreement should not be left until the last minute. As part of the new sponsor's review of the existing loan documents, a determination must be made if the existing cash management agreement will continue to work for the new sponsor as drafted. For example, if approval has been obtained for a new OpCoPropCo structure in connection with the assumption of a loan secured by a hotel property, minor changes to the cash management agreement may be required.

Large banks frequently serve as master servicer, and while their assumptions team can quarterback the assumption process, separate cash management groups from within the bank may have to be brought in to address changes or to have new accounts opened.

6) Title and Survey—Understand the Servicer's Requirements

The new survey (or updated survey) being prepared must be certified to the current holder of the loan (i.e., the real estate mortgage investment conduit (REMIC) trust). It is important that an incoming sponsor obtain the precise certification required by the master servicer early on in the process.

Additionally, as soon as a title commitment is received, it should be sent along to the master servicer's counsel. The master servicer's counsel will focus on instruments which were recorded after the date of the original loan closing, plus any other changes to title since the original loan closing. In short, the master servicer must end up with title coverage similar to that which was obtained in connection with the original loan closing, including all endorsements and affirmative coverage. This can be accomplished either by an entirely new policy or, in some cases, by title endorsement. In either case, a memorandum of assumption agreement will be recorded and this instrument will have to be insured.

Since a new borrower will be of record, new UCC-1's will have to be filed using a description similar to that used at loan origination. Of course, Uniform Commercial Code ("UCC") searches will have to be conducted to confirm that no filings have been made since the original loan closing.

7) Organizational Documents and other Checklist Items—Stay On Top from the Beginning

Master servicer's counsel will provide a legal checklist early in the process. New sponsor's organizational documents should be provided early on and as they become available, including a detailed organizational chart with ownership percentages and jurisdictions of formation/incorporation for entities.4 Outgoing sponsors should be prepared to provide resolutions authorizing the sale of the property and the execution of the assumption agreement, together with good standing certificates.

Other crucial lead-time checklist items may include searches, proof of insurance and, as noted above, title and survey. With respect to insurance, the incoming sponsor should engage its insurance broker early in the assumption process, and confirm that its broker understands the master servicer's closing requirements with respect to insurance.

 If the parties continuously address the legal checklist items as the assumption application makes its way through the master servicer, special servicer and rating agencies, a closing could take place as soon as one or two days after the servicers have granted approval and the rating agencies have issued their no downgrade letter(s).

8) Purchase and Sale Agreement and Deadlines—Keep Master Servicer Apprised

As previously noted, the parties will be required to provide the master servicer with their purchase and sale agreement in connection with the initial application. At such time, the master servicer and its counsel should be made aware of any crucial deadlines, such as the proposed closing date (and whether it is time of the essence), and should be kept apprised of any changes during the assumption process.

For example, if an amendment to the purchase and sale agreement is executed during the assumption process, the amendment should be provided to the master servicer upon execution. This is particularly important if any key terms or crucial deadlines have changed. It is also important that the master servicer have the most current information if questions arise from the special servicer and/or rating agencies regarding the terms of the sale and purchase transaction.

9) Remember Tenant Issues May Be Master Servicer Issues Too

A discussion should be had with the master servicer at the start of the assumption process about its requirements with respect to estoppel certificates. In many cases, a master servicer will take the purchaser's lead in terms of the number of estoppel certificates required. The reliance language in the estoppel certificates should be discussed with the servicer as well. And as estoppel certificates become available, they should be provided to the master servicer's counsel.

10) Other Considerations—Think Ahead

If a mezzanine loan is being assumed simultaneously with a mortgage loan, it is important to confirm that all parties are working together to make sure both assumption matters can close simultaneously and mutual consents are exchanged between the mortgage lender and the mezzanine lender to the extent required under the applicable intercreditor agreement.

Any other unusual aspect to the transaction should be discussed with the master servicer upfront. For example, if the borrower ownership structure is changing, perhaps from a single member limited liability company to a tenant in common structure, this must be addressed head-on at the outset of the transaction. Similarly, if an existing guaranty is to remain in place due to an arrangement between seller and purchaser, this must be discussed with the master servicer at the start of the assumption application process.


The CMBS loan assumption process initially may appear to be time consuming and cumbersome, but with the proper understanding, guidance and expectations, it is one that can be managed so that all parties can benefit without unreasonable delay.


1A CMBS borrower wishing to sell its property may have only two options under its loan documents, either an assumption of the CMBS loan or defeasance.

2A request for additional information may restart the 10 or 15 business day clock.

3See, generally, Securities and Exchange Commission Rule 17g-5 which was amended in a significant fashion in 2009 to address conflicts of interests of Nationally Recognized Statistical Rating Organizations and to improve transparency with respect to the ratings process.

4If the master servicer has agreed to run all searches (Office of Foreign Assets Control, UCC, bankruptcy, lien, litigation, etc.), a detailed organizational chart will enable the master servicer to conduct and complete such searches in a timely fashion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions