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

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 Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.