2012-03-14, 09:22

New Fannie Mae Loan Documents Issues Checklist (Continued)

By: Pamela V. Rothenberg, Esq.
Continuing our discussion about the new Fannie Mae Loan Documents, below are items 5 and 6 from our checklist of key issues:

5. Evergreen Environmental Representations. As in the old security instrument, the environmental representations made by the borrower in the new Environmental Indemnity Agreement are evergreen – that is, they are continuing representations and are deemed made and in effect until the loan has been paid in full. However, unlike the previous security instrument, any breach of an environmental representation is an automatic “Event of Default” under the loan documents. Therefore, even though the Environmental Indemnity Agreement appears to permit the borrower to remedy a breached representation or otherwise remediate a prohibited condition that occurs subsequent to the origination of the loan, the automatic nature of the Event of Default relating to a breach of an environmental representation appears to prevent the borrower from exercising that remediation right.

6. Failure to Complete Life/Safety Repairs within Completion Period. Under the new Loan Agreement, it is now an automatic Event of Default if the borrower fails to make repairs associated with fire, life or safety issues within the completion period without apparent regard to force majeure delays other than weather. This is a policy change for Fannie Mae, so Fannie Mae is unlikely to change this provision. Further, Fannie Mae has refused our requests to grant any notice or cure period for a breach of its terms in the Loan Agreement. The completion periods specified in the loan documents are often short and, therefore, any delay can present a risk of default for a borrower. The borrower will have to put a greater emphasis on managing the completion timeline for the repairs and, in advance of signing the loan documents, raising with Fannie Mae any concerns that the borrower may have in completing the required repairs by the
specified deadline.

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