Springing Lockbox Agreement

As is clear now, a “Springing” lock-box offers the lender any security. Therefore, a soft lock-box is less secure than a hard lockbox, because if, in a hard lockbox, excess funds were taken from a reserve account and could be used to cover future deficits, the borrower has control of these excess funds in a soft lockbox and may decide not to apply these funds to the payment of debt service and expenses (which would likely lead to a default event). , but if the property tends down, a borrower may choose to go late in payment, which puts the lender in a difficult position). As explained below, there are different types of Lockbox accounts. Reserve accounts are usually book sub-accounts of the Lockbox account. The bank for each operating account, Lockbox account and cash management account may be equal or different, although it is fairly typical that Lockbox Bank and Cash Management Bank are identical. Some lenders require that one or more of the accounts be opened with the lender. In each of the types of lock-boxe above, as soon as a default event occurs, the lender usually has control of the funds and is not obliged to guide them through the cascade and instead distribute the funds as the lender decides at its discretion. Click on the image to see a flow diagram how the funds are moved into hard lockbox In a hard lockbox, the $20,000 surplus funds in month 1 were managed into a reserve account controlled by the lender, and if combined with the $70,000 in funds generated during months 2 , this is enough to cover all the costs paid by the waterfall (and results in a surplus of US$10,000 which is then paid once in the excess cash reserve). When a trigger event occurs, the cash management account is “jumps” into action, where the structure mimics a hard lock-box until the trigger is completed (usually the lender requires that the event causing the trigger be cured for two consecutive quarters). As long as there is no triggering event, funds will be paid from the lock-box to the cash management account, where funds flow through the cash management “waterfall”. As soon as the funds pass through the cascade, the excess funds are managed into an excess cash flow reserve account, where they can be distributed through the cascade during the next scan or released to the borrower at the end of the triggering event.