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ML-CFC Commercial Mortgage Trust 2007-8 – ‘FWP’ on 8/10/07 re: ML-CFC Commercial Mortgage Trust 2007-8

On:  Friday, 8/10/07, at 6:47pm ET   ·   As of:  8/13/07   ·   Accession #:  950136-7-5542   ·   File #:  333-142235-04

Previous ‘FWP’:  None   ·   Next:  ‘FWP’ on 8/13/07   ·   Latest:  ‘FWP’ on 8/24/07

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/13/07  ML-CFC Com'l Mtge Trust 2007-8    FWP         8/10/07    1:3.5M ML-CFC Com'l Mtge Trust 2007-8    Capital Systems 01/FA

Free Writing Prospectus   —   Rule 163/433
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: FWP         Free Writing Prospectus                             HTML   4.13M 


Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
4Table of Contents
5Annex A-1 -- Certain Characteristics of the Mortgage Loans
6Important Notice About the Information Contained in This Free Writing Prospectus and the Accompanying Base Prospectus
7Notice to Residents of United Kingdom
"European Economic Area
9Dealer Prospectus Delivery Obligation
10Summary of Prospectus Supplement
"Overview of the Series 2007-8 Certificates
13Relevant Parties
19Relevant Dates and Periods
22Description of the Offered Certificates
"Payments
31Expenses
36The Mortgage Loans and the Mortgaged Real Properties
49Legal and Investment Considerations
52Risk Factors
"Risks Related to the Offered Certificates
58Risks Related to the Mortgage Loans
59Retail Properties are Subject to Unique Risks Which May Reduce Payments on Your Certificates
60Industrial Facilities are Subject to Unique Risks Which May Reduce Payments on Your Certificates
"Self Storage Facilities are Subject to Unique Risks Which May Reduce Payments on Your Certificates
61Reserves to Fund Capital Expenditures May Be Insufficient and This May Adversely Affect Payments on Your Certificates
65Certain State-Specific Considerations
"California
"Texas
73Lending on Income-Producing Real Properties Entails Environmental Risks
78Bankruptcy Proceedings Entail Certain Risks
80Limited Information Causes Uncertainty
84Capitalized Terms Used in This Prospectus Supplement
"Forward-Looking Statements
"Description of the Mortgage Pool
"General
86Source of the Mortgage Loans
"Cross-Collateralized and Cross-Defaulted Mortgage Loans, Multi-Property Mortgage Loans, Multi-Borrower Arrangements and Mortgage Loans with Affiliated Borrowers
88Terms and Conditions of the Mortgage Loans
89Interest-Only Balloon Loans
"ARD Loans
90Converting Loans
"Prepayment Provisions
93Other Prepayment Provisions; Mortgage Loans Which May Require Principal Paydowns
"Due-On-Sale and Due-On-Encumbrance Provisions
97Mortgage Pool Characteristics
98Significant Mortgage Loans
"Empirian
"Cut-Off Date
99The Loan Combinations
100The Farallon Portfolio Loan Combination
101Priority of Payments
105Control Rights
111Floating Rate A Note
"The Executive Hills Portfolio Loan Combination
113Consent Rights
114Purchase Option
115The Peninsula Beverly Hills Loan Combination
119The Georgia-Alabama Retail Portfolio Loan Combination
124The MezzCap Loan Combinations
127Additional Loan and Property Information
128Ground Leases
129Additional and Other Financing
133Zoning and Building Code Compliance
135Hazard, Liability and Other Insurance
137Assessments of Property Condition
"Property Inspections
"Appraisals
"Environmental Assessments
140Engineering Assessments
"Assignment of the Mortgage Loans
142Representations and Warranties
143Repurchases and Substitutions
145Changes in Mortgage Pool Characteristics
146Transaction Participants
"The Issuing Entity
"The Depositor
"The Sponsors and Mortgage Loan Sellers
148CRF's Underwriting Standards
153KeyBank's Underwriting Standards
155The Master Servicers and the Special Servicer
158The Special Servicer
160The Trustee
161Affiliations and Certain Relationships and Related Transactions
162Servicing of the Mortgage Loans
163Servicing and Other Compensation and Payment of Expenses
164Prepayment Interest Shortfalls
165Principal Special Servicing Compensation
166The Principal Recovery Fee
167Additional Servicing Compensation
170Trust Administration Compensation
"Sub-Servicers
171The Controlling Class Representative and the Loan Combination Controlling Parties
172Rights and Powers of The Controlling Class Representative and the Loan Combination Controlling Parties
176Replacement of the Special Servicer
177Beneficial Owners of the Controlling Class
"Enforcement of Due-on-Sale and Due-on-Encumbrance Provisions
178Modifications, Waivers, Amendments and Consents
180Required Appraisals
181Collection Accounts
183Withdrawals
185Realization Upon Defaulted Mortgage Loans
"Fair Value Call
187Foreclosure and Similar Proceedings
188REO Properties
190Inspections; Collection of Operating Information
191Evidence as to Compliance
192Events of Default
193Rights Upon Event of Default
194Additional Matters Relating to the Trustee
197Registration and Denominations
198DTC, Euroclear and Clearstream
"Distribution Account
200Interest Reserve Account
201Floating Rate Account
202Fees and Expenses
209Calculation of Pass-Through Rates
210Payments of Interest
212Payments of Principal
218Payments of Prepayment Premiums and Yield Maintenance Charges
220Payments of Additional Interest
"Reductions to Certificate Principal Balances in Connection with Realized Losses and Additional Trust Fund Expenses
223Advances of Delinquent Monthly Debt Service Payments and Reimbursement of Advances
226Reports to Certificateholders; Available Information
231Voting Rights
"Termination
232Yield and Maturity Considerations
"Yield Considerations
233Rate and Timing of Principal Payments
236CPR Model
"Weighted Average Lives
240The Swap Agreements
"Federal Income Tax Consequences
242Discount and Premium; Prepayment Consideration
243Characterization of Investments in Offered Certificates
244ERISA Considerations
247Legal Investment
"Legal Matters
"Ratings
249Glossary
273Annex A-1
"Certain Characteristics of the Mortgage Loans
276Loan
283Annex A-2 Certain Statistical Information Regarding the Mortgage Loans
316Preliminary Structural and Collateral Term Sheet
318KeyBank
338The Properties
339Lockbox
"Additional Debt
340Farallon Portfolio
342The Loan
345Defeasance
"Prepayment
346Ground Lease
354Release Provisions
358The Property
360Escrows/Reserves
376Cash Flow Sweep
432Important Notice About the Information Presented in This Prospectus
"Available Information
433Summary of Prospectus
446Lack of Liquidity Will Impair Your Ability to Sell Your Offered Certificates and May Have an Adverse Effect on the Market Value of Your Offered Certificates
447Payments on the Offered Certificates Will Be Made Solely from the Limited Assets of the Related Trust, and Those Assets May Be Insufficient to Make All Required Payments on Those Certificates
"Any Credit Support for Your Offered Certificates May Be Insufficient to Protect You Against All Potential Losses
477Any Analysis of the Value or Income Producing Ability of a Commercial or Multifamily Property Is Highly Subjective and Subject to Error
480Borrower Concentration Within a Trust Exposes Investors to Greater Risk of Default and Loss
"Loan Concentration Within a Trust Exposes Investors to Greater Risk of Default and Loss
"Geographic Concentration Within a Trust Exposes Investors to Greater Risk of Default and Loss
481Changes in Pool Composition Will Change the Nature of Your Investment
"Adjustable Rate Mortgage Loans May Entail Greater Risks of Default to Lenders Than Fixed Rate Mortgage Loans
"Additional Secured Debt Increases the Likelihood That a Borrower Will Default on a Mortgage Loan Underlying Your Offered Certificates
482The Borrower's Form of Entity May Cause Special Risks and/or Hinder Recovery
484Borrower Bankruptcy Proceedings Can Delay and Impair Recovery on a Mortgage Loan Underlying Your Offered Certificates
"Redevelopment and Renovation at the Mortgaged Properties May Have Uncertain and Adverse Results
485Environmental Liabilities Will Adversely Affect the Value and Operation of the Contaminated Property and May Deter a Lender from Foreclosing
486Some Provisions in the Mortgage Loans Underlying Your Offered Certificates May Be Challenged As Being Unenforceable
487Prepayment Premiums, Fees and Charges
"Due-on-Sale and Debt Acceleration Clauses
489Lack of Insurance Coverage Exposes a Trust to Risk for Particular Special Hazard Losses
490Lending on Condominium Units Creates Risks for Lenders That Are Not Present When Lending on Non-Condominiums
491Lending on Ground Leases Creates Risks for Lenders that Are Not Present When Lending on an Actual Ownership Interest in a Real Property
"Changes in Zoning Laws May Adversely Affect the Use or Value of a Real Property
"Compliance with the Americans with Disabilities Act of 1990 May Be Expensive
492Litigation and Other Legal Proceedings May Adversely Affect a Borrower's Ability to Repay Its Mortgage Loan
"Taxes on Foreclosure Property Will Reduce Amounts Available to Make Payments on the Offered Certificates
493Residual Interests in a Real Estate Mortgage Investment Conduit Have Adverse Tax Consequences
494Additional Compensation to the Master Servicer and the Special Servicer and Interest on Advances Will Affect Your Right to Receive Distributions on Your Offered Certificates
"Inability to Replace the Master Servicer Could Affect Collections and Recoveries on the Mortgage Assets
"Problems With Book-Entry Registration
495Potential Conflicts of Interest Can Affect a Servicer's Performance
"Property Managers and Borrowers May Each Experience Conflicts of Interest in Managing Multiple Properties
496The Risk of Terrorism In the United States and Military Action May Adversely Affect the Value of the Offered Certificates and Payments on the Mortgage Assets
"Capitalized Terms Used in This Prospectus
"The Trust Fund
"Issuing Entities
497Description of the Trust Assets
"Mortgage Loans
500Loan Combinations
501Originators
502Mortgage-Backed Securities
504Substitution, Acquisition and Removal of Mortgage Assets
505Cash, Accounts and Permitted Investments
506Credit Support
"Arrangements Providing Reinvestment, Interest Rate and Currency Related Protection
507The Sponsor
"General Character of the Sponsor and Its Business
508The Sponsor's Securitization Program
509Underwriting Standards
"Debt Service Coverage Ratio
511Loan-to-Value Ratio
515Pass-Through Rate
"Payment Delays
"Yield and Prepayment Considerations
517Weighted Average Life and Maturity
518Prepayment Models
"Other Factors Affecting Yield, Weighted Average Life and Maturity
520Description of the Governing Documents
521Assignment of Mortgage Assets
522Representations and Warranties with Respect to Mortgage Assets
"Collection and Other Servicing Procedures with Respect to Mortgage Loans
525Servicing Mortgage Loans That Are Part of a Loan Combination
"Primary Servicers and Sub-Servicers
526Collection of Payments on Mortgage-Backed Securities
"Advances
527Matters Regarding the Master Servicer, the Special Servicer, the Manager and Us
529Amendment
530List of Certificateholders
531Duties of the Trustee
"Matters Regarding the Trustee
532Resignation and Removal of the Trustee
533Description of the Certificates
535Payments on the Certificates
539Allocation of Losses and Shortfalls
540Incorporation of Certain Documents by Reference; Reports Filed with the SEC
541Reports to Certificateholders
542Termination and Redemption
"Book-Entry Registration
544Holding and Transferring Book-Entry Certificates
546Description of Credit Support
547Subordinate Certificates
"Overcollateralization
"Insurance or Guarantees with Respect to Mortgage Loans
548Letters of Credit
"Certificate Insurance and Surety Bonds
"Reserve Funds
"Credit Support with Respect to Mortgage-Backed Securities
549Legal Aspects of Mortgage Loans
"Types of Mortgage Instruments
550Installment Contracts
551Leases and Rents
"Personalty
552Foreclosure
554One Action and Security First Rules
555Anti-Deficiency Legislation
"Leasehold Considerations
556Bankruptcy Laws
557Environmental Considerations
558Cercla
560Junior Liens; Rights of Holders of Senior Liens
"Subordinate Financing
561Default Interest and Limitations on Prepayments
"Applicability of Usury Laws
"Americans with Disabilities Act
"Servicemembers Civil Relief Act
562Forfeitures in Drug, RICO and Money Laundering Proceedings
564REMICs
"Characterization of Investments in REMIC Certificates
566Taxation of Owners of REMIC Regular Certificates
"Original Issue Discount
570Market Discount
572Premium
"Realized Losses
"Taxation of Owners of REMIC Residual Certificates
574Taxable Income of the REMIC
575Basis Rules, Net Losses and Distributions
576Excess Inclusions
581Sales of REMIC Certificates
583Prohibited Transactions Tax and Other Taxes
586Backup Withholding with Respect to REMIC Certificates
587Foreign Investors in REMIC Certificates
588Grantor Trusts
589Taxation of Owners of Grantor Trust Fractional Interest Certificates
591If Stripped Bond Rules Apply
592If Stripped Bond Rules Do Not Apply
596Sales of Grantor Trust Certificates
599State and Other Tax Consequences
600Plan Asset Regulations
601Prohibited Transaction Exemptions
602Underwriter's Exemption
"Insurance Company General Accounts
"Consultation with Counsel
603Tax Exempt Investors
605Use of Proceeds
"Method of Distribution
607Financial Information
"Rating

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FREE WRITING PROSPECTUS
FILED PURSUANT TO RULE 433
REGISTRATION STATEMENT NO.:333-142235

The information in this free writing prospectus may be amended and/or supplemented prior to the time of sale. The information in this free writing prospectus supersedes any contrary information contained in any prior free writing prospectus relating to the subject securities and will be superseded by any contrary information contained in any subsequent free writing prospectus prior to the time of sale. In addition, certain information regarding the subject securities is not yet available and, accordingly, has been omitted from this free writing prospectus.

SUBJECT TO COMPLETION, DATED AUGUST 9, 2007

STATEMENT REGARDING THIS FREE WRITING PROSPECTUS

The depositor has filed a registration statement (including a prospectus) with the SEC (SEC File No. 333-142235) for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the depositor has filed with the SEC for more complete information about the depositor, the issuing entity and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the depositor, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling toll free 866-500-5408.

FREE WRITING PROSPECTUS
(to Prospectus dated May 10, 2007)

$2,264,889,000

(Approximate)

ML-CFC Commercial Mortgage Trust 2007-8

as Issuing Entity

Commercial Mortgage Pass-Through Certificates, Series 2007-8
Merrill Lynch Mortgage Investors, Inc.

as Depositor

Countrywide Commercial Real Estate Finance, Inc.
Merrill Lynch Mortgage Lending, Inc.
KeyBank National Association

as Sponsors and Loan Sellers

We are Merrill Lynch Mortgage Investors, Inc., the depositor with respect to the securitization transaction that is the subject of this free writing prospectus. Only the classes of commercial mortgage pass-through certificates listed in the table below are being offered by this free writing prospectus and the accompanying base prospectus. The offered certificates represent beneficial interests only in the issuing entity identified above and will not represent obligations of or interests in the depositor, any sponsor or any of their respective affiliates. The assets of the issuing entity will consist primarily of a pool of 218 commercial, multifamily and manufactured housing community mortgage loans with an initial mortgage pool balance of approximately $2,435,364,704 and the other characteristics described in this free writing prospectus.

Investing in the offered certificates involves risks. You should carefully review the factors described under ‘‘Risk Factors’’ beginning on page S-47 of this free writing prospectus and on page 20 of the accompanying base prospectus.

The holders of each class of offered certificates will be entitled to receive monthly distributions of interest, principal or both, commencing in September, 2007. The offered certificates will accrue interest from August 1, 2007. The pass-through rates for some classes of the offered certificates will be variable. Credit enhancement for any particular class of the offered certificates is being provided through the subordination of various other classes, including multiple non-offered classes, of the certificates.


  Expected
Ratings
(Fitch/S&P)
Approximate
Initial
Total Principal
Balance or Notional
Amount
Approximate
Initial
Pass-Through
Rate
Assumed Final
Distribution
Date
Rated Final
Distribution
Date
Class A-1 AAA/AAA $ 37,262,000 % June 2012 August 2049
Class A-2 AAA/AAA $ [122,485,000] (1)  % May 2016 August 2049
Class A-SB AAA/AAA $ 72,678,000 % March 2017 August 2049
Class A-3 AAA/AAA $ [438,559,000] (1)  % July 2017 August 2049
Class A-1A AAA/AAA $ 1,033,771,000 % July 2017 August 2049
Class AM AAA/AAA $ [243,536,000] (1)  % July 2017 August 2049
Class AJ AAA/AAA $ [210,050,000] (1)  % August 2017 August 2049
Class B AA+/AA+ $ 12,177,000 % August 2017 August 2049
Class C AA/AA $ 39,575,000 % August 2017 August 2049
Class D AA−/AA− $ 27,398,000 % August 2017 August 2049
Class E A+/A+ $ 9,132,000 % August 2017 August 2049
Class F A/A $ 18,266,000 % August 2017 August 2049

(footnotes to table begin on page S-5)

No one will list the offered certificates on any national securities exchange or any automated quotation system of any registered securities association. The Securities and Exchange Commission and state securities regulators have not approved or disapproved of the certificates offered to you or determined if this free writing prospectus or the accompanying base prospectus is adequate or accurate. Any representation to the contrary is a criminal offense.

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Countrywide Securities Corporation, KeyBanc Capital Markets Inc., Banc of America Securities LLC and Bear, Stearns & Co. Inc. are the underwriters of this offering. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Countrywide Securities Corporation are acting as joint bookrunning managers in the following manner: Countrywide Securities Corporation is acting as sole bookrunning manager with respect to      % of the class       certificates, and Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as sole bookrunning manager with respect to the remainder of the class      certificates and all other classes of offered certificates. KeyBanc Capital Markets Inc., Banc of America Securities LLC and Bear, Stearns & Co. Inc. will act as co-managers. We will sell the offered certificates to the underwriters, who will sell their respective allotments of those securities from time to time in negotiated transactions or otherwise at varying prices to be determined at the time of sale. The underwriters expect to deliver the offered certificates to purchasers on or about August 24, 2007. We expect to receive from this offering approximately $                    in sale proceeds, plus accrued interest on the offered certificates from and including August 1, 2007, before deducting expenses payable by us. Not every underwriter will have an obligation to buy offered certificates from us.

Merrill Lynch & Co. Countrywide Securities Corporation

KeyBanc Capital Markets Banc of America Securities LLC

Bear, Stearns & Co. Inc.

The date of this prospectus supplement is August       , 2007




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TABLE OF CONTENTS IMPORTANT NOTICE ABOUT THE INFORMATION CONTAINED IN THIS FREE WRITING PROSPECTUS AND THE ACCOMPANYING BASE PROSPECTUS...........................1 NOTICE TO RESIDENTS OF UNITED KINGDOM..........................................2 EUROPEAN ECONOMIC AREA.........................................................2 DEALER PROSPECTUS DELIVERY OBLIGATION..........................................4 SUMMARY OF PROSPECTUS SUPPLEMENT...............................................5 Overview of the Series 2007-8 Certificates................................5 Relevant Parties..........................................................8 Relevant Dates and Periods...............................................14 Description of the Offered Certificates..................................17 The Mortgage Loans and the Mortgaged Real Properties.....................31 Legal and Investment Considerations......................................44 RISK FACTORS..................................................................47 Risks Related to the Offered Certificates................................47 Risks Related to the Mortgage Loans......................................53 CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT..........................79 FORWARD-LOOKING STATEMENTS....................................................79 DESCRIPTION OF THE MORTGAGE POOL..............................................79 General..................................................................79 Source of the Mortgage Loans.............................................81 Cross-Collateralized and Cross-Defaulted Mortgage Loans, Multi- Property Mortgage Loans, Multi-Borrower Arrangements and Mortgage Loans with Affiliated Borrowers.............................81 Terms and Conditions of the Mortgage Loans...............................83 Mortgage Pool Characteristics............................................92 Significant Mortgage Loans...............................................93 The Loan Combinations....................................................94 Additional Loan and Property Information................................122 Assessments of Property Condition.......................................132 Assignment of the Mortgage Loans........................................135 Representations and Warranties..........................................137 Repurchases and Substitutions...........................................138 Changes in Mortgage Pool Characteristics................................140 TRANSACTION PARTICIPANTS.....................................................141 The Issuing Entity......................................................141 The Depositor...........................................................141 The Sponsors and Mortgage Loan Sellers..................................141 The Master Servicers and the Special Servicer...........................150 The Special Servicer....................................................153 The Trustee.............................................................155 AFFILIATIONS AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............156 SERVICING OF THE MORTGAGE LOANS..............................................157 General.................................................................157 Servicing and Other Compensation and Payment of Expenses................158 Trust Administration Compensation.......................................165 Sub-Servicers...........................................................165 The Controlling Class Representative and the Loan Combination Controlling Parties.................................................166 Replacement of the Special Servicer.....................................171 Beneficial Owners of the Controlling Class..............................172 Enforcement of Due-on-Sale and Due-on-Encumbrance Provisions............172 Modifications, Waivers, Amendments and Consents.........................173 Required Appraisals.....................................................175 Collection Accounts.....................................................176 Realization Upon Defaulted Mortgage Loans...............................180 iii
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REO Properties..........................................................183 Inspections; Collection of Operating Information........................185 Evidence as to Compliance...............................................186 Events of Default.......................................................187 Rights Upon Event of Default............................................188 Additional Matters Relating to the Trustee..............................189 Servicing of the Georgia-Alabama Retail Portfolio Loan Combination......190 DESCRIPTION OF THE OFFERED CERTIFICATES......................................191 General.................................................................191 Registration and Denominations..........................................192 Distribution Account....................................................193 Interest Reserve Account................................................195 Floating Rate Account...................................................196 Fees and Expenses.......................................................197 Calculation of Pass-Through Rates.......................................204 Payments................................................................205 Reductions to Certificate Principal Balances in Connection with Realized Losses and Additional Trust Fund Expenses..................215 Advances of Delinquent Monthly Debt Service Payments and Reimbursement of Advances...........................................218 Reports to Certificateholders; Available Information....................221 Voting Rights...........................................................226 Termination.............................................................226 YIELD AND MATURITY CONSIDERATIONS............................................227 Yield Considerations....................................................227 CPR Model...............................................................231 Weighted Average Lives..................................................231 THE SWAP AGREEMENTS..........................................................235 FEDERAL INCOME TAX CONSEQUENCES..............................................235 General.................................................................235 Discount and Premium; Prepayment Consideration..........................237 Characterization of Investments in Offered Certificates.................238 ERISA CONSIDERATIONS.........................................................239 LEGAL INVESTMENT.............................................................242 LEGAL MATTERS................................................................242 RATINGS......................................................................242 GLOSSARY.....................................................................244 Annex A-1 -- Certain Characteristics of the Mortgage Loans Annex A-2 -- Certain Statistical Information Regarding the Mortgage Loans Annex A-3 -- Haverly Park Apartments Trust Mortgage Loan Amortization Schedule Annex B -- Certain Characteristics Regarding Multifamily Properties in Loan Group 2 Annex C -- Preliminary Structural and Collateral Term Sheet Annex D -- Form of Trustee Report Annex E -- Class A-SB Planned Principal Balance Schedule Annex F -- Global Clearance, Settlement And Tax Documentation Procedures iv
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The information in this free writing prospectus is preliminary, and may be superseded by an additional free writing prospectus provided to you prior to the time you enter into a contract of sale. The mortgage pool information presented in this free writing prospectus is preliminary and may differ materially from the mortgage pool information delivered to you prior to the time you enter into a contract of sale. This preliminary free writing prospectus is being delivered to you solely to provide you with information about the offering of the securities referred to herein. The securities are being offered when, as and if issued. In particular, you are advised that these securities, and the asset pools backing them, are subject to modification or revision (including, among other things, the possibility that one or more classes of securities may be split, combined or eliminated), at any time prior to issuance or availability of a final prospectus. As a result, you may commit to purchase securities that have characteristics that may change, and you are advised that all or a portion of the securities may not be issued that have the characteristics described in these materials. Our obligation to sell securities to you is conditioned on the securities and the underlying transaction having the characteristics described in these materials. A contract of sale will come into being no sooner than the date on which the relevant class has been priced and we have confirmed the allocation of securities to be made to you; any "indications of interest" expressed by you, and any "soft circles" generated by us, will not create binding contractual obligations for you or us. You may withdraw your offer to purchase securities at any time prior to our acceptance of your offer. Any legends, disclaimers or other notices that may appear at the bottom of the email communication to which this free writing prospectus may be attached relating to (1) these materials not constituting an offer (or a solicitation of an offer), (2) no representation that these materials are accurate or complete and may not be updated or (3) these materials possibly being confidential are not applicable to these materials and should be disregarded. Such legends, disclaimers or other notices have been automatically generated as a result of these materials having been sent via Bloomberg or another system. IMPORTANT NOTICE ABOUT THE INFORMATION CONTAINED IN THIS FREE WRITING PROSPECTUS AND THE ACCOMPANYING BASE PROSPECTUS Information about the offered certificates is contained in two separate documents-- o this free writing prospectus, which describes the specific terms of the offered certificates; and o the accompanying base prospectus, which provides general information, some of which may not apply to the offered certificates. You should read both this free writing prospectus and the accompanying base prospectus in full to obtain material information concerning the offered certificates. We have not authorized any person to give any other information or to make any representation that is different from the information contained in this free writing prospectus and the accompanying base prospectus. The annexes attached to this free writing prospectus are hereby incorporated into and made a part of this free writing prospectus. This free writing prospectus and the accompanying base prospectus do not constitute an offer to sell or a solicitation of an offer to buy any security other than the offered certificates, nor do they constitute an offer to sell or a solicitation of an offer to buy any of the offered certificates to any person in any jurisdiction in which it is unlawful to make such an offer or solicitation to such person. This free writing prospectus is also referred to herein as this "prospectus supplement." Certain capitalized terms are defined and used in this prospectus supplement and the prospectus to assist you in understanding the terms of the certificates offered in this prospectus supplement and this offering. The capitalized terms used in this prospectus supplement are defined on the pages indicated under the caption "Glossary" beginning on page S-244 in this prospectus supplement. The capitalized terms used in the prospectus are defined on the pages indicated under the caption "Glossary" beginning on page 184 in the prospectus.
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Merrill Lynch Mortgage Investors, Inc., which is the depositor for the subject securitization transaction, has prepared this free writing prospectus and the accompanying base prospectus. Accordingly references to "we," "us," "our" and "depositor" in either this free writing prospectus or the accompanying base prospectus refer or relate to Merrill Lynch Mortgage Investors, Inc. NOTICE TO RESIDENTS OF UNITED KINGDOM The issuing entity described in this prospectus supplement is a collective investment scheme as defined in the Financial Services and Markets Act 2000 ("FSMA") of the United Kingdom. It has not been authorized, or otherwise recognized or approved, by the United Kingdom's Financial Services Authority and, as an unregulated collective investment scheme, accordingly cannot be marketed in the United Kingdom to the general public. The distribution of this prospectus supplement (A) if made by a person who is not an authorized person under the FSMA, is being made only to, or directed only at, persons who (i) are outside the United Kingdom, or (ii) have professional experience in matters relating to investments, or (iii) are persons falling within Article 49(2)(a) through (d) ("high net worth companies, unincorporated associations, etc.") of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (all such persons together being referred to as "FPO Persons"); and (B) if made by a person who is an authorized person under the FSMA, is being made only to, or directed only at, persons who (i) are outside the United Kingdom, or (ii) have professional experience in participating in unregulated collective investment schemes, or (iii) are persons falling within Article 22(2)(a) through (d) ("high net worth companies, unincorporated associations, etc.") of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (all such persons together being referred to as "PCIS Persons" and, together with the FPO Persons, the "Relevant Persons"). This prospectus supplement must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this prospectus supplement relates, including the offered certificates, is available only to Relevant Persons and will be engaged in only with Relevant Persons. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the issuing entity and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme. Each underwriter has represented and agreed, and each further underwriter appointed under the Programme will be required to represent and agree, that o it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any offered certificates in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and o it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any offered certificates in, from or otherwise involving the United Kingdom. EUROPEAN ECONOMIC AREA In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has represented and agreed, and each further underwriter appointed under the Programme will be required to represent and agree, that with effect from and including the date on which the Prospectus Directive is implemented in that Member State (the Relevant Implementation Date) it has not made and will not make an offer of offered certificates to the public in that Relevant Member State, except that it may, with effect from and including the Relevant Implementation Date, make an offer of offered certificates to the public in that Relevant Member State: (a) in (or in Germany, where the offer starts within) the period beginning on the date of publication of a prospectus in relation to those offered certificates which has been approved by the competent S-2
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authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive and ending on the date which is 12 months after the date of such publication; (b) at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (c) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than (euro)43,000,000; and (3) an annual net turnover of more than (euro)50,000,000, as shown in its last annual or consolidated accounts; or (d) at any time in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an "offer of offered certificates to the public" in relation to any offered certificates in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the offered certificates to be offered so as to enable an investor to decide to purchase or subscribe the offered certificates, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. S-3
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DEALER PROSPECTUS DELIVERY OBLIGATION Until the date that is ninety days from the date of the prospectus supplement, all dealers that effect transactions in the offered certificates, whether or not participating in this distribution, may be required to deliver a prospectus supplement and the accompanying prospectus. This is in addition to the obligation of dealers acting as underwriters to deliver a prospectus supplement and the accompanying prospectus with respect to their unsold allotments and subscriptions. S-4
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SUMMARY OF PROSPECTUS SUPPLEMENT This summary contains selected information regarding the offering being made by this prospectus supplement. It does not contain all of the information you need to consider in making your investment decision. To understand more fully the terms of the offering of the offered certificates, you should read carefully this prospectus supplement and the accompanying base prospectus in full. OVERVIEW OF THE SERIES 2007-8 CERTIFICATES The offered certificates will be part of a series of commercial mortgage pass-through certificates designated as Commercial Mortgage Pass-Through Certificates, Series 2007-8, and issued in multiple classes. The immediately following table identifies and specifies various characteristics for those classes of certificates, both offered and non-offered, that bear interest. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-8 APPROX. % APPROX. % APPROX. INITIAL OF INITIAL PASS- WEIGHTED EXPECTED TOTAL TOTAL PRINCIPAL MORTGAGE THROUGH APPROX. INITIAL AVERAGE RATINGS FITCH/ CREDIT BALANCE OR POOL RATE PASS-THROUGH LIFE PRINCIPAL CLASS S&P SUPPORT NOTIONAL AMOUNT BALANCE DESCRIPTION RATE (YEARS) WINDOW ----- -------------- --------- --------------- ---------- ----------- --------------- -------- --------- Offered Certificates A-1 AAA/AAA 30.000% $37,262,000 1.530% % 2.98 9/07-6/12 A-2 AAA/AAA 30.000% $[122,485,000](1) [5.029]% % 7.02 6/14-5/16 A-SB AAA/AAA 30.000% $72,678,000 2.984% % 7.29 6/12-3/17 A-3 AAA/AAA 30.000% $[438,559,000](1) [18.008]% % 9.75 3/17-7/17 A-1A AAA/AAA 30.000% $1,033,771,000 42.448% % 8.70 9/07-7/17 AM AAA/AAA 20.000% $[243,536,000](1) [10.000]% % 9.88 7/17-7/17 AJ AAA/AAA 11.375% $[210,050,000](1) [8.625]% % 9.96 7/17-8/17 B AA+/AA+ 10.875% $12,177,000 0.500% % 9.97 8/17-8/17 C AA/AA 9.250% $39,575,000 1.625% % 9.97 8/17-8/17 D AA-/AA- 8.125% $27,398,000 1.125% % 9.97 8/17-8/17 E A+/A+ 7.750% $9,132,000 0.375% % 9.97 8/17-8/17 F A/A 7.000% $18,266,000 0.750% % 9.97 8/17-8/17 Certificates Not Offered A-2FL AAA/AAA 30.000% $[______](1) [___]%(1) Floating LIBOR + [__]%(2) 7.02 6/14-5/16 A-3FL AAA/AAA 30.000% $[______](1) [___]%(1) Floating LIBOR + [__]%(2) 9.75 3/17-7/17 AM-FL AAA/AAA 20.000% $[______](1) [___]%(1) Floating LIBOR + [__]%(2) 9.88 7/17-7/17 AJ-FL AAA/AAA 11.375% $[______](1) [___]%(1) Floating LIBOR + [__]%(2) 9.96 7/17-8/17 G A-/A- 6.125% $21,309,000 0.875% % 9.97 8/17-8/17 H BBB+/BBB+ 4.750% $33,486,000 1.375% % 9.97 8/17-8/17 J BBB/BBB 3.750% $24,354,000 1.000% % 9.97 8/17-8/17 K BBB-/BBB- 3.125% $15,221,000 0.625% % 9.97 8/17-8/17 L BB+/BB+ 2.500% $15,221,000 0.625% % 9.97 8/17-8/17 M BB/BB 2.125% $9,133,000 0.375% % 9.97 8/17-8/17 N BB-/BB- 2.000% $3,044,000 0.125% % 9.97 8/17-8/17 P B+/B+ 1.875% $3,044,000 0.125% % 9.97 8/17-8/17 Q B/B 1.625% $6,089,000 0.250% % 9.97 8/17-8/17 S B-/B- 1.500% $3,044,000 0.125% % 9.97 8/17-8/17 T NR/NR 0.000% $36,530,703 1.500% % 10.38 8/17-8/22 X AAA/AAA N/A $2,435,364,703 N/A Variable % N/A N/A _____________________ (1) The principal allocations between each of the class A-2 and class A-2FL certificates, the class A-3 and class A-3FL certificates, the class AM and class AM-FL certificates and the class AJ and class AJ-FL certificates, respectively, will be determined by market demand up to the initial principal balance indicated on the respective fixed rate class. S-5
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(2) Under certain circumstances described in this prospectus supplement, the pass-through rate applicable to the class A-2FL, class A-3FL, class AM-FL and class AJ-FL certificates may convert to either (a) a fixed rate; (b) a variable rate equal to the weighted average of the adjusted net mortgage interest rates on the mortgage loans (excluding the additional interest distributable to the class Y and class Z certificates) from time to time; (c) a variable rate equal to the lesser of (i) % per annum and (ii) a weighted average of the adjusted net mortgage interest rates on the mortgage loans (excluding the additional interest distributable to the class Y and class Z certificates) from time to time; or (d) a variable rate equal to the weighted average of the adjusted net mortgage interest rates on the mortgage loans (excluding the additional interest distributable to the class Y and class Z certificates) from time to time less a specified percentage. In reviewing the foregoing table, prospective investors should note that-- o The class A-1, A-2, A-2FL, A-SB, A-3, A-3FL, A-1A, AM, AM-FL, AJ, AJ-FL, B, C, D, E, F, G, H, J, K, L, M, N, P, Q, S and T certificates are the only certificates identified in the table that have principal balances and are sometimes referred to in this prospectus supplement as principal balance certificates. The principal balance of any of those certificates at any time represents the maximum amount that the holder may receive as principal out of cash flow received on or with respect to the mortgage loans. o The class X certificates do not have principal balances. They are interest-only certificates and will accrue interest on a notional amount. o For purposes of calculating the amount of accrued interest on the class X certificates, that class of certificates will have a total notional amount equal to the total principal balance of the class A-1, A-2, A-SB, A-3, A-1A, AM, AJ, B, C, D, E, F, G, H, J, K, L, M, N, P, Q, S and T certificates and the class A-2FL, class A-3FL, class AM-FL and class AJ-FL REMIC II regular interests outstanding from time to time. o The actual total principal balance or notional amount, as applicable, of any class of certificates at initial issuance may be larger or smaller than the amount shown above, depending on the actual size of the initial mortgage pool balance or for other reasons. The actual size of the initial mortgage pool balance may be as much as 5% larger or smaller than the amount presented in this prospectus supplement. o The ratings shown in the table are those expected from Fitch, Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc., respectively. It is a condition to the issuance of the offered certificates that they receive ratings no lower than those shown in the table. The rated final distribution date for the offered certificates is the distribution date in August 2049. See "Ratings" in this prospectus supplement. o The percentages indicated under the column "Approx. % Total Credit Support" with respect to the class A-1, A-2, A-2FL, A-SB, A-3, A-3FL and A-1A certificates represent the approximate credit support for those classes of certificates, collectively. The percentages indicated under the column "Approx. % Total Credit Support" with respect to the class AM and class AM-FL certificates represent the approximate credit support for those classes of certificates, collectively, and with respect to the class AJ and class AJ-FL certificates, represent the approximate credit support for those classes of certificates, collectively. No class of certificates will provide any credit support to any of the class A-2FL, A-3FL, AM-FL or AJ-FL certificates for a failure by the swap counterparty to make any payment under the related swap agreement. o Each class of offered certificates identified in the table above will have a pass-through rate equal to (a) a "Fixed" pass-through rate that will remain constant at the initial pass-through rate shown for that class in the table, (b) a "WAC Cap" variable pass-through rate equal to the lesser of (x) the initial pass-through rate identified in the table with respect to that class, and (y) a weighted average of the adjusted net mortgage interest rates on the mortgage loans (without regard to the additional interest distributable to the class Y and class Z certificates) from time to time, or (c) a "WAC-x%" variable pass-through rate equal to either: (x) a weighted average of the adjusted net mortgage interest rates on the mortgage loans (excluding amounts payable to the class Y and class Z certificates) from time to time; or (y) a weighted average of the adjusted net mortgage interest S-6
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rates on the mortgage loans (without regard to the additional interest distributable to the class Y and class Z certificates) from time to time, minus a specific percentage. o The assets of the issuing entity will include swap agreements that relate to each of the class A-2FL, A-3FL, AM-FL and AJ-FL certificates. No class of offered certificates will have any beneficial interest in any swap agreement. o The pass-through rate for the class X certificates will equal the weighted average of the respective strip rates at which interest accrues from time to time on the respective components of the total notional amount of the subject class of certificates. The total principal balance of each class of principal balance certificates will constitute a separate component of the total notional amount of the class X certificates. The class X strip rate applicable to the accrual of interest on any particular component of the total principal balance of the class X certificates will generally equal the excess, if any, of-- 1. a weighted average of the adjusted net mortgage interest rates on the mortgage loans (without regard to the additional interest distributable to the class Y and class Z certificates) from time to time, over 2. the weighted average of the pass-through rates from time to time on the classes of certificates identified in the table that have principal balances and that constitute components of the subject class (or, in the case of each of the A-2FL, A-3FL, AM-FL and/or AJ-FL classes, the pass-through rate from time to time on the related REMIC II regular interest). See "Description of the Offered Certificates--Calculation of Pass-Through Rates" in this prospectus supplement. o The initial pass-through rates listed in the table for the class X certificates and each class of certificates identified in the table as having a WAC Cap pass-through rate are approximate. o As to any given class of offered certificates, the weighted average life is the average amount of time in years between the assumed settlement date for that class of certificates and the payment of each dollar of principal of that class of certificates. o As to any given class of offered certificates, the principal window is the period during which holders of those certificates would receive distributions of principal. The distribution date in the last month of the principal window for any class of offered certificates would be the final principal distribution date for that class. o The weighted average lives and principal windows for the respective classes of offered certificates have been calculated based on the assumptions, among others, that-- 1. each mortgage loan with an anticipated repayment date is paid in full on that date, 2. each mortgage loan which converts from a fixed rate of interest to a floating rate of interest is paid in full on its first open prepayment date, 3. no mortgage loan is otherwise prepaid prior to maturity, 4. no defaults or losses occur with respect to the mortgage loans, and 5. no extensions of maturity dates of mortgage loans occur. See "Yield and Maturity Considerations--Weighted Average Lives" in this prospectus supplement. S-7
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o The certificates will also include the class R-I, R-II, Y and Z certificates, which are not presented in the table. The class R-I, R-II, Y and Z certificates do not have principal balances or notional amounts and do not accrue interest. The class R-I, R-II, Y and Z certificates are not offered by this prospectus supplement. o When we refer to the "adjusted net mortgage interest rate" of a mortgage loan in the bullets above, we mean the mortgage interest rate for that mortgage loan in effect as of the date of initial issuance of the certificates-- 1. without regard to any increase in the mortgage interest rate that may occur in connection with a default, 2. without regard to any modification of the mortgage interest rate that may occur after the date of initial issuance of the certificates, 3. without regard to any increase in the mortgage interest rate that may occur if that mortgage loan, if it has an anticipated repayment date, is not repaid in full on or before that anticipated repayment date, 4. without regard to any change in the mortgage rate that may occur when certain of the mortgage loans in this pool convert from fixed rate to floating rate; and 5. net of the sum of the per annum rates at which the related master servicing fee (which is inclusive of primary servicing fees with respect to each mortgage loan) and the trust administration fee accrue, as that net mortgage interest rate for that mortgage loan, unless it accrues interest on the basis of a 360-day year consisting of twelve 30-day months, may be adjusted in the manner described in this prospectus supplement for purposes of calculating the pass-through rates of the various classes of interest-bearing certificates. The offered certificates will evidence beneficial ownership interests in the assets of the issuing entity. The primary assets of the issuing entity will consist of a segregated pool of commercial, multifamily and manufactured housing community mortgage loans. When we refer to mortgage loans in this prospectus supplement, we are referring to the mortgage loans that we intend to transfer to the issuing entity, unless the context clearly indicates otherwise. We identify the mortgage loans that we intend to transfer to the issuing entity on Annex A-1 to this prospectus supplement. The governing document for purposes of issuing the offered certificates, as well as the other certificates, and forming the issuing entity will be a pooling and servicing agreement to be dated as of August 1, 2007. The pooling and servicing agreement will also govern the servicing and administration of the mortgage loans and the other assets that back the certificates. The parties to the pooling and servicing agreement will include us, a trustee, two master servicers and a special servicer. A copy of the pooling and servicing agreement will be filed with the Securities and Exchange Commission as an exhibit to a current report on Form 8-K following the initial issuance of the certificates. The Securities and Exchange Commission will make that current report on Form 8-K and its exhibits available to the public for inspection. See "Available Information" in the accompanying base prospectus. RELEVANT PARTIES ISSUING ENTITY ........................... ML-CFC Commercial Mortgage Trust 2007-8, a New York common law trust, is the entity that will hold and own the mortgage loans and in whose name the certificates will be issued. See "Transaction Participants--The Issuing Entity" in this prospectus supplement and "The Trust Fund--Issuing Entities" in the accompanying base prospectus. S-8
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DEPOSITOR ................................ We are Merrill Lynch Mortgage Investors, Inc., the depositor of the series 2007-8 securitization transaction. We are a special purpose Delaware corporation. Our address is 4 World Financial Center, 16th Floor, 250 Vesey Street, New York, New York 10080 and our telephone number is (212) 449-1000. We will acquire the mortgage loans and transfer them to the issuing entity. We are an affiliate of Merrill Lynch Mortgage Lending, Inc., one of the sponsors, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters. See "Transaction Participants--The Depositor" in this prospectus supplement and "The Depositor" in the accompanying base prospectus. SPONSORS / MORTGAGE LOAN SELLERS ......... Countrywide Commercial Real Estate Finance, Inc., Merrill Lynch Mortgage Lending, Inc. and KeyBank National Association will be the sponsors with respect to the series 2007-8 securitization transaction. Merrill Lynch Mortgage Lending, Inc. is our affiliate, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters, and an affiliate of Merrill Lynch Capital Services, Inc., the swap counterparty. Countrywide Commercial Real Estate Finance, Inc. is an affiliate of Countrywide Securities Corporation, one of the underwriters. KeyBank National Association is an affiliate of KeyCorp Real Estate Capital Markets, Inc., one of the master servicers, and KeyBanc Capital Markets Inc., one of the underwriters. The sponsors are also referred to as mortgage loan sellers in this prospectus supplement. We will acquire the mortgage loans that will back the certificates from the mortgage loan sellers, each of which originated or acquired from a third party the mortgage loans to be transferred to the issuing entity. The mortgage loan identified on Annex A-1 to this prospectus supplement as Empirian Portfolio Pool Two was originated by Arbor Commercial Funding, LLC and has since been acquired by Merrill Lynch Mortgage Lending, Inc. The following table shows the number of mortgage loans that we expect will be sold to us by each mortgage loan seller and the respective percentages that those mortgage loans represent of the initial mortgage pool balance, the initial loan group 1 balance and the initial loan group 2 balance. AGGREGATE NUMBER OF CUT-OFF DATE % OF INITIAL % OF INITIAL % OF INITIAL MORTGAGE PRINCIPAL MORTGAGE LOAN GROUP 1 LOAN GROUP 2 MORTGAGE LOAN SELLER LOANS BALANCE POOL BALANCE BALANCE BALANCE --------------------------------------- --------- -------------- ------------ ------------ ------------ 1. Countrywide Commercial Real Estate 165 $1,136,902,105 46.7% 56.3% 33.7% Finance, Inc. 2. Merrill Lynch Mortgage Lending, Inc. 21 $874,784,080 35.9% 19.0% 58.8% 3. KeyBank National Association 32 $423,678,518 17.4% 24.7% 7.5% --------- -------------- ------------ ------------ ------------ 218 $2,435,364,704 100.0% 100.0% 100.0% See "Transaction Participants--The Sponsors" and "--The Mortgage Loan Seller" in this prospectus supplement and "The Sponsor" in the accompanying base prospectus. TRUSTEE .................................. Upon initial issuance of the certificates, LaSalle Bank National Association, a national banking association with corporate trust offices located in Chicago, Illinois, will act as trustee and custodian of the assets of the issuing entity on behalf of all the certificateholders. The trustee will be primarily responsible for back-up advancing, distributing S-9
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payments to certificateholders and deliveries or otherwise making available certain reports to certificateholders that provide various details regarding the certificates and the mortgage loans. The trustee will also be responsible for maintaining possession of the promissory notes for the mortgage loans and various other important loan documents. See "Transaction Participants--The Trustee" in this prospectus supplement." MASTER SERVICERS ......................... Upon initial issuance of the certificates, KeyCorp Real Estate Capital Markets, Inc., an Ohio corporation, and Wells Fargo Bank, National Association, a national banking association, will act as the master servicers with respect to the mortgage loans. KeyCorp Real Estate Capital Markets, Inc. is an affiliate of KeyBank National Association, one of the sponsors and a mortgage loan seller, and an affiliate of KeyBanc Capital Markets Inc., one of the underwriters. KeyCorp Real Estate Capital Markets, Inc. will act as master servicer with respect to the mortgage loans that we acquire from Merrill Lynch Mortgage Lending, Inc. and KeyBank National Association and which we will transfer to the issuing entity. Wells Fargo Bank, National Association will act as master servicer with respect to the mortgage loans that we acquire from Countrywide Real Estate Finance, Inc. and which we will transfer to the issuing entity. The master servicers will be primarily responsible for servicing and administering, directly or through sub-servicers: (a) mortgage loans as to which there is no default or reasonably foreseeable default that would give rise to a transfer of servicing to the special servicer; and (b) mortgage loans as to which any such default or reasonably foreseeable default has been corrected, including as part of a work-out. In addition, the master servicers will be the primary parties responsible for making delinquency advances and servicing advances (except with respect to the Georgia-Alabama Retail Portfolio trust mortgage loan) under the pooling and servicing agreement. See "--Georgia-Alabama Primary Servicer and Special Servicer" below. See also "Transaction Participants--The Master Servicers and the Special Servicer" in this prospectus supplement. SPECIAL SERVICER ......................... Upon initial issuance of the certificates, Midland Loan Services, Inc., a Delaware corporation, will act as special servicer with respect to the mortgage loans and any related foreclosure properties. However, with respect to the mortgage loan known as Georgia-Alabama Retail Portfolio, the special servicer will be Midland Loan Services, Inc. pursuant to the ML-CFC 2007-7 pooling and servicing agreement applicable to the securitization containing the related non-trust pari passu loan. The special servicer will be primarily responsible for making decisions and performing certain servicing functions, including work-outs and foreclosures, with respect to the mortgage loans that, in general, are in default or as to which default is reasonably foreseeable and for liquidating foreclosure properties that are acquired as part of the assets of the issuing entity. Midland Loan Services, Inc. is an affiliate of a company that is the external manager of an entity that may be the initial controlling class representative. See "Transaction Participants-- S-10
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The Master Servicers and the Special Servicer" in this prospectus supplement. SIGNIFICANT OBLIGORS ..................... The mortgage loans identified on Annex A-1 to this prospectus supplement as Farallon Portfolio and Empirian Portfolio Pool Two, each represent a portion of the initial mortgage pool balance in excess of 10% and therefore, each of the related borrowers will be considered a significant obligor. See Annex C, "Preliminary Structural and Collateral Term Sheet--Farallon Portfolio" and "--Empirian Portfolio Pool Two" in this prospectus supplement. GEORGIA-ALABAMA PRIMARY SERVICER AND SPECIAL SERVICER ..................... The mortgage loan identified on Annex A-1 to this prospectus supplement as Georgia-Alabama Retail Portfolio is serviced and administered pursuant to the ML-CFC 2007-7 Commercial Mortgage Trust Commercial Mortgage Pass-Through Certificates, Series 2007-7 pooling and servicing agreement (the governing document for the ML-CFC 2007-7 securitization, which contains the related non-trust pari passu loan), which provides for servicing arrangements that are similar but not identical to those under the pooling and servicing agreement. In that regard-- o LaSalle Bank National Association, which is the trustee under the ML-CFC 2007-7 pooling and servicing agreement, is, in that capacity, the mortgagee of record for the mortgage loan secured by the Georgia-Alabama Retail Portfolio mortgaged real property; o Wachovia Bank, National Association, which is one of the master servicers under the ML-CFC 2007-7 pooling and servicing agreement, is, in that capacity, the primary servicer for the Georgia-Alabama Retail Portfolio trust mortgage loan; and o Midland Loan Services, Inc., which is the special servicer under the ML-CFC 2007-7 pooling and servicing agreement, is, in that capacity, the special servicer for the Georgia-Alabama Retail Portfolio trust mortgage loan. Wachovia Bank National Association, as master servicer, will be responsible for making servicing advances for the related loan combination. The controlling class representative will not be permitted to replace the special servicer under the ML-CFC 2007-7 pooling and servicing agreement unless and until any appraisal reduction amount with respect to the subject loan combination reduces the initial principal balance of the related B-note non-trust loan below 25% of its original principal balance. References in this prospectus supplement, however, to the trustee, the applicable master servicer and the special servicer will mean the trustee, the master servicer and the special servicer under the series 2007-8 pooling and servicing agreement unless the context clearly indicates otherwise. S-11
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CONTROLLING CLASS OF CERTIFICATEHOLDERS .. The holders--or, if applicable, beneficial owners--of certificates representing a majority interest in a designated controlling class of the certificates will have the right, subject to the conditions described under "Servicing of the Mortgage Loans--The Controlling Class Representative and the Loan Combination Controlling Parties" and "--Replacement of the Special Servicer" in this prospectus supplement, to-- o replace the special servicer; and o select a representative that may direct and advise the special servicer on various servicing matters with respect to the mortgage loans. except with respect to the mortgage loans known as (x) Georgia-Alabama Retail Portfolio (loan number 7), (y) Farallon Portfolio (loan number 2) and (z) Peninsula Beverly Hills (loan number 4), the holder of a related B-note loan or non-trust loan, which holder is described under "--The Loan Combination Controlling Parties" below, may exercise those, or similar rights or other rights specified herein, with respect to such mortgage loans. Unless there are significant losses on the mortgage loans, the controlling class of certificateholders will be the holders of a non-offered class of certificates. The initial controlling class of certificateholders will be the class T certificateholders. THE LOAN COMBINATION CONTROLLING PARTIES ................... As indicated under "--The Mortgage Loans and the Mortgaged Real Properties--The Loan Combinations" below, five (5) mortgage loans are each part of a loan combination that is comprised of that mortgage loan, which will be transferred to the issuing entity, and one or more pari passu A-notes and/or subordinate B-note loans and/or other non-trust loans that will not be transferred to the issuing entity. In the case of one (1) of the five (5) loan combinations referred to above, which is secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Farallon Portfolio, the related trust mortgage loan consists of five A-note trust loans and five B-note trust loans, and the related non-trust loans consist of one or more A-note non-trust loans that are generally pari passu in right of payment to the A-note trust loan and one or more B-note non-trust loans that are generally subordinate to the A-note trust loan and the A-note non-trust loans and generally pari passu to the B-note trust loans. The holder or holders (and their respective successors and assigns) of all or any portion of the non-trust fixed-rate A notes which are not held by the trust, as designated by Merrill Lynch Mortgage Lending, Inc. and which may be Merrill Lynch Mortgage Lending, Inc., will have the right to replace the special servicer for the Farallon Portfolio loan combination and to direct and advise the master servicer and special servicer, and have certain approval rights, with respect to various servicing matters and major decisions relating to the Farallon Portfolio loan combination. The controlling class of the ML-CFC Commercial Mortgage Trust 2007-8, Commercial Mortgage Pass-Through Certificates, Series 2007-8 securitization transaction will not have such rights. In connection with future securitizations involving all or any portion of the fixed rate notes that comprise the Farallon Portfolio loan S-12
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combination, Merrill Lynch Mortgage Lending, Inc. may designate the controlling class of any such securitization as the controlling holder for the Farallon Portfolio loan combination in which case such controlling holder shall have such rights and Merrill Lynch Mortgage Lending, Inc. (or its successors or assigns, as applicable), as holder of any remaining portion of the Farallon Portfolio loan combination, will have certain non-binding consultation rights with respect to matters relating such rights. In the case of one (1) of the five (5) loan combinations referred to above, which loan is secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Executive Hills Portfolio, such loan combination consists of the related trust mortgage loan and a B-note non-trust loan that is subordinate to the related trust mortgage loan. The holder of the B-note non-trust loan will have the right to replace the special servicer for this mortgage loan and the right to direct and advise the applicable master servicer on various servicing matters until an appraisal reduction with respect to the loan combination reduces the principal balance of the B-note non-trust loan below 25% of its original principal balance, or the holder of more than 50% of the principal balance of the B-note non-trust loan is the related borrower or its affiliates. In the case of one (1) of the five (5) loan combinations referred to above, which loan is secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Peninsula Beverly Hills, such loan combination consists of the related trust mortgage loan and a B-note non-trust loan that is subordinate to the related trust mortgage loan. The holder of the B-note non-trust loan will have the right to replace the special servicer for this mortgage loan and the right to direct and advise the applicable master servicer and special servicer on various servicing matters until an appraisal reduction with respect to the loan combination reduces the principal balance of the related B-note non-trust loan below 25% of its original principal balance, at which time, such rights will be with the controlling class representative. In the case of one (1) of the five (5) loan combinations referred to above, which loan is secured by the mortgaged real properties identified on Annex A-1 to this prospectus supplement as Georgia-Alabama Retail Portfolio, such loan combination consists of the related trust mortgage loan (which consists of an A-note trust loan and a B-note trust loan), an A-note non-trust loan that is pari passu in right of payment to the related A-note trust mortgage loan and a B-note non-trust loan that is pari passu in right of payment to the B-note trust loan and subordinate in right of payment to the A-note trust mortgage loan and the A-note non-trust loan. The controlling class representative (as designee of the holder of the B-note trust loan) and the holder of the B-note non-trust loan, together will have the right, under certain circumstances, to replace the special servicer under the ML-CFC 2007-7 pooling and servicing agreement and the right to direct and advise such master servicer and the special servicer under the ML-CFC 2007-7 pooling and servicing agreement on various servicing matters regarding the related loan combination until an appraisal reduction with respect to the subject loan combination reduces the principal balance of the related B-note trust loan and B-note non-trust loan below 25% of S-13
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their original outstanding principal balance, at which time, such rights will be solely with the controlling class representative. In the case of one (1) of the five (5) loan combinations referred to above, which is secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Timbercreek Apartments, subject to certain limitations with respect to modifications and the right to purchase the related trust mortgage loan, the holder of the related B-note loan will have no voting, consent or other rights with respect to any servicing actions (other than in some cases, non-binding consultation rights or the right to consent to certain modifications). See "Description of the Mortgage Pool--The Loan Combinations-- The Farallon Portfolio Loan Combination," "--The Executive Hills Portfolio Loan Combination," "--The Peninsula Beverly Hills Loan Combination," "--The Georgia-Alabama Retail Portfolio Loan Combination" and "--The MezzCap Loan Combinations," and "Servicing of the Mortgage Loans--The Controlling Class Representative and the Loan Combination Controlling Parties" in this prospectus supplement. SWAP COUNTERPARTY ........................ It is expected that Merrill Lynch Capital Services, Inc., one of our affiliates and an affiliate of Merrill Lynch Mortgage Lending, Inc., one of the mortgage loan sellers, and of Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters, will be the counterparty under the swap agreements relating to the class A-2FL, A-3FL, AM-FL and AJ-FL certificates. The obligations of Merrill Lynch Capital Services, Inc. under the swap agreements will be guaranteed by Merrill Lynch & Co., Inc., another of our affiliates. As of the date of this prospectus supplement, Merrill Lynch & Co., Inc. has been assigned senior unsecured debt ratings of "AA-" by S&P and "AA-" by Fitch. See "Description of the Swap Agreements" in this prospectus supplement. None of the holders of any offered certificate will have any beneficial interest in any swap agreement. RATING AGENCIES .......................... It is a condition to the issuance of the offered certificates that they receive ratings from Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and Fitch, Inc. ("Fitch"), no lower than those shown in the table on page S-5. See "Ratings" in this prospectus supplement. RELEVANT DATES AND PERIODS CUT-OFF DATE ............................. References in this prospectus supplement to the "cut-off date" mean, individually and collectively, as the context may require, with respect to each mortgage loan, the related due date of that mortgage loan in August, 2007 or, with respect to any mortgage loan that has its first due date in September, 2007, August 1, 2007. All payments and collections received on each mortgage loan after the cut-off date, excluding any payments or collections that represent amounts due on or before that date, will belong to the issuing entity. CLOSING DATE ............................. The date of initial issuance for the offered certificates will be on or about August 24, 2007. S-14
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DETERMINATION DATE ....................... For any distribution date, the eighth day of each month, or if such eighth day is not a business day, the business day immediately succeeding, commencing in September, 2007. Notwithstanding the foregoing, the applicable master servicer may make its determination as to the collections received in respect of certain mortgage loans as of a later date during each month because those mortgage loans provide for monthly debt-service payments to be due on a day later than the first day of each month, but which, subject to the applicable business day convention, is not later than the eighth day of each month. With respect to any distribution date, references in this prospectus supplement to "determination date" mean, as to each mortgage loan, the applicable determination date occurring in the same month as that distribution date. DISTRIBUTION DATE ........................ Payments on the offered certificates are scheduled to occur monthly, commencing in September, 2007. During any given month, the distribution date will be the fourth business day after the related determination date. RECORD DATE .............................. The record date for each monthly payment on an offered certificate will be the last business day of the prior calendar month. The registered holders of the offered certificates at the close of business on each record date will be entitled to receive any payments on those certificates on the following distribution date, except that the last payment on any offered certificate will be made only upon presentation and surrender of that certificate. RATED FINAL DISTRIBUTION DATE ............ The rated final distribution date for each class of the offered certificates is the distribution date in August 2049. ASSUMED FINAL DISTRIBUTION DATES ......... Set forth opposite each class of offered certificates in the table below is the distribution date on which the principal balance of that class is expected to be paid in full, assuming, among other things, no delinquencies, losses, modifications, extensions of maturity dates, repurchases or, except as contemplated by the next sentence, prepayments of the mortgage loans after the initial issuance of the certificates. For purposes of the table, each mortgage loan with an anticipated repayment date is assumed to be repaid in full on its anticipated repayment date and each mortgage loan which converts from a fixed rate of interest to a floating rate is assumed to be repaid in full on its first open prepayment date. MONTH AND YEAR OF ASSUMED FINAL CLASS DISTRIBUTION DATE -------------------------------- -------------------------------------- A-1 June 2012 A-2 May 2016 A-SB March 2017 A-3 July 2017 A-1A July 2017 AM July 2017 AJ August 2017 B August 2017 C August 2017 D August 2017 E August 2017 F August 2017 S-15
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See the maturity assumptions described under "Yield and Maturity Considerations" in this prospectus supplement for further assumptions that were taken into account in determining the assumed final distribution dates. COLLECTION PERIOD ........................ On any distribution date, amounts available for payment on the offered certificates will depend on the payments and other collections received, and any advances of payments due, on the mortgage loans during the related collection period. In general, each collection period-- o will relate to a particular distribution date; o will be approximately one month long; o will begin on the day after the determination date in the immediately preceding month or, in the case of the first collection period, will begin immediately following the cut-off date; and o will end on the determination date in the month of the related distribution date. However, the collection period for any distribution date for certain mortgage loans may differ from the collection period with respect to the rest of the mortgage pool for that distribution date because the determination dates for those mortgage loans may not be the same as the determination date for the rest of the mortgage pool. Accordingly, there may be more than one collection period with respect to some distribution dates. With respect to any distribution date, references in this prospectus supplement to "collection period" mean, as to each mortgage loan, the applicable collection period ending in the month in which that distribution date occurs. INTEREST ACCRUAL PERIOD .................. The amount of interest payable with respect to the offered certificates on any distribution date will be a function of the interest accrued during the related interest accrual period. The interest accrual period with respect to each class of interest-bearing offered certificates and the class A-2FL, class A-3FL, class AM-FL and class AJ-FL REMIC II regular interests for any distribution date will be the calendar month immediately preceding the month in which that distribution date occurs. Interest will be calculated with respect to each class of interest-bearing offered certificates and the class A-2FL, class A-3FL, class AM-FL and class AJ-FL REMIC II regular interests assuming that each interest accrual period consists of 30 days and each year consists of 360 days. S-16
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DESCRIPTION OF THE OFFERED CERTIFICATES GENERAL .................................. The issuing entity will issue multiple classes of certificates with an approximate total principal balance at initial issuance equal to $2,435,364,703. Twelve (12) of those classes of the certificates are being offered by this prospectus supplement. The classes offered by this prospectus supplement are identified on the cover hereof. The remaining classes of the certificates will be offered separately in a private offering. REGISTRATION AND DENOMINATIONS............ We intend to deliver the offered certificates in book-entry form in original denominations of $25,000 initial principal balance and in any whole dollar denomination in excess of $25,000. You will initially hold your offered certificates, directly or indirectly, through The Depository Trust Company and they will be registered in the name of Cede & Co. as nominee for The Depository Trust Company. As a result, you will not receive a fully registered physical certificate representing your interest in any offered certificate, except under the limited circumstances described under "Description of the Offered Certificates--Registration and Denominations" in this prospectus supplement and under "Description of the Certificates--Book-Entry Registration" in the accompanying base prospectus. PAYMENTS A. GENERAL ............................... For purposes of making distributions with respect to the class A-1, A-2, A-SB, A-3 and A-1A certificates and the class A-2FL and A-3FL certificates (through the respective REMIC II regular interests), the mortgage loans will be deemed to consist of two distinct groups, loan group 1 and loan group 2. Loan group 1 will consist of 162 mortgage loans, with an initial loan group 1 balance of $1,401,593,530 and representing approximately 57.6% of the initial mortgage pool balance, that are secured by the various property types that constitute collateral for those mortgage loans. Loan group 2 will consist of 56 mortgage loans, with an initial loan group 2 balance of $1,033,771,173 and representing approximately 42.4% of the initial mortgage pool balance, that are secured by multifamily and manufactured housing community properties. Annex A-1 to this prospectus supplement sets forth the loan group designation with respect to each mortgage loan. S-17
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On each distribution date, to the extent of available funds attributable to the mortgage loans as described below, which available funds will be net of specified expenses of the issuing entity, including all servicing fees, trust administration fees and other compensation, the trustee will make payments of interest and, except in the case of the class X certificates, principal to the holders of the following classes of certificates (or, in the case of the reference to "A-2FL" below, with respect to the class A-2FL REMIC II regular interest, in the case of the reference to "A-3FL" below, with respect to the class A-3FL REMIC II regular interest, in the case of the reference to "AM-FL" below, with respect to the class AM-FL REMIC II regular interest, and in the case of the reference to "AJ-FL" below, with respect to the class AJ-FL REMIC II regular interest), in the following order: PAYMENT ORDER CLASS --------------------------------- ------------------------------- 1 A-1, A-2, A-2FL, A-SB, A-3, A-3FL, A-1A and X 2 AM and AM-FL 3 AJ and AJ-FL 4 B 5 C 6 D 7 E 8 F 9 G 10 H 11 J 12 K 13 L 14 M 15 N 16 P 17 Q 18 S 19 T In general, payments of interest in respect of the class A-1, A-2, A-SB and A-3 certificates, and the class A-2FL and class A-3FL REMIC II regular interests will be made pro rata, based on entitlement, out of available funds attributable to the mortgage loans in loan group 1. Payments of interest in respect of the class A-1A certificates will be made out of available funds attributable to the mortgage loans in loan group 2. Payments of interest on the class X certificates will be made out of available funds attributable to both loan groups. However, if the funds available for those distributions of interest on any distribution date are insufficient to pay in full the total amount of interest to be paid with respect to any of the class A-1, A-2, A-SB, A-3, A-1A and/or X certificates, the class A-2FL and/or class A-3FL REMIC II regular interests, then the funds available for distribution will be allocated among all these classes pro rata in accordance with their interest entitlements, without regard to loan groups. The allocation of principal payments among the class A-1, A-2, A-SB, A-3 and A-1A certificates, the class A-2FL certificates (through the class A-2FL REMIC II regular interest) and the class A-3FL certificates (through the class A-3FL REMIC II regular interest) also S-18
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takes into account loan groups and is described under "--Payments--Payments of Principal" below. See also "Description of the Offered Certificates--Payments--Priority of Payments" in this prospectus supplement. No payments or other collections on the non-trust loans described under "--The Mortgage Loans and the Mortgaged Real Properties--Loan Combinations" below, which are not assets of the issuing entity, will be available for distributions on the certificates. See "Description of the Mortgage Pool--Loan Combinations" in this prospectus supplement. B. PAYMENTS OF INTEREST .................. Each class of certificates (other than the class Y, Z, R-I and R-II certificates) and the class A-2FL, class A-3FL, class AM-FL and class AJ-FL REMIC II regular interests will bear interest. With respect to each interest-bearing class of certificates and the class A-2FL, class A-3FL, class AM-FL and class AJ-FL REMIC II regular interests, that interest will accrue during each interest accrual period based upon-- o the pass-through rate applicable for the particular class of certificates, the class A-2FL REMIC II regular interest, the class A-3FL REMIC II regular interest, the class AM-FL REMIC II regular interest or the class AJ-FL REMIC II regular interest, as the case may be, for that interest accrual period; o the total principal balance or notional amount, as the case may be, of the particular class of certificates, the class A-2FL REMIC II regular interest, the class A-3FL REMIC II regular interest, the class AM-FL REMIC II regular interest or the class AJ-FL REMIC II regular interest, as the case may be, outstanding immediately prior to the related distribution date; and o the assumption that each year consists of twelve 30-day months (or, in the case of each of the class A-2FL, A-3FL, AM-FL and AJ-FL certificates, for so long as the related swap agreement is in effect and there is no continuing payment default under any swap agreement on the part of the swap counterparty, based on the actual number of days in the applicable interest accrual period and the assumption that each year consists of 360 days). A whole or partial prepayment on a mortgage loan may not be accompanied by the amount of one full month's interest on the prepayment. As and to the extent described under "Description of the Offered Certificates--Payments--Payments of Interest" in this prospectus supplement, these shortfalls may be allocated (in the case of the class A-2FL certificates, through the class A-2FL REMIC II regular interest, in the case of the class A-3FL certificates, through the class A-3FL REMIC II regular interest, in the case of the class AM-FL certificates, through the class AM-FL REMIC II regular interest, and in the case of the class AJ-FL certificates, through the class AJ-FL REMIC II regular interest) to reduce the amount of accrued interest otherwise payable to the holders of the respective interest-bearing classes of the certificates (other than the class X certificates). S-19
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On each distribution date, subject to available funds and the payment priorities described under "--Payments--General" above, you will be entitled to receive your proportionate share of: (a) all interest accrued with respect to your class of offered certificates during the related interest accrual period; plus (b) any interest that was payable with respect to your class of offered certificates on all prior distribution dates, to the extent not previously paid; less (c) except in the case of the class X certificates, your class's share of any shortfalls in interest collections due to prepayments on mortgage loans that are not offset by certain payments made by, in each case, the applicable master servicer. If, as described below under "--Payments of Principal," collections of principal are insufficient to make a full reimbursement for nonrecoverable advances, those amounts may be reimbursed from interest on the mortgage loans, thereby reducing the amount of interest otherwise distributable on the interest-bearing certificates on the related distribution date. See "Description of the Offered Certificates--Payments--Payments of Interest," "--Payments--Priority of Payments" and "--Calculation of Pass-Through Rates" in this prospectus supplement. C. PAYMENTS OF PRINCIPAL ................. The class X, R-I, R-II, Y and Z certificates do not have principal balances and do not entitle their holders to payments of principal. Subject to available funds and the payment priorities described under "--Payments--General" above, however, the holders of each class of principal balance certificates will be entitled to receive a total amount of principal over time equal to the initial principal balance of their particular class. The trustee will be required to make payments of principal in a specified sequential order (in the case of the class A-2FL certificates, through the class A-2FL REMIC II regular interest, in the case of the class A-3FL certificates, through the class A-3FL REMIC II regular interest, in the case of the class AM-FL certificates, through the class AM-FL REMIC II regular interest, and in the case of the class AJ-FL certificates, through the class AJ-FL REMIC II regular interest) to ensure that-- o no payments of principal will be made to the holders of the class G, H, J, K, L, M, N, P, Q, S or T certificates until the total principal balance of the offered certificates and the class A-2FL, class A-3FL, class AM-FL and class AJ-FL REMIC II regular interests are reduced to zero; o no payments of principal will be made to the holders of the class AM, AM-FL (through the class AM-FL REMIC II regular interest), AJ, AJ-FL (through the class AJ-FL REMIC II regular interest), B, C, D, E or F certificates until, in the case of each of those classes, the total principal balance of all more senior classes of offered certificates and the class A-2FL and A-3FL REMIC II regular interests is reduced to zero; and o except as described under "--Amortization, Liquidation and Payment Triggers" below, payments of principal will be made-- (i) to, first, the holders of the class A-1 certificates, until the total principal balance of such certificates is reduced to S-20
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zero, second, the holders of the class A-2 certificates and class A-2FL REMIC II regular interest, on a pro rata basis by principal balance, until the total principal balance of such classes is reduced to zero, third, the holders of the class A-SB certificates, until the total principal balance of such certificates is reduced to zero, fourth, the holders of the class A-3 certificates and class A-3FL REMIC II regular interest, on a pro rata basis by principal balance, until the total principal balance of such classes is reduced to zero, in an aggregate amount equal to the funds allocated to principal with respect to mortgage loans in loan group 1 and, after the total principal balance of the class A-1A certificates has been reduced to zero, the funds allocated to principal with respect to mortgage loans in loan group 2, provided that, on each distribution date the total principal balance of the class A-SB certificates must, subject to available funds, be paid down, if necessary, to the scheduled principal balance for that class for that distribution date that is set forth on Annex E to this prospectus supplement before any payments of principal are made with respect to the class A-1, A-2 and/or A-3 certificates or the class A-2FL and/or A-3FL REMIC II regular interests, (ii) to the holders of the class A-1A certificates, until the total principal balance of such certificates is reduced to zero, in an aggregate amount equal to the funds allocated to principal with respect to mortgage loans in loan group 2 and, after the total principal balance of the class A-1, A-2, A-SB and A-3 certificates and the class A-2FL and class A-3FL REMIC II regular interests has been reduced to zero, the funds allocated to principal with respect to mortgage loans in loan group 1. The total payments of principal to be made on the principal balance certificates on any distribution date will generally be a function of-- o the amount of scheduled payments of principal due or, in some cases, deemed due on the mortgage loans during the related collection period, which payments are either received as of the end of that collection period or advanced by the applicable master servicer or the trustee; and o the amount of any prepayments and other unscheduled collections of previously unadvanced principal with respect to the mortgage loans that are received during the related collection period. However, if the applicable master servicer, the special servicer or the trustee reimburses itself out of general collections on the mortgage pool for any advance, together with any interest accrued on that advance, that it has determined is not ultimately recoverable out of collections on the related mortgage loan, then that advance, together with interest accrued on that advance, will be reimbursed first out of payments and other collections of principal on all the mortgage loans, thereby reducing the amount of principal otherwise distributable in respect of S-21
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the principal balance certificates on the related distribution date, prior to being reimbursed out of payments and other collections of interest on all the mortgage loans. Additionally, if any advance, together with interest accrued on that advance, with respect to a defaulted mortgage loan remains unreimbursed following the time that the mortgage loan is modified and returned to performing status, then (even though that advance has not been deemed nonrecoverable from collections on the related mortgage loan) the applicable master servicer, the special servicer or the trustee, as applicable, will be entitled to reimbursement for that advance, with interest, on a monthly basis, out of payments and other collections of principal on all the mortgage loans after the application of those principal payments and collections to reimburse any party for advances that are nonrecoverable on a loan-specific basis as described in the prior paragraph, thereby reducing the amount of principal otherwise distributable in respect of the principal balance certificates on the related distribution date. Reimbursements of the advances described in the prior two paragraphs will generally be made first from principal collections on the mortgage loans included in the loan group which includes the mortgage loan in respect of which the advance was made, and if those collections are insufficient to make a full reimbursement, then from principal collections on the mortgage loans in the other loan group. As a result, distributions of principal with respect to the class A-1, A-2, A-SB, A-3 or A-1A certificates, the class A-2FL certificates (through the class A-2FL REMIC II regular interest) or the class A-3FL certificates (through the class A-3FL REMIC II regular interest) may be reduced even if the advances being reimbursed were made in respect of mortgage loans included in the loan group that does not primarily relate to such class of certificates. If any advance described above is not reimbursed in whole on any distribution date due to insufficient principal collections and, solely in the case of an advance that is nonrecoverable on a loan-specific basis, interest collections on the mortgage pool during the related collection period, then the portion of that advance which remains unreimbursed will be carried over, and continue to accrue interest, for reimbursement on the following distribution date. The payment of certain default-related or otherwise unanticipated expenses with respect to any mortgage loan may reduce the amounts allocable as principal of that mortgage loan and, accordingly, the principal distributions on the principal balance certificates. See "Description of the Offered Certificates--Payments--Payments of Principal" and "--Payments--Priority of Payments" in this prospectus supplement. D. AMORTIZATION, LIQUIDATION AND PAYMENT TRIGGERS .................. As a result of losses on the mortgage loans and/or default-related or other unanticipated expenses of the issuing entity, the total principal balance of the class AM, AM-FL, AJ, AJ-FL, B, C, D, E, F, G, H, J, K, L, M, N, P, Q, S and T certificates could be reduced to zero at a time when the class A-1, A-2, A-2FL, A-SB, A-3, A-3FL and A-1A certificates remain outstanding. See "--Description of the Offered S-22
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Certificates--Allocation of Losses on the Mortgage Loans and Other Unanticipated Expenses" below. If the total principal balance of the class AM, AM-FL, AJ, AJ-FL, B, C, D, E, F, G, H, J, K, L, M, N, P, Q, S and T certificates is reduced to zero at a time when the class A-1, A-2, A-2FL, A-SB, A-3, A-3FL and A-1A certificates, or any two or more of those classes, remain outstanding, any payments of principal will be distributed to the holders of the outstanding class A-1, A-2, A-2FL, A-SB, A-3, A-3FL and A-1A certificates (in the case of the class A-2FL and A-3FL certificates, through the class A-2FL and class A-3FL REMIC II regular interests, respectively), pro rata, rather than sequentially, in accordance with their respective principal balances and without regard to loan groups. E. PAYMENTS OF PREPAYMENT PREMIUMS AND YIELD MAINTENANCE CHARGES ................... You may, in certain circumstances, also receive distributions of prepayment premiums and yield maintenance charges collected on the mortgage loans. Any distributions of those amounts would be in addition to the distributions of principal and interest described above. If any prepayment premium or yield maintenance charge is collected on any of the mortgage loans, then the trustee will pay that amount in the proportions described under "Description of the Offered Certificates--Payments--Payments of Prepayment Premiums and Yield Maintenance Charges" (other than to the holders of any class A-2FL, class A-3FL, class AM-FL and class AJ-FL certificates for so long as the related swap agreement is in effect) in this prospectus supplement, to-- o the holders of any of the class A-1, A-2, A-SB, A-3, A-1A, AM, AJ, B, C, D, E, F, G, H, J and/or K certificates and/or the class A-2FL REMIC II regular interest, the class A-3FL REMIC II regular interest, the class AM-FL REMIC II regular interest and/or the class AJ-FL REMIC II regular interest that are then entitled to receive payments of principal with respect to the loan group that includes the prepaid mortgage loan; and/or o the holders of the class X certificates. All prepayment premiums and yield maintenance charges payable as described above will be reduced, with respect to specially serviced mortgage loans, by an amount equal to certain expenses of the issuing entity and losses realized in respect of the mortgage loans previously allocated to any class of certificates. See "Description of the Offered Certificates--Payments--Payments of Prepayment Premiums and Yield Maintenance Charges" in this prospectus supplement. S-23
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F. FEES AND EXPENSES ..................... The amounts available for distribution on the certificates on any distribution date will generally be net of the following amounts: TYPE / RECIPIENT AMOUNT/SOURCE FREQUENCY ------------------------------- --------------------------------------------------- -------------- FEES Master Servicing Fee / Master Payable with respect to each and every mortgage Monthly Servicers loan held by the issuing entity, including each specially serviced mortgage loan, if any, and each mortgage loan, if any, as to which the corresponding mortgaged real property has been acquired as foreclosure property as part of the assets of the issuing entity. With respect to each such mortgage loan, the master servicing fee will: (1) generally be calculated for the same number of days and on the same principal amount as interest accrues or is deemed to accrue on that mortgage loan; (2) accrue at an annual rate that ranges from 0.02000% to 0.10000% per annum; and (3) be payable (a) monthly from amounts allocable as interest with respect to that mortgage loan and/or (b) if the subject mortgage loan and any related foreclosure property has been liquidated on behalf of, among others, the certificateholders, out of general collections on the mortgage pool. Master servicing fees with respect to any mortgage loan will include the primary servicing fees payable by the applicable master servicer to any sub-servicer with respect to that mortgage loan. Additional Master Servicing o Prepayment interest excesses collected Time to time Compensation / Master Servicers on mortgage loans that are the subject of a principal prepayment in full or in part after their respective due dates in any collection period; o All interest and investment income earned Monthly on amounts on deposit in accounts maintained by a master servicer, to the extent not otherwise payable to the borrowers; o On non-specially serviced mortgage loans, Time to time late payment charges and default interest actually collected with respect to the subject mortgage loan during any collection period, but only to the extent not otherwise allocable to pay the following items with respect to the subject mortgage loan: (i) interest on advances; or (ii) additional trust fund expenses currently payable or previously paid with respect to the subject mortgage loan or related mortgaged real property from collections on the mortgage pool and not previously reimbursed; and S-24
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TYPE / RECIPIENT AMOUNT/SOURCE FREQUENCY ------------------------------- --------------------------------------------------- -------------- o With respect to any non-specially Time to Time serviced mortgage loan, 100%--or, if the consent of the special servicer is required with respect to the subject action, 50%-- of each assumption application fee, assumption fee, modification fee, extension fee other similar fee or fees paid in connection with a defeasance of a mortgage loan that is actually paid by a borrower in connection with the related action. Special Servicing Fee / Payable with respect to each mortgage loan that is Monthly Special Servicer being specially serviced or as to which the corresponding mortgaged real property has been acquired as foreclosure property as part of the assets of the issuing entity. With respect to each such mortgage loan, the special servicing fee will: (a) accrue for the same number of days and on the same principal amount as interest accrues or is deemed to accrue from time to time on that mortgage loan; (b) accrue at a special servicing fee rate of 0.25% per annum; and (c) be payable monthly from general collections on the mortgage pool. Workout Fee / Special Servicer Payable with respect to each specially serviced Time to time mortgage loan that the special servicer successfully works out. The workout fee will be payable out of, and will be calculated by application of a workout fee rate of 1.0% to, each collection of interest and principal received on the subject mortgage loan for so long as it is not returned to special servicing by reason of an actual or reasonably foreseeable default. Principal Recovery Fee / Subject to the exceptions described under "Servicing Time to time Special Servicer of the Mortgage Loans--Servicing and Other Compensation and Payment of Expenses--Principal Special Servicing Compensation--The Principal Recovery Fee" in this prospectus supplement, payable with respect to: (a) each specially serviced mortgage loan--or any replacement mortgage loan substituted for it--as to which the special servicer obtains a full or discounted payoff from the related borrower; and (b) any specially serviced mortgage loan or foreclosure property as to which the special servicer receives any liquidation proceeds, sale proceeds, insurance proceeds or condemnation proceeds. As to each such specially serviced mortgage loan or foreclosure property, the principal recovery fee will be payable from, and will be calculated by application of a principal recovery fee rate of 1.0% to, the related payment or proceeds. Additional Special Servicing o All interest and investment income earned Monthly Compensation / Special Servicer on amounts on deposit in accounts maintained by the special servicer; S-25
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TYPE / RECIPIENT AMOUNT/SOURCE FREQUENCY ------------------------------- --------------------------------------------------- -------------- o On specially serviced mortgage loans, Time to time late payment charges and default interest actually collected with respect to the subject mortgage loan during any collection period, but only to the extent not otherwise allocable to pay the following items with respect to the subject mortgage loan: (i) interest on advances; or (ii) additional trust fund expenses currently payable or previously paid with respect to the subject mortgage loan or related mortgaged real property from collections on the mortgage pool and not previously reimbursed; o With respect to any specially serviced Time to time mortgage loan, 100% of assumption fees or modification fee actually paid by a borrower with respect to any assumption or modification; and o With respect to any non-specially Time to time serviced mortgage loan, if the consent of the special servicer is required with respect to the subject action, 50% of assumption application fees, assumption fees, modification fees and other fees actually paid by a borrower with respect to any assumption, modification or other agreement entered into by the applicable master servicer. Trust Administration Fee / Payable out of general collections on the mortgage Monthly Trustee pool and, for any distribution date, will equal one month's interest at 0.00085% per annum with respect to each and every mortgage loan held by the issuing entity, including each specially serviced mortgage loan, if any, and each mortgage loan, if any, as to which the corresponding mortgaged real property has been acquired as foreclosure property as part of the assets of the issuing entity. Additional Trust All interest and investment income earned on amounts Monthly Administration on deposit in accounts maintained by the trustee. Compensation/Trustee EXPENSES Servicing Advances / Trustee, To the extent of funds available, the amount of Time to time Master Servicers or Special any servicing advances.(1) Servicer Interest on Servicing Advances At a rate per annum equal to a published prime Time to time / Master Servicers, Special rate, accrued on the amount of each outstanding Servicer or Trustee servicing advance.(2) P&I Advances / Master To the extent of funds available, the amount of Time to Time Servicers and Trustee any P&I advances.(1) Interest on P&I Advances / At a rate per annum equal to a published prime Time to Time Master Servicers and Trustee rate, accrued on the amount of each outstanding S-26
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TYPE / RECIPIENT AMOUNT/SOURCE FREQUENCY ------------------------------- --------------------------------------------------- -------------- Indemnification Expenses / Amount to which such party is entitled to Time to time Trustee and any director, indemnification under the pooling and servicing shareholder, officer, employee agreement.(3) or agent of the Trustee; Depositor, Master Servicers or Special Servicer and any shareholder, director, officer, employee or agent of Depositor, the Master Servicers or Special Servicer ____________________ (1) Reimbursable out of collections on the related mortgage loan, except that: (a) advances that are determined not to be recoverable out of related collections will be reimbursable first out of general collections of principal on the mortgage pool and then out of other general collections on the mortgage pool; and (b) advances that remain outstanding after a specially serviced mortgage loan has been worked out and the servicing of that mortgage loan has been returned to the applicable master servicer may be reimbursable out of general collections of principal on the mortgage pool. (2) Payable out of late payment charges and/or default interest on the related mortgage loan or, in connection with or after reimbursement of the related advance, out of general collections on the mortgage pool, although in some cases interest on advances may be payable first or solely out of general collections of principal on the mortgage pool. (3) Payable out of general collections on the mortgage pool. In general, none of the above specified persons are entitled to indemnification for (1) any liability specifically required to be borne by the related person pursuant to the terms of the pooling and servicing agreement, or (2) any loss, liability or expense incurred by reason of willful misfeasance, bad faith or negligence in the performance of, or the negligent disregard of, such party's obligations and duties under the pooling and servicing agreement, or as may arise from a breach of any representation or warranty of such party made in the pooling and servicing agreement. The foregoing fees and expenses will generally be payable prior to distribution on the offered certificates. If any of the foregoing fees and expenses are identified as being payable out of a particular source of funds, then the subject fee or expense, as the case may be, will be payable out of that particular source of funds prior to any application of those funds to make payments with respect to the offered certificates. In addition, if any of the foregoing fees and expenses are identified as being payable out of general collections with respect to the mortgage pool, then the subject fee or expense, as the case may be, will be payable out of those general collections prior to any application of those general collections to make payments with respect to the offered certificates. Further information with respect to the foregoing fees and expenses, including information regarding the general purpose of and the source of payment for these fees and expenses, as well as information regarding other fees and expenses, is set forth under "Description of the Offered Certificates--Fees and Expenses" in this prospectus supplement. G. PAYMENTS OF ADDITIONAL INTEREST ....... On each distribution date, any additional interest collected during the related collection period on a mortgage loan that converts from a fixed rate of interest to a floating rate of interest (accruing at a rate in excess of the initial fixed interest rate) will be distributed to the holders of the class Y certificates, and any additional interest collected during the related collection period on a mortgage loan with an anticipated repayment date will be distributed to the holders of the class Z certificates. See "Description of the Offered Certificates--Payments--Payments of Additional Interest" in this prospectus supplement. S-27
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H. ALLOCATION OF LOSSES ON THE MORTGAGE LOANS AND OTHER UNANTICIPATED EXPENSES ................ Because of losses on the mortgage loans, reimbursements of advances determined to be nonrecoverable on a loan-specific basis and/or default-related and other unanticipated expenses of the issuing entity (such as interest on advances, special servicing fees, workout fees and liquidation fees), the total principal balance of the mortgage pool, less any related outstanding advances of principal, may fall below the total principal balance of the principal balance certificates. For purposes of this determination only, effect will not be given to any reductions of the principal balance of any mortgage loan for payments of principal collected on the mortgage loans that were used to reimburse any advances outstanding after a workout of another mortgage loan to the extent those advances are not otherwise determined to be nonrecoverable on a loan-specific basis. If and to the extent that those losses, reimbursements and expenses cause the total principal balance of the mortgage pool, less any related outstanding advances of principal, to be less than the total principal balance of the principal balance certificates following the payments made on the certificates on any distribution date, the total principal balances of the following classes of principal balance certificates (or, in the case of the reference to "A-2FL" below, the class A-2FL REMIC II regular interest, in the case of the reference to "A-3FL" below, the class A-3FL REMIC II regular interest, in the case of the reference to "AM-FL" below, the class AM-FL REMIC II regular interest and in the case of the reference to "AJ-FL" below, the class AJ-FL REMIC II regular interest) will be successively reduced in the following order, until the deficit is eliminated: REDUCTION ORDER CLASS ---------------------------------- --------------------------------------- 1 T 2 S 3 Q 4 P 5 N 6 M 7 L 8 K 9 J 10 H 11 G 12 F 13 E 14 D 15 C 16 B 17 AJ, AJ-FL 18 AM, AM-FL 19 A-1, A-2, A-2FL, A-SB, A-3, A-3FL and A-1A Any reduction to the total principal balances of the class A-1, A-2, A-SB, A-3 and A-1A certificates and the class A-2FL and A-3FL REMIC II regular interests will be made on a pari passu and pro rata basis in accordance with the relative sizes of those principal balances, without regard to loan groups. Any reduction to the total principal balances of S-28
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the class AM certificates and class AM-FL REMIC II regular interest will be made on a pari passu and pro rata basis in accordance with the relative sizes of those principal balances. Any reduction to the total principal balances of the class AJ certificates and class AJ-FL REMIC II regular interest will be made on a pari passu and pro rata basis in accordance with the relative sizes of those principal balances. Any losses realized on the mortgage loans or additional trust fund expenses allocated in reduction of the principal balance of any class of principal balance certificates will result in a corresponding reduction in the notional amount of the class X certificates. See "Description of the Offered Certificates--Reductions to Certificate Principal Balances in Connection with Realized Losses and Additional Trust Fund Expenses" in this prospectus supplement. I. ADVANCES OF DELINQUENT MONTHLY DEBT SERVICE PAYMENTS ......... Except as described below, each master servicer will be required to make advances of principal and/or interest due on the mortgage loans master serviced thereby with respect to any delinquent monthly payments, other than balloon payments. In addition, the trustee must make any of those advances that the applicable master servicer is required to but fails to make. As described under "Description of the Offered Certificates--Advances of Delinquent Monthly Debt Service Payments and Reimbursement of Advances" in this prospectus supplement, any party that makes an advance will be entitled to be reimbursed for the advance, together with interest at a published prime rate, as described in that section of this prospectus supplement. Notwithstanding the foregoing, none of the master servicers or the trustee will be required to make any advance that it determines, in its reasonable judgment, will not be recoverable (together with interest accrued on that advance) from proceeds of the related mortgage loan. The trustee will be entitled to rely on any determination of non-recoverability made by a master servicer. The special servicer may also determine that any interest and/or principal advance made or proposed to be made by a master servicer or the trustee is not or will not be, as applicable, recoverable, together with interest accrued on that advance, from proceeds of the mortgage loan to which that advance relates, and the applicable master servicer and the trustee will be entitled to rely on any determination of nonrecoverability made by the special servicer and will be required to act in accordance with that determination. The special servicer, however, will not have the right to determine as recoverable any advance that has been determined by the applicable master servicer to be nonrecoverable. In addition, if any of the adverse events or circumstances that we refer to under "Servicing of the Mortgage Loans--Required Appraisals" in, and described in the glossary to, this prospectus supplement occur or exist with respect to any mortgage loan or the mortgaged real property for that mortgage loan, the special servicer will be obligated to obtain a new appraisal or, at the special servicer's option in cases involving mortgage loans with relatively small principal balances, conduct a valuation of that property. If, based on that appraisal or other valuation, subject to the discussion below regarding the loan combinations, it is determined that: S-29
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o the sum of the principal balance of the subject mortgage loan plus other delinquent amounts due under the subject mortgage loan exceeds o an amount generally equal to: 1. 90% of the new estimated value of the related mortgaged real property, which value may be reduced by the special servicer based on its review of the related appraisal and other relevant information; plus 2. certain other amounts such as escrow funds, then the amount otherwise required to be advanced with respect to interest on that mortgage loan will be reduced in the same proportion that the excess, sometimes referred to as an appraisal reduction amount, bears to the principal balance of the mortgage loan, which will be deemed to be reduced by any outstanding advances of principal in respect of that mortgage loan. In the event advances of interest are so reduced, funds available to make payments on the certificates then outstanding will be reduced. The calculation of any appraisal reduction amount in respect of any trust mortgage loan that is part of a loan combination will take into account any related A-note and/or B-note loan, as applicable. The special servicer will determine whether an appraisal reduction amount exists with respect to any of those loan combinations based on a calculation that generally treats the subject loan combination as if it were a single mortgage loan. Any resulting appraisal reduction amount with respect to any of those loan combinations will be allocated, first (if applicable) to the related B-note loan or loans (up to the amount of the outstanding principal balance of that B-note loan or loans), and then to the related mortgage loan held by the issuing entity and any other related A-note mortgage loans not held by the issuing entity, on a pro rata basis. The amount of advances of interest on each of the mortgage loans held by the issuing entity that is part of a loan combination will be reduced so as to take into account any appraisal reduction amount allocable to the subject mortgage loan. None of the master servicers or the trustee will be required to make advances of principal and/or interest with respect to any mortgage loan that is not held by the issuing entity. See "Description of the Offered Certificates--Advances of Delinquent Monthly Debt Service Payments and Reimbursement of Advances" and "Servicing of the Mortgage Loans--Required Appraisals" in this prospectus supplement. See also "Description of the Governing Documents--Advances" in the accompanying base prospectus. J. REPORTS TO CERTIFICATEHOLDERS ......... On each distribution date, the trustee will make available on its internet website, initially located at www.etrustee.net, or provide on request, to the registered holders of the offered certificates, a monthly report substantially in the form of Annex D to this prospectus supplement. The trustee reports will detail, among other things, the distributions made to the certificateholders on that distribution date and the performance of the mortgage loans and the mortgaged real properties. S-30
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You may also review on the trustee's website, initially located at www.etrustee.net, or, upon reasonable prior notice, at the trustee's offices during normal business hours, a variety of information and documents that pertain to the mortgage loans and the mortgaged real properties for those loans. See "Description of the Offered Certificates--Reports to Certificateholders; Available Information" in this prospectus supplement. K. OPTIONAL AND OTHER TERMINATION ........ Specified parties to the transaction may purchase all of the mortgage loans and any foreclosure properties held by the issuing entity, and thereby terminate the issuing entity, when the aggregate principal balance of the mortgage loans, less any outstanding advances of principal, is less than approximately 1.0% of the initial mortgage pool balance, prior to the application of principal payments and losses in the related collection period. In addition, if, following the date on which the total principal balance of the offered certificates and the class A-2FL, A-3FL, AM-FL and AJ-FL REMIC II regular interests, are reduced to zero, all of the remaining certificates (but excluding the class Y, Z, R-I and R-II certificates) are held by the same certificateholder, the issuing entity may also be terminated, subject to such additional conditions as may be set forth in the pooling and servicing agreement, in connection with an exchange of all the remaining certificates (other than the class Y, Z, R-I and R-II certificates) for all the mortgage loans and any foreclosure properties held by the issuing entity at the time of exchange. See "Description of the Offered Certificates--Termination" in this prospectus supplement. THE MORTGAGE LOANS AND THE MORTGAGED REAL PROPERTIES GENERAL .................................. In this section, we provide summary information with respect to the mortgage loans that we intend to transfer to the issuing entity. For more detailed information regarding those mortgage loans, you should review the following sections in this prospectus supplement: o "Description of the Mortgage Pool"; o "Risk Factors--Risks Related to the Mortgage Loans"; o Annex A-1--Certain Characteristics of the Mortgage Loans; o Annex A-2--Certain Statistical Information Regarding the Mortgage Loans; o Annex A-3--Haverly Park Apartments Trust Mortgage Loan Amortization Schedule; o Annex B--Certain Characteristics Regarding Multifamily Properties in Loan Group 2; and o Annex C--Preliminary Structural and Collateral Term Sheet. S-31
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When reviewing the information that we have included in this prospectus supplement with respect to the mortgage loans that are to be transferred to the issuing entity, please note that-- o all numerical information provided with respect to the mortgage loans is provided on an approximate basis; o all cut-off date principal balances assume the timely receipt of the scheduled payments for each mortgage loan and that no prepayments occur prior to the cut-off date; o all weighted average information provided with respect to the mortgage loans reflects a weighting of the subject mortgage loans based on their respective cut-off date principal balances; the initial mortgage pool balance will equal the total cut-off date principal balance of the entire mortgage pool, and the initial loan group 1 balance and the initial loan group 2 balance will each equal the total cut-off date principal balance of the mortgage loans in the subject loan group; we show the cut-off date principal balance for each of the mortgage loans on Annex A-1 to this prospectus supplement; o when information with respect to the mortgage loans is expressed as a percentage of the initial mortgage pool balance, the initial loan group 1 balance or the initial loan group 2 balance, the percentages are based upon the cut-off date principal balances of the subject mortgage loans; o when information with respect to the mortgaged real properties is expressed as a percentage of the initial mortgage pool balance, the initial loan group 1 balance or the initial loan group 2 balance, the percentages are based upon the cut-off date principal balances of the related mortgage loans; o if any mortgage loan is secured by multiple mortgaged real properties, the related cut-off date principal balance has been allocated among the individual properties based on any of (i) an individual property's appraised value as a percentage of the total appraised value of all the related mortgaged real properties, including the subject individual property, securing that mortgage loan, (ii) an individual property's underwritten net operating income as a percentage of the total underwritten net operating income of all the related mortgaged real properties, including the subject individual property, securing that mortgage loan and (iii) an allocated loan balance specified in the related loan documents; o unless specifically indicated otherwise, statistical information presented in this prospectus supplement with respect to any funded mortgage loan held by the issuing entity that is part of a loan combination includes the related A-note loans not included in the issuing entity; o other than with respect to Farallon Portfolio and Georgia-Alabama Retail Portfolio and unless specifically indicated otherwise, statistical information presented in this prospectus S-32
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supplement with respect to any mortgage loan held by the issuing entity that is part of a loan combination excludes the related B-note loan not included in the issuing entity; o statistical information regarding the mortgage loans may change prior to the date of initial issuance of the offered certificates due to changes in the composition of the mortgage pool prior to that date, which may result in the initial mortgage pool balance being as much as 5% larger or smaller than indicated; o the sum of numbers presented in any column within a table may not equal the indicated total due to rounding; o when a mortgage loan is identified by loan number, we are referring to the loan number indicated for that mortgage loan on Annex A-1 to this prospectus supplement; and o when a mortgage loan does not have a fixed interest rate for the loan term, the interest rate shown or used in calculations throughout is the initial interest rate, unless otherwise specified. SUBSTITUTIONS, ACQUISITIONS AND REMOVALS OF MORTGAGE LOANS ............ On or prior to the date of initial issuance of the offered certificates, we will acquire the mortgage loans from the sponsors and will transfer the mortgage loans to the issuing entity. Except as contemplated in the following paragraphs regarding the replacement of a defective mortgage loan, no mortgage loan may otherwise be added to the assets of the issuing entity. Each sponsor, with respect to each mortgage loan transferred by it to us for inclusion in the pool as assets held by the issuing entity, will: o make, as of the date of initial issuance of the offered certificates, and subject to any applicable exceptions, the representations and warranties generally described under "Description of the Mortgage Pool--Representations and Warranties" in this prospectus supplement; and o agree to deliver the loan documents described under "Description of the Mortgage Pool--Assignment of the Mortgage Loans" in this prospectus supplement. If there exists a breach of any of those representations and warranties, or if there exists a document defect with respect to any mortgage loan, which breach or document defect materially and adversely affects the value of the subject mortgage loan or the interests of the certificateholders, and if that breach or document defect is not cured within the period contemplated under "Description of the Mortgage Pool--Repurchases and Substitutions" in this prospectus supplement, then the affected mortgage loan will be subject to repurchase or substitution as described under "Description of the Mortgage Pool--Repurchases and Substitutions" in this prospectus supplement. S-33
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If any mortgage loan experiences payment defaults similar to the payment defaults that would result in a transfer of servicing from the applicable master servicer to the special servicer, then it will be subject to a fair value purchase option on the part of the special servicer, the holder--or, if applicable, the beneficial owner--of certificates representing the largest percentage interest of voting rights allocated to the controlling class or an assignee of the foregoing, as described under "Servicing of the Mortgage Loans--Realization Upon Defaulted Mortgage Loans--Fair Value Call" in this prospectus supplement; provided, however, that with respect to the Farallon Portfolio trust mortgage loan, one or more of the holders of the non-trust loans will have the right to purchase the Farallon Portfolio trust mortgage loan prior to the special servicer or the controlling class representative; provided, further, with respect to the Georgia-Alabama Retail Portfolio trust mortgage loan, the holders of the B-note trust loan and the B-note non-trust loan each have the right to exercise a purchase option and purchase (at par) both the related trust mortgage loan and the A-note non-trust loan, and, if such right is not exercised by such B-note holders, the controlling class representative of the securitization containing the A-note non-trust loan has a fair value right to purchase the related A-note non-trust loan and the special servicer or the controlling class representative has a fair value purchase option with respect to the trust mortgage loan. See "Description of the Mortgage Pool--The Loan Combinations--The Farallon Portfolio Loan Combination" and "--The Georgia-Alabama Retail Portfolio Loan Combination" in this prospectus supplement. If, in the case of any mortgage loan held by the issuing entity, there exists additional debt that is secured by the related mortgaged real property or by an interest in the related borrower, which additional debt is not held by the issuing entity, then the lender on that additional debt may be entitled to acquire that mortgage loan--generally at a price no less than the unpaid principal balance of the subject mortgage loan, plus interest, exclusive of default interest, accrued thereon--upon the occurrence of a default or, in some cases, a reasonably foreseeable default. The issuing entity will be subject to optional termination as discussed under "Description of the Offered Certificates--Termination" in this prospectus supplement. PAYMENT AND OTHER TERMS................... Each of the mortgage loans is the obligation of a borrower to repay a specified sum with interest. Each of the mortgage loans is secured by a first mortgage lien on the fee and/or leasehold interest of the related borrower or another party in one or more commercial, multifamily or manufactured housing community real properties. Each mortgage lien will be subject to the limited permitted encumbrances that we describe in the glossary to this prospectus supplement. All of the mortgage loans are or should be considered nonrecourse. None of the mortgage loans is insured or guaranteed by any governmental agency or instrumentality, by any private mortgage insurer, by any sponsor or by any of the parties to the pooling and servicing agreement. S-34
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Each of the mortgage loans currently accrues interest at the annual rate specified with respect to that loan on Annex A-1 to this prospectus supplement. Except as otherwise described below with respect to mortgage loans that have anticipated repayment dates or that are converting mortgage loans or the mortgage loan identified on Annex A-1 to this prospectus supplement as Haverly Park Apartments, the mortgage interest rate for each mortgage loan is, in the absence of default, fixed for the entire term of the mortgage loan. A. Amortizing Balloon Loans .............. Seventy-seven (77) of the mortgage loans, representing approximately 15.7% of the initial mortgage pool balance (fifty-six (56) mortgage loans in loan group 1, representing approximately 17.9% of the initial loan group 1 balance, and twenty-one (21) mortgage loans in loan group 2, representing approximately 12.6% of the initial loan group 2 balance), provide for: o the amortization of principal commencing, in each such case, no later than the first regular payment date following origination; o an amortization schedule that is significantly longer than its remaining term to stated maturity; and o a substantial payment of principal on its maturity date. These 77 balloon mortgage loans do not include any of the balloon mortgage loans described under "--Partial Interest-Only Balloon Loans" or "--Interest-Only Balloon Loans" below. B. Partial Interest-Only Balloon Loans or ARD Loans ......................... Ninety (90) of the mortgage loans, representing approximately 48.3% of the initial mortgage pool balance (seventy-three (73) mortgage loans in loan group 1, representing approximately 47.2% of the initial loan group 1 balance, and seventeen (17) mortgage loans in loan group 2, representing approximately 49.7% of the initial loan group 2 balance), require: o the payment of interest only on each due date until the expiration of a designated period; o the amortization of principal following the expiration of that interest-only period based on an amortization schedule that is significantly longer than its remaining term to stated maturity; and o a substantial payment of principal on its maturity date. C. Interest-Only Balloon Loans ........... Thirty-nine (39) of the mortgage loans, representing approximately 31.2% of the initial mortgage pool balance (twenty-four (24) mortgage loans in loan group 1, representing approximately 26.6% of the initial loan group 1 balance, and fifteen (15) mortgage loans in loan group 2, representing approximately 37.3% of the initial loan group 2 balance), require the payment of interest only until the related maturity date and provide for the repayment of the entire principal balance on the related maturity date. S-35
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D. ARD Loans ............................. Five (5) of the mortgage loans, representing approximately 4.2% of the initial mortgage pool balance and approximately 7.2% of the initial loan group 1 balance, respectively, which are commonly referred to as hyper-amortization loans or ARD Loans, provide for material changes to their terms to encourage the related borrower to pay the mortgage loan in full by a specified date. We consider that date to be the anticipated repayment date for such ARD Loans. There can be no assurance, however, that these incentives will result in any of these mortgage loans being paid in full on or before its anticipated repayment date. The changes to the loan terms, which, in each case, will become effective as of the related anticipated repayment date, include: o accrual of interest at a rate in excess of the initial mortgage interest rate with the additional interest to be deferred and payable only after the outstanding principal balance of the subject mortgage loan is paid in full; and o applying excess cash flow from the mortgaged real property to pay down the principal amount of the subject mortgage loan, which payment of principal will be in addition to the principal portion of the normal monthly debt service payment. Certain of the above-identified ARD Loans require: o the payment of interest only until the expiration of a designated period; and o the amortization of principal following the expiration of that interest-only period. E. Fully Amortizing Loans ................ Seven (7) of the mortgage loans, representing approximately 0.7% of the initial mortgage pool balance, four (4) mortgage loans representing approximately 1.0% of the initial loan group 1 balance and three (3) mortgage loans representing approximately 0.3% of the initial loan group 2 balance, respectively, have a payment schedule that provides for the payment of principal of the subject mortgage loan substantially in full by its maturity date. F. Converting Loans ...................... Four (4) mortgage loans, representing approximately 0.2% of the initial mortgage pool balance, approximately 0.1% of the initial loan group 1 balance and approximately 0.3% of the initial loan group 2 balance, convert from a fixed rate loan to a floating rate loan commencing ten years after the first payment date. Such mortgage loans are fully amortizing loans and the related loan documents provide that until the first adjustment period, the interest rate must be at least as high as the related fixed interest rate specified in this prospectus supplement, but thereafter, the interest rate may adjust to a rate that is lower than the initial fixed interest rate, without any floor. The earliest date that any converting mortgage loan will convert to a floating interest rate is May 8, 2017. LOAN COMBINATIONS ........................ Five (5) mortgage loans are, in each case, part of a loan combination comprised of two (2) or more mortgage loans that are obligations of the same borrower, only one of which (or, in the case of Farallon Portfolio, ten of which) will be transferred to the issuing entity. The remaining mortgage loans in each loan combination will not be transferred to the issuing entity, however all of the mortgage loans in the subject loan S-36
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combination are together secured by the same mortgage instrument(s) encumbering the same mortgaged real property or properties. In the case of each such loan combination (other than the Farallon Portfolio loan combination and the Georgia-Alabama Retail Portfolio loan combination), the mortgage loan that will not be transferred to the issuing entity is, in general, subordinate in right of payment with the mortgage loan in the same loan combination that has been transferred to the issuing entity, but only to the extent set forth in the related co-lender or intercreditor agreement. In the case of the Farallon Portfolio loan combination, the mortgage loans transferred to the issuing entity consist of five A-note mortgage loans and five B-note mortgage loans. The (x) A-note Farallon Portfolio mortgage loans that will not be transferred to the issuing entity are, in general, pari passu in priority in respect of payment of interest and principal (other than principal payments that are made specifically on such A-note Farallon Portfolio mortgage loans by the related borrower pursuant to the mortgage loan documents) with the portion of the Farallon Portfolio trust mortgage loan that constitutes an A-note and senior in priority in respect of payment of interest and principal with the portion of the Farallon Portfolio trust mortgage loan that constitutes a B-note and (y) B-note Farallon Portfolio mortgage loans that will not be transferred to the issuing entity are, in general, junior in priority in respect of payment of interest and principal with the portion of the Farallon Portfolio trust mortgage loan that constitutes an A-note and pari passu in priority in respect of payment of interest and principal (other than principal payments that are made specifically on such B-note Farallon Portfolio mortgage loans by the related borrower pursuant to the mortgage loan documents) with the portion of the Farallon Portfolio trust mortgage loan that constitutes a B-note but, in each case, only to the extent set forth in the related co-lender or intercreditor agreement. In the case of the Georgia-Alabama Retail Portfolio loan combination, the mortgage loans transferred to the issuing entity consist of an A-note trust mortgage loan and a B-note trust mortgage loan. One of the loans that will not be transferred to the issuing entity will be equal in priority in respect of payment with the A-note trust mortgage loan and senior in priority in respect of payment with the B-note trust mortgage loan. The other loan that will not be transferred to the issuing entity will be subordinate in priority with respect to the A-note trust mortgage loan and equal in priority in respect of payment with the B-note trust mortgage loan, but, in each case, only to the extent set forth in the related co-lender or intercreditor agreements. S-37
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The following mortgage loans are each part of a loan combination: U/W DSCR (NCF) AND CUT-OFF DATE MORTGAGE LOANS THAT ARE RELATED LOAN-TO-VALUE RATIO OF ENTIRE PART OF A LOAN COMBINATION NON-TRUST LOANS LOAN COMBINATION % OF TRUST MORTGAGE LOAN CUT-OFF DATE INITIAL ORIGINAL CUT-OFF DATE (AS IDENTIFIED ON ANNEX A-1 TO THIS PRINCIPAL MORTGAGE PRINCIPAL LOAN-TO-VALUE PROSPECTUS SUPPLEMENT) BALANCE POOL BALANCE BALANCE U/W NCF DSCR(2) RATIO(2) Farallon Portfolio(1) $250,000,000 10.3% $1,325,500,000 1.50x 79.7% Executive Hills Portfolio $99,900,000 4.1% $11,100,000 1.24x 79.3% Peninsula Beverly Hills $79,300,000 3.3% $60,700,000 1.40x 63.2% Georgia-Alabama Retail $39,926,997 1.6% $40,000,000 1.24x 79.3% Portfolio(3) Timbercreek Apartments $5,317,000 0.2% $331,300 1.08x 84.9% (1) The Farallon Portfolio trust mortgage loan consists of ten promissory notes, five (5) of which are A-notes in the aggregate original principal amount of $116,225,000 and five (5) of which are B-notes in the aggregate original principal amount of $133,775,000. The debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable under the related trust mortgage loans and the related non-trust mortgage loans (including the related subordinate B-note non-trust loans) and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related trust mortgage loans and the related non-trust mortgage loans (including the related subordinate B-note non-trust loans). The U/W NCF DSCR calculations include cash flow from the rental housing portfolio owned by affiliates of the related borrowers. A pledge of the equity in such affiliates was obtained as additional collateral for the loan and will be released when a certain debt service coverage ratio is satisfied. The U/W NCF DSCR excluding cash flow from the Farallon Portfolio rental housing portfolio is 1.27x. See Annex C, "Preliminary Structural and Collateral Term Sheet--The Farallon Portfolio." (2) In the case of the Executive Hills Portfolio, Peninsula Beverly Hills and Timbercreek Apartments trust mortgage loans, the debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable only under the related trust mortgage loans (and not the related subordinate B-note loans) and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related trust mortgage loans (and not the related subordinate B-note loans). (3) The Georgia-Alabama Retail Portfolio loan combination consists of an A-Note trust loan with an original principal balance of $33,000,000, an A-note non-trust loan with an original principal balance of $33,000,000, a B-note trust loan with an original principal balance of $7,000,000 and a B-note non-trust loan with an original principal balance of $7,000,000. The debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable under the related loan combination and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related loan combination. See "Description of the Mortgage Pool--The Loan Combinations" in this prospectus supplement for a more detailed description, with respect to each loan combination, of the related co-lender arrangement and the priority of payments among the mortgage loans constituting such loan combination. Also, see "Description of the Mortgage Pool--Additional Loan and Property Information--Additional and Other Financing" in this prospectus supplement. DELINQUENCY STATUS ....................... None of the mortgage loans was 30 days or more delinquent with respect to any monthly debt service payment as of its cut-off date or at any time since the date of its origination. None of the mortgage loans has experienced any losses of principal or interest (through forgiveness of debt or restructuring) since origination. PREPAYMENT LOCK-OUT PERIODS .............. Except as described under "Description of the Mortgage Pool--Terms and Conditions of the Mortgage Loans--Prepayment Provisions" in this prospectus supplement with respect to one hundred ninety-one (191) mortgage loans representing 81.3% of the initial mortgage pool balance (one hundred fifty (150) mortgage loans in loan group 1, representing approximately 88.4% of the initial loan group 1 balance, and forty-one (41) mortgage loans in loan group 2, representing S-38
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approximately 71.7% of the initial loan group 2 balance)) restrict prepayment for a particular period commonly referred to as a lock-out period and, in most cases (see "--Defeasance" below), a period during which the subject mortgage loan may be defeased but not prepaid. The weighted average remaining prepayment lock-out period and defeasance period of the mortgage loans as of the cut-off date is approximately 92 months (approximately 93 months for the mortgage loans in loan group 1 and approximately 92 months for the mortgage loans in loan group 2). DEFEASANCE ............................... One hundred fifty-two (152) of the mortgage loans, representing approximately 82.1% of the initial mortgage pool balance (one hundred nineteen (119) mortgage loans in loan group 1, representing approximately 74.2% of the initial loan group 1 balance, and thirty-three (33) mortgage loans in loan group 2, representing approximately 92.7% of the initial loan group 2 balance), permit the related borrower, under certain conditions, to obtain a full or, in certain cases, a partial release of the mortgaged real property from the mortgage lien by delivering U.S. Treasury obligations or other non-callable government securities as substitute collateral. None of these mortgage loans permits defeasance prior to the second anniversary of the date of initial issuance of the certificates; provided, however two (2) of these mortgage loans, representing 10.7% of the initial mortgage pool balance, 0.8% of the initial loan group 1 balance and 24.2% of the initial loan group 2 balance permit voluntary prepayments with the payment of prepayment consideration prior to the beginning of the defeasance period. The payments on the defeasance collateral are required to be at least equal to an amount sufficient to make, when due, all debt service payments on the defeased mortgage loan or portion thereof allocated to the related mortgaged real property, including any balloon payment. PREPAYMENT CONSIDERATION ................. All of the mortgage loans that we intend to include in the trust provide for one or more of the following: o a prepayment lock-out period, during which the principal balance of the mortgage loan may not be voluntarily prepaid in whole or in part; o a defeasance period, during which voluntary prepayments are prohibited, but the related borrower may obtain a full or partial release of the related mortgaged real property through defeasance; o a prepayment consideration period, during which voluntary prepayments are permitted, subject to the payment of a yield maintenance premium or other additional consideration for the prepayment; o a prepayment consideration period, during which voluntary prepayments are permitted, subject to the payment of a yield maintenance premium or other additional consideration for the prepayment followed by a defeasance period, during which voluntary prepayments are prohibited, but the related borrower may obtain a full or partial release of the related mortgaged real property through defeasance; and/or S-39
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o a prepayment consideration period, during which voluntary prepayments are permitted, subject to the payment of a yield maintenance premium or other additional consideration for the prepayment followed by a period during which the related borrower may obtain a full or partial release of the related mortgaged real property through defeasance or make voluntary prepayments subject to the payment of a yield maintenance premium. See "Description of the Mortgage Pool--Terms and Conditions of the Mortgage Loans--Prepayment Provisions" in this prospectus supplement. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.] S-40
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ADDITIONAL STATISTICAL INFORMATION ....... The mortgage pool will have the following general characteristics as of the cut-off date: MORTGAGE POOL LOAN GROUP 1 LOAN GROUP 2 -------------- -------------- -------------- Initial mortgage pool/loan group balance $2,435,364,704 $1,401,593,530 $1,033,771,173 Number of mortgage loans 218 162 56 Number of mortgaged real properties 664 259 405 Percentage of investment grade, shadow rated loans(1) 3.3% 5.7% 0.0% Average cut-off date principal balance 11,171,398 8,651,812 18,460,200 Largest cut-off date principal balance 335,000,000 99,900,000 335,000,000 Smallest cut-off date principal balance 494,011 898,482 494,011 Weighted average mortgage interest rate 5.9865% 5.9747% 6.0026% Highest mortgage interest rate 6.8100% 6.8100% 6.5226% Lowest mortgage interest rate 5.1100% 5.2900% 5.1100% Number of cross-collateralized loan groups 2 0 2 Cross-collateralized loan groups as a percentage of initial mortgage pool/loan group balance 1.3% 0.0% 3.0% Number of multi-property mortgage loans 11 8 3 Multi-property mortgage loans as a percentage of initial mortgage pool/loan group balance 35.3% 18.9% 57.7% Weighted average underwritten debt service coverage ratio(2) (3) (4) 1.36x 1.40x 1.31x Highest underwritten debt service coverage ratio(2) (3) (4) 3.06x 2.99x 3.06x Lowest underwritten debt service coverage ratio(2) (3) (4) 1.11x 1.13x 1.11x Weighted average cut-off date loan-to-value ratio(2) (3) (4) 71.6% 68.3% 76.2% Highest cut-off date loan-to-value ratio(2) (3) (4) 89.2% 89.2% 80.1% Lowest cut-off date loan-to-value ratio(2) (3) (4) 24.2% 24.2% 27.0% Weighted average original term to maturity or anticipated repayment date (months) 114 118 110 Longest original term to maturity or anticipated repayment date (months) 360 300 360 Shortest original term to maturity or anticipated repayment date (months) 60 60 60 Weighted average remaining term to maturity or anticipated repayment date (months) 113 116 108 Longest remaining term to maturity or anticipated repayment date (months) 358 298 358 Shortest remaining term to maturity or anticipated repayment date (months) 54 58 54 _____________________ (1) It has been confirmed to us by each of S&P and Fitch, in accordance with their respective methodologies, that loan number 4 has credit characteristics consistent with investment grade-rated obligations. (2) In the case of one (1) mortgage loan (loan number 127) the related debt service coverage ratio and/or loan-to-value ratio was calculated by taking into account a holdback amount and/or a letter of credit that was taken subject to the financial performance of the related mortgaged real property. Additionally, with respect to certain other mortgage loans (as described in the footnotes to Annex A-1), the related debt service coverage ratio and/or loan-to-value ratio was calculated by taking into account various assumptions regarding the financial performance of the related mortgaged real property on a "stabilized" basis. See the footnotes to Annex A-1 to this prospectus supplement for more information regarding the calculations of debt service coverage ratios and loan-to-value ratios. (3) In the case of the Executive Hills Portfolio, Peninsula Beverly Hills and Timbercreek Apartments trust mortgage loans, the debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable only under the related trust mortgage loans (and not the related subordinate B-note loans) and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related trust mortgage loans (and not the related subordinate B-note loans). In the case of the Georgia-Alabama Retail Portfolio trust mortgage loan, the debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable under the related loan combination and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related loan combination. (4) The Farallon Portfolio trust mortgage loan consists of ten promissory notes, five (5) of which are A-notes in the aggregate original principal amount of $116,225,000 and five (5) of which are B-notes in the aggregate original principal amount of $133,775,000. The debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable under the related trust mortgage loans and the related non-trust mortgage loans (including the related subordinate B-note non-trust loans) and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related trust mortgage loans and the related non-trust mortgage loans (including the related subordinate B-note non-trust loans). S-41
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PROPERTY TYPE............................. The table below shows the number of and the total cut-off date principal balance and percentages of the initial mortgage pool balance, the loan group 1 balance and the loan group 2 balance, respectively, secured by mortgaged real properties operated primarily for each indicated purpose: NUMBER OF MORTGAGED TOTAL CUT-OFF % OF INITIAL % OF INITIAL % OF INITIAL REAL DATE PRINCIPAL MORTGAGE POOL LOAN GROUP 1 LOAN GROUP 2 PROPERTY TYPES PROPERTIES BALANCE(1) BALANCE(1) BALANCE(1) BALANCE(1) ----------------------- ---------- -------------- ------------- ------------ ------------ Multifamily 408 $1,057,175,674 43.4% 1.7% 100.0% Multifamily 128 $758,965,534 31.2% 1.7% 71.2% Manufactured Housing 280 $298,210,139 12.2% 0.0% 28.8% Retail 151 $628,459,626 25.8% 44.8% 0.0% Anchored 29 $341,827,984 14.0% 24.4% 0.0% Unanchored(2) 48 $189,598,065 7.8% 13.5% 0.0% Convenience Store 62 $39,926,997 1.6% 2.8% 0.0% Shadow Anchored(3) 7 $30,433,581 1.2% 2.2% 0.0% Single Tenant 5 $26,673,000 1.1% 1.9% 0.0% Office(4) 35 $269,573,155 11.1% 19.2% 0.0% Hospitality 10 $192,020,082 7.9% 13.7% 0.0% Self Storage 34 $154,017,053 6.3% 11.0% 0.0% Industrial 14 $87,067,565 3.6% 6.2% 0.0% Mixed Use 10 $42,081,549 1.7% 3.0% 0.0% Land 2 $4,970,000 0.2% 0.4% 0.0% ---------- -------------- ------------- ------------ ------------ TOTAL: 664 $2,435,364,704 100.0% 100.0% 100.0% _____________________ (1) For mortgage loans secured by multiple mortgaged real properties, the related cut-off date principal balance has been allocated among those individual properties based on any of (i) an individual property's appraised value as a percentage of the total appraised value of all the related mortgaged real properties, including the subject individual property, securing the same mortgage loan, (ii) an individual property's underwritten net operating income as a percentage of the total underwritten net operating income of all the mortgaged real properties, including the subject individual property, securing the subject mortgage loan and (iii) an allocated loan balance specified in the related loan documents. (2) One of the mortgage loans secured by the mortgaged real properties identified on Annex A-1 as the Georgia-Alabama Retail Portfolio is secured by sixty-two (62) retail properties, which represent security for approximately 1.6% of the initial mortgage pool balance and approximately 2.8% of the loan group 1 balance, which are fee interests in gas stations with convenience stores and other retail stores located in Georgia (sixty (60) such properties) and Alabama (two (2) such properties). In addition, certain other retail properties securing mortgage loans in the pool may have gas stations as part of the retail mix. (3) A mortgaged real property is classified as shadow anchored if it is located in close proximity to an anchored retail property. (4) In the case of six (6) mortgaged real properties (securing loan numbers 38.01, 38.02, 64, 109, 196 and 202), representing approximately 1.3% of the initial mortgage loan pool balance, and approximately 2.3% of the initial loan group 1 balance, the related mortgaged real properties are medical offices. S-42
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PROPERTY LOCATION......................... The mortgaged real properties are located in 42 states. The following table sets forth the indicated information regarding those states where 5% or more of mortgaged real properties, based on allocated loan balance, are located. NUMBER OF TOTAL CUT-OFF % OF INITIAL % OF INITIAL % OF INITIAL MORTGAGED REAL DATE PRINCIPAL MORTGAGE POOL LOAN GROUP 1 LOAN GROUP 2 STATE PROPERTIES BALANCE(1) BALANCE(1) BALANCE(1) BALANCE(1) -------------- -------------- -------------- ------------- ------------ ------------ California 61 $431,846,443 17.7% 27.7% 4.2% Southern(2) 51 $339,808,043 14.0% 21.5% 3.8% Northern(2) 10 $92,038,401 3.8% 6.3% 0.4% Texas 84 $249,172,695 10.2% 6.6% 15.2% Florida 49 $231,413,829 9.5% 2.3% 19.3% Georgia 102 $212,450,232 8.7% 9.4% 7.8% Other 368 $1,310,481,504 53.8% 54.1% 53.5% -------------- -------------- ------------- ------------ ------------ TOTAL: 664 $2,435,364,704 100.0% 100.0% 100.0% _____________________ (1) For mortgage loans secured by multiple mortgaged real properties, the related cut-off date principal balance has been allocated among those individual properties based on any of (i) an individual property's appraised value as a percentage of the total appraised value of all the mortgaged real properties, including the subject individual property, securing the same mortgage loan, (ii) an individual property's underwritten net operating income as a percentage of the total underwritten net operating income of all the mortgaged real properties, including the subject individual property, securing the subject mortgage loan and (iii) an allocated loan balance specified in the related loan documents. (2) For purposes of determining whether a mortgaged real property is located in Northern California or Southern California, Northern California includes areas with zip codes of 93600 and above, and Southern California includes areas with zip codes below 93600. ENCUMBERED INTERESTS...................... The table below shows the number of, as well as the total cut-off date principal balance and percentage of the initial mortgage pool balance, the initial loan group 1 balance and the initial loan group 2 balance, respectively, secured by mortgaged real properties for which the significant encumbered interest is as indicated: ENCUMBERED INTEREST NUMBER OF TOTAL CUT-OFF % OF INITIAL % OF INITIAL % OF INITIAL IN THE MORTGAGED MORTGAGED REAL DATE PRINCIPAL MORTGAGE POOL LOAN GROUP 1 LOAN GROUP 2 REAL PROPERTY PROPERTIES BALANCE(1) BALANCE(1) BALANCE(1) BALANCE(1) ------------------- -------------- --------------- ------------- ------------ ------------ Fee(2) 656 $ 2,347,735,563 96.4% 93.8% 99.9% Leasehold 7 $ 74,071,140 3.0% 5.2% 0.1% Fee/Leasehold 1 $ 13,558,000 0.6% 1.0% 0.0% -------------- --------------- ------------- ------------ ------------ TOTAL: 664 $ 2,435,364,704 100.0% 100.0% 100.0% _____________________ (1) For mortgage loans secured by multiple mortgaged real properties, the related cut-off date principal balance has been allocated among those individual properties based on any of (i) an individual property's appraised value as a percentage of the total appraised value of all the mortgaged real properties, including the subject individual property, securing the same mortgage loan, (ii) an individual property's underwritten net operating income as a percentage of the total underwritten net operating income of all the mortgaged real properties, including the subject individual property, securing the subject mortgage loan and (iii) an allocated loan balance specified in the related loan documents. (2) In circumstances where both the fee interest and the overlapping leasehold interest in a mortgaged real property are encumbered, a mortgage loan is considered to be secured by the fee interest in the subject mortgaged real property. S-43
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LEGAL AND INVESTMENT CONSIDERATIONS FEDERAL INCOME TAX CONSEQUENCES .......... The trustee or its agent will make elections to treat designated portions of the assets of the issuing entity as two separate real estate mortgage investment conduits or REMICs under sections 860A through 860G of the Internal Revenue Code of 1986, as amended. The designations for each of those two REMICs are as follows: o REMIC I, the lower tier REMIC, which will consist of, among other things-- 1. the mortgage loans, and 2. various other related assets; and o REMIC II, which will hold the non-certificated regular interests in REMIC I. The class R-I and R-II certificates will represent the respective residual interests in those REMICs. The issuing entity will also hold (i) the class A-2FL REMIC II regular interest, the class A-3FL REMIC II regular interest, the class AM-FL REMIC II regular interest, the class AJ-FL REMIC II regular interest, each related swap agreement and each related trustee's floating rate account, which will be represented by the related class of Floating Rate Certificates, (ii) the portion of the assets of the issuing entity that is represented by the class Y certificates that will entitle the holders of those certificates to receive any additional interest accrued as to payment with respect to the mortgage loan that converts from a fixed rate of interest to a floating rate of interest and (iii) the portion of the assets of the issuing entity that is represented by the class Z certificates that will entitle the holders of those certificates to receive any additional interest accrued and deferred as to payment with respect to each mortgage loan with an anticipated repayment date that remains outstanding past that date, which portions will constitute one or more grantor trusts for federal income tax purposes and will not be part of the REMICs referred to above. The offered certificates will be treated as regular interests in REMIC II. This means that they will be treated as newly issued debt instruments for federal income tax purposes. You will have to report income on your offered certificates in accordance with the accrual method of accounting even if you are otherwise a cash method taxpayer. The offered certificates will not represent any interest in the grantor trust referred to above. It is anticipated that the class , class and class certificates will be issued at a premium and that the other classes of offered certificates will be issued with [a de minimis amount of] original issue discount. If you own an offered certificate issued with original issue discount, you may have to report original issue discount income and be subject to a tax on this income before you receive a corresponding cash payment. S-44
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The prepayment assumption that will be used in determining the rate of accrual of original issue discount, market discount and premium, if any, for U.S. federal income tax purposes, will be that, subsequent to any date of determination-- o each mortgage loan with an anticipated repayment date will be paid in full on that date, o no mortgage loan will otherwise be prepaid prior to maturity, and o there will be no extension of maturity for any mortgage loan. However, no representation is made as to the actual rate at which the mortgage loans will prepay, if at all. For a more detailed discussion of the federal income tax aspects of investing in the offered certificates, see "Federal Income Tax Consequences" in this prospectus supplement and "Federal Income Tax Consequences" in the accompanying base prospectus. ERISA CONSIDERATIONS ..................... We anticipate that, subject to satisfaction of the conditions referred to under "ERISA Considerations" in this prospectus supplement, employee benefit plans and other retirement plans or arrangements subject to-- o Title I of the Employee Retirement Income Security Act of 1974, as amended, or o section 4975 of the Internal Revenue Code of 1986, as amended, will be able to invest in the offered certificates without giving rise to a prohibited transaction. This is based upon individual prohibited transaction exemptions granted to Merrill Lynch, Pierce, Fenner & Smith Incorporated, Countrywide Securities Corporation and Bear, Stearns & Co. Inc. by the U.S. Department of Labor. If you are a fiduciary of any employee benefit plan or other retirement plan or arrangement subject to Title I of ERISA or section 4975 of the Internal Revenue Code of 1986, as amended, you are encouraged to review carefully with your legal advisors whether the purchase or holding of the offered certificates could give rise to a transaction that is prohibited under ERISA or section 4975 of the Internal Revenue Code of 1986, as amended. See "ERISA Considerations" in this prospectus supplement and in the accompanying base prospectus. LEGAL INVESTMENT ......................... The offered certificates will not be mortgage related securities for purposes of the Secondary Mortgage Market Enhancement Act of 1984. All institutions whose investment activities are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities should consult with their own legal advisors in determining whether and to what extent the offered certificates will be legal investments for them. See "Legal Investment" S-45
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in this prospectus supplement and in the accompanying base prospectus. INVESTMENT CONSIDERATIONS ................ The rate and timing of payments and other collections of principal on or with respect to the mortgage loans -- and, in particular, in the case of the class A-1, A-2, A-2FL, A-SB, A-3 and A-3FL certificates, on or with respect to the mortgage loans in loan group 1, and in the case of the class A-1A certificates, on or with respect to the mortgage loans in loan group 2 -- may affect the yield to maturity on each offered certificate. In the case of offered certificates purchased at a discount, a slower than anticipated rate of payments and other collections of principal on the mortgage loans -- and, in particular, in the case of the class A-1, A-2, A-2FL, A-SB, A-3 and A-3FL certificates, on or with respect to the mortgage loans in loan group 1, and in the case of the class A-1A certificates, on or with respect to the mortgage loans in loan group 2 -- could result in a lower than anticipated yield. In the case of the offered certificates purchased at a premium, a faster than anticipated rate of payments and other collections of principal on the mortgage loans -- and, in particular, in the case of the class A-1, A-2, A-2FL, A-SB, A-3 and A-3FL certificates, on or with respect to the mortgage loans in loan group 1, and in the case of the class A-1A certificates, on or with respect to the mortgage loans in loan group 2 -- could result in a lower than anticipated yield. The yield on any offered certificate with a variable or capped pass-through rate, could also be adversely affected if the mortgage loans with relatively higher net mortgage interest rates pay principal faster than the mortgage loans with relatively lower net mortgage interest rates. In addition, depending on timing and other circumstances, the pass-through rate for the Class X Certificates will vary with changes in the relative sizes of the total principal balances of the Principal Balance Certificates. See "Yield and Maturity Considerations" in this prospectus supplement and in the accompanying base prospectus. S-46
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RISK FACTORS The offered certificates are not suitable investments for all investors. In particular, you should not purchase any class of offered certificates unless you understand and are able to bear the risks associated with that class. The offered certificates are complex securities and it is important that you possess, either alone or together with an investment advisor, the expertise necessary to evaluate the information contained in this prospectus supplement and the accompanying base prospectus in the context of your financial situation. YOU SHOULD CONSIDER THE FOLLOWING FACTORS, AS WELL AS THOSE SET FORTH UNDER "RISK FACTORS" IN THE ACCOMPANYING BASE PROSPECTUS, IN DECIDING WHETHER TO PURCHASE ANY OFFERED CERTIFICATES. THE "RISK FACTORS" SECTION IN THE ACCOMPANYING BASE PROSPECTUS INCLUDES A NUMBER OF GENERAL RISKS ASSOCIATED WITH MAKING AN INVESTMENT IN THE OFFERED CERTIFICATES. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND UNDER "RISK FACTORS" IN THE ACCOMPANYING BASE PROSPECTUS ARE NOT THE ONLY ONES RELATING TO YOUR OFFERED CERTIFICATES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR YOUR INVESTMENT. THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING RISKS DESCRIBED BELOW, ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING BASE PROSPECTUS. IF ANY OF THE FOLLOWING EVENTS OR CIRCUMSTANCES IDENTIFIED AS RISKS ACTUALLY OCCUR OR MATERIALIZE, YOUR INVESTMENT COULD BE MATERIALLY AND ADVERSELY AFFECTED. Risks Related to the Offered Certificates THE CLASS AM, AJ, B, C, D, E AND F CERTIFICATES ARE SUBORDINATE TO, AND ARE THEREFORE RISKIER THAN, THE CLASS A-1, A-2, A-SB, A-3 AND A-1A CERTIFICATES If you purchase class AM, AJ, B, C, D, E and F certificates, then your offered certificates will provide credit support to other classes of offered certificates and to the class A-2FL, A-3FL and X certificates (in the case of the A-2FL certificates, through the A-2FL REMIC II regular interest, and in the case of the A-3FL certificates, through the A-3FL REMIC II regular interest). As a result, you will receive payments after, and must bear the effects of losses on the mortgage loans before, the holders of those other classes of certificates. When making an investment decision, you should consider, among other things-- o the payment priorities of the respective classes of the certificates; o the order in which the principal balances of the respective classes of the certificates with principal balances will be reduced in connection with losses and default-related shortfalls; and o the characteristics and quality of the mortgage loans. See "Description of the Mortgage Pool" and "Description of the Offered Certificates--Payments" and "--Reductions to Certificate Principal Balances in Connection with Realized Losses and Additional Trust Fund Expenses" in this prospectus supplement. See also "Risk Factors--The Investment Performance of Your Offered Certificates Will Depend Upon Payments, Defaults and Losses on the Underlying Mortgage Loans; and Those Payments, Defaults and Losses May Be Highly Unpredictable," "--Any Credit Support for Your Offered Certificates May Be Insufficient to Protect You Against All Potential Losses" and "--Payments on the Offered Certificates Will Be Made Solely from the Limited Assets of the Related Trust, and Those Assets May Be Insufficient to Make All Required Payments on Those Certificates" in the accompanying base prospectus. S-47
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CHANGES IN MORTGAGE POOL COMPOSITION CAN CHANGE THE NATURE OF YOUR INVESTMENT If you purchase any of the offered certificates that are expected to have relatively longer weighted average lives, you will be more exposed to risks associated with changes in concentrations of borrower, loan or property characteristics than are persons who own offered certificates that are expected to have relatively shorter weighted average lives. See "Risk Factors--Changes in Pool Composition Will Change the Nature of Your Investment" in the accompanying base prospectus. THE OFFERED CERTIFICATES WILL HAVE LIMITED LIQUIDITY AND MAY EXPERIENCE FLUCTUATIONS IN MARKET VALUE UNRELATED TO THE PERFORMANCE OF THE MORTGAGE LOANS Your offered certificates will not be listed on any national securities exchange or traded on any automated quotation systems of any registered securities association, and there is currently no secondary market for your offered certificates. While one or more of the underwriters currently intend to make a secondary market in the offered certificates, they are not obligated to do so. Additionally, one or more purchasers may purchase substantial portions of one or more classes of offered certificates. Moreover, if a secondary market does develop, there can be no assurance that it will provide you with liquidity of investment or that it will continue for the life of your offered certificates. Accordingly, you may not have an active or liquid secondary market for your offered certificates. Lack of liquidity could result in a substantial decrease in the market value of your offered certificates. The market value of your offered certificates also may be affected by many other factors, including the then prevailing interest rates and market perceptions of risks associated with commercial mortgage lending, and no representation is made by any person or entity as to what the market value of any offered certificate will be at any time. See "Risk Factors--Lack of Liquidity Will Impair Your Ability to Sell Your Offered Certificates and May Have an Adverse Effect on the Market Value of Your Offered Certificates" and "--The Market Value of Your Offered Certificates May Be Adversely Affected by Factors Unrelated to the Performance of Your Offered Certificates and the Underlying Mortgage Assets, such as Fluctuations in Interest Rates and the Supply and Demand of CMBS Generally" in the accompanying base prospectus. THE OFFERED CERTIFICATES HAVE UNCERTAIN YIELDS TO MATURITY The yield on your offered certificates will depend on-- o the price you paid for your offered certificates; and o the rate, timing and amount of payments on your offered certificates. The frequency, timing and amount of payments on your offered certificates will depend on: o the pass-through rate for, and other payment terms of, your offered certificates; o the frequency and timing of payments and other collections of principal on the mortgage loans or, in some cases, a particular group of mortgage loans; o the frequency and timing of defaults, and the severity of losses, if any, on the mortgage loans or, in some cases, a particular group of mortgage loans; o the frequency, timing, severity and allocation of other shortfalls and expenses that reduce amounts available for payment on your offered certificates; o repurchases of mortgage loans--or, in some cases, mortgage loans of a particular group--for material breaches of representations or warranties and/or material document defects; o the collection and payment of prepayment premiums and yield maintenance charges with respect to the mortgage loans or, in some cases, a particular group of mortgage loans; and o servicing decisions with respect to the mortgage loans or, in some cases, a particular group of mortgage loans. S-48
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In general, the factors described in the preceding paragraph cannot be predicted with any certainty. Accordingly, you may find it difficult to analyze the effect that these factors might have on the yield to maturity of your offered certificates. Further, in the absence of significant losses on the mortgage pool, holders of the class A-1, A-2, A-SB and A-3 certificates should be concerned with the factors described in the second through seventh bullets of the preceding paragraph primarily insofar as they relate to the mortgage loans in loan group 1. Until the class A-1, A-2, A-2FL, A-SB, A-3 and A-3FL certificates are retired, holders of the class A-1A certificates would, in the absence of significant losses on the mortgage pool, be affected by the factors described in the second through seventh bullets of the preceding paragraph primarily insofar as they relate to the mortgage loans in loan group 2. See "Description of the Mortgage Pool," "Servicing of the Mortgage Loans," "Description of the Offered Certificates--Payments" and "--Reductions to Certificate Principal Balances in Connection with Realized Losses and Additional Trust Fund Expenses" and "Yield and Maturity Considerations" in this prospectus supplement. See also "Risk Factors--The Investment Performance of Your Offered Certificates Will Depend Upon Payments, Defaults and Losses on the Underlying Mortgage Loans; and Those Payments, Defaults and Losses May Be Highly Unpredictable" and "Yield and Maturity Considerations" in the accompanying base prospectus. THE INVESTMENT PERFORMANCE OF YOUR OFFERED CERTIFICATES MAY VARY MATERIALLY AND ADVERSELY FROM YOUR EXPECTATIONS BECAUSE THE RATE OF PREPAYMENTS AND OTHER UNSCHEDULED COLLECTIONS OF PRINCIPAL ON THE MORTGAGE LOANS IS FASTER OR SLOWER THAN YOU ANTICIPATED If you purchase any offered certificates at a premium relative to their principal balances, and if payments and other collections of principal on the mortgage loans--and, in particular, in the case of the class A-1, A-2, A-SB and A-3 certificates, on the mortgage loans in loan group 1, and in the case of the class A-1A certificates, on the mortgage loans in loan group 2--occur with a greater frequency than you anticipated at the time of your purchase, then your actual yield to maturity may be lower than you had assumed at the time of your purchase. Conversely, if you purchase any offered certificates at a discount from their principal balances, and if payments and other collections of principal on the mortgage loans--and, in particular, in the case of the class A-1, A-2, A-SB and A-3 certificates, on the mortgage loans in loan group 1, and in the case of the class A-1A certificates, on the mortgage loans in loan group 2--occur with less frequency than you anticipated, then your actual yield to maturity may be lower than you had assumed. You should consider that prepayment premiums and yield maintenance charges may not be collected in all circumstances and no prepayment premium or yield maintenance charge will be paid in connection with a purchase or repurchase of a mortgage loan. Furthermore, even if a prepayment premium or yield maintenance charge is collected and payable on your offered certificates, it may not be sufficient to offset fully any loss in yield on your offered certificates. Some of the mortgage loans may require the related borrower to make, or permit the lender to apply reserve funds to make, partial prepayments if specified conditions, such as meeting certain debt service coverage ratios and/or satisfying certain leasing conditions, have not been satisfied. The required prepayment may need to be made even though the subject mortgage loan is in its lock-out period. See "Description of the Mortgage Pool--Terms and Conditions of the Mortgage Loans--Other Prepayment Provisions; Mortgage Loans Which May Require Principal Paydowns" in this prospectus supplement. The yield on the offered certificates with variable or capped pass-through rates could also be adversely affected if the mortgage loans with higher net mortgage interest rates pay principal faster than the mortgage loans with lower net mortgage interest rates. This is because those classes bear interest at pass-through rates equal to, based upon or limited by, as applicable, a weighted average of the adjusted net mortgage interest rates derived from the mortgage loans. Prepayments resulting in a shortening of weighted average lives of the offered certificates may be made at a time of low interest rates when investors may be unable to reinvest the resulting payment of principal on their certificates at a rate comparable to the yield anticipated by them in making their initial investment in those certificates, while delays and extensions resulting in a lengthening of those weighted average lives may occur at a time of high interest rates when investors may have been able to reinvest principal payments that would otherwise have been received by them at higher rates. S-49
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The rate at which voluntary prepayments occur on the mortgage loans will be affected by a variety of factors, including: o the terms of the mortgage loans; o the length of any prepayment lockout period; o the level of prevailing interest rates; o the availability of mortgage credit; o the applicable yield maintenance charges or prepayment premiums; o the applicable master servicer's or the special servicer's ability to enforce yield maintenance charges and prepayment premiums; o the failure to meet certain requirements for the release of escrows; o the occurrence of casualties or natural disasters; and o economic, demographic, tax, legal or other factors. A borrower is generally less likely to prepay its mortgage loan if prevailing interest rates are at or above the mortgage interest rate borne by that mortgage loan. On the other hand, a borrower is generally more likely to prepay its mortgage loan if prevailing rates fall significantly below the mortgage interest rate borne by that mortgage loan. Borrowers are less likely to prepay mortgage loans with lock-out periods or yield maintenance charge provisions, to the extent enforceable, than otherwise identical mortgage loans without these provisions, with shorter lock-out periods or with lower or no yield maintenance charges. None of the master servicers, the special servicer or the trustee will be required to advance any yield maintenance charges. With respect to the mortgage loan identified on Annex A-1 to this prospectus supplement as Farallon Portfolio, representing approximately 10.3% of the initial mortgage pool balance and approximately 24.2% of the initial loan group 2 balance, one of the related non-trust A-note mortgage loans is a floating rate note and several of the other non-trust mortgage loans are comprised of A-notes and B-notes with initial five-year maturities, and all of such non-trust loans and notes are secured by the same mortgaged real property as the mortgage loan included in the issuing entity. Such non-trust loans and notes have shorter maturity dates than a portion of the mortgage loans included in the issuing entity, and as such, the related borrower may refinance the entire mortgage loan (inclusive of the portion of such loan being deposited into the issuing entity) before the stated maturity date of the mortgage loan included in the issuing entity. Provisions requiring yield maintenance charges may not be enforceable in some states and under federal bankruptcy law, and may constitute interest for usury purposes. Accordingly, we cannot assure you that the obligation to pay any yield maintenance charge will be enforceable. Also, we cannot assure you that foreclosure proceeds will be sufficient to pay an enforceable yield maintenance charge. Additionally, although the collateral substitution provisions related to defeasance do not have the same effect on the certificateholders as prepayment, we cannot assure you that a court would not interpret those provisions as requiring a yield maintenance charge. In certain jurisdictions, those collateral substitution provisions might be deemed unenforceable under applicable law or public policy, or usurious. See "Description of the Mortgage Pool--Terms and Conditions of the Mortgage Loans--Prepayment Provisions" in this prospectus supplement for a discussion of prepayment restrictions with respect to the mortgage loans. No assurance can be given to you that the related borrowers will refrain from prepaying their mortgage loans due to the existence of yield maintenance charges or that involuntary prepayments will not occur. S-50
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In addition, if a mortgage loan seller repurchases any mortgage loan from the issuing entity due to material breaches of representations or warranties or material document defects, the repurchase price paid will be passed through to the holders of the certificates with the same effect as if the mortgage loan had been prepaid in part or in full, and no yield maintenance charge will be payable. A repurchase or the exercise of a purchase option may adversely affect the yield to maturity on your certificates. A HIGH RATE AND EARLY OCCURRENCE OF BORROWER DELINQUENCIES AND DEFAULTS MAY ADVERSELY AFFECT YOUR INVESTMENT The actual yield to maturity of your offered certificates will be lower than expected and could be negative under certain extreme scenarios if (a) you calculate the anticipated yield of your offered certificates based on a default rate or amount of losses lower than that actually experienced by the mortgage loans and (b) the additional losses are allocable to or otherwise required to be borne by your class of offered certificates. The actual yield to maturity of your offered certificates will also be affected by the timing of any loss on a liquidated mortgage loan if a portion of the loss is allocable to or otherwise required to be borne by your class of offered certificates, even if the rate of defaults and severity of losses are consistent with your expectations. In general, the earlier you bear a loss, the greater the effect on your yield to maturity. Delinquencies on the mortgage loans may result in shortfalls in distributions of interest and/or principal to the holders of the offered certificates for the current month if the delinquent amounts are not advanced. Furthermore, no interest will accrue on this shortfall during the period of time that the payment is delinquent. Losses on the mortgage loans may affect the weighted average life and/or yield to maturity of a particular class of offered certificates even if those losses are not allocated to, or required to be borne by the holders of, that class of offered certificates. The special servicer may accelerate the maturity of the related mortgage loan in the case of any monetary or material non-monetary default, which could result in an acceleration of payments to the certificateholders. In addition, losses on the mortgage loans may result in a higher percentage ownership interest evidenced by a class of offered certificates in the remaining mortgage loans than would otherwise have been the case absent the loss, even if those losses are not allocated to that class of offered certificates. The consequent effect on the weighted average life and/or yield to maturity of a class of offered certificates will depend upon the characteristics of the remaining mortgage loans. THE RIGHT OF THE MASTER SERVICERS, THE SPECIAL SERVICER AND THE TRUSTEE TO RECEIVE INTEREST ON ADVANCES, SPECIAL SERVICING FEES, PRINCIPAL RECOVERY FEES AND WORKOUT FEES WILL AFFECT YOUR RIGHT TO RECEIVE DISTRIBUTIONS To the extent described in this prospectus supplement and provided in the pooling and servicing agreement, the master servicers, the special servicer and the trustee will each be entitled to receive interest (which will generally accrue from the date on which the related advance is made through the date of reimbursement) on unreimbursed advances made by it. In addition, the special servicer will be entitled to receive, in connection with its servicing, liquidation and/or workout of defaulted mortgage loans, compensation consisting of special servicing fees, principal recovery fees and workout fees, respectively. The right to receive these amounts is senior to the rights of certificateholders to receive distributions on the offered certificates and, consequently, may result in shortfalls and losses being allocated to the offered certificates that would not have otherwise resulted. YOUR LACK OF CONTROL OVER THE TRUST FUND CAN CREATE RISKS You and other holders of the offered certificates generally do not have a right to vote and do not have the right to make decisions with respect to the administration of the issuing entity. See "Description of the Offered Certificates--Voting Rights" in this prospectus supplement. Those decisions are generally made, subject to the express terms of the pooling and servicing agreement, by a master servicer, the trustee or the special servicer, as applicable. Any decision made by one of those parties in respect of the assets of the issuing entity, even if that decision is determined to be in your best interests by that party, may be contrary to the decision that you or other holders of the offered certificates would have made and may negatively affect your interests. See "--One of the Mortgage Loans That We Intend to Transfer to the Issuing Entity is Being Serviced and Administered Pursuant to the Servicing Arrangements for a Different Securitization; Therefore, Certificateholder of Our ML-CFC 2007-8 Securitization Will Have Limited Ability to Control the Servicing of That Mortgage Loan" below. S-51
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POTENTIAL CONFLICTS OF INTEREST WITH RESPECT TO THE MASTER SERVICERS, THE SPECIAL SERVICER AND THE CONTROLLING CLASS REPRESENTATIVE KeyCorp Real Estate Capital Markets, Inc., an initial master servicer, is an affiliate of KeyBank National Association, one of the sponsors and mortgage loan sellers, and an affiliate of KeyBanc Capital Markets Inc., one of the underwriters. These affiliations could cause a conflict with that master servicer's duties to the issuing entity under the pooling and servicing agreement notwithstanding the fact that the pooling and servicing agreement provides that the mortgage loans serviced pursuant to that agreement must be administered in accordance with the servicing standard described in this prospectus supplement without regard to an affiliation with any other party involved in the transaction. A master servicer, the special servicer or any affiliate of a master servicer or the special servicer may acquire certificates. This could cause a conflict between a master servicer's or the special servicer's duties to the issuing entity under the pooling and servicing agreement and its or its affiliate's interest as a holder of certificates issued under that agreement. In addition, the master servicers, the special servicer and each of their affiliates own and are in the business of acquiring assets similar in type to the assets of the issuing entity. Accordingly, the assets of those parties and their affiliates may, depending upon the particular circumstances including the nature and location of those assets, compete with the mortgaged real properties for tenants, purchasers, financing and in other matters related to the management and ownership of real estate. See "Servicing of the Mortgage Loans--Modifications, Waivers, Amendments and Consents" in this prospectus supplement. The special servicer will have the right to determine that any P&I advance made or to be made by a master servicer or the trustee is not recoverable from proceeds of the mortgage loan to which that advance relates. The applicable master servicer or the trustee will then be required to not make a proposed advance or may obtain reimbursement for a previously made advance from collections of principal and, in some cases, interest, which may reduce the amount of principal and, in some cases, interest that will be paid on your offered certificates. In addition, in connection with the servicing of the specially serviced mortgage loans, the special servicer may, at the direction of the controlling class representative (or with respect to the Farallon Portfolio Loan, the Farallon Portfolio Controlling Party), take actions with respect to the specially serviced mortgage loans that could adversely affect the holders of some or all of the classes of offered certificates. Similarly, the special servicer may, at the direction of the holder of a (i) non-trust subordinate B-note or its designee (prior to the occurrence of a "change of control" event with respect to that non-trust loan) or (ii) A note non-trust loan (after the occurrence of a "change of control" event with respect to that non-trust loan) or (iii) with respect to the Farallon Portfolio Loan, a non-trust loan or note, take generally similar but not identical actions with respect to the related loan combination that could adversely affect the holders of some or all of the classes of offered certificates. Furthermore, the holders of certain non-trust loans may have par purchase options and, in some cases, cure rights with respect to the related A-note mortgage loans that will be the assets of the issuing entity, upon the occurrence of specified adverse circumstances with respect to the related loan combination. See "Description of the Mortgage Pool--The Loan Combinations and "Servicing of the Mortgage Loans--The Controlling Class Representative and the Loan Combination Controlling Parties" in this prospectus supplement. The controlling class representative will be selected by the holders of certificates representing a majority interest in the controlling class. The controlling class of certificateholders and the holders of the non-trust loans may have interests that conflict with those of the holders of the offered certificates. As a result, it is possible that the controlling class representative may direct the special servicer to take actions which conflict with the interests of the holders of certain classes of the offered certificates. However, the special servicer is not permitted to take actions which are prohibited by law or violate the servicing standard or the terms of the mortgage loan documents. ONE OF THE MORTGAGE LOANS THAT WE INTEND TO TRANSFER TO THE ISSUING ENTITY IS BEING SERVICED AND ADMINISTERED PURSUANT TO THE SERVICING ARRANGEMENTS FOR A DIFFERENT SECURITIZATION; THEREFORE, CERTIFICATEHOLDERS OF OUR ML-CFC 2007-8 SECURITIZATION WILL HAVE LIMITED ABILITY TO CONTROL THE SERVICING OF THAT MORTGAGE LOAN The mortgage loan secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Georgia-Alabama Retail Portfolio, which mortgage loan represents approximately 1.6% of the initial mortgage pool balance and approximately 2.8% of the initial loan group 1 balance, is part of a loan combination S-52
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consisting of the trust mortgage loan (which consists of an A-note trust loan and a B-note trust loan), a pari passu A-note non-trust loan and a subordinate B-note non-trust loan that are secured by the same mortgage instruments encumbering the same mortgaged real properties. The A-note non-trust loan is an asset in the ML-CFC 2007-7 Commercial Mortgage Trust. The B-note non-trust loan is currently held by Countrywide Commercial Real Estate Finance, Inc., or an affiliate of Countrywide Commercial Real Estate Finance, Inc., and may be sold to a third-party or separately securitized in a future commercial mortgage securitization. An intercreditor agreement governs the relationship between the holders of the Georgia-Alabama Retail Portfolio loan combination. The loan combination is being serviced and administered pursuant to the ML-CFC 2007-7 Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2007-7 pooling and servicing agreement. The applicable master servicer and the applicable special servicer under the ML-CFC 2007-7 Commercial Mortgage Trust pooling and servicing agreement are required to service the Georgia-Alabama Retail Portfolio whole loan in accordance with the servicing standard set forth in the ML-CFC 2007-7 Commercial Mortgage Trust pooling and servicing agreement on behalf of the ML-CFC 2007-7 Commercial Mortgage Trust certificateholders, the series 2007-8 certificateholders and the other holders of an interest in the Georgia-Alabama Retail Portfolio, as a collective whole. Neither the series 2007-8 certificateholders nor the trustee on their behalf will have any right, title or interest in or to, or any other claim to any asset of the ML-CFC 2007-7 Commercial Mortgage Trust issuing entity, including as security for or in satisfaction of any claim arising from the performance or failure of performance by any party under the ML-CFC 2007-7 Commercial Mortgage Trust pooling and servicing agreement, except as related to the 2007-8 issuing entity's rights to receive payments of principal and interest on the Georgia-Alabama Retail Portfolio mortgage loan and certain rights to payments of servicing fees and to reimbursement for advances. However, the 2007-8 issuing entity, as the holder of the Georgia-Alabama Retail Portfolio mortgage loan, is a third-party beneficiary of the ML-CFC 2007-7 Commercial Mortgage Trust pooling and servicing agreement. The applicable master servicer, the special servicer and trustee under the series 2007-8 pooling and servicing agreement may not independently exercise remedies following a default with respect to the Georgia-Alabama Retail Portfolio mortgage loan. Furthermore, the controlling class representative, acting alone, will not be permitted to replace the special servicer under the ML-CFC 2007-7 Commercial Mortgage Trust pooling and servicing agreement unless the holders of the B-note non-trust loan and B-note trust loan agree to do so in accordance with the related co-lender agreement and only for so long as any appraisal reduction amount with respect to the subject loan combination does not reduce the initial principal balance of such B-note non-trust loans below 25% of its original principal balance. Thereafter, the controlling class representative may replace the special servicer under the ML-CFC 2007-7 Commercial Mortgage Trust pooling and servicing agreement. Risks Related to the Mortgage Loans CONCENTRATION OF MORTGAGED REAL PROPERTY TYPES SUBJECT THE TRUST TO INCREASED RISK OF DECLINE IN A PARTICULAR INDUSTRY The inclusion, among the assets of the issuing entity, of a significant concentration of mortgage loans that are secured by mortgage liens on a particular type of income-producing property makes the overall performance of the mortgage pool materially more dependent on the factors that affect the operations at and value of that property type. MULTIFAMILY PROPERTIES ARE SUBJECT TO UNIQUE RISKS WHICH MAY REDUCE PAYMENTS ON YOUR CERTIFICATES One hundred twenty-eight (128) of the mortgaged real properties, which represent security for approximately 31.2% of the initial mortgage pool balance (three (3) properties securing mortgage loans in loan group 1, representing approximately 1.7% of the initial loan group 1 balance, and one hundred twenty-five (125) properties securing mortgage loans in loan group 2, representing approximately 71.2% of the initial loan group 2 balance) are fee and/or leasehold interests in multifamily properties. Mortgage loans that are secured by liens on multifamily properties are exposed to unique risks particular to multifamily properties, including, for instance, in some cases, restrictions on rent that may be charged or restrictions on the age of tenants who may reside at a multifamily property. For a more detailed discussion of factors uniquely affecting multifamily properties, you should refer to the section in the accompanying base prospectus captioned "Risk Factors--Various Types of Income-Producing S-53
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Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan--Multifamily Rental Properties." OFFICE PROPERTIES ARE SUBJECT TO UNIQUE RISKS WHICH MAY REDUCE PAYMENTS ON YOUR CERTIFICATES Thirty-five (35) of the mortgaged real properties, which represent security for approximately 11.1% of the initial mortgage pool balance and approximately 19.2% of the initial loan group 1 balance, are fee and/or leasehold interests in office properties. Mortgage loans that are secured by liens on those types of properties are exposed to unique risks particular to those types of properties. For a more detailed discussion of factors uniquely affecting office properties, you should refer to the section in the accompanying base prospectus captioned "Risk Factors--Various Types of Income-Producing Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan--Office Properties." In the case of six (6) mortgaged real properties representing approximately 1.3% of the initial mortgage pool balance, and approximately 2.3% of the initial loan group 1 balance, the related mortgaged real properties are medical offices. Mortgage loans secured by liens on medical office properties are also exposed to the unique risks particular to health care related properties. For a more detailed discussion of factors uniquely affecting medical offices, you should refer to the section in the accompanying base prospectus captioned "Risk Factors--Various Types of Income-Producing Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan--Health Care Related Properties." RETAIL PROPERTIES ARE SUBJECT TO UNIQUE RISKS WHICH MAY REDUCE PAYMENTS ON YOUR CERTIFICATES One hundred fifty-one (151) of the mortgaged real properties, which represent security for approximately 25.8% of the initial mortgage pool balance and approximately 44.8% of the initial loan group 1 balance, are fee and/or leasehold interests in retail properties. Mortgage loans that are secured by liens on those types of properties are exposed to unique risks particular to those types of properties. Gas Stations and Related Convenience Stores. One of the mortgage loans secured by the mortgaged real properties identified on Annex A-1 as the Georgia-Alabama Retail Portfolio is secured by sixty-two (62) of the retail properties described above, which represent security for approximately 1.6% of the initial mortgage pool balance and approximately 2.8% of the loan group 1 balance, which are fee interests in gas stations with convenience stores and other retail stores located in Georgia (sixty (60) such properties) and Alabama (two (2) such properties). In addition, certain other retail properties securing mortgage loans in the pool may have gas stations as part of the retail mix. Demand for gas stations and the related convenience stores depend on location of the station and volume of car driving, which in turn depends on cost of gas and general economic conditions. Profitability is impacted by the cost of gasoline, the product mix at the convenience store, credit card fees (which have been escalating) and the addition of pay at the pump technology at stations (which has been cited as a potential cause of revenue loss in the related convenience store). A property with a gas station also raises environmental concerns because gasoline, motor oil and other hazardous products are sold at these properties. For additional information regarding environmental concerns with respect to the Georgia-Alabama Retail Portfolio properties, see "--Lending on Income-Producing Real Properties Entails Environmental Risks" below. For a more detailed discussion of factors uniquely affecting retail properties, you should refer to the section in the accompanying base prospectus captioned "Risk Factors--Various Types of Income-Producing Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan--Retail Properties." HOSPITALITY PROPERTIES ARE SUBJECT TO UNIQUE RISKS WHICH MAY REDUCE PAYMENTS ON YOUR CERTIFICATES Ten (10) of the mortgaged real properties, which represent security for approximately 7.9% of the initial mortgage pool balance and approximately 13.7% of the initial loan group 1 balance, are fee and/or leasehold S-54
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interests in hospitality properties. Mortgage loans secured by liens on those types of properties are exposed to unique risks particular to those types of properties. In addition, for certain of the mortgage loans secured by hospitality properties that are a franchise of a national or regional hotel chain, the related franchise agreement is scheduled to terminate during the term of the related mortgage loan. For a more detailed discussion of factors uniquely affecting hospitality properties, you should refer to the section in the accompanying base prospectus captioned "Risk Factors--Various Types of Income-Producing Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan--Hospitality Properties." INDUSTRIAL FACILITIES ARE SUBJECT TO UNIQUE RISKS WHICH MAY REDUCE PAYMENTS ON YOUR CERTIFICATES Fourteen (14) of the mortgaged real properties, which represent security for approximately 3.6% of the initial mortgage pool balance and approximately 6.2% of the initial loan group 1 balance, are fee and/or leasehold interests in industrial properties. Mortgage loans that are secured by liens on those types of properties are exposed to unique risks particular to those types of properties. For a more detailed discussion of factors uniquely affecting industrial properties, you should refer to the section in the accompanying base prospectus captioned "Risk Factors--Various Types of Income-Producing Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan--Industrial Properties." SELF STORAGE FACILITIES ARE SUBJECT TO UNIQUE RISKS WHICH MAY REDUCE PAYMENTS ON YOUR CERTIFICATES Thirty-four (34) of the mortgaged real properties, which represent security for approximately 6.3% of the initial mortgage pool balance and approximately 11.0% of the initial loan group 1 balance, are fee interests in self storage facility properties. Mortgage loans that are secured by liens on those types of properties are exposed to unique risks particular to those types of properties. For a more detailed discussion of factors uniquely affecting self storage facilities, you should refer to the section in the accompanying base prospectus captioned "Risk Factors--Various Types of Income-Producing Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan--Warehouse, Mini-Warehouse and Self Storage Facilities." MANUFACTURED HOUSING COMMUNITIES, MOBILE HOME PARKS AND RECREATIONAL VEHICLE PARKS ARE SUBJECT TO UNIQUE RISKS WHICH MAY REDUCE PAYMENTS ON YOUR CERTIFICATES Two hundred eighty (280) of the mortgaged real properties, which represent security for approximately 12.2% of the initial mortgage pool balance (which mortgage loans are in loan group 2, representing approximately 28.8% of the initial loan group 2 balance), are fee and/or leasehold interests in manufactured housing community properties, mobile home parks and/or recreational vehicle parks. Mortgage loans that are secured by liens on those types of properties are exposed to unique risks particular to those types of properties. For a more detailed discussion of factors uniquely affecting manufactured housing community properties, you should refer to the section in the accompanying base prospectus captioned "Risk Factors--Various Types of Income-Producing Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan--Manufactured Housing Communities, Mobile Home Parks and Recreational Vehicle Parks." RISKS ASSOCIATED WITH ALTERNATIVE FORMS OF PROPERTY OWNERSHIP Four (4) mortgage loans (loan numbers 98, 111, 127 and 181), representing in the aggregate approximately 0.6% of the initial mortgage pool balance (which mortgage loans are in loan group 1, representing approximately 1.1% of the initial loan group 1 balance), are, or may become, secured by the related borrower's interest in residential and/or commercial condominium units. Condominiums may create risks for lenders that are not present S-55
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when lending on properties that are not condominiums. See "Risk Factors--Lending on Condominium Units Creates Risks for Lenders That Are Not Present When Lending on Non-Condominiums" in the base prospectus. REPAYMENT OF THE MORTGAGE LOANS DEPENDS ON THE OPERATION OF THE MORTGAGED REAL PROPERTIES The mortgage loans are secured by mortgage liens on fee and/or leasehold (which may include sub-leasehold) interests in commercial, multifamily and manufactured housing community real property. The risks associated with lending on these types of real properties are inherently different from those associated with lending on the security of single-family residential properties. This is because, among other reasons, such mortgage loans are often larger and repayment of each of the mortgage loans is dependent on-- o the successful operation and value of the mortgaged real property; and o the related borrower's ability to sell or refinance the mortgaged real property. See "Risk Factors--Repayment of a Commercial or Multifamily Mortgage Loan Depends upon the Performance and Value of the Underlying Real Property, Which May Decline Over Time, and the Related Borrower's Ability to Refinance the Property, of Which There Is No Assurance" and "Risk Factors--Various Types of Income-Producing Properties May Secure Mortgage Loans Underlying a Series of Offered Certificates and Each Type of Income-Producing Property May Present Special Risks as Collateral for a Loan" in the accompanying base prospectus. THE MORTGAGED REAL PROPERTY WILL BE THE SOLE ASSET AVAILABLE TO SATISFY THE AMOUNTS OWING UNDER A MORTGAGE LOAN IN THE EVENT OF DEFAULT The mortgage loans will not be an obligation of, or be insured or guaranteed by, us, any sponsor, any governmental entity, any private mortgage insurer, any mortgage loan seller, any underwriter, either master servicer, the special servicer, the trustee or any of their respective affiliates or any other person or entity. All of the mortgage loans are or should be considered nonrecourse loans. If the related borrower defaults on any of the mortgage loans, only the related mortgaged real property (together with any related insurance policies or other pledged collateral), and none of the other assets of the borrower, is available to satisfy the debt. Consequently, payment prior to maturity is dependent primarily on the sufficiency of the net operating income of the mortgaged real property. Payment at maturity is primarily dependent upon the market value of the mortgaged real property or the borrower's ability to refinance the mortgaged real property. Even if the related loan documents permit recourse to the borrower or a guarantor, the issuing entity may not be able to ultimately collect the amount due under a defaulted mortgage loan. We have not evaluated the significance of the recourse provisions of mortgage loans that may permit recourse against the related borrower or another person in the event of a default. See "Risk Factors--Repayment of a Commercial or Multifamily Mortgage Loan Depends upon the Performance and Value of the Underlying Real Property, Which May Decline Over Time, and the Related Borrower's Ability to Refinance the Property, of Which There Is No Assurance" in the accompanying base prospectus. RESERVES TO FUND CAPITAL EXPENDITURES MAY BE INSUFFICIENT AND THIS MAY ADVERSELY AFFECT PAYMENTS ON YOUR CERTIFICATES Although many of the mortgage loans require that funds be put aside for specific reserves, certain of the mortgage loans do not require any reserves. We cannot assure you that any such reserve amounts will be sufficient to cover the actual costs of the items for which the reserves were established. We also cannot assure you that cash flow from the related mortgaged real properties will be sufficient to fully fund any ongoing monthly reserve requirements. OPTIONS AND OTHER PURCHASE RIGHTS MAY AFFECT VALUE OR HINDER RECOVERY WITH RESPECT TO THE MORTGAGED REAL PROPERTIES The borrower under certain of the mortgage loans has given to one or more tenants or another person a right of first refusal in the event a sale is contemplated or an option to purchase all or a portion of the related mortgaged real property. These rights, which may not be subordinated to the related mortgage, may impede the S-56
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lender's ability to sell the related mortgaged real property at foreclosure or after acquiring the mortgaged real property pursuant to foreclosure, or adversely affect the value and/or marketability of the related mortgaged real property. However, in certain cases, the holder of the right to purchase the related mortgaged property has agreed that such purchase right will not apply in a foreclosure or similar proceeding. Additionally, the exercise of a purchase option may result in the related mortgage loan being prepaid during a period when voluntary prepayments are otherwise prohibited and/or without any yield maintenance consideration. In the case of one mortgage loan (loan number 7, secured by the mortgaged real properties identified on Annex A-1 to this prospectus supplement as Georgia-Alabama Retail Portfolio, representing approximately 1.6% of the initial mortgage pool balance and approximately 2.8% of the initial loan group 1 balance), the related borrower is obligated under an agreement with Exxon Mobil Corporation ("Exxon") to use and sell Exxon products at certain of the individual mortgaged real properties. The borrower's failure to do this triggers an option by Exxon to purchase the particular individual mortgaged real property at a price equal to the greater of: (i) 90% of the current appraised value of the applicable individual mortgaged real property (ii) 90% of the fair market value of the applicable individual mortgaged real property, or (iii) the allocated loan amount of the applicable individual mortgaged real property. In Maryland, mortgage loans may be structured with a borrower (obligated under the related note) that is different from the owner of the mortgaged real property. In such cases, the related property owner, although not obligated under the note, will guaranty all amounts payable by the borrower under the related note which guaranty is secured by an indemnity deed of trust in favor of the lender executed by the property owner. With respect to certain references to the borrower in this prospectus supplement, such references may apply to such property owner instead. INCREASES IN REAL ESTATE TAXES DUE TO TERMINATION OF PAYMENT-IN-LIEU-OF-TAXES OR OTHER TAX ABATEMENT ARRANGEMENTS MAY REDUCE PAYMENTS TO CERTIFICATEHOLDERS In the case of some of the mortgage loans, the related mortgaged real properties may be the subject of municipal payment-in-lieu-of-taxes programs or other tax abatement arrangements, whereby the related borrower pays payments in lieu of taxes that are less than what its tax payment obligations would be absent the program or pays reduced real estate taxes. These programs or arrangements may be scheduled to terminate or provide for significant tax increases prior to the maturity of the related mortgage loans or may require increased payments in the future, in each case resulting in increased payment obligations (which could be substantial) in the form of real estate taxes or increased payments in lieu of taxes, which could adversely impact the ability of the related borrowers to pay debt service on their mortgage loans. IN SOME CASES, A MORTGAGED REAL PROPERTY IS DEPENDENT ON A SINGLE TENANT OR ON ONE OR A FEW MAJOR TENANTS In the case of one hundred eighty one (181) mortgaged real properties, securing approximately 33.0% of the initial mortgage pool balance and approximately 57.4% of the initial loan group 1 balance, the related borrower has leased the property to one or more tenants each occupying 25% or more of the particular property. In the case of one hundred nine (109) of those properties, securing approximately 15.4% of the initial mortgage pool balance and approximately 26.8% of the initial loan group 1 balance, the related borrower has leased the particular property to a single tenant that occupies 50% or more of the particular property. In the case of sixty-eight (68) mortgaged real properties, securing approximately 8.3% of the initial mortgage pool balance and approximately 14.5% of the initial loan group 1 balance, the related borrower has leased the particular property to a single tenant that occupies 100% of the particular property. Not included in the sixty-eight (68) mortgaged real properties is one mortgage loan (loan number 2) that is secured by manufactured housing properties of which an affiliate of the related borrower has master leased portions of the mortgaged properties, and in turn subleases individual manufactured homes and lots to residential subtenants. Accordingly, the full and timely payment of each of the related mortgage loans is highly dependent on the continued operation of the major tenant or tenants, which, in some cases, is the sole tenant, at the mortgaged real property. In addition, the leases of some of these tenants may terminate on or prior to the term of the related mortgage loan. For information regarding the lease expiration dates of significant tenants at the mortgaged real properties, see Annex A-1 to this prospectus supplement. See "Risk Factors--Repayment of a Commercial or Multifamily Mortgage Loan Depends upon the Performance and Value of the Underlying Real Property, Which S-57
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May Decline Over Time and the Related Borrower's Ability to Refinance the Property, of Which There Is No Assurance" in the accompanying base prospectus. THE BANKRUPTCY OR INSOLVENCY OF A TENANT WILL HAVE A NEGATIVE IMPACT ON THE RELATED MORTGAGED REAL PROPERTY The bankruptcy or insolvency of a major tenant, or a number of smaller tenants, in retail, industrial and office properties may adversely affect the income produced by a mortgaged real property. Under the Bankruptcy Code, a tenant has the option of assuming or rejecting any unexpired lease. If the tenant rejects the lease, the landlord's claim for breach of the lease would be a general unsecured claim against the tenant (absent collateral securing the claim) and the amounts the landlord could claim would be limited. One or more tenants at a particular mortgaged real property may have been the subject of bankruptcy or insolvency proceedings. See "Risk Factors--Bankruptcy Proceedings Entail Certain Risks" in this prospectus supplement and "Risk Factors--The Investment Performance of Your Offered Certificates Will Depend Upon Payments, Defaults and Losses on the Underlying Mortgage Loans; and Those Payments, Defaults and Losses May Be Highly Unpredictable--Dependence on a Single Tenant or a Small Number of Tenants Makes a Property Riskier Collateral" in the accompanying base prospectus. CERTAIN ADDITIONAL RISKS RELATING TO TENANTS The income from, and market value of, the mortgaged real properties leased to various tenants would be adversely affected if, among other things: o space in the mortgaged real properties could not be leased or re-leased; o substantial re-leasing costs were required and/or the cost of performing landlord obligations under existing leases materially increased; o tenants were unwilling or unable to meet their lease obligations; o a tenant goes "dark"; o a significant tenant were to become a debtor in a bankruptcy case; or o rental payments could not be collected for any other reason. Repayment of the mortgage loans secured by retail, office and industrial properties will be affected by the expiration of leases and the ability of the respective borrowers to renew the leases or relet the space on comparable terms and on a timely basis. Certain of the mortgaged real properties may be leased in whole or in part by government-sponsored tenants who have the right to cancel their leases at any time or for lack of appropriations. Additionally, mortgaged real properties may have concentrations of leases expiring at varying rates in varying percentages, including single-tenant mortgaged real properties, during the term of the related mortgage loans and in some cases most or all of the leases on a mortgaged real property may expire prior to the related anticipated repayment date or maturity date. Even if vacated space is successfully relet, the costs associated with reletting, including tenant improvements and leasing commissions, could be substantial and could reduce cash flow from the mortgaged real properties. Moreover, if a tenant defaults in its obligations to a borrower, the borrower may incur substantial costs and experience significant delays associated with enforcing its rights and protecting its investment, including costs incurred in renovating and reletting the related mortgaged real property. The risks described above are increased if there is a concentration of tenants in a particular industry at one or more of the mortgaged real properties. For example, if a particular industry experiences an economic downturn, a concentration among tenants of any mortgaged real property in that industry may lead to losses on the related mortgage loan that are substantially more severe than would be the case if its tenants were in diversified industries. In addition, business objectives for tenants at mortgaged real properties may change over time. A business may downsize, creating a need for less space, or a business may expand or increase its size and/or number of employees, creating a need for more space. S-58
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Additionally, in certain jurisdictions, if tenant leases are subordinated to the liens created by the mortgage but do not contain attornment provisions (provisions requiring the tenant to recognize as landlord under the lease a successor owner following foreclosure), the leases may terminate upon the transfer of the property to a foreclosing lender or purchaser at foreclosure. Accordingly, if a mortgaged real property is located in such a jurisdiction and is leased to one or more desirable tenants under leases that are subordinate to the mortgage and do not contain attornment provisions, such mortgaged real property could experience a further decline in value if such tenants' leases were terminated. Certain of the mortgaged real properties may have tenants that are related to or affiliated with a borrower. In such cases a default by the borrower may coincide with a default by the affiliated tenants. Additionally, even if the property becomes a foreclosure property, it is possible that an affiliate of the borrower may remain as a tenant. If a mortgaged real property is leased in whole or substantial part to an affiliate of the borrower, it may be more likely that a landlord will waive lease conditions for an affiliated tenant than it would for an unaffiliated tenant. We cannot assure you that the conflicts arising where a borrower is affiliated with a tenant at a mortgaged real property will not adversely impact the value of the related mortgage loan. In some cases the affiliated lessee may be physically occupying space related to its business; in other cases, the affiliated lessee may be a tenant under a master lease with the borrower, under which the tenant is generally obligated to make rent payments but does not occupy any space at the mortgaged real property. These master leases are typically used to bring occupancy to a "stabilized" level but may not provide additional economic support for the mortgage loan. We cannot assure you the space "master leased" by a borrower affiliate will eventually be occupied by third party tenants and consequently, a deterioration in the financial condition of the borrower or its affiliates can be particularly significant to the borrower's ability to perform under the mortgage loan as it can directly interrupt the cash flow from the related mortgaged real property if the borrower's or its affiliate's financial condition worsens. If a mortgaged real property has multiple tenants, re-leasing expenditures may be more frequent than in the case of mortgaged real properties with fewer tenants, thereby reducing the cash flow available for debt service payments. Multi-tenant mortgaged real properties also may experience higher continuing vacancy rates and greater volatility in rental income and expenses. MORTGAGE LOANS SECURED BY MORTGAGED REAL PROPERTIES SUBJECT TO ASSISTANCE AND AFFORDABLE HOUSING PROGRAMS ARE SUBJECT TO THE RISK THAT THOSE PROGRAMS MAY TERMINATE OR BE ALTERED Certain of the mortgaged real properties may be secured by mortgage loans that are eligible (or may become eligible in the future) for and have received (or in the future may receive) low income housing tax credits pursuant to Section 42 of the Internal Revenue Code in respect of various units within the related mortgaged real property or have a material concentration of tenants that rely on rent subsidies under various government funded programs, including the Section 8 Tenant Based Assistance Rental Certificate Program of the United States Department of Housing and Urban Development. With respect to certain of the mortgage loans, the related borrowers may receive subsidies or other assistance from government programs. Generally, in the case of mortgaged real properties that are subject to assistance programs of the kind described above, the subject mortgaged real property must satisfy certain requirements, the borrower must observe certain leasing practices and/or the tenant(s) must regularly meet certain income requirements. No assurance can be given that any government or other assistance programs will be continued in their present form during the terms of the related mortgage loans, that the borrower will continue to comply with the requirements of the programs to enable the borrower to receive the subsidies or assistance in the future, or that the owners of a borrower will continue to receive tax credits or that the level of assistance provided will be sufficient to generate enough revenues for the related borrower to meet its obligations under the related mortgage loans even though the related mortgage loan seller may have underwritten the related mortgage loan on the assumption that any applicable assistance program would remain in place. Loss of any applicable assistance could have an adverse effect on the ability of a borrower whose property is subject to an assistance program to make debt service payments. Additionally, the restrictions described above relating to the use of the related mortgaged real property could reduce the market value of the related mortgaged real property. S-59
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GEOGRAPHIC CONCENTRATION EXPOSES INVESTORS TO GREATER RISKS ASSOCIATED WITH THE RELEVANT GEOGRAPHIC AREAS Mortgaged real properties located in California, Texas, Florida and Georgia will represent approximately 17.7%, 10.2%, 9.5% and 8.7%, respectively, by allocated loan amount, of the initial mortgage pool balance; mortgaged real properties located in California, Georgia, Texas, Nevada and Virginia will represent approximately 27.7%, 9.4%, 6.6%, 5.4% and 5.1%, respectively, by allocated loan amount, of the initial loan group 1 balance; and mortgaged real properties located in Florida, Texas, Georgia, Maryland, Ohio and Indiana will represent approximately 19.3%, 15.2%, 7.8%, 6.3%, 6.3% and 5.7%, respectively, by allocated loan amount, of the initial loan group 2 balance. The inclusion of a significant concentration of mortgage loans that are secured by mortgage liens on real properties located in a particular state makes the overall performance of the mortgage pool materially more dependent on economic and other conditions or events in that state. See "-- Certain State-Specific Considerations" below and "Risk Factors--Geographic Concentration Within a Trust Exposes Investors to Greater Risk of Default and Loss" in the accompanying base prospectus. CERTAIN STATE-SPECIFIC CONSIDERATIONS California. Sixty-one (61) mortgaged real properties representing approximately 17.7%, by allocated loan amount, of the initial mortgage pool balance are located in California. Mortgaged real properties located in California are generally secured by deeds of trust on the related real estate. Foreclosure of a deed of trust in California may be accomplished by a non-judicial trustee's sale under a specific provision in the deed of trust or by judicial foreclosure. Public notice of either a trustee's sale or the judgment of foreclosure is given for a statutory period of time after which the mortgaged real estate may be sold by a trustee, if foreclosed pursuant to a trustee's power of sale, or by court appointed sheriff under a judicial foreclosure. Following a judicial foreclosure sale, the borrower or its successor in interest may, for a period of up to one year, redeem the property. California's "one action rule" requires the lender to exhaust the security afforded under the deed of trust by foreclosure in an attempt to satisfy the full debt before bringing a personal action (if otherwise permitted) against the borrower for recovery of the debt, except in certain cases involving environmentally impaired real property. California case law has held that acts such as an offset of an unpledged account constitute violations of such statutes. Violations of such statutes may result in the loss of some or all of the security under the loan. Other statutory provisions in California limit any deficiency judgment (if otherwise permitted) against the borrower following a foreclosure to the amount by which the indebtedness exceeds the fair value at the time of the public sale and in no event greater than the difference between the foreclosure sale price and the amount of the indebtedness. Further, under California law, once a property has been sold pursuant to a power-of-sale clause contained in a deed of trust, the lender is precluded from seeking a deficiency judgment from the borrower or, under certain circumstances, guarantors. California statutory provisions regarding assignments of rents and leases require that a lender whose loan is secured by such an assignment must exercise a remedy with respect to rents as authorized by statute in order to establish its right to receive the rents after an event of default. Among the remedies authorized by statute is the lender's right to have a receiver appointed under certain circumstances. Texas. Eighty-four (84) mortgaged real properties representing approximately 10.2%, by allocated loan amount, of the initial mortgage pool balance are located in Texas. Texas law does not require that a lender must bring a foreclosure action before being entitled to sue on a note. Texas does not restrict a lender from seeking a deficiency judgment. The delay inherent in obtaining a judgment generally causes the secured lender to file a suit seeking a judgment on the debt and to proceed simultaneously with non-judicial foreclosure of the real property collateral. The desirability of non-judicial foreclosure of real property is further supported by the certain and defined non-judicial foreclosure procedures. In order to obtain a deficiency judgment, a series of procedural and substantive requirements must be satisfied, and the deficiency determination is subject to the borrower's defense (and, if successful, right of offset) that the fair market value of the property at the time of foreclosure was greater than the foreclosure bid. However, the availability of a deficiency judgment is limited in the case of the mortgage loan because of the limited nature of its recourse liabilities. S-60
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THE MORTGAGE POOL WILL INCLUDE MATERIAL CONCENTRATIONS OF BALLOON LOANS AND LOANS WITH ANTICIPATED REPAYMENT DATES Two hundred five (205) of the mortgage loans, representing approximately 94.7% of the initial mortgage pool balance (one hundred fifty two (152) mortgage loans in loan group 1, representing approximately 91.1% of the initial loan group 1 balance, and fifty-three (53) mortgage loans in loan group 2, representing approximately 99.7% of the initial loan group 2 balance), are balloon loans that will each have a substantial remaining principal balance at their stated maturity dates. In addition, six (6) mortgage loans, representing approximately 4.6% of the initial mortgage pool balance and approximately 7.9% of the initial loan group 1 balance, provide material incentives for the related borrower to repay the related mortgage loan by an anticipated repayment date prior to maturity. The ability of a borrower to make the required balloon payment on a balloon loan at maturity, and the ability of a borrower to repay a mortgage loan on or before any related anticipated repayment date, in each case depends upon its ability either to refinance the mortgage loan or to sell the mortgaged real property. The ability of a borrower to effect a refinancing or sale will be affected by a number of factors, including-- o the value of the related mortgaged real property; o the level of available mortgage interest rates at the time of sale or refinancing; o the borrower's equity in the mortgaged real property; o the financial condition and operating history of the borrower and the mortgaged real property, o tax laws; o prevailing general and regional economic conditions; o the fair market value of the related mortgaged real property; o reductions in applicable government assistance/rent subsidy programs; and o the availability of credit for loans secured by multifamily or commercial properties, as the case may be. Although a mortgage loan may provide the related borrower with incentives to repay the mortgage loan by an anticipated repayment date prior to maturity, the failure of that borrower to do so will not be a default under that mortgage loan. See "Description of the Mortgage Pool--Terms and Conditions of the Mortgage Loans" in this prospectus supplement and "Risk Factors--The Investment Performance of Your Offered Certificates Will Depend Upon Payments, Defaults and Losses on the Underlying Mortgage Loans; and Those Payments, Defaults and Losses May Be Highly Unpredictable" in the accompanying base prospectus. Additionally, one (1) mortgage loan (loan number 2), which is secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Farallon Portfolio (representing approximately 10.3% of the initial mortgage pool balance and approximately 24.2% of the initial loan group 2 balance) and which mortgage loan is part of a loan combination, the various loans making up such loan combination have various maturity dates, and the related borrower may prepay the portion of the mortgage loan being contributed to the issuing entity with a seven-year initial maturity at maturity and during its related open period immediately prior to maturity by effectuating property releases provided the related borrower satisfies various tests in accordance with the related loan documents. See "The Farallon Portfolio" in Annex C to this prospectus supplement and "Description of the Mortgage Pool--The Loan Combinations--The Farallon Portfolio" in this prospectus supplement. THE MORTGAGE POOL WILL INCLUDE SOME DISPROPORTIONATELY LARGE MORTGAGE LOANS AND GROUPS OF CROSS-COLLATERALIZED MORTGAGE LOANS The inclusion in the mortgage pool of one or more loans that have outstanding principal balances that are substantially larger than the other mortgage loans can result in losses that are more severe, relative to the size of the S-61
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mortgage pool, than would be the case if the total balance of the mortgage pool were distributed more evenly. In this regard: o The largest mortgage loan or group of cross-collateralized mortgage loans to be included in the assets of the issuing entity represents approximately 13.8% of the initial mortgage pool balance. The largest mortgage loan or group of cross-collateralized mortgage loans in loan group 1 represents approximately 7.1% of the initial loan group 1 balance, and the largest mortgage loan or group of cross-collateralized mortgage loans in loan group 2 represents approximately 32.4% of the initial loan group 2 balance. o The five (5) largest mortgage loans and groups of cross-collateralized mortgage loans to be included in the assets of the issuing entity represent approximately 34.5% of the initial mortgage pool balance. The five (5) largest mortgage loans and groups of cross-collateralized mortgage loans in loan group 1 represent approximately 23.5% of the initial loan group 1 balance, and the five (5) largest mortgage loans and groups of cross-collateralized mortgage loans in loan group 2 represent approximately 68.0% of the initial loan group 2 balance. o The ten (10) largest mortgage loans and groups of cross-collateralized mortgage loans to be included in the assets of the issuing entity represent approximately 42.4% of the initial mortgage pool balance. The ten (10) largest mortgage loans and groups of cross-collateralized mortgage loans in loan group 1 represent approximately 31.9% of the initial loan group 1 balance, and the ten (10) largest mortgage loans and groups of cross-collateralized mortgage loans in loan group 2 represent approximately 78.6% of the initial loan group 2 balance. See "Description of the Mortgage Pool--General," "--Cross-Collateralized and Cross-Defaulted Mortgage Loans, Multi-Property Mortgage Loans and Mortgage Loans with Affiliated Borrowers" and "--Significant Mortgage Loans" in this prospectus supplement and "Risk Factors--Loan Concentration Within a Trust Exposes Investors to Greater Risk of Default and Loss" in the accompanying base prospectus. THE EXERCISE OF CERTAIN RIGHTS AND POWERS BY THE HOLDER OF A NON-TRUST LOAN THAT IS PART OF A LOAN COMBINATION WITH A MORTGAGE LOAN INCLUDED IN THE MORTGAGE POOL MAY CONFLICT WITH YOUR INTERESTS One (1) mortgage loan (loan number 2), which is secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Farallon Portfolio (representing approximately 10.3% of the initial mortgage pool balance and approximately 24.2% of the initial loan group 2 balance) will be part of a group of loans that we refer to as a loan combination, made to the same borrower and that is secured by a single mortgage instrument on the same mortgaged real property. Certain of the non-trust loans will generally be pari passu with the mortgage loan and certain non-trust loans will generally be subordinate to the A-note portion of the mortgage loan being deposited in the issuing entity, but in each case, will not be included as an asset of the issuing entity. The holder or holders (and their respective successors and assigns) of all or any portion of the non-trust fixed-rate A notes which are not held by the trust, as designated by Merrill Lynch Mortgage Lending, Inc. and which may be Merrill Lynch Mortgage Lending, Inc., will have the right to replace the special servicer for the Farallon Portfolio loan combination and to direct and advise the master servicer and special servicer, and have certain approval rights, with respect to various servicing matters and major decisions relating to the Farallon Portfolio loan combination. The controlling class of the ML-CFC Commercial Mortgage Trust 2007-8, Commercial Mortgage Pass-Through Certificates, Series 2007-8 securitization transaction will not have such rights. In connection with future securitizations involving all or any portion of the fixed rate notes that comprise the Farallon Portfolio loan combination, Merrill Lynch Mortgage Lending, Inc. may designate the controlling class of any such securitization as the controlling holder for the Farallon Portfolio loan combination in which case such controlling holder shall have such rights and Merrill Lynch Mortgage Lending, Inc. (or its successors or assigns, as applicable), as holder of any remaining portion of the Farallon Portfolio loan combination, will have certain non-binding consultation rights with respect to matters relating to such rights. One (1) mortgage loan (loan number 99), which is secured by the mortgaged real properties identified on Annex A-1 to this prospectus supplement as Timbercreek Apartments (representing approximately 0.2% of the initial mortgage pool balance and 0.5% of the initial loan group 2 balance), is a part of a group of loans, that we S-62
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refer to as a loan combination, made to the same borrower and that is secured by a single mortgage instrument on the same mortgaged real property or properties. The other loan in this loan combination will not be included as an asset of the issuing entity. The holder of such B-note non-trust loan will not have any voting, consent or other rights (other than, in some cases, non-binding consultation rights or consent rights with respect to certain loan modifications) with respect to the servicing of such loan combination, but may have purchase rights and/or cure rights with respect to the related trust mortgage loan. Three (3) mortgage loans (loan numbers 3, 4 and 7), which are secured by the mortgaged real properties identified in Annex A-1 to this prospectus supplement as Executive Hills Portfolio, Peninsula Beverly Hills and the Georgia-Alabama Retail Portfolio (representing approximately 9.0% of the initial mortgage pool balance and 15.6% of the initial loan group 1 balance), are each part of a loan combination, pursuant to which the right to replace the special servicer for each such mortgage loan and to direct and advise the applicable master servicer and the special servicer on various servicing matters regarding the related loan combination will be, for so long as such loan combination has an outstanding principal balance, as deemed reduced by any appraisal reduction amount with respect to the subject loan combination that is allocable to the related B-note non-trust loan (and the B-note trust loan, in the case of the Georgia-Alabama Retail Portfolio loan combination), that is equal to or greater than 25% of its original outstanding principal balance, with the holder of the related B-note non-trust loan (and the B-note trust loan, in the case of the Georgia-Alabama Retail Portfolio loan combination) and after such time, with the controlling class representative. In addition, with respect to the mortgage loan identified as Peninsula Beverly Hills, the holder of the related B-note non-trust loan is Pacific Life Insurance Company. It is anticipated that this entity will be the primary servicer for the related loan combination pursuant to a sub-servicing agreement between Pacific Life Insurance Company and Wells Fargo Bank, National Association, the master servicer for this mortgage loan, under which Pacific Life Insurance Company will be responsible for, among other things, the collection of monthly payments from the borrower and the remittance of such amounts to such Master Servicer. In addition, under the related intercreditor agreement, the holder of the related B-note non-trust loan (provided it is the controlling party for such mortgage loan) has the right to appoint Pacific Life Insurance Company as special servicer within 90 days following the closing date (so long as such entity is on the S&P Select Servicer List as a U.S. Commercial Mortgage Servicer). In connection with exercising the foregoing rights, the holder of a B-note non-trust loan may have interests that conflict with your interests. See "Description of the Mortgage Pool-- The Loan Combinations" in this prospectus supplement. THE MORTGAGE POOL WILL INCLUDE LEASEHOLD MORTGAGE LOANS AND LENDING ON A LEASEHOLD INTEREST IN REAL PROPERTY IS RISKIER THAN LENDING ON THE FEE INTEREST IN THAT PROPERTY In the case of seven (7) mortgaged real properties representing approximately 3.0% of the initial mortgage pool balance and approximately 5.2% of the initial loan group 1 balance, and approximately 0.1% of the initial loan group 2 balance, the related mortgage constitutes a lien on the related borrower's leasehold interest, but not on the corresponding fee interest, in all or a material portion of the related mortgaged real property, which leasehold interest is subject to a ground lease. Because of possible termination of the related ground lease, lending on a leasehold interest in a real property is riskier than lending on an actual fee interest in that property notwithstanding the fact that a lender, such as the trustee on behalf of the issuing entity, generally will have the right to cure defaults under the related ground lease. In addition, the terms of certain ground leases may require that insurance proceeds or condemnation awards be applied to restore the property or be paid, in whole or in part, to the ground lessor rather than be applied against the outstanding principal balance of the related mortgage loan. Finally, there can be no assurance that any of the ground leases securing a mortgage loan contain all of the provisions, including a lender's right to obtain a new lease if the current ground lease is rejected in bankruptcy that a lender may consider necessary or desirable to protect its interest as a lender with respect to a leasehold mortgage loan. See "Description of the Mortgage Pool--Additional Loan and Property Information--Ground Leases" in this prospectus supplement. See also "Risk Factors--Lending on Ground Leases Creates Risks for Lenders that Are Not Present When Lending on an Actual Ownership Interest in a Real Property" and "Legal Aspects of Mortgage Loans--Foreclosure--Leasehold Considerations" in the accompanying base prospectus. S-63
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SOME OF THE MORTGAGED REAL PROPERTIES ARE LEGAL NONCONFORMING USES OR LEGAL NONCONFORMING STRUCTURES Some of the mortgaged real properties are secured by a mortgage lien on a real property that is a legal nonconforming use or a legal nonconforming structure. This may impair the ability of the borrower to restore the improvements on a mortgaged real property to its current form or use following a major casualty. Certain of the mortgaged real properties that do not conform to current zoning laws may not be legal non-conforming uses or legal non-conforming structures. The failure of a mortgaged real property to comply with zoning laws or to be a legal non-conforming use or legal non-conforming structure may adversely affect market value of the mortgaged real property or the borrower's ability to continue to use it in the manner it is currently being used or may necessitate material additional expenditures to remedy non-conformities. In addition, certain of the mortgaged real properties may be subject to certain use restrictions imposed pursuant to reciprocal easement agreements, operating agreements, historical landmark designations or other covenants and agreements. Use restrictions could include, for example, limitations on the character of the improvements or the properties, limitations affecting noise and parking requirements, among other things, and limitations on the borrowers' rights to operate certain types of facilities within a prescribed radius. These limitations could adversely affect the ability of the related borrower to lease the mortgaged real property on favorable terms, thereby adversely affecting the borrower's ability to fulfill its obligations under the related mortgage loan. See "Description of the Mortgage Pool--Additional Loan and Property Information--Zoning and Building Code Compliance" in this prospectus supplement and "Risk Factors--Changes in Zoning Laws May Adversely Affect the Use or Value of a Real Property" in the accompanying base prospectus. A BORROWER'S OTHER LOANS MAY REDUCE THE CASH FLOW AVAILABLE TO THE MORTGAGED REAL PROPERTY WHICH MAY ADVERSELY AFFECT PAYMENT ON YOUR CERTIFICATES; MEZZANINE FINANCING REDUCES A PRINCIPAL'S EQUITY IN, AND THEREFORE ITS INCENTIVE TO SUPPORT, A MORTGAGED REAL PROPERTY Five (5) mortgage loans, which represent approximately 19.5% of the initial mortgage pool balance, approximately 15.6% of the initial loan group 1 balance and approximately 24.7% of the initial loan group 2 balance, are each, individually or together with one or more other loans that will not be included in the assets of the issuing entity, senior loans in multiple loan structures that we refer to as loan combinations. The other loans will not be included in the trust but are secured in each case by the same mortgage instrument on the same mortgaged real property or properties that secures or secure the related trust mortgage loan. See "Description of the Mortgage Pool--The Loan Combinations" and "Description of the Mortgage Pool--Additional Loan and Property Information--Additional and Other Financing" in this prospectus supplement. In the case of thirteen (13) mortgage loans (loan numbers 2, 3, 4, 7, 15, 16, 61, 68, 78, 99, 146, 171 and 173) representing approximately 22.8% of the initial mortgage pool balance (eight (8) mortgage loans in loan group 1, representing approximately 18.9% of the initial loan group 1 balance, and five (5) mortgage loan in loan group 2, representing approximately 28.0% of the initial loan group 2 balance), the related borrower has incurred or is permitted to incur in the future additional debt that is secured by the related mortgaged real property as identified under "Description of the Mortgage Pool--Additional Loan and Property Information--Additional and Other Financing" in this prospectus supplement. Except as indicated above, the mortgage loans do not permit the related borrowers to enter into additional subordinate or other financing that is secured by their mortgaged real properties without the lender's consent. In the case of thirty-five (35) of the mortgage loans, representing approximately 21.1% of the initial mortgage pool balance (twenty-seven (27) mortgage loans in loan group 1, representing approximately 26.8% of the initial loan group 1 balance, and eight (8) mortgage loans in loan group 2, representing approximately 13.2% of the initial loan group 2 balance), as identified under "Description of the Mortgage Pool--Additional Loan and Property Information--Additional and Other Financing" in this prospectus supplement, direct and indirect equity owners of the related borrower have pledged, or are permitted in the future to pledge, their respective equity interests to secure financing generally referred to as mezzanine debt. Holders of mezzanine debt may have the right to purchase the related borrower's mortgage loan from the issuing entity if certain defaults on the mortgage loan occur and, in some cases, may have the right to cure certain defaults occurring on the related mortgage loan. S-64
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In the case of one mortgage loan (loan number 2) secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Farallon Portfolio, representing approximately 10.3% of the initial mortgage pool balance and approximately 24.7% of the initial loan group 2 balance, certain affiliates of the related borrower are permitted to enter into a revolving credit facility secured by a non-controlling interest in the related borrower, in the maximum amount of up to (x) $15,000,000 during the first year of the related mortgage loan and (y) $25,000,000 thereafter. Under certain of the mortgage loans, the borrower has incurred or is permitted to incur additional financing that is not secured by the mortgaged real property. In addition, borrowers that have not agreed to certain special purpose covenants in the related loan documents are not generally prohibited from incurring additional debt. Such additional debt may be secured by other property owned by those borrowers. Also, certain of these borrowers may have already incurred additional debt. In addition, the owners of such borrowers generally are not prohibited from incurring mezzanine debt secured by pledges of their equity interests in those borrowers. The mortgage loans generally do not prohibit the related borrower from incurring other obligations in the ordinary course of business relating to the mortgaged real property, including, but not limited to, trade payables, or from incurring indebtedness secured by equipment or other personal property located at or used in connection with the operation of the mortgaged real property. We make no representation with respect to the mortgage loans as to whether any other subordinate financing currently encumbers any mortgaged real property, whether any borrower has incurred material unsecured debt or whether a third party holds debt secured by a pledge of an equity interest in a related borrower. Debt that is incurred by an equity owner of a borrower and is the subject of a guaranty of such borrower or is secured by a pledge of the equity ownership interests in such borrower effectively reduces the equity owners' economic stake in the related mortgaged real property. While the mezzanine lender has no security interest in or rights to the related mortgaged real property, a default under the mezzanine loan could cause a change in control of the related borrower. The existence of such debt may reduce cash flow on the related borrower's mortgaged real property after the payment of debt service and may increase the likelihood that the owner of a borrower will permit the value or income producing potential of a mortgaged real property to suffer by not making capital infusions to support the mortgaged real property. When a mortgage loan borrower, or its constituent members, also has one or more other outstanding loans, even if the loans are subordinated or are mezzanine loans not directly secured by the mortgaged real property, the issuing entity is subjected to additional risks. For example, the borrower may have difficulty servicing and repaying multiple loans. Also, the existence of another loan generally will make it more difficult for the borrower to obtain refinancing of the mortgage loan or sell the related mortgaged real property and may thus jeopardize the borrower's ability to make any balloon payment due under the mortgage loan at maturity or to repay the mortgage loan on its anticipated repayment date. Moreover, the need to service additional debt may reduce the cash flow available to the borrower to operate and maintain the mortgaged real property. If the mortgaged real property depreciates for whatever reason, the related borrower's equity is more likely to be wiped out, thereby eliminating the related borrower's incentive to continue making payments on its mortgage loan. Additionally, if the borrower, or its constituent members, are obligated to another lender, actions taken by other lenders or the borrower could impair the security available to the issuing entity. If a junior lender files an involuntary bankruptcy petition against the borrower, or the borrower files a voluntary bankruptcy petition to stay enforcement by a junior lender, the issuing entity's ability to foreclose on the mortgaged real property will be automatically stayed, and principal and interest payments might not be made during the course of the bankruptcy case. The bankruptcy of a junior lender also may operate to stay foreclosure by the issuing entity. Further, if another loan secured by the mortgaged real property is in default, the other lender may foreclose on the mortgaged real property, absent an agreement to the contrary, thereby causing a delay in payments and/or an involuntary repayment of the mortgage loan prior to maturity. The issuing entity may also be subject to the costs and administrative burdens of involvement in foreclosure proceedings or related litigation. In addition, in the case of those mortgage loans which require or allow letters of credit to be posted by the related borrower as additional security for the mortgage loan, in lieu of reserves or otherwise, the related borrower S-65
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may be obligated to pay fees and expenses associated with the letter of credit and/or to reimburse the letter of credit issuer or others in the event of a draw upon the letter of credit by the lender. See "Description of the Mortgage Pool--Additional Loan and Property Information--Additional and Other Financing" in this prospectus supplement for a discussion of additional debt with respect to the mortgaged real properties and the borrowers. See also "Risk Factors--Additional Secured Debt Increases the Likelihood That a Borrower Will Default on a Mortgage Loan Underlying Your Offered Certificates" in the accompanying base prospectus. COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS MAY RESULT IN LOSSES A borrower may be required to incur costs to comply with various existing and future federal, state or local laws and regulations applicable to the related mortgaged real property securing a mortgage loan. Examples of these laws and regulations include zoning laws and the Americans with Disabilities Act of 1990, which requires all public accommodations to meet certain federal requirements related to access and use by disabled persons. For example, not all of the mortgaged real properties securing the mortgage loans comply with the Americans with Disabilities Act of 1990. See "Risk Factors--Compliance with the Americans with Disabilities Act of 1990 May Be Expensive" and "Legal Aspects of Mortgage Loans--Americans with Disabilities Act" in the accompanying base prospectus. The expenditure of such costs or the imposition of injunctive relief, penalties or fines in connection with the borrower's noncompliance could negatively impact the borrower's cash flow and, consequently, its ability to pay its mortgage loan. In addition, under the Federal Fair Housing Act, analogous statutes in some states and regulations and guidelines issued pursuant to those laws, any and all otherwise-available units in a multifamily apartment building must be made available to any disabled person who meets the financial criteria generally applied by the landlord, including implementing alterations and accommodations in certain circumstances. The costs of this compliance may be high and the penalties for noncompliance may be severe. Thus, these fair housing statutes, regulations and guidelines present a risk of increased operating costs to the borrowers under the mortgage loans secured by multifamily apartment buildings, which may reduce (perhaps significantly) amounts available for payment on the related mortgage loan. MULTIPLE MORTGAGED REAL PROPERTIES ARE OWNED BY THE SAME BORROWER OR AFFILIATED BORROWERS OR ARE OCCUPIED, IN WHOLE OR IN PART, BY THE SAME TENANT OR AFFILIATED TENANTS Seventeen (17) separate groups of mortgage loans, representing approximately 12.8% of the initial mortgage pool balance, are loans made to borrowers that, in the case of each of those groups, are the same or under common control. Mortgaged real properties owned by affiliated borrowers are likely to: o have common management, increasing the risk that financial or other difficulties experienced by the property manager could have a greater impact on the pool of mortgage loans; and o have common general partners or managing members, which could increase the risk that a financial failure or bankruptcy filing would have a greater impact on the pool of mortgage loans. See "Description of the Mortgage Pool--Cross-Collateralized and Cross-Defaulted Mortgage Loans, Multi-Property Mortgage Loans and Mortgage Loans with Affiliated Borrowers" in this prospectus supplement. In addition, there may be tenants which lease space at more than one mortgaged real property securing mortgage loans. There may also be tenants that are related to or affiliated with a borrower. See Annex A-1 to this prospectus supplement for a list of the three most significant tenants at each of the mortgaged real properties used for retail, office and industrial purposes. The bankruptcy or insolvency of, or other financial problems with respect to, any borrower or tenant that is, directly or through affiliation, associated with two or more of the mortgaged real properties could have an adverse effect on all of those properties and on the ability of those properties to produce sufficient cash flow to make required payments on the related mortgage loans. See "Risk Factors--Repayment of a Commercial or Multifamily Mortgage Loan Depends upon the Performance and Value of the Underlying Real Property, Which May Decline S-66
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Over Time, and the Related Borrower's Ability to Refinance the Property, of Which There Is No Assurance," "--Borrower Concentration Within a Trust Exposes Investors to Greater Risk of Default and Loss" and "--Borrower Bankruptcy Proceedings Can Delay and Impair Recovery on a Mortgage Loan Underlying Your Offered Certificates" in the accompanying base prospectus. THE MORTGAGE LOANS HAVE NOT BEEN REUNDERWRITTEN BY US We have not reunderwritten the mortgage loans. Instead, we have relied on the representations and warranties made by the mortgage loan sellers, and the mortgage loan sellers' respective obligations to repurchase, cure or substitute a mortgage loan in the event that a representation or warranty was not true when made and such breach materially and adversely affects the value of the mortgage loan or the interests of the certificateholders. These representations and warranties do not cover all of the matters that we would review in underwriting a mortgage loan and you should not view them as a substitute for reunderwriting the mortgage loans. If we had reunderwritten the mortgage loans, it is possible that the reunderwriting process may have revealed problems with a mortgage loan not covered by representations or warranties given by the mortgage loan sellers. In addition, we cannot assure you that the mortgage loan sellers will be able to repurchase or substitute a mortgage loan if a representation or warranty has been breached. See "Description of the Mortgage Pool--Representations and Warranties" and "--Repurchases and Substitutions" in this prospectus supplement. ASSUMPTIONS MADE IN DETERMINING UNDERWRITTEN NET CASH FLOW MAY PROVE TO BE INAPPROPRIATE As described under "Glossary" in this prospectus supplement, underwritten net cash flow means cash flow as adjusted based on a number of assumptions used by the mortgage loan sellers. No representation is made that the underwritten net cash flow set forth in this prospectus supplement as of the cut-off date or any other date is predictive of future net cash flows. In certain cases, co-tenancy provisions were assumed to be satisfied and vacant space was assumed to be occupied and space that was due to expire was assumed to have been re-let, in each case at market rates that may have exceeded current rent. Each originator of commercial mortgage loans has its own underwriting criteria and no assurance can be given that adjustments or calculations made by one originator would be made by other lenders. Each investor should review the assumptions discussed in this prospectus supplement and make its own determination of the appropriate assumptions to be used in determining underwritten net cash flow. In addition, net cash flow reflects calculations and assumptions used by the mortgage loan sellers and should not be used as a substitute for, and may vary (perhaps substantially) from, cash flow as determined in accordance with GAAP as a measure of the results of a mortgaged real property's operation or for cash flow from operating activities determined in accordance with GAAP as a measure of liquidity. The debt service coverage ratios set forth in this prospectus supplement for the mortgage loans and the mortgaged properties vary, and may vary substantially, from the debt service coverage ratios for the mortgage loans and the mortgaged properties as calculated pursuant to the definition of such ratios as set forth in the related mortgage loan documents. See the footnotes to Annex A-1 to this prospectus supplement. Also see "Glossary" for a discussion of the assumptions used in determining net cash flow. The underwriters express no opinion as to the accuracy of the determination of, or the appropriateness or reasonableness of the assumptions used in determining, net cash flow. SOME MORTGAGED REAL PROPERTIES MAY NOT BE READILY CONVERTIBLE TO ALTERNATIVE USES Some of the mortgaged real properties securing the mortgage loans may not be readily convertible to alternative uses if those properties were to become unprofitable for any reason. For example, any vacant theater space would not easily be converted to other uses due to the unique construction requirements of theaters. Converting commercial properties to alternate uses generally requires substantial capital expenditures. The liquidation value of any such mortgaged real property consequently may be substantially less than would be the case if the property were readily adaptable to other uses. See "--Retail Properties are Subject to Unique Risks Which May Reduce Payments on Your Certificates," "--Industrial Facilities are Subject to Unique Risks Which May Reduce Payments on Your Certificates," "--Self Storage Facilities are Subject to Unique Risks Which May Reduce Payments on Your Certificates" and "--Manufactured Housing Community Properties, Mobile Home Parks and Recreational Vehicle Parks are Subject to Unique Risks Which May Reduce Payments on Your Certificates" above. S-67
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LENDING ON INCOME-PRODUCING REAL PROPERTIES ENTAILS ENVIRONMENTAL RISKS The issuing entity could become liable for a material adverse environmental condition at one of the mortgaged real properties securing the mortgage loans. Any potential environmental liability could reduce or delay payments on the offered certificates. If an adverse environmental condition exists with respect to a mortgaged real property securing a mortgage loan, the issuing entity will be subject to certain risks including the following: o a reduction in the value of such mortgaged real property which may make it impractical or imprudent to foreclose against such mortgaged real property; o the potential that the related borrower may default on the related mortgage loan due to such borrower's inability to pay high remediation costs or difficulty in bringing its operations into compliance with environmental laws; o liability for clean-up costs or other remedial actions, which could exceed the value of such mortgaged real property or the unpaid balance of the related mortgage loan; and o the inability to sell the related mortgage loan in the secondary market or to lease such mortgaged real property to potential tenants. A third-party consultant conducted an environmental site assessment, or updated a previously conducted assessment (which update may have been pursuant to a database update), with respect to all of the mortgaged real properties for the mortgage loans. Generally, if any assessment or update revealed a material adverse environmental condition or circumstance at any mortgaged real property and the consultant recommended action, then, depending on the nature of the condition or circumstance, one of the actions identified in this prospectus supplement under "Description of the Mortgage Pool--Assessments of Property Condition--Environmental Assessments" was taken. See "Description of the Mortgage Pool--Assessments of Property Condition--Environmental Assessments" for further information regarding these environmental site assessments and the resulting environmental reports, including information regarding the periods during which these environmental reports were prepared. In some cases, the identified condition related to the presence of asbestos-containing materials, lead-based paint, mold and/or radon. Where these substances were present, the environmental consultant generally recommended, and the related loan documents generally require, the establishment of an operation and maintenance plan to address the issue or, in some cases involving asbestos-containing materials, lead-based paint, mold and/or radon, an abatement or removal program. We cannot assure you that the environmental assessments identified all environmental conditions and risks, that the related borrowers will implement all recommended operations and maintenance plans, that such plans will adequately remediate the environmental condition, or that any environmental indemnity, insurance or escrow will fully cover all potential environmental issues. In addition, the environmental condition of the mortgaged real properties could be adversely affected by tenants or by the condition of land or operations in the vicinity of the properties, such as underground storage tanks. With respect to the mortgage loan identified on Annex A-1 to this prospectus supplement as Georgia-Alabama Retail Portfolio, which is secured by sixty-two (62) gas station/convenience store properties, which represent security for approximately 1.6% of the initial mortgage pool balance and approximately 2.8% of the loan group 1 balance, although all of the mortgaged properties conform in all material respects to the 1988 Environmental Protection Agency standards for the design, construction and operation of underground storage tanks that hold petroleum, thirteen (13) of the mortgaged properties have documented releases of petroleum or petroleum products which are the subject of ongoing investigations, remediation or post-remediation monitoring activities. Of these sites, (i) two (2) of the mortgaged properties have an investment grade responsible party, (ii) four (4) of the mortgaged properties have remediation activities which are being supervised by the state and the contractor bills the Georgia Underground Storage Tank ("GUST") trust fund directly for remediation costs, (iii) one (1) of the mortgaged properties has a non-investment grade responsible party (but is also being reimbursed by the GUST trust fund), (iv) one (1) of the mortgaged properties has either not yet commenced or has suspended remediation activities S-68
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due to the responsible party being in bankruptcy, (v) three (3) of the mortgaged properties have completed remediation and a request for a no further action letter is pending and (vi) two (2) of the mortgaged properties have been designated or a contractor has requested that they be designated as monitoring-only. The environmental consultant estimated that the reasonably likely cost of investigation and remediation or monitoring of the sites over the next five years would be approximately $602,400. There can be no assurance that other properties in the portfolio will not have releases or that the 13 properties described above or other properties will not experience additional expenses related to environmental conditions that may arise at the related mortgaged property. At loan closing, the borrower obtained a five-year pollution legal liability ("PLL") policy from Zurich with a $5 million per claim and $10 million aggregate limit, with a self-insured retention of $1,100,000 for petroleum related releases and $500,000 for non-petroleum releases. At loan closing, Countrywide Commercial Real Estate Finance, Inc. reserved $224,090 for the payment of renewal premiums. The reserve funds may only be used to pay the renewal premium and are not collateral for the Georgia-Alabama Retail Portfolio Loan in the event of a default. The reserve funds are to be returned to Countrywide Commercial Real Estate Finance, Inc. (i) at the time the lender is given notice that the PLL policy will not be renewed or has been cancelled or (ii) on the maturity date. The PLL policy covers (i) the costs of remediation and potential legal liability as a result of historical contamination and (ii) costs for future releases in excess of coverage under a UST Policy (described below). In addition to the PLL policy, the borrower also obtained a tank policy ("UST Policy") that covers future petroleum releases from the underground storage tanks, including the petroleum related release deductible under the PLL policy, subject to a $5,000 deductible. The UST Policy renews annually and the related premium is included in the price paid for petroleum products to an affiliate of the borrower by the operator at each Georgia-Alabama Retail Portfolio property. See "Description of the Mortgage Pool--Assessments of Property Condition--Environmental Assessments." Also see "Risk Factors--Environmental Liabilities Will Adversely Affect the Value and Operation of the Contaminated Property and May Deter a Lender from Foreclosing" and "Legal Aspects of Mortgage Loans--Environmental Considerations" in the accompanying base prospectus. LENDING ON INCOME-PRODUCING PROPERTIES ENTAILS RISKS RELATED TO PROPERTY CONDITION Licensed engineers inspected all of the mortgaged real properties that secure the mortgage loans, in connection with the originating of such mortgage loans to assess-- o the structure, exterior walls, roofing, interior construction, mechanical and electrical systems; and o the general condition of the site, buildings and other improvements located at each property. The resulting reports may have indicated deferred maintenance items and/or recommended capital improvements on the mortgaged real properties. We, however, cannot assure you that all conditions requiring repair or replacement were identified. No additional property inspections were conducted in connection with the issuance of the offered certificates. See "Description of the Mortgage Pool--Assessments of Property Condition--Engineering Assessments" for information regarding these engineering inspections and the resulting engineering reports, including the periods during which these engineering reports were prepared. Generally, with respect to many of the mortgaged real properties for which recommended repairs, corrections or replacements were deemed material, the related borrowers were required to deposit with the lender an amount ranging from 100% to 125% of the licensed engineer's estimated cost of the recommended repairs, corrections or replacements to assure their completion. See "Risk Factors--Risks Related to the Mortgage Loans--Reserves to Fund Capital Expenditures May Be Insufficient and This May Adversely Affect Payments on Your Certificates" in this prospectus supplement. INSPECTIONS AND APPRAISALS PERFORMED ON MORTGAGED REAL PROPERTIES MAY NOT ACCURATELY REFLECT VALUE OR CONDITION OF MORTGAGED REAL PROPERTIES Any appraisal performed with respect to a mortgaged real property represents only the analysis and opinion of a qualified expert and is not a guarantee of present or future value. One appraiser may reach a different conclusion than the conclusion that would be reached if a different appraiser were appraising that property. Moreover, appraisals seek to establish the amount a typically motivated buyer would pay a typically motivated seller and, in certain cases, may have taken into consideration the purchase price paid by the borrower. That amount could be significantly higher than the amount obtained from the sale of a mortgaged real property under a distress or S-69
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liquidation sale. We cannot assure you that the information set forth in this prospectus supplement regarding appraised values or loan-to-value ratios accurately reflects past, present or future market values of the mortgaged real properties. See "Description of the Mortgage Pool--Assessments of Property Condition--Appraisals" in this prospectus supplement for a description of the appraisals that were performed with respect to the mortgaged real properties. Any engineering reports or site inspections obtained with respect to a mortgaged real property represents only the analysis of the individual engineers or site inspectors preparing such reports at the time of such report, and may not reveal all necessary or desirable repairs, maintenance or capital improvement items. See "Description of the Mortgage Pool--Assessments of Property Condition--Property Inspections" and "--Engineering Assessments" in this prospectus supplement for a description of the engineering assessments and site inspections that were performed with respect to the mortgaged real properties. LIMITATIONS ON ENFORCEABILITY OF CROSS-COLLATERALIZATION AND MULTI-BORROWER ARRANGEMENTS; MULTI-PROPERTY MORTGAGE LOANS The mortgage pool will include thirteen (13) mortgage loans, representing approximately 36.6% of the initial mortgage pool balance (eight (8) mortgage loans in loan group 1, representing approximately 18.9% of the initial loan group 1 balance, and five (5) mortgage loans in loan group 2, representing approximately 60.7% of the initial loan group 2 balance), that may involve multiple borrowers (or in some cases, a single borrower owning multiple properties) and are, in each case, individually or through cross-collateralization with other mortgage loans, secured by two or more real properties and, in the case of cross-collateralized mortgage loans, are cross-defaulted with the mortgage loans with which they are cross-collateralized. However, the amount of the mortgage lien encumbering any particular one of those properties may be less than the full amount of the related mortgage loan or group of cross-collateralized mortgage loans, as it may have been limited to avoid or reduce mortgage recording tax. The reduced mortgage amount may equal the appraised value or allocated loan amount for the particular mortgaged real property. This would limit the extent to which proceeds from the property would be available to offset declines in value of the other mortgaged real properties securing the same mortgage loan or group of cross-collateralized mortgage loans. These mortgage loans are identified in the tables contained in Annex A-1. The purpose of securing any particular mortgage loan or group of cross-collateralized mortgage loans with multiple real properties or multiple properties within a single mortgaged real property is to reduce the risk of default or ultimate loss as a result of an inability of any particular property to generate sufficient net operating income to pay debt service. However, certain of these mortgage loans, as described under "Description of the Mortgage Pool--Cross-Collateralized and Cross-Defaulted Mortgage Loans, Multi-Property Mortgage Loans and Mortgage Loans with Affiliate Borrowers" in this prospectus supplement, entitle the related borrower(s) to obtain a release of one or more of the corresponding mortgaged real properties and/or a termination of any applicable cross-collateralization, subject, in each case, to the fulfillment of one or more specified conditions. Six (6) of the mortgage loans referred to in the preceding paragraph, representing approximately 28.3% of the initial mortgage pool balance (three (3) mortgage loans, in loan group 1 representing approximately 6.7% of the initial loan group 1 balance and three (3) mortgage loan in loan group 2 representing approximately 57.7% of the initial loan group 2 balance), are secured by deeds of trust or mortgages, as applicable, on multiple properties or parcels that, through cross-collateralization arrangements or otherwise, secure the obligations of multiple borrowers. Such multi-borrower arrangements could be challenged as fraudulent conveyances by creditors of any of the related borrowers or by the representative of the bankruptcy estate of any related borrower if one or more of such borrowers becomes a debtor in a bankruptcy case. Generally, under federal and most state fraudulent conveyance statutes, a lien granted by any such borrower could be voided if a court determines that: o such borrower was insolvent at the time of granting the lien, was rendered insolvent by the granting of the lien, was left with inadequate capital or was not able to pay its debts as they matured; and o the borrower did not, when it allowed its mortgaged real property to be encumbered by the liens securing the indebtedness represented by the other cross-collateralized loans, receive "fair consideration" or "reasonably equivalent value" for pledging such mortgaged real property for the equal benefit of the other related borrowers. S-70
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We cannot assure you that a lien granted by a borrower on a cross-collateralized loan to secure the mortgage loan of another borrower, or any payment thereon, would not be avoided as a fraudulent conveyance. See "Description of the Mortgage Pool--Cross-Collateralized and Cross-Defaulted Mortgage Loans, Multi-Property Mortgage Loans and Mortgage Loans with Affiliated Borrowers" in this prospectus supplement and Annex A-1 to this prospectus supplement for more information regarding the cross-collateralized mortgage loans. No mortgage loan is cross-collateralized with a mortgage loan not included in the assets of the issuing entity. Six (6) mortgage loans, representing approximately 33.4% of the initial mortgage pool balance and approximately 16.3% of the initial loan group 1 balance and approximately 56.6% of the initial loan group 2 balance, are, in each case, secured by real properties located in two or more states. Foreclosure actions are brought in state court and the courts of one state cannot exercise jurisdiction over property in another state. Upon a default under any of these mortgage loans, it may not be possible to foreclose on the related mortgaged real properties simultaneously. THE BORROWER'S FORM OF ENTITY OR STRUCTURE MAY CAUSE SPECIAL RISKS AND/OR HINDER RECOVERY The borrowers under forty (40) mortgage loans, representing in the aggregate approximately 3.5% of the initial mortgage pool balance (twenty-five (25) mortgage loans in loan group 1, representing 4.2% of the initial loan group 1 balance, and fifteen (15) mortgage loans in loan group 2, representing 2.4% of the initial loan group 2 balance), are either individuals or are not structured to diminish the likelihood of their becoming bankrupt and some of the other borrowers so structured may not satisfy all the characteristics of special purpose entities. Further, some of the borrowing entities (including some that are currently structured to satisfy the characteristics of a special purpose entity) may have been in existence and conducting business prior to the origination of the related mortgage loan. For example, with respect to the mortgage loans identified on Annex A-1 to this prospectus supplement as Farallon Portfolio, Peninsula Beverly Hills and SAC/U-Haul Self Storage Portfolio, representing approximately 16.6% of the initial mortgage pool balance, 11.0% of the initial loan group 1 balance and 24.2% of the initial loan group 2 balance, the related borrower (or in some cases, certain of the related borrowers) are not newly formed special purpose entities. In addition, certain borrowers may own other property that is not part of the collateral for the mortgage loans and, even with respect to those currently structured to satisfy the characteristics of a special purpose entity, may not have always satisfied all the characteristics of special purpose entities. The related mortgage documents and/or organizational documents of certain borrowers may not contain the representations, warranties and covenants customarily made by a borrower that is a special purpose entity (such as limitations on indebtedness and affiliate transactions and restrictions on the borrower's ability to dissolve, liquidate, consolidate, merge, sell all of its assets, or amend its organizational documents). These provisions are designed to mitigate the possibility that the borrower's financial condition would be adversely impacted by factors unrelated to the related mortgaged real property and the related mortgage loan. Borrowers not structured as bankruptcy-remote entities may be more likely to become insolvent or the subject of a voluntary or involuntary bankruptcy proceeding because such borrowers may be: o operating entities with businesses distinct from the operation of the property with the associated liabilities and risks of operating an ongoing business; and o individuals that have personal liabilities unrelated to the property. However, any borrower, even an entity structured to be bankruptcy-remote, as owner of real estate will be subject to certain potential liabilities and risks. We cannot assure you that any borrower will not file for bankruptcy protection or that creditors of a borrower or a corporate or individual general partner or managing member of a borrower will not initiate a bankruptcy or similar proceeding against such borrower or corporate or individual general partner or managing member. With respect to those borrowers that are structured as special purposes entities, although the terms of the borrower's organizational documents and/or related loan documents require that the related borrower covenants to be a special purpose entity, in some cases those borrowers are not required to observe all covenants and conditions which typically are required in order for such an entity to be viewed under the standard rating agency criteria as a special purpose entity. For example, in many cases, the entity that is the related borrower does not have an independent director. S-71
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In certain jurisdictions, mortgage loans may be structured with a borrower (obligated under the related note) that is different from the owner of the mortgaged property. In such cases, the related property owner, although not obligated under the note, will guaranty all amounts payable by the borrower under the related note and the guaranty will be secured by an indemnity deed of trust in favor of the lender executed by the property owner. With respect to certain references to the borrower in this prospectus supplement, such references may apply to the related property owner instead. Furthermore, with respect to any related borrowers, creditors of a common parent in bankruptcy may seek to consolidate the assets of such borrowers with those of the parent. Consolidation of the assets of such borrowers would likely have an adverse effect on the funds available to make distributions on your certificates, and may lead to a downgrade, withdrawal or qualification of the ratings of your certificates. See "Legal Aspects of Mortgage Loans--Bankruptcy Laws" in the accompanying base prospectus. RISKS RELATED TO REDEVELOPMENT AND RENOVATION AT THE MORTGAGED REAL PROPERTIES Certain of the mortgaged real properties are properties which are currently undergoing or are expected to undergo redevelopment or renovation in the future. There can be no assurance that current or planned redevelopment or renovation will be completed, that such redevelopment or renovation will be completed in the time frame contemplated, or that, when and if redevelopment or renovation is completed, such redevelopment or renovation will improve the operations at, or increase the value of, the subject property. Failure of any of the foregoing to occur could have a material negative impact on the related mortgage loan, which could affect the ability of the related borrower to repay the related mortgage loan. In the event the related borrower fails to pay the costs of work completed or material delivered in connection with such ongoing redevelopment or renovation, the portion of the mortgaged real property on which there are renovations may be subject to mechanic's or materialmen's liens that may be senior to the lien of the related mortgage loan. TENANCIES IN COMMON MAY HINDER RECOVERY Eighteen (18) of the mortgage loans, representing approximately 6.6% of the initial mortgage pool balance (fourteen (14) mortgage loans in loan group 1, representing approximately 7.2% of the initial loan group 1 balance, and four (4) mortgage loans in loan group 2, representing approximately 5.8% of the initial loan group 2 balance), have borrowers that own the related mortgaged real properties as tenants-in-common. In addition, some of the mortgage loans may permit the related borrower to convert into a tenant-in-common structure in the future. Generally, in tenant-in-common ownership structures, each tenant-in-common owns an undivided share in the subject real property. If a tenant-in-common desires to sell its interest in the subject real property and is unable to find a buyer or otherwise desires to force a partition, the tenant-in-common has the ability to request that a court order a sale of the subject real property and distribute the proceeds to each tenant-in-common owner proportionally. To reduce the likelihood of a partition action, except as discussed in the paragraph below, each tenant-in-common borrower under the mortgage loan(s) referred to above has waived its partition right. However, there can be no assurance that, if challenged, this waiver would be enforceable or that it would be enforced in a bankruptcy proceeding. The enforcement of remedies against tenant-in-common borrowers may be prolonged because each time a tenant-in-common borrower files for bankruptcy, the bankruptcy court stay is reinstated. While a lender may seek to mitigate this risk after the commencement of the first bankruptcy of a tenant-in-common by commencing an involuntary proceeding against the other tenant-in-common borrowers and moving to consolidate all those cases, there can be no assurance that a bankruptcy court would consolidate those separate cases. Additionally, tenant-in-common borrowers may be permitted to transfer portions of their interests in the subject mortgaged real property to numerous additional tenant-in-common borrowers. The bankruptcy, dissolution or action for partition by one or more of the tenants-in-common could result in an early repayment of the related mortgage loan, a significant delay in recovery against the tenant-in-common borrowers, a material impairment in property management and a substantial decrease in the amount recoverable upon the related mortgage loan. Not all tenants-in-common for these mortgage loans may be special purpose entities and some of those tenants-in-common may be individuals. S-72
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BANKRUPTCY PROCEEDINGS ENTAIL CERTAIN RISKS Under federal bankruptcy law, the filing of a petition in bankruptcy by or against a borrower will stay the sale of the mortgaged real property owned by that borrower, as well as the commencement or continuation of a foreclosure action. In addition, even if a court determines that the value of the mortgaged real property is less than the principal balance of the mortgage loan it secures, the court may prevent a lender from foreclosing on the mortgaged real property (subject to certain protections available to the lender). As part of a restructuring plan, a court also may reduce the amount of secured indebtedness to the then-current value of the mortgaged real property, which would make the lender a general unsecured creditor for the difference between the then-current value and the amount of its outstanding mortgage indebtedness. A bankruptcy court also may: (1) grant a debtor a reasonable time to cure a payment default on a mortgage loan; (2) reduce periodic payments due under a mortgage loan; (3) change the rate of interest due on a mortgage loan; or (4) otherwise alter the mortgage loan's repayment schedule. Moreover, the filing of a petition in bankruptcy by, or on behalf of, a junior lienholder may stay the senior lienholder from taking action to foreclose on the junior lien. Additionally, the borrower's trustee or the borrower, as debtor-in-possession, has certain special powers to avoid, subordinate or disallow debts. In certain circumstances, the claims of the special servicer on behalf of the issuing entity may be subordinated to financing obtained by a debtor-in-possession subsequent to its bankruptcy. Under federal bankruptcy law, the lender will be stayed from enforcing a borrower's assignment of rents and leases. Federal bankruptcy law also may interfere with the master servicers' or special servicer's ability to enforce lockbox requirements. The legal proceedings necessary to resolve these issues can be time consuming and costly and may significantly delay or diminish the receipt of rents. Rents also may escape an assignment to the extent they are used by the borrower to maintain the mortgaged real property or for other court authorized expenses. Additionally, pursuant to subordination agreements for certain of the mortgage loans, the subordinate lenders may have agreed that they will not take any direct actions with respect to the related subordinated debt, including any actions relating to the bankruptcy of the borrower, and that the holder of the mortgage loan will have all rights to direct all such actions. There can be no assurance that in the event of the borrower's bankruptcy, a court will enforce such restrictions against a subordinated lender. In its decision in In re 203 North LaSalle Street Partnership, 246 B.R. 325 (Bankr. N.D. Ill. March 10, 2000), the United States Bankruptcy Court for the Northern District of Illinois refused to enforce a provision of a subordination agreement that allowed a first mortgagee to vote a second mortgagee's claim with respect to a Chapter 11 reorganization plan on the grounds that pre-bankruptcy contracts cannot override rights expressly provided by the Bankruptcy Code. This holding, which one court has already followed, potentially limits the ability of a senior lender to accept or reject a reorganization plan or to control the enforcement of remedies against a common borrower over a subordinated lender's objections. As a result of the foregoing, the special servicer's recovery on behalf of the issuing entity with respect to borrowers in bankruptcy proceedings may be significantly delayed, and the aggregate amount ultimately collected may be substantially less than the amount owed. LITIGATION OR OTHER LEGAL PROCEEDINGS MAY HAVE ADVERSE EFFECTS ON BORROWERS From time to time, there may be legal proceedings pending or threatened against the borrowers, sponsors, managers of the mortgaged real properties and their affiliates relating to the business of, or arising outside of the ordinary course of business of, the borrowers, sponsors, managers of the mortgaged real properties and their affiliates, and certain of the borrowers, sponsors, managers of the mortgaged real properties and their affiliates are subject to legal proceedings relating to the business of, or arising outside of the ordinary course of business of, the borrowers, sponsors, managers of the mortgaged real properties or their affiliates. It is possible that such legal proceedings may have a material adverse effect on any borrower's ability to meet its obligations under the related mortgage loan and, therefore, on distributions on your certificates. From time to time, there may be condemnations pending or threatened against one or more of the mortgaged real properties securing the mortgage loans. The proceeds payable in connection with a total condemnation may not be sufficient to restore the related mortgaged real property or to satisfy the remaining indebtedness of the related mortgage loan. The occurrence of a partial condemnation may have a material adverse effect on the continued use of, or income generation from, the affected mortgaged real property. Therefore, we S-73
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cannot assure you that the occurrence of any condemnation will not have a negative impact upon distributions on your certificates. PRIOR BANKRUPTCIES OR OTHER PROCEEDINGS MAY BE RELEVANT TO FUTURE PERFORMANCE Certain borrowers, principals of borrowers and affiliates thereof have been a party to bankruptcy proceedings, foreclosure proceedings or deed-in-lieu of foreclosure transactions, or other material proceedings, in the past. Additionally, there can be no assurance that certain other borrowers, or any principals of borrowers or affiliates thereof, have not been a party to bankruptcy proceedings, foreclosure proceedings or deed-in-lieu of foreclosure transactions, or other material proceedings, in the past or that certain principals or their affiliates have not been equity owners in other mortgaged real properties that have been subject to foreclosure proceedings. In addition, there may be pending or threatened foreclosure proceedings or other material proceedings of the borrowers, the borrower principals and the managers of the mortgaged real properties or their affiliates securing the pooled mortgage loans and/or their respective affiliates. If a borrower or a principal of a borrower or affiliate has been a party to such a proceeding or transaction in the past, we cannot also assure you that the borrower or principal will not be more likely than other borrowers or principals to avail itself or cause a borrower to avail itself of its legal rights, under the Bankruptcy Code or otherwise, in the event of an action or threatened action by the mortgagee or its servicer to enforce the related mortgage loan documents, or otherwise conduct its operations in a manner that is in the best interests of the lender and/or the mortgaged real property. We cannot assure you that any foreclosure proceedings or other material proceedings will not have a material adverse effect on your investment. Certain of the mortgage loans detailed below have sponsors that have filed for bankruptcy protection in the last ten years. In each case, the related entity or person has emerged from bankruptcy. With respect to one mortgage loan (identified as loan number 95 on Annex A-1 to this prospectus supplement), representing 0.2% of the initial mortgage pool balance and 0.4% of the initial loan group 1 balance, the related sponsor filed for bankruptcy protection in 1997 and emerged from bankruptcy protection in 1998. From time to time, there may be condemnations pending or threatened against one or more of the mortgaged real properties securing the mortgage loans. The proceeds payable in connection with a total condemnation may not be sufficient to restore the related mortgaged real property or to satisfy the remaining indebtedness of the related mortgage loan. The occurrence of a partial condemnation may have a material adverse effect on the continued use of, or income generation from, the affected mortgaged real property. Therefore, we cannot assure you that the occurrence of any condemnation will not have a negative impact upon distributions on your certificates. POOR PROPERTY MANAGEMENT WILL LOWER THE PERFORMANCE OF THE RELATED MORTGAGED REAL PROPERTY The successful operation of a real estate project depends upon the property manager's performance and viability. The property manager is responsible for: o responding to changes in the local market; o planning and implementing the rental structure; o operating the property and providing building services; o managing operating expenses; and o assuring that maintenance and capital improvements are carried out in a timely fashion. Properties deriving revenues primarily from short-term sources, such as short-term or month-to-month leases or daily room rentals, are generally more management intensive than properties leased to creditworthy tenants under long-term leases. We make no representation or warranty as to the skills of any present or future managers. In many cases, the property manager is the borrower or an affiliate of the borrower and may not manage properties S-74
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for non-affiliates. Additionally, we cannot assure you that the property managers will be in a financial condition to fulfill their management responsibilities throughout the terms of their respective management agreements. MORTGAGE LOAN SELLERS MAY NOT BE ABLE TO MAKE A REQUIRED REPURCHASE OR SUBSTITUTION OF A DEFECTIVE MORTGAGE LOAN Each mortgage loan seller is the sole warranting party in respect of the mortgage loans sold by such mortgage loan seller to us. Neither we nor any of our affiliates (except, in certain circumstances, for Merrill Lynch Mortgage Lending, Inc. in its capacity as a mortgage loan seller) are obligated to repurchase or substitute any mortgage loan in connection with either a material breach of any mortgage loan seller's representations and warranties or any material document defects, if such mortgage loan seller defaults on its obligation to do so. We cannot assure you that the mortgage loan sellers will have the financial ability to effect such repurchases or substitutions. Any mortgage loan that is not repurchased or substituted and that is not a "qualified mortgage" for a REMIC may cause the issuing entity to fail to qualify as one or more REMICs or cause the issuing entity to incur a tax. See "Description of the Mortgage Pool--Assignment of the Mortgage Loans," "--Representations and Warranties" and "--Repurchases and Substitutions" in this prospectus supplement and "Description of the Governing Documents--Representations and Warranties with Respect to Mortgage Assets" in the accompanying base prospectus. ONE ACTION JURISDICTION MAY LIMIT THE ABILITY OF THE SPECIAL SERVICER TO FORECLOSE ON THE MORTGAGED REAL PROPERTY Some states (including California) have laws that prohibit more than one judicial action to enforce a mortgage obligation, and some courts have construed the term judicial action broadly. Accordingly, the special servicer is required to obtain advice of counsel prior to enforcing any of the issuing entity's rights under any of the mortgage loans that include mortgaged real properties where this rule could be applicable. In the case of either a cross-collateralized and cross-defaulted mortgage loan or a multi-property mortgage loan which is secured by mortgaged real properties located in multiple states, the special servicer may be required to foreclose first on properties located in states where such "one action" rules apply (and where non-judicial foreclosure is permitted) before foreclosing on properties located in the states where judicial foreclosure is the only permitted method of foreclosure. As a result, the special servicer may incur delay and expense in foreclosing on mortgaged real properties located in states affected by one action rules. See "--Risks Related to Geographic Concentration" "--Certain State-Specific Considerations" in this prospectus supplement. See also "Legal Aspects of Mortgage Loans--Foreclosure--One Action and Security First Rules" in the accompanying base prospectus. LIMITED INFORMATION CAUSES UNCERTAINTY Some of the mortgage loans are loans that were made to enable the related borrower to acquire the related mortgaged real property. Accordingly, for certain of these loans limited or no historical operating information is available with respect to the related mortgaged real properties. As a result, you may find it difficult to analyze the historical performance of those properties. TAX CONSIDERATIONS RELATED TO FORECLOSURE The special servicer, on behalf of the issuing entity, may acquire one or more mortgaged real properties pursuant to a foreclosure or deed in lieu of foreclosure. The issuing entity will be able to perform construction work on a foreclosed real property only through an independent contractor (more than 90 days after acquisition), and then only if construction was at least 10% complete at the time default on the related mortgage loan became imminent. Any net income from the operation and management of any such property that is not qualifying "rents from real property," within the meaning of section 856(d) of the Internal Revenue Code of 1986, as amended, and any rental income based on the net profits of a tenant or sub-tenant or allocable to a service that is non-customary in the area and for the type of property involved, will subject the issuing entity to federal (and possibly state or local) tax on such income at the highest marginal corporate tax rate (currently 35%), thereby reducing net proceeds available for distribution to certificateholders. The risk of taxation being imposed on income derived from the operation of foreclosed property is particularly present in the case of hotels and other property types that rely on business rather than rental income. The pooling and servicing agreement permits the special servicer to cause the issuing entity to S-75
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earn "net income from foreclosure property" that is subject to tax if it determines that the net after-tax benefit to certificateholders is greater than another method of operating or net-leasing the subject mortgaged real properties. In addition, if the issuing entity were to acquire one or more mortgaged real properties pursuant to a foreclosure or deed in lieu of foreclosure, the issuing entity may in certain jurisdictions, particularly in New York or California, be required to pay state or local transfer or excise taxes upon liquidation of such properties. Such state or local taxes may reduce net proceeds available for distribution to the certificateholders. See "Federal Income Tax Consequences" in this prospectus supplement and in the accompanying base prospectus. With respect to the mortgage loan identified on Annex A-1 to this prospectus supplement as Farallon Portfolio, until such time as a certain debt service coverage ratio is satisfied, a pledge of equity in the owners of certain entities that own rental homes dispersed throughout the communities where the related mortgaged properties are located was granted by the owner of such entities (which pledgor is currently an affiliate of the related borrowers) as additional collateral for such loan. See Annex C, "Preliminary Structural and Collateral Term Sheet--Farallon Portfolio" in this prospectus supplement. Such pledged equity interest may not qualify as an interest in real property or as personal property incidental to real property for purposes of the REMIC provisions. If any such pledged equity interest does not so qualify, the REMIC regulations will restrict the trust from taking title to any such pledged interest and, in such case, upon the occurrence of an event of default under the related mortgage loan, the trust may not be permitted to take title to such pledged interests, but rather will be required to exercise the legal remedies available to it under applicable law and the related loan documents to sell any such pledged equity interests and apply the proceeds toward the repayment of such mortgage loan. Depending on market conditions, the proceeds from the sale of any such pledged equity interest could be less than the proceeds that would be received if the special servicer would have foreclosed on such interest and sold them at a later date. POTENTIAL CONFLICTS OF INTEREST WITH RESPECT TO PROPERTY MANAGERS, THE BORROWERS AND THE MORTGAGE LOAN SELLERS Property managers and borrowers may experience conflicts of interest in the management and/or ownership of the mortgaged real properties securing the mortgage loans because: o a substantial number of the mortgaged real properties are managed by property managers affiliated with the respective borrowers; o the property managers also may manage and/or franchise additional properties, including properties that may compete with the mortgaged real properties; and o affiliates of the property managers and/or the borrowers, or the property managers and/or the borrowers themselves, also may own other properties, including competing properties. Conflicts of interest may arise between the trust fund, on the one hand, and the mortgage loan sellers and their affiliates that engage in the acquisition, development, operation, financing and disposition of real estate, on the other hand. Those conflicts may arise because a mortgage loan seller and its affiliates intend to continue to actively acquire, develop, lease, finance and dispose of real estate-related assets in the ordinary course of their businesses. During the course of their business activities, the respective mortgage loan sellers and their affiliates may acquire, sell or lease properties, or finance loans secured by properties (or by ownership interests in the related borrowers) which may include the mortgaged properties securing the pooled mortgage loans or properties that are in the same markets as those mortgaged real properties. Further, certain mortgage loans may have been refinancings of debt previously held by a mortgage loan seller or an affiliate of one of the mortgage loan sellers and/or the mortgage loan sellers or their affiliates may have or have had equity investments in the borrowers or mortgaged real properties under certain of the mortgage loans. Each of the mortgage loan sellers and its affiliates have made and/or may make loans to, or equity investments in, or otherwise have business relationships with, affiliates of borrowers under the mortgage loans. For example, in the case of certain of the mortgage loans, the holder of related mezzanine debt secured by a principal's interest in the related borrower may be the related mortgage loan seller, which relationship could represent a conflict of interest. S-76
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In the circumstances described above, the interests of those mortgage loan sellers and their affiliates may differ from, and compete with, the interest of the trust fund. Decisions made with respect to those assets may adversely affect the amount and timing of distributions on the certificates. THE ABSENCE OF OR INADEQUACY OF INSURANCE COVERAGE ON THE PROPERTY MAY ADVERSELY AFFECT PAYMENTS ON YOUR CERTIFICATES All of the mortgage loans require the related borrower to maintain, or cause to be maintained, property insurance (which, in some cases, is provided by allowing a tenant to self-insure). However, the mortgaged real properties that secure the mortgage loans may suffer casualty losses due to risks that are not covered by insurance or for which insurance coverage is not adequate or available at commercially reasonable rates. In addition, some of those mortgaged real properties are located in California, Florida, Texas and Louisiana and in other coastal areas of certain states, which are areas that have historically been at greater risk of acts of nature, including earthquakes, hurricanes and floods. The mortgage loans generally do not require borrowers to maintain earthquake, hurricane or flood insurance and we cannot assure you that borrowers will attempt or be able to obtain adequate insurance against such risks. Moreover, if reconstruction or major repairs are required following a casualty, changes in laws that have occurred since the time of original construction may materially impair the borrower's ability to effect such reconstruction or major repairs or may materially increase the cost thereof. After the terrorist attacks of September 11, 2001, the cost of insurance coverage for acts of terrorism increased and the availability of such insurance decreased. In response to this situation, Congress enacted the Terrorism Risk Insurance Act of 2002 (TRIA), which was amended and extended by the Terrorism Risk Insurance Extension Act of 2005 (TRIA Extension Act), signed into law by President Bush on December 22, 2005. The TRIA Extension Act requires that qualifying insurers offer terrorism insurance coverage in all property and casualty insurance policies on terms not materially different than terms applicable to other losses. The federal government covers 90% (85% for acts of terrorism occurring in 2007) of the losses from covered certified acts of terrorism on commercial risks in the United States only, in excess of a specified deductible amount calculated as a percentage of an affiliated insurance group's prior year premiums on commercial lines policies covering risks in the United States. This specified deductible amount is 17.5% of such premiums for losses occurring in 2006, and 20% of such premiums for losses occurring in 2007. Further, to trigger coverage under the TRIA Extension Act, the aggregate industry property and casualty insurance losses resulting from an act of terrorism must exceed $5 million prior to April 2006, $50 million from April 2006 through December 2006, and $100 million for acts of terrorism occurring in 2007. The TRIA Extension Act now excludes coverage for commercial auto, burglary and theft, surety, professional liability and farm owners' multiperil. The TRIA Extension Act will expire on December 31, 2007. The TRIA Extension Act applies only to losses resulting from attacks that have been committed by individuals on behalf of a foreign person or foreign interest, and does not cover acts of purely domestic terrorism. Further, any such attack must be certified as an "act of terrorism" by the federal government, which decision is not subject to judicial review. As a result, insurers may continue to try to exclude from coverage under their policies losses resulting from terrorist acts not covered by the TRIA Extension Act. Moreover, the TRIA Extension Act's deductible and co-payment provisions still leave insurers with high potential exposure for terrorism-related claims. Because nothing in the TRIA Extension Act prevents an insurer from raising premium rates on policyholders to cover potential losses, or from obtaining reinsurance coverage to offset its increased liability, the cost of premiums for such terrorism insurance coverage is still expected to be high. We cannot assure you that all of the mortgaged real properties will be insured against the risks of terrorism and similar acts. As a result of any of the foregoing, the amount available to make distributions on your certificates could be reduced. Each master servicer, with respect to each of the mortgage loans that it is servicing, including those of such mortgage loans that have become specially serviced mortgage loans, and the special servicer, with respect to mortgaged real properties acquired through foreclosure, which we refer to in this prospectus supplement as REO property, will be required to use reasonable efforts, consistent with the servicing standard under the pooling and servicing agreement, to cause each borrower to maintain for the related mortgaged real property all insurance required by the terms of the loan documents and the related mortgage in the amounts set forth therein which are to S-77
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be obtained from an insurer meeting the requirements of the applicable loan documents. Notwithstanding the foregoing, the master servicers and the special servicer will not be required to maintain, and will not be required to cause a borrower to be in default with respect to the failure of the related borrower to obtain, all-risk casualty insurance that does not contain any carve-out for terrorist or similar acts, if and only if the special servicer has determined in accordance with the servicing standard under the pooling and servicing agreement (and other consultation with the controlling class representative) that either-- o such insurance is not available at commercially reasonable rates, and such hazards are not commonly insured against by prudent owners of properties similar to the mortgaged real property and located in or around the region in which such mortgaged real property is located, or o such insurance is not available at any rate. If the related loan documents do not expressly require insurance against acts of terrorism, but permit the lender to require such other insurance as is reasonable, the related borrower may challenge whether maintaining insurance against acts of terrorism is reasonable in light of all the circumstances, including the cost. The applicable master servicer's efforts to require such insurance may be further impeded if the originating lender did not require the subject borrower to maintain such insurance, regardless of the terms of the related loan documents. If a borrower is required, under the circumstances described above, to maintain insurance coverage with respect to terrorist or similar acts that was not previously maintained, the borrower may incur higher costs for insurance premiums in obtaining that coverage which would have an adverse effect on the net cash flow of the related mortgaged real property. Further, If the federal insurance back-stop program referred to above is not extended or renewed, premiums for terrorism insurance coverage will likely increase and/or the terms of such insurance may be materially amended to enlarge stated exclusions or to otherwise effectively decrease the scope of coverage available (perhaps to the point where it is effectively not available). In addition, to the extent that any policies contain "sunset clauses" (i.e., clauses that void terrorism coverage if the federal insurance backstop program is not renewed), then such policies may cease to provide terrorism insurance coverage upon the expiration of the federal insurance backstop program. Most of the mortgage loans specifically require terrorism insurance, but such insurance may be required only to the extent it can be obtained for premiums less than or equal to a "cap" amount specified in the related loan documents, only if it can be purchased at commercially reasonable rates, only in limited amounts, only for specified or commonly insured hazards (in comes cases, for similar properties in the region where the related mortgaged real property is located) and/or only with a deductible at a certain threshold. For example, with respect to one mortgage loan (loan number 4), representing approximately 3.3% of the initial mortgage pool balance and 5.7% of the initial loan group 1 balance, the related terrorism insurance premium cap is $325,000, and with respect to one mortgage loan (loan number 8), representing approximately 1.5% of the initial mortgage pool balance and 2.6% of the initial loan group 1 balance, the related terrorism insurance premium cap is $24,170 subject to annual consumer price index adjustment. With respect to twelve (12) mortgage loans (loan numbers 102, 165, 198, 199, 203, 209, 212, 213, 214, 215, 217 and 218), representing approximately 0.7% of the initial mortgage pool balance, approximately 0.2% of the initial loan group 1 balance and approximately 1.5% of the initial loan group 2 balance, the borrower does not currently maintain insurance against terrorist acts. With respect to one (1) mortgage loan (loan number 2) representing approximately 10.3% of the initial mortgage pool balance and approximately 24.2% of the initial loan group 2 balance, the borrower is not required to maintain insurance against terrorist acts. Additionally, there can be no assurance that mortgaged real properties currently covered by terrorism insurance will continue to be so covered or that the coverage is, or will remain, adequate. See "Description of the Mortgage Pool--Additional Loan and Property Information--Hazard, Liability and Other Insurance" in this prospectus supplement. IN THE EVENT THAT ANY MORTGAGED REAL PROPERTY SECURING A MORTGAGE LOAN SUSTAINS DAMAGE AS A RESULT OF AN UNINSURED ACT OR IF THE INSURANCE POLICIES WITH RESPECT TO THAT MORTGAGED REAL PROPERTY DO NOT ADEQUATELY COVER THE DAMAGE SUSTAINED, SUCH DAMAGED MORTGAGED REAL PROPERTY MAY NOT GENERATE ADEQUATE CASH FLOW TO PAY, AND/OR PROVIDE ADEQUATE COLLATERAL TO SATISFY, ALL AMOUNTS OWING UNDER SUCH MORTGAGE LOAN, S-78
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WHICH COULD RESULT IN A DEFAULT ON THAT MORTGAGE LOAN AND, POTENTIALLY, LOSSES ON SOME CLASSES OF THE CERTIFICATES. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS (MERS) The mortgages or assignments of mortgages for some of the mortgage loans have been or may be recorded in the name of MERS, solely as nominee for the related mortgage loan seller and its successor and assigns. Subsequent assignments of those mortgages are registered electronically through the MERS system. The recording of mortgages in the name of MERS is a new practice in the commercial mortgage lending industry. Public recording officers and others have limited, if any, experience with lenders seeking to foreclose mortgages, assignments of which are registered with MERS. Accordingly, delays and additional costs in commencing, prosecuting and completing foreclosure proceedings and conducting foreclosure sales of the mortgaged real properties could result. Those delays and the additional costs could in turn delay the distribution of liquidation proceeds to certificateholders and increase the amount of losses on the mortgage loans. CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT From time to time we use capitalized terms in this prospectus supplement. Frequently used capitalized terms will have the respective meanings assigned to them in the glossary attached to this prospectus supplement. FORWARD-LOOKING STATEMENTS This prospectus supplement and the accompanying base prospectus includes the words "expects," "intends," "anticipates," "estimates" and similar words and expressions. These words and expressions are intended to identify forward-looking statements. Any forward-looking statements are made subject to risks and uncertainties which could cause actual results to differ materially from those stated. These risks and uncertainties include, among other things, declines in general economic and business conditions, increased competition, changes in demographics, changes in political and social conditions, regulatory initiatives and changes in consumer preferences, many of which are beyond our control and the control of any other person or entity related to this offering. We discuss some of these risks and uncertainties under "Risk Factors" in this prospectus supplement and the accompanying base prospectus. The forward-looking statements made in this prospectus supplement are accurate as of the date stated on the cover of this prospectus supplement. We have no obligation to update or revise any forward-looking statement. DESCRIPTION OF THE MORTGAGE POOL GENERAL We intend to include the 218 mortgage loans identified on Annex A-1 to this prospectus supplement in the trust. The mortgage pool consisting of those loans will have an initial mortgage pool balance of $2,435,364,704. However, the actual initial mortgage pool balance may be as much as 5.0% smaller or larger than such amount if any of those mortgage loans are removed from the mortgage pool or any other mortgage loans are added to the mortgage pool. See "--Changes in Mortgage Pool Characteristics" below. The mortgage loan identified on Annex A-1 to this prospectus supplement as Farallon Portfolio consists of an A-note mortgage loan and a B-note mortgage loan. See "--The Farallon Portfolio Loan Combination" below. In addition, the mortgage loan identified on Annex A-1 to this prospectus supplement as Georgia-Alabama Retail Portfolio consists of an A-note mortgage loan and a B-note mortgage loan. See "--The Georgia-Alabama Retail Portfolio Loan Combination" below. For purposes of making distributions with respect to the class A-1, A-2, A-2FL, A-SB, A-3, A-3FL and A-1A certificates, as described under "Description of the Offered Certificates," the pool of mortgage loans will be deemed to consist of two loan groups, loan group 1 and loan group 2. Loan group 1 will consist of 162 mortgage loans, representing approximately 57.6% of the initial mortgage pool balance that are secured by the various property types that constitute collateral for those mortgage loans. Loan group 2 will consist of 56 mortgage loans, representing approximately 42.4% of the initial mortgage pool balance, that are secured by multifamily and S-79
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manufactured housing community properties. Annex A-1 to this prospectus supplement indicates the loan group designation for each mortgage loan. The initial mortgage pool balance will equal the total cut-off date principal balance of the mortgage loans included in the trust. The initial loan group 1 balance and the initial loan group 2 balance will equal the cut-off date principal balance of the mortgage loans in loan group 1 and loan group 2, respectively. The cut-off date principal balance of any mortgage loan is equal to its unpaid principal balance as of the cut-off date, after application of all monthly debt service payments due with respect to the mortgage loan on or before that date, whether or not those payments were received. The cut-off date principal balance of each mortgage loan is shown on Annex A-1 to this prospectus supplement. The cut-off date principal balances of all the mortgage loans in the trust range from $494,011 to $335,000,000 and the average of those cut-off date principal balances is $11,171,398; the cut-off date principal balances of the mortgage loans in loan group 1 range from $898,482 to $99,900,000, and the average of those cut-off date principal balances is $8,651,812; and the cut-off date principal balances of the mortgage loans in loan group 2 range from $494,011 to $335,000,000, and the average of those cut-off date principal balances is $18,460,200. When we refer to mortgage loans in this prospectus supplement, we are referring to the mortgage loans that we intend to include in the trust and do not, unless the context otherwise indicates, include the non-trust loans, which will not be included in the trust. Each of the mortgage loans is an obligation of the related borrower to repay a specified sum with interest. Each of those mortgage loans is evidenced by a promissory note and secured by a mortgage, deed of trust or other similar security instrument that creates a mortgage lien on the fee and/or leasehold interest of the related borrower or another party in one or more commercial, multifamily and manufactured housing community mortgaged real properties. That mortgage lien will be a first priority lien, subject only to Permitted Encumbrances. You should consider each of the mortgage loans to be a nonrecourse obligation of the related borrower. You should anticipate that, in the event of a payment default by the related borrower, recourse will be limited to the corresponding mortgaged real property or properties for satisfaction of that borrower's obligations. In those cases where recourse to a borrower or guarantor is permitted under the related loan documents, we have not undertaken an evaluation of the financial condition of any of these persons. None of the mortgage loans will be insured or guaranteed by any governmental entity or by any other person. We provide in this prospectus supplement a variety of information regarding the mortgage loans. When reviewing this information, please note that-- o all numerical information provided with respect to the mortgage loans is provided on an approximate basis; o all cut-off date principal balances assume the timely receipt of the scheduled payments for each mortgage loan and that no prepayments occur prior to the cut-off date; o all weighted average information provided with respect to the mortgage loans reflects a weighting of the subject mortgage loans based on their respective cut-off date principal balances; the initial mortgage pool balance will equal the total cut-off date principal balance of the entire mortgage pool, and the initial loan group 1 balance and the initial loan group 2 balance will each equal the total cut-off date principal balance of the mortgage loans in the subject loan group; we show the cut-off date principal balance for each of the mortgage loans on Annex A-1 to this prospectus supplement; o if any mortgage loan does not have a fixed interest rate for the related loan term, then the interest rate used to calculate the weighted average mortgage interest rate is the initial interest rate for such loan as shown in this prospectus supplement; o when information with respect to the mortgage loans is expressed as a percentage of the initial mortgage pool balance, the percentages are based upon the cut-off date principal balances of the subject mortgage loans; S-80
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o when information with respect to the mortgaged real properties is expressed as a percentage of the initial mortgage pool balance, the percentages are based upon the cut-off date principal balances of the related mortgage loans; o if any mortgage loan is secured by multiple mortgaged real properties, the related cut-off date principal balance has been allocated among the individual properties based on any of (i) an individual property's appraised value as a percentage of the total appraised value of all the related mortgaged real properties, including the subject individual property, securing that mortgage loan, (ii) an individual property's underwritten net operating income as a percentage of the total underwritten net operating income of all the related mortgaged real properties, including the subject individual property, securing that mortgage loan and (iii) an allocated loan balance specified in the related loan documents; o unless specifically indicated otherwise, statistical information presented in this prospectus supplement with respect to any mortgage loan that is part of a Loan Combination includes the related A note non-trust loan and excludes the related B note non-trust loan; provided, that with respect to the Farallon Portfolio Trust Mortgage Loan and the Georgia-Alabama Retail Portfolio Trust Mortgage Loan, statistical information presented includes the related A note non-trust loan(s) and the related B-note non-trust loan(s); o statistical information regarding the mortgage loans may change prior to the date of initial issuance of the offered certificates due to changes in the composition of the mortgage pool prior to that date, which may result in the initial mortgage pool balance being as much as 5% larger or smaller than indicated; o the sum of numbers presented in any column within a table may not equal the indicated total due to rounding; and o when a mortgage loan is identified by loan number, we are referring to the loan number indicated for that mortgage loan on Annex A-1 to this prospectus supplement. SOURCE OF THE MORTGAGE LOANS The mortgage loans that will constitute the primary assets of the trust fund will be acquired on the date of initial issuance of the certificates by us from the mortgage loan sellers, who acquired or originated the mortgage loans. Countrywide Commercial Real Estate Finance, Inc. originated or acquired 165 of the mortgage loans to be included in the trust fund, representing approximately 46.7% of the initial mortgage pool balance (comprised of 117 mortgage loans in loan group 1, representing approximately 56.3% of the initial loan group 1 balance, and 48 mortgage loans in loan group 2, representing approximately 33.7% of the initial loan group 2 balance). Merrill Lynch Mortgage Lending, Inc. originated or acquired 21 of the mortgage loans to be included in the trust fund, representing approximately 35.9% of the initial mortgage pool balance (comprised of 18 mortgage loans in loan group 1, representing approximately 19.0% of the initial loan group 1 balance, and 3 mortgage loans in loan group 2, representing approximately 58.8% of the initial loan group 2 balance). KeyBank National Association originated or acquired 32 of the mortgage loans to be included in the trust fund, representing approximately 17.4% of the initial mortgage pool balance (comprised of 27 mortgage loans in loan group 1, representing approximately 24.7% of the initial loan group 1 balance, and 5 mortgage loans in loan group 2, representing approximately 7.5% of the initial loan group 2 balance). CROSS-COLLATERALIZED AND CROSS-DEFAULTED MORTGAGE LOANS, MULTI-PROPERTY MORTGAGE LOANS, MULTI-BORROWER ARRANGEMENTS AND MORTGAGE LOANS WITH AFFILIATED BORROWERS The mortgage pool will include thirteen (13) mortgage loans, representing approximately 36.6% of the initial mortgage pool balance (eight (8) mortgage loans in loan group 1, representing approximately 18.9% of the S-81
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initial loan group 1 balance and five (5) mortgage loans in loan group 2, representing approximately 60.7% of the initial loan group 2 balance), that may involve multiple borrowers (or in some cases, single borrowers owning multiple properties) and are, in each case, individually or through cross-collateralization with other mortgage loans or multiple parcels within a single mortgaged real property, secured by two or more real properties or parcels and, in the case of cross-collateralized mortgage loans, are cross-defaulted with the mortgage loans with which they are cross-collateralized. These mortgage loans are identified in the tables contained in Annex A-1. However, the amount of the mortgage lien encumbering any particular one of those properties may be less than the full amount of the related mortgage loan or group of cross-collateralized mortgage loans, as it may have been limited to avoid or reduce mortgage recording tax. The reduced mortgage amount may equal the appraised value or allocated loan amount for the particular mortgaged real property. This would limit the extent to which proceeds from the property would be available to offset declines in value of the other mortgaged real properties securing the same mortgage loan or group of cross-collateralized mortgage loans. Ten (10) of the mortgage loans referred to in the prior paragraph entitle the related borrower(s) to obtain a release of one or more of the corresponding mortgaged real properties or multiple parcels within a single mortgaged real property and/or a termination of any applicable cross-collateralization and cross-default provisions, subject, in each case, to the fulfillment of one or more of the following conditions-- o the pay down or defeasance of the mortgage loan(s) in an amount equal to a specified percentage, which is usually 110% to 125% (but could be as low as 100% in certain cases), of the portion of the total loan amount allocated to the property or properties to be released; o the satisfaction of certain criteria set forth in the related loan documents; o the satisfaction of certain leasing goals or other performance tests; o the satisfaction of debt service coverage and/or loan-to-value tests for the property or properties that will remain as collateral; and/or o receipt by the lender of confirmation from each applicable rating agency that the action will not result in a qualification, downgrade or withdrawal of any of the then-current ratings of the offered certificates. For additional information relating to mortgaged real properties that secure an individual multi-property mortgage loan or a group of cross-collateralized mortgage loans, see Annex A-1 to this prospectus supplement. The table below shows each group of mortgaged real properties that: o are owned by the same or affiliated borrowers; and o secure in total two or more mortgage loans that are not cross-collateralized and that represent in the aggregate over 1.0% of the initial mortgage pool balance. NUMBER OF STATES WHERE THE AGGREGATE CUT-OFF % OF INITIAL PROPERTIES ARE DATE PRINCIPAL MORTGAGE POOL GROUP PROPERTY NAMES LOCATED(1) BALANCE BALANCE ----- -------------------------------- ---------------- ----------------- ------------- 2 Evergreen Pointe Apartments 1 $ 8,000,000 0.3% 2 Park at Lakeside Apartments $ 23,500,000 1.0% 2 Eagles Landing Apartments $ 11,000,000 0.5% ------------- ------------- TOTAL $ 42,500,000 1.7% ============= ============= 1 Hilltop Plaza 2 $ 24,600,000 1.0% 1 Edgewater in Denver $ 17,600,000 0.7% ------------- ------------- TOTAL $ 42,200,000 1.7% ============= ============= 1 Celebration at Six Forks 1 $ 13,370,000 0.5% 1 Raleigh Eastgate Shopping Center $ 6,000,000 0.2% 1 Alexander Village at Brier Creek $ 13,150,000 0.5% ------------- ------------- TOTAL $ 32,520,000 1.3% ============= ============= 1 Corisa Square 2 $ 10,670,000 0.4% 1 Sparks Mercantile $ 19,045,000 0.8% ------------- ------------- TOTAL $ 29,715,000 1.2% ============= ============= 1 The Lumberyard Shopping Center 1 $ 21,500,000 0.9% 1 221 North Brand Boulevard $ 4,750,000 0.2% ------------- ------------- TOTAL $ 26,250,000 1.1% ============= ============= 1 Southridge Plaza 2 $ 13,800,000 0.6% 1 Mapleridge Shopping Center $ 12,100,000 0.5% ------------- ------------- TOTAL $ 25,900,000 1.1% ============= ============= _____________________ (1) Total represents number of states where properties within the subject group are located. S-82
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TERMS AND CONDITIONS OF THE MORTGAGE LOANS Due Dates. Thirty-three (33) of the mortgage loans, representing approximately 27.7% of the initial mortgage pool balance, provide for monthly debt service payments to be due on the first day of each month. One hundred eighty-four (184) of the mortgage loans, representing approximately 71.5% of the initial mortgage pool balance, provide for monthly debt service payments to be due on the eighth day of each month. One (1) of the mortgage loans, representing approximately 0.8% of the initial mortgage pool balance, provide for monthly debt-service payments to be due on the fifth day of each month. Mortgage Rates; Calculations of Interest. In general, except as specified in the next sentence and as described below under "--ARD Loans" and "--Converting Loans," each of the mortgage loans included in the issuing entity bears interest at a mortgage interest rate that, in the absence of default, is fixed until maturity. One (1) mortgage loan (loan number 11), provides that the interest rate will vary throughout the mortgage loan term as follows: a fixed interest rate of 5.11% from April 30, 2007 through and including May 7, 2010 and a fixed interest rate of 5.77% from May 8, 2010 through and including the mortgage loan maturity date. For purposes of aggregating interest rates in the tables throughout, the 5.11% interest rate was used. With respect to debt service coverage calculations, 5.77% was used for the interest rate on this mortgage loan. However, as described below under "--ARD Loans", such mortgage loans have an anticipated repayment date that will accrue interest after that date at a rate that is in excess of its mortgage interest rate prior to that date, but the additional interest will not be payable until the entire principal balance of the subject mortgage loan has been paid in full. The mortgage interest rate for each of the mortgage loans is shown on Annex A-1 to this prospectus supplement. The mortgage interest rates of the mortgage loans range from 5.1100% per annum to 6.8100% per annum and, as of the cut-off date, the weighted average of those mortgage interest rates was 5.9865% per annum. The mortgage interest rates of the mortgage loans in loan group 1 range from 5.2900% to 6.8100% per annum and, as of the cut-off date, the weighted average of those mortgage interest rates was 5.9747% per annum. The mortgage interest rates of the mortgage loans in loan group 2 range from 5.1100% to 6.5226% per annum and, as of the cut-off date, the weighted average of those mortgage interest rates was 6.0026% per annum. Except in the case of mortgage loans with anticipated repayment dates, none of the mortgage loans provides for negative amortization or for the deferral of interest. Two hundred eighteen (218) of the mortgage loans, representing approximately 100% of the initial mortgage pool balance (162 mortgage loans in loan group 1, representing approximately 100% of the initial loan group 1 balance, and 56 mortgage loans in loan group 2, representing approximately 100% of the initial loan group 2 balance), will accrue interest on an Actual/360 Basis. Amortizing Balloon Loans. Seventy-seven (77) of the mortgage loans, representing approximately 15.7% of the initial mortgage pool balance (fifty-six (56) mortgage loans in loan group 1, representing approximately 17.9% of the initial loan group 1 balance, and twenty-one (21) mortgage loans in loan group 2, representing approximately 12.6% of the initial loan group 2 balance), are characterized by-- o an amortization schedule that is significantly longer than the actual term of the subject mortgage loan; and o a substantial payment being due with respect to the subject mortgage loan on its stated maturity date. S-83
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These 77 mortgage loans do not include any of the subject mortgage loans described under "--Partial Interest-Only Balloon Loans" above and "--Interest-Only Balloon and ARD Loans" below. Partial Interest-Only Balloon Loans or ARD Loans. Ninety (90) of the mortgage loans, representing approximately 48.3% of the initial mortgage pool balance (seventy-three (73) mortgage loans in loan group 1, representing approximately 47.2% of the initial loan group 1 balance, and seventeen (17) mortgage loans in loan group 2, representing approximately 49.7% of the initial loan group 2 balance), provide for the payment of interest only to be due on each due date until the expiration of a designated interest-only period, and the amortization of principal commencing on the due date following the expiration of such interest-only period on the basis of an amortization schedule that is significantly longer than the remaining term to stated maturity, with a substantial payment of principal to be due on the maturity date. Interest-Only Balloon Loans. Thirty-nine (39) of the mortgage loans, representing approximately 31.2% of the initial mortgage pool balance (twenty-four (24) mortgage loans in loan group 1, representing approximately 26.6% of the initial loan group 1 balance, and fifteen (15) mortgage loans in loan group 2, representing approximately 37.3% of the initial loan group 2 balance) require the payment of interest only until the related maturity date and provide for the repayment of the entire principal balance on the related maturity date. Fully Amortizing Loans. Seven (7) of the mortgage loans, representing approximately 0.7% of the initial mortgage pool balance (four (4) mortgage loans in loan group 1, representing approximately 1.0% of the initial loan group 1 balance, and three (3) mortgage loans in loan group 2, representing approximately 0.3% of the initial loan group 2 balance), is characterized by-- o constant monthly debt service payments throughout the substantial term of the mortgage loan; and o amortization schedules that are approximately equal to the actual terms of the mortgage loan. This fully amortizing loan has neither-- o an anticipated repayment date; nor o the associated repayment incentives. ARD Loans. Five (5) of the mortgage loans, representing approximately 4.2% of the initial mortgage pool balance and approximately 7.2% of the initial loan group 1 balance, are characterized by the following features: o a maturity date that is more than 10 years following origination; o the designation of an anticipated repayment date that is generally 5 to 10 years following origination; the anticipated repayment date for such mortgage loans are listed on Annex A-1 to this prospectus supplement; o the ability of the related borrower to prepay the mortgage loan, without restriction, including without any obligation to pay a prepayment premium or a yield maintenance charge, at any time on or after a date that is generally one to six months prior to the related anticipated repayment date; o until its anticipated repayment date, the calculation of interest at its initial mortgage interest rate; o from and after its anticipated repayment date, the accrual of interest at a revised annual rate that will be in excess of its initial mortgage interest rate; o the deferral of any additional interest accrued with respect to such mortgage loan from and after the related anticipated repayment date at the difference between its revised mortgage interest rate and its initial mortgage interest rate. This post-anticipated repayment date additional interest may, in some cases, compound at the new revised mortgage interest rate. Any post-anticipated repayment date additional interest accrued with respect to such mortgage loan following its S-84
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anticipated repayment date will not be payable until the entire principal balance of the mortgage loan has been paid in full; and o from and after its anticipated repayment date, the accelerated amortization of such mortgage loan out of any and all monthly cash flow from the corresponding mortgaged real property which remains after payment of the applicable monthly debt service payments, permitted operating expenses, capital expenditures and/or funding of any required reserves. These accelerated amortization payments and the post-anticipated repayment date additional interest are considered separate from the monthly debt service payments due with respect to the mortgage loan. As discussed under "Ratings" in this prospectus supplement, the ratings on the respective classes of offered certificates do not represent any assessment of whether the mortgage loan having an anticipated repayment date will be paid in full by its anticipated repayment date or whether and to what extent post-anticipated repayment date additional interest will be received. In the case of the ARD Loans, the related borrower has agreed to enter into a cash management agreement prior to the related anticipated repayment date if it has not already done so. The related borrower or the manager of the corresponding mortgaged real property will be required under the terms of that cash management agreement to deposit or cause the deposit of all revenue from that property received after the related anticipated repayment date into a designated account controlled by the lender under such mortgage loan. Any amount received in respect of additional interest payable on the ARD Loans will be distributed to the holders of the class Z certificates. Generally, additional interest will not be included in the calculation of the mortgage interest rate for a mortgage loan, and will only be paid after the outstanding principal balance of the mortgage loan together with all interest thereon at the mortgage interest rate has been paid. With respect to such mortgage loans, no prepayment premiums or yield maintenance charges will be due in connection with any principal prepayment after the anticipated repayment date. Converting Loans. Four (4) of the mortgage loans, representing approximately 0.2% of the initial mortgage pool balance, approximately 0.1% of the initial loan group 1 balance and approximately 0.3% of the initial loan group 2 balance are fully amortizing loans, which have a fixed interest rate for the first 10 years of the related mortgage loan term, followed by an adjustable interest rate period. The loan documents provide that until the first adjustment period, the interest rate must be at least as high as the related fixed interest rate specified in this prospectus supplement but thereafter, the interest rate may adjust to a rate that is lower than the initial fixed interest rate, without any floor. Any additional interest (accruing at a rate in excess of the initial fixed interest rate) payable and received on the Converting Loan will be distributed to the holders of the class Y certificates. Generally, additional interest will not be included in the calculation of the mortgage interest rate for a mortgage loan, and will only be paid after the outstanding principal balance of the mortgage loan together with all interest thereon at the mortgage interest rate has been paid. No prepayment premiums or yield maintenance charges will be due in connection with any principal prepayment after the related open prepayment period. Recasting of Amortization Schedules. Some of the mortgage loans will, in each case, provide for a recast of the amortization schedule and an adjustment of the monthly debt service payments on the mortgage loan upon application of specified amounts of condemnation proceeds or insurance proceeds, or in certain cases, upon a partial prepayment, to pay the related unpaid principal balance. Prepayment Provisions. Prepayment Lock-out, Defeasance, Prepayment Consideration and Open Periods. All of the mortgage loans provide for one or more of the following: o a prepayment lock-out period, during which the principal balance of a mortgage loan may not be voluntarily prepaid in whole or in part; S-85
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o a defeasance period, during which voluntary principal prepayments are still prohibited, but the related borrower may obtain a release of the related mortgaged real property through defeasance; o a prepayment consideration period, during which voluntary prepayments are permitted, subject to the payment of a yield maintenance premium or other additional consideration for the prepayment; and o an open period, during which voluntarily prepayments are permitted without payment of any prepayment consideration. Notwithstanding otherwise applicable lock-out periods, defeasance periods or prepayment consideration periods, certain prepayments of some of the underlying mortgage loans may occur under the circumstances described under "--Other Prepayment Provisions; Mortgage Loans Which May Require Principal Paydowns" below. The prepayment terms of each of the mortgage loans are more particularly described in Annex A-1 to this prospectus supplement. The table below shows, with respect to all of the mortgage loans, the prepayment provisions in effect as of the cut-off date. PREPAYMENT PROVISIONS AS OF THE CUT-OFF DATE NUMBER OF LOANS -------------------------------- % INITIAL % INITIAL % INITIAL LOAN LOAN MORTGAGE LOAN LOAN MORTGAGE GROUP 1 GROUP 2 PREPAYMENT PROVISIONS POOL GROUP 1 GROUP 2 POOL BALANCE BALANCE BALANCE ------------------------ ---------- --------- --------- -------------- ----------- ---------- L, Def, O 144 112 32 66.0% 64.2% 68.5% YM1%, Def, O 1 0 1 10.3% 0.0% 24.2% L, Def or YM1%, O 31 24 7 6.9% 10.1% 2.5% YM1%, Def or YM1%, O 4 3 1 4.8% 7.6% 1.1% L, Def, Def or YM1%, O 3 3 0 4.0% 7.0% 0.0% YM1%, O 14 6 8 1.9% 2.3% 1.3% L, Def or YM, O 1 1 0 1.5% 2.6% 0.0% L, Def, Def or Dec%, O 3 3 0 1.2% 2.0% 0.0% L, YM1%, O 3 3 0 0.8% 1.4% 0.0% YM3%, Def, O 1 1 0 0.5% 0.8% 0.0% L, YM1%, Def or YM1%, O 3 2 1 0.4% 0.4% 0.5% YM, O 1 1 0 0.4% 0.7% 0.0% YM5%, O 2 1 1 0.4% 0.2% 0.6% YM3%, YM2%, YM1%, O 1 0 1 0.4% 0.0% 0.9% L, Def, Def or YM3%, Def or YM2%, Def or YM1%, O 1 1 0 0.2% 0.4% 0.0% L, Def or Dec%, O 1 1 0 0.2% 0.3% 0.0% Dec%, O 3 0 3 0.1% 0.0% 0.3% L, Dec%, O 1 0 1 0.0% 0.0% 0.1% ---------- --------- --------- -------------- ----------- ---------- TOTAL 218 162 56 100.0% 100.0% 100.0% For the purposes of the foregoing table, the letter designations under the heading "Prepayment Provisions" have the following meanings, as further described in the first paragraph of this "--Prepayments Provisions" section-- o "L" means a prepayment or defeasance lock-out period; o "Def" means a defeasance period; o "YM" means a prepayment consideration period during which the mortgage loan is prepayable together with payment of a yield maintenance charge; S-86
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o "YM1%" a prepayment consideration period during which the mortgage loan is prepayable together with payment of the greater of (i) a yield maintenance charge and (ii) at least 1% of the prepaid amount; o "YM3%" a prepayment consideration period during which the mortgage loan is prepayable together with payment of the greater of (i) a yield maintenance charge and (ii) at least 3% of the prepaid amount; o "YM5%" a prepayment consideration period during which the mortgage loan is prepayable together with payment of the greater of (i) a yield maintenance charge and (ii) at least 5% of the prepaid amount; o "Def or YM" means a period during which the borrower either (i) has the option to defease the mortgage loan or prepay the mortgage loan together with payment of a yield maintenance charge or (ii) is required to defease if the cost to defease the mortgage loan is less than the cost to prepay the mortgage loan with a yield maintenance charge; o "Dec%" means a prepayment consideration period during which the mortgage loan is prepayable together with payment of a percentage of the prepaid amount that declines over time; and o "O" means an open period. Set forth below is information regarding the remaining terms of the prepayment lock-out and prepayment lock-out/ defeasance periods, as applicable, for the 193 mortgage loans for which a prepayment lock-out period is currently in effect: o the maximum remaining prepayment lock-out or prepayment lock-out/defeasance period as of the cut-off date is 119 months with respect to the entire mortgage pool, 119 months with respect to loan group 1 and 117 months with respect to loan group 2; o the minimum remaining prepayment lock-out or prepayment lock-out/defeasance period as of the cut-off date is 21 months with respect to the entire mortgage pool, 21 months with respect to loan group 1 and 22 months with respect to loan group 2; and o the weighted average remaining prepayment lock-out or prepayment lock-out/defeasance period as of the cut-off date is 92 months with respect to the entire mortgage pool, 93 months with respect to loan group 1 and 92 months with respect to loan group 2. The aggregate characteristics of the prepayment provisions of the mortgage loans will vary over time as: o lock-out periods expire and mortgage loans enter periods during which prepayment consideration may be required in connection with principal prepayments and, thereafter, enter open prepayment periods; and o mortgage loans are prepaid, repurchased, replaced or liquidated following a default or as a result of a delinquency. Prepayment premiums and yield maintenance charges received on the mortgage loans, whether in connection with voluntary or involuntary prepayments, will be allocated and paid to the certificateholders in the amounts and in accordance with the priorities described under "Description of the Offered Certificates--Payments--Payments of Prepayment Premiums and Yield Maintenance Charges" in this prospectus supplement. However, limitations may exist under applicable state law on the enforceability of the provisions of the mortgage loans that require payment of prepayment premiums or yield maintenance charges. In addition, in the event of a liquidation of a defaulted mortgage loan, prepayment consideration will be one of the last items to which the related liquidation proceeds will be applied. As a result, proceeds received in connection with the liquidation of any defaulted mortgage loan in the trust fund may be insufficient to pay any prepayment premium or yield maintenance charge due in connection with such involuntary prepayment. Neither we nor the underwriters make, and none of the S-87
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mortgage loan sellers has made, any representation or warranty as to the collectability of any prepayment premium or yield maintenance charge with respect to any of the mortgage loans or with respect to the enforceability of any provision in a mortgage loan that requires the payment of a prepayment premium or yield maintenance charge. See "Risk Factors--Yield Maintenance Charges or Defeasance Provisions May Not Fully Protect Against Prepayment Risk" in this prospectus supplement, "Risk Factors--Some Provisions in the Mortgage Loans Underlying Your Offered Certificates May Be Challenged As Being Unenforceable--Prepayment Premiums, Fees and Charges" and "Legal Aspects of Mortgage Loans--Penalty Interest and Limitations on Prepayments" in the accompanying base prospectus. Other Prepayment Provisions; Mortgage Loans Which May Require Principal Paydowns. Generally, the mortgage loans provide that condemnation proceeds and insurance proceeds may be applied to reduce the mortgage loan's principal balance, to the extent such funds will not be used to repair the improvements on the mortgaged real property or given to the related borrower, in many or all cases without prepayment consideration. In addition, some of the mortgage loans may also in certain cases permit, in connection with the lender's application of insurance or condemnation proceeds to a partial prepayment of the related mortgage loan, the related borrower to prepay the entire remaining principal balance of the mortgage loan, in many or all cases without prepayment consideration. Investors should not expect any prepayment consideration to be paid in connection with any mandatory partial prepayment described in the prior paragraph. Additionally, the exercise of a purchase option by a tenant or other person or entity with respect to all or a portion of a mortgaged real property may result in the related mortgage loan being prepaid during a period when voluntary prepayments are otherwise prohibited. Certain of the mortgage loans are secured by letters of credit or cash reserves that in each such case: o will be released to the related borrower upon satisfaction by the related borrower of certain performance related conditions, which may include, in some cases, meeting debt service coverage ratio levels and/or satisfying leasing conditions; and o if not so released, will (or, in some cases, at the discretion of the lender, may) prior to loan maturity (or earlier loan default or loan acceleration), be drawn on and/or applied to prepay the subject mortgage loan if such performance related conditions are not satisfied within specified time periods. Due-on-Sale and Due-on-Encumbrance Provisions. All of the mortgage loans contain both a due-on-sale clause and a due-on-encumbrance clause. In general, except for the permitted transfers discussed in the next paragraph, these clauses either-- o permit the holder of the related mortgage to accelerate the maturity of the mortgage loan if the borrower sells or otherwise transfers or encumbers the corresponding mortgaged real property without the consent of the holder of the mortgage; or o prohibit the borrower from transferring or encumbering the corresponding mortgaged real property without the consent of the holder of the mortgage. See, however, "Risk Factors--The Investment Performance of Your Offered Certificates Will Depend Upon Payments, Defaults and Losses on the Underlying Mortgage Loans; and Those Payments, Defaults and Losses May Be Highly Unpredictable--Delinquencies, Defaults and Losses on the Underlying Mortgage Loans May Affect the Amount and Timing of Payments on Your Offered Certificates; and the Rate and Timing of Those Delinquencies and Defaults, and the Severity of Those Losses, are Highly Unpredictable," "--Some Provisions in the Mortgage Loans Underlying Your Offered Certificates May Be Challenged as Being Unenforceable--Due-on-Sale and Debt Acceleration Clauses" and "Legal Aspects of Mortgage Loans--Due on Sale and Due-on-Encumbrance Provisions" in the accompanying base prospectus. S-88
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Many of the mortgage loans permit one or more of the following types of transfers: o transfers of the corresponding mortgaged real property if specified conditions are satisfied, which conditions normally include one or both of the following-- 1. confirmation by each applicable rating agency that the transfer will not result in a qualification, downgrade or withdrawal of any of its then-current ratings of the certificates; or 2. the reasonable acceptability of the transferee to the lender; o a transfer of the corresponding mortgaged real property to a person that is affiliated with or otherwise related to the borrower or the sponsor; o transfers by the borrower of the corresponding mortgaged real property to specified entities or types of entities or entities satisfying the minimum criteria relating to creditworthiness and/or standards specified in the related loan documents; o transfers of ownership interests in the related borrower to specified entities or types of entities or entities satisfying the minimum criteria relating to creditworthiness and/or other standards specified in the related loan documents; o a transfer of non-controlling ownership interests in the related borrower; o a transfer of a controlling ownership interest in the related borrower, subject to (i) receipt of written confirmation from the rating agencies that the proposed transfer would not result in a qualification, downgrade or withdrawal of any of the then current ratings of the offered certificates, (ii) lender consent or (iii) there being no change in the management of the mortgaged real property; o involuntary transfers caused by the death of any owner, general partner or manager of the borrower; o issuance by the related borrower of new partnership or membership interests, so long as there is no change in control of the related borrower; o a transfer of ownership interests for estate planning purposes; o changes in ownership between existing partners and members of the related borrower; o a required or permitted restructuring of a tenant-in-common group of borrowers into a single purpose successor borrower; o transfers of shares in a publicly held corporation or in connection with the initial public offering of a private company; o with respect to tenant-in-common borrowers, transfers among and/or to additional tenant-in-common borrowers; or o other transfers similar in nature to the foregoing. Defeasance Loans. One hundred fifty-two (152) of the mortgage loans, representing approximately 82.1% of the initial mortgage pool balance (one hundred nineteen (119) mortgage loans in loan group 1, representing approximately 74.2% of the initial loan group 1 balance, and thirty-three (33) mortgage loans in loan group 2, representing approximately 92.7% of the initial loan group 2 balance), permit the borrower to defease the related mortgage loan, in whole or in part, by delivering U.S. government securities or other non-callable government securities within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 and that satisfy applicable S-89
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U.S. Treasury regulations regarding defeasance, as substitute collateral during a period in which voluntary prepayments are prohibited. See "--Prepayment Provisions" in this prospectus supplement. Two (2) of these mortgage loans, representing 10.7% of the initial mortgage pool balance, 0.8% of the initial loan group 1 balance and 24.2% of the initial loan group 2 balance permit voluntary prepayments with the payment of prepayment consideration prior to the beginning of the defeasance period. Each of these mortgage loans permits the related borrower, during the applicable specified periods and subject to the applicable specified conditions, to pledge to the holder of the mortgage loan the requisite amount of government securities and obtain a full or partial release of the mortgaged real property. In general, the government securities that are to be delivered in connection with the defeasance of any mortgage loan, must provide for a series of payments that-- o will be made prior, but as closely as possible, to all successive due dates through and including the first day of the "open period" (the date on which that prepayment is permitted without the payment of any prepayment premium or yield maintenance charge), the maturity date or, if applicable, the related anticipated repayment date; and o will, in the case of each due date, be in a total amount equal to or greater than the monthly debt service payment scheduled to be due on that date, together with, in the case of the last due date, any remaining defeased principal balance, with any excess to be returned to the related borrower. For purposes of determining the defeasance collateral for each of these mortgage loans that has an anticipated repayment date, that mortgage loan will be treated as if a balloon payment is due on its anticipated repayment date. If fewer than all of the real properties securing any particular mortgage loan or group of cross-collateralized mortgage loans are to be released in connection with any defeasance, the requisite defeasance collateral will be calculated based on any one or more of: (i) the allocated loan amount for the property to be released, (ii) the portion of the monthly debt service payments attributable to the property to be released, (iii) an estimated or otherwise determined sales price of the property to be released or (iv) the achievement or maintenance of a specified debt service coverage ratio with respect to the real properties that are not being released. Twelve (12) mortgage loans, representing approximately 32.6% of the initial mortgage pool balance (eight (8) mortgage loans in loan group 1, representing approximately 12.6% of the initial loan group 1 balance, and four (4) mortgage loan in loan group 2, representing approximately 59.6% of the initial loan group 2 balance), permit the partial release of collateral in connection with partial defeasance. In connection with any delivery of defeasance collateral, the related borrower will be required to deliver a security agreement granting the trust a first priority security interest in the defeasance collateral, together with an opinion of counsel confirming the first priority status of the security interest. None of the mortgage loans may be defeased prior to the second anniversary of the date of initial issuance of the certificates. See "Risk Factors--Risks Related to the Offered Certificates--Yield Maintenance Charges or Defeasance Provisions May Not Fully Protect Against Prepayment Risk" in this prospectus supplement. Collateral Substitution and Partial Releases (Other Than In Connection With Defeasance) In addition to the release of a mortgaged real property in connection with full or partial defeasance, certain of the loan documents provide for (i) the substitution of an individual mortgaged real property for another property, (ii) the partial release of a portion of the mortgaged real property upon a partial prepayment in certain cases, with yield maintenance or other prepayment consideration or (iii) the free release of a portion of the mortgaged real property, which portion is undeveloped, non-income producing or an out-parcel, and/or which portion was not material in the underwriting of the mortgage loan (even if it was included in the appraised value of the mortgaged real property). In addition, certain loan documents permit the addition of property. S-90
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In the case of one (1) mortgage loan (loan number 2), secured by the mortgaged real properties identified on Annex A-1 to this prospectus supplement as Farallon Portfolio, representing approximately 10.3% of the initial mortgage pool balance and approximately 24.2% of the initial loan group 2 balance, the related borrowers may from time to time substitute individual mortgaged real properties with other real properties subject to the satisfaction of certain conditions, including: o the market value of the substitute property is equal to or exceeds the greater of (i) the initial appraised value of the release property and (ii) the then-current market value of the release property (which may be based on the initial appraisal during the first two years and thereafter an appraisal dated no more than 90 days prior to the substitution); o after giving effect to the substitution, the aggregate debt service coverage ratio equals or exceeds the greater of (i) 1.23x and (ii) the lesser of (A) the debt service coverage ratio immediately prior to the substitution and (B) 1.43x; and o the borrower may only substitute replacement properties for any related mortgaged property (or properties) the aggregate initial loan amount(s) allocated to each individual mortgaged property of which individually, or in the aggregate, do not exceed twenty percent (20%) of the principal amount of the loan on the closing date. In the case of one (1) mortgage loan (loan number 5), secured by the mortgaged real properties identified on Annex A-1 to this prospectus supplement as U-Haul Portfolio, representing approximately 3.1% of the initial mortgage pool balance and approximately 5.3% of the initial loan group 1 balance, the related borrower may substitute individual mortgaged real properties with other real properties subject to the satisfaction of certain conditions, including: o the related borrower may obtain a release of the lien of certain individual U-Haul Portfolio properties up to one (1) time during the term of the loan by substituting therefor another property of like use, kind and quality acquired by the related borrower or its affiliate; o any such released properties in the aggregate during the term of the loan, comprise no greater than thirty percent (30%) of the original principal balance of the loan; o the pro-forma aggregate debt service coverage ratio for the U-Haul Portfolio loan immediately after such property substitution shall be greater than the greater of (a) the aggregate debt service coverage ratio immediately prior to such property substitution and (b) 1.35x; o the debt service coverage ratio for the 12 months immediately prior to the substitution with respect to the substitute property shall be equal or greater than the debt service coverage ratio for the 12 calendar months immediately preceding the closing date with respect to the release property; and o lender shall have received a current appraisal of the substitute property prepared within one hundred eighty (180) days prior to the release and substitution (a) showing an appraised value equal to or greater than the appraised value of the substitution release property as of the closing date, and (b) which supports an aggregate loan-to-value ratio with respect to the cross-collateralized properties remaining subject to the lien of the cross-collateralized mortgages after the substitution not greater than the lesser of (A) 71% and (B) the aggregate loan-to-value ratio with respect to the cross-collateralized properties remaining subject to the lien of the cross-collateralized mortgages immediately prior to the date of the proposed substitution. S-91
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In the case of one (1) mortgage loan, (loan number 7), secured by the mortgaged real properties identified on Annex A-1 to this prospectus supplement as Georgia-Alabama Retail Portfolio, representing approximately 1.6% of the initial mortgage pool balance and approximately 2.8% of the initial loan group 1 balance, commencing twelve months from the loan origination date the related borrower may from time to time substitute individual mortgaged real properties with other real properties subject to the satisfaction of certain conditions, including: o the market value of the substitute property is equal to or exceeds the greater of (i) the initial appraised value of the release property and (ii) the then-current market value of the release property; o after giving effect to the substitution, the debt service coverage ratio of the mortgage loan is at least equal to the greater of (i) the debt service coverage ratio as of loan origination and (ii) the debt service coverage ratio immediately preceding the substitution; o no individual property may be replaced with more than one qualified substitute property; and o no more than an aggregate of seven property substitutions may occur during the loan term. In the case of one (1) mortgage loan (loan number 38), secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as HCP Tranche II, representing approximately 0.6% of the initial mortgage pool balance and approximately 1.1% of the initial loan group 1 balance, the related borrower may from time to time substitute a portion of the related mortgaged real property with another parcel of real property subject to the satisfaction of certain conditions, specifically: o after giving effect to the substitution, the loan-to-value ratio is no greater than 100%; o after giving effect to the substitution, the aggregate debt service coverage ratio is no less than the greater of (i) 1.52x and (ii) the debt service coverage ratio immediately prior to the substitution; and o the aggregate amount of rent payable under leases at all properties for traditional medical office use is not less than 50% of all rents payable under all leases at individual properties. In the case of one (1) mortgage loan (loan number 53), secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Mody Portfolio-Arlington, representing approximately 0.5% of the initial mortgage pool balance and approximately 0.8% of the initial loan group 1 balance, if the prior owner of such property exercises a purchase option during the defeasance lockout period, the borrower is permitted to obtain a partial release of such property upon payment of a release price equal to 120% of the allocated loan amount and a yield maintenance fee. In addition to the foregoing discussion, some of the mortgage loans that we intend to include in the trust fund may permit, in some cases, upon the satisfaction of certain loan-to-value, debt service coverage ratio, leasing and other conditions, the release of one or more undeveloped or non-income producing parcels or outparcels that, in each such case do not represent a significant portion of the appraised value of the related mortgaged real property or were not taken into account in underwriting the subject mortgage loan. MORTGAGE POOL CHARACTERISTICS General. A detailed presentation of various characteristics of the mortgage loans, and of the corresponding mortgaged real properties, on an individual basis and in tabular format, is shown on Annexes A-1, A-2, B and C to this prospectus supplement. Some of the terms that appear in those exhibits, as well as elsewhere in this prospectus supplement, are defined or otherwise discussed in the glossary to this prospectus supplement. The statistics in the tables and schedules on Annexes A-1, A-2, B and C to this prospectus supplement were derived, in many cases, from information and operating statements furnished by or on behalf of the respective borrowers. The information and the operating statements were generally unaudited and have not been independently verified by us or the underwriters. S-92
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SIGNIFICANT MORTGAGE LOANS The following table shows certain characteristics of the ten largest mortgage loans or groups of cross-collateralized mortgage loans in the trust, by cut-off date principal balance. % OF NUMBER % OF INITIAL OF INITIAL LOAN MORTGAGE % OF LOAN GROUP LOANS/ INITIAL GROUP 1 2 MORTGAGE MORTGAGED CUT-OFF DATE MORTGAGE MORTGAGE MORTGAGE LOAN REAL PRINCIPAL POOL POOL POOL PROPERTY LOAN NAME SELLER PROPERTIES BALANCE BALANCE BALANCE BALANCE TYPE --------------- -------- ---------- -------------- -------- -------- -------- ------------ Empirian Portfolio Pool Two MLML 1/73 $ 335,000,000 13.8% 0.0% 32.4% Multifamily Farallon Manufactured Portfolio(3) MLML 1/274 $ 250,000,000 10.3% 0.0% 24.2% Housing Executive Hills Portfolio KeyBank 1/9 $ 99,900,000 4.1% 7.1% 0.0% Office Peninsula Beverly Hills CRF 1/1 $ 79,300,000 3.3% 5.7% 0.0% Hospitality U-Haul SAC 12 & 13 MLML 1/17 $ 74,934,080 3.1% 5.3% 0.0% Self Storage Towers at University Town Center KeyBank 1/1 $ 56,835,903 2.3% 0.0% 5.5% Multifamily Georgia-Alabama Retail Portfolio(4) CRF 1/62 $ 39,926,997 1.6% 2.8% 0.0% Retail Douglas Corporate Center I & II KeyBank 1/1 $ 36,000,000 1.5% 2.6% 0.0% Office Gray Apartment Portfolio CRF 2/2 $ 31,500,000 1.3% 0.0% 3.0% Multifamily Haverly Park Apartments CRF 1/1 $ 30,000,000 1.2% 0.0% 2.9% Multifamily ---------- -------------- -------- -------- -------- TOTAL/WEIGHTED AVERAGE 11/441 $1,033,396,980 42.4% 23.5% 68.0% CUT-OFF DATE PRINCIPAL CUT-OFF PROPERTY BALANCE DATE SIZE PER LTV LOAN NAME SF/UNIT(1) SF/UNIT DSCR(2) RATIO(2) --------------- ---------- ---------- ------- --------- Empirian Portfolio Pool Two 6,892 $48,607 1.18x 78.9% Farallon Portfolio(3) 57,165 $27,561 1.50x 79.7% Executive Hills Portfolio 951,754 $105 1.43x 71.4% Peninsula Beverly Hills 194 $408,763 2.54x 35.8% U-Haul SAC 12 & 13 711,292 $105 1.48x 66.9% Towers at University Town Center 910 $62,457 1.17x 71.9% Georgia-Alabama Retail Portfolio(4) 239,753 $333 1.24x 79.3% Douglas Corporate Center I & II 213,379 $169 1.38x 53.1% Gray Apartment Portfolio 789 $39,924 1.26x 75.0% Haverly Park Apartments 636 $47,170 1.14x 70.6% ------- --------- TOTAL/WEIGHTED AVERAGE 1.42X 72.6% _____________________ (1) Property size is indicated in rooms (for hospitality properties), in units (for multifamily properties), pads (for manufactured housing properties), beds (for student housing properties) and square feet for all other property types. (2) Except with respect to the Farallon Portfolio and the Georgia-Alabama Retail Portfolio, DSCR and LTV for any mortgage loan that is part of a loan combination is calculated without regard to a related B-note, if applicable. For calculations that include a related B-note, see "The Loan Combinations" below. (3) The Farallon Portfolio trust mortgage loan consists of ten (10) promissory notes, five (5) of which are A-notes in the aggregate original principal amount of $116,225,000 and five (5) of which are B-notes in the aggregate original principal amount of $133,775,000. The debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable under the related trust mortgage loans and the related non-trust mortgage loans (including the related subordinate B-note non-trust loans) and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related trust mortgage loans and the related non-trust mortgage loans (including the related subordinate B-note non-trust loans). The DSCR calculations include cash flow from the Farallon Rental Housing Portfolio (as defined in Annex C, "Preliminary Structural and Collateral Term Sheet--The Farallon Portfolio"). The DSCR excluding cash flow from the Farallon Rental Housing Portfolio is 1.27x. (4) The Georgia-Alabama Retail Portfolio trust mortgage loan consists of two promissory notes, one of which is an A-note with an original principal balance of $33,000,000 and one of which is a B-note with an original principal balance of $7,000,000. The debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable under the related loan combination and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related loan combination. See Annex C to this prospectus supplement for descriptions of the ten largest mortgage loans or groups of cross-collateralized mortgage loans. S-93
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THE LOAN COMBINATIONS General. The mortgage pool will include five (5) mortgage loans that are each part of a separate Loan Combination. Each of those Loan Combinations consists of the particular mortgage loan (or, in the case of the Farallon Portfolio Loan Combination and the Georgia-Alabama Retail Portfolio Loan Combination, mortgage loans) that we intend to include in the trust and one or more other mortgage loans that we will not include in the trust. Each mortgage loan comprising a particular Loan Combination is evidenced by a separate promissory note or promissory notes. The aggregate debt represented by the entire Loan Combination, however, is secured by the same mortgage(s) or deed(s) of trust on the related mortgaged real property or properties. The mortgage loans that are part of a particular Loan Combination are obligations of the same borrower and are cross-defaulted. The allocation of payments to the respective mortgage loans comprising a Loan Combination, whether on a senior/subordinated or a pari passu basis (or some combination thereof), is effected either through one or more co-lender agreements or other intercreditor arrangements to which the respective holders of the subject promissory notes are parties or may be reflected by virtue of relevant provisions contained in the subject promissory notes and a common loan agreement. Such co-lender agreements or other intercreditor arrangements will, in general, govern the respective rights of the noteholders, including in connection with the servicing of the respective mortgage loans comprising a Loan Combination. S-94
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The table below identifies each mortgage loan that is part of a Loan Combination. U/W DSCR (NCF) AND CUT-OFF DATE MORTGAGE LOANS THAT ARE RELATED LOAN-TO-VALUE RATIO OF ENTIRE PART OF A LOAN COMBINATION NON-TRUST LOANS LOAN COMBINATION --------------------------------------------------------------- ---------------- --------------------------------- TRUST MORTGAGE LOAN (AS CUT-OFF DATE % OF INITIAL CUT-OFF DATE IDENTIFIED ON ANNEX A-1 TO THIS PRINCIPAL MORTGAGE ORIGINAL LOAN-TO-VALUE PROSPECTUS SUPPLEMENT) BALANCE POOL BALANCE PRINCIPAL BALANCE U/W NCF DSCR RATIO ------------------------------- ------------- ------------ ----------------- ------------ ------------- Farallon Portfolio(1) $250,000,000 10.3% $1,325,500,000(1) 1.50x 79.7% Executive Hills Portfolio $ 99,900,000 4.1% $ 11,100,000 1.24x 79.3% Peninsula Beverly Hills $ 79,300,000 3.3% $ 60,700,000 1.40x 63.2% Georgia-Alabama Retail $ 39,926,997 1.6% $ 40,000,000(2) 1.24x 79.3% Portfolio Timbercreek Apartments $ 5,317,000 0.2% $ 331,300 1.08x 84.9% _________________ (1) The original principal balance of the related non-trust loans for the Farallon Portfolio consists of $883,775,000 in the aggregate of A-notes and $441,725,000 in the aggregate of B-notes. The Farallon Portfolio trust mortgage loan consists of ten (10) promissory notes, five (5) of which are A-notes in the aggregate original principal amount of $116,225,000 and five (5) of which are B-notes in the aggregate original principal amount of $133,775,000. The debt service coverage ratio and the cut-off date loan-to-value ratio were determined taking into consideration, in the case of the debt service coverage ratio, the aggregate annualized amount of debt service that will be payable under the related trust mortgage loans and the related non-trust mortgage loans (including the related subordinate B-note non-trust loans) and, in the case of the cut-off date loan-to-value ratio, the cut-off date principal balance of the related trust mortgage loans and the related non-trust mortgage loans (including the related subordinate B-note non-trust loans). The U/W NCF DSCR calculations include cash flow from the Farallon Rental Housing Portfolio (as defined in Annex C, "Preliminary Structural and Collateral Term Sheet--The Farallon Portfolio"). The U/W NCF DSCR excluding cash flow from the Farallon Rental Housing Portfolio is 1.27x. (2) The original principal balance of the related non-trust loans for the Georgia-Alabama Retail Portfolio consists of a $33,000,000 A-note and a $7,000,000 B-note. The Farallon Portfolio Loan Combination General. The Farallon Portfolio Trust Mortgage Loan, which has a cut-off date principal balance of $250,000,000, representing approximately 10.3% of the initial mortgage pool balance and approximately 24.2% of the initial loan group 2 balance, is part of the Loan Combination that we refer to as the Farallon Portfolio Loan Combination, which consists of (i) the Farallon Portfolio Trust Mortgage Loan (which is comprised of the Farallon Portfolio A-Note Trust Mortgage Loans and the Farallon Portfolio B-Note Trust Mortgage Loans) and (ii) the Farallon Portfolio Non-Trust Mortgage Loan which has an aggregate original principal balance of $1,325,500,000 and is evidenced by 35 other notes, all as detailed on Table A below. The 35 other notes will not be included in the issuing entity. The Farallon Portfolio Non-Trust Mortgage Loans are secured by the same mortgage instrument encumbering the subject mortgaged real property and will be serviced under the series 2007-8 pooling and servicing agreement. The Farallon Portfolio A-Note Trust Mortgage Loans and the Farallon Portfolio A-Note Non-Trust Mortgage Loans are collectively referred to herein as the "Farallon Portfolio Senior Loans." The Farallon Portfolio B-Note Trust Mortgage Loans and the Farallon Portfolio B-Note Non-Trust Mortgage Loans are collectively referred to herein as the "Farallon Portfolio Junior Loans." The relative rights of the holders of the notes comprising the Farallon Portfolio Loan Combination are governed by the Farallon Portfolio Intercreditor Agreement. S-95
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Priority of Payments. Pursuant to the Farallon Portfolio Intercreditor Agreement, if no monetary event of default or non-monetary event of default which caused a Servicing Transfer Event to occur with respect to the Farallon Portfolio Trust Mortgage Loan has occurred and is continuing, all amounts that any Farallon Portfolio Borrower tenders or that are otherwise available to pay the Farallon Portfolio Loan Combination, whether received in the form of a monthly payment, a balloon payment, liquidation proceeds, proceeds under any insurance policy or awards or settlements in respect of condemnation proceedings or similar exercise of the power of eminent domain (other than (x) proceeds, awards or settlements to be applied to the restoration or repair of the Farallon Portfolio Mortgaged Property or released to any Farallon Portfolio Borrower in accordance with the Servicing Standard or the Farallon Portfolio loan documents, and (y) all amounts for required reserves or escrows required by the Farallon Portfolio loan documents to be held as reserves or escrows) shall be distributed generally in the following manner, to the extent of available funds: o first, to the servicers and trustee under the series 2007-8 pooling and servicing agreement, as applicable, all amounts then due and payable to such parties pursuant to and in accordance with the 2007-8 pooling and servicing agreement with respect to the Farallon Portfolio Loan Combination; o second, to each holder of a Farallon Portfolio Senior Loan on a pari passu and pro rata basis (in proportion to the respective amounts of interest (excluding default interest) then due and payable on each related note during the related interest accrual period for such note) in an amount equal to the accrued and unpaid interest (excluding default interest) during the related interest accrual period for the related note on the applicable Farallon Portfolio Senior Loan outstanding principal balances at (x) with respect to the Farallon Portfolio Trust Mortgage Loan, the applicable interest rate for such loan minus the master servicing fee rate and trustee fee rate, and (y) with respect to each Farallon Portfolio A-Note Non-Trust Mortgage Loan, the applicable interest rate for the related note minus the master servicing fee rate; o third, to each holder of a Farallon Portfolio Senior Loan, an amount equal to the applicable amount of note-specific principal payments paid by the Farallon Portfolio Borrower or other obligated entity with respect to each related note (such amount with respect to each such note, a "Note A Principal Entitlement", and such amounts with respect to such notes, collectively, the "Aggregate Note A Principal Entitlement"), to be applied in reduction of the principal balance of each such note, provided that if the amount distributable pursuant to this clause is less than the Aggregate Note A Principal Entitlement, then any such shortfall shall be borne by each such note holder on a pari passu and pro rata basis (calculated based on each such note's respective Note A Principal Entitlement relative to the Aggregate Note A Principal Entitlement); o fourth, to each holder of a Farallon Portfolio Senior Loan, on a pari passu and pro rata basis, an amount equal to its pro rata portion of all non-note-specific principal payments received on the Farallon Portfolio Loan Combination (calculated based on the respective principal balances of such notes relative to the outstanding principal balance of the Farallon Portfolio Loan Combination), to be applied in reduction of the principal balance of each such note; o fifth, to each holder of a Farallon Portfolio Junior Loan, on a pari passu and pro rata basis (in proportion to the respective amounts of interest (excluding default interest) then due and payable on each related note during the related interest accrual period for such note) in an amount equal to the accrued and unpaid interest (excluding default interest) during the related interest accrual period for the related note on the applicable Farallon Portfolio Junior Loan outstanding principal balance at (x) with respect to the Farallon Portfolio B-Note Trust Mortgage Loan, the applicable interest rate for such loan minus the master servicing fee rate and the trustee fee rate; and (y) with respect to each Farallon Portfolio B-Note Non-Trust Mortgage Loan, the applicable interest rate for the related note minus the master servicing fee rate; o sixth, to each holder of a Farallon Portfolio Junior Loan, an amount equal to the applicable amount of note-specific principal payments paid by the Farallon Portfolio Borrower or other obligated entity with respect to each related note (such amount with respect to each such note, a "Note B S-96
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Principal Entitlement", and such amounts with respect to such notes, collectively, the "Aggregate Note B Principal Entitlement"), to be applied in reduction of the principal balance of each such note, provided that if the amount distributable pursuant to this clause is less than the Aggregate Note B Principal Entitlement, then any such shortfall shall be borne by each such note holder on a pari passu and pro rata basis (calculated based on each such note's respective Note B Principal Entitlement relative to the Aggregate Note B Principal Entitlement); o seventh, to each holder of a Farallon Portfolio Junior Loan, on a pari passu and pro rata basis, an amount equal to its pro rata portion of all non-note-specific principal payments received on the Farallon Portfolio Loan Combination (calculated based on the respective principal balances of such notes relative to the outstanding principal balance of the Farallon Portfolio Loan Combination), to be applied in reduction the principal balance of each such note; o eighth, to each holder of the Farallon Portfolio Senior Loan, an amount equal to the applicable amount of Prepayment Premium actually paid by the Farallon Portfolio Borrower or other obligated entity with respect to each such note (such amount with respect to each related note, a "Note A Prepayment Premium Entitlement", and such amounts with respect to such notes, collectively, the "Aggregate Note A Prepayment Premium Entitlement"), provided that if the amount distributable pursuant to this clause is less than the Aggregate Note A Prepayment Premium Entitlement, then any such shortfall shall be borne by each such note holder on a pari passu and pro rata basis (calculated based on each such note's respective Note A Prepayment Premium Entitlement relative to the Aggregate Note A Prepayment Premium Entitlement), and provided further that such applicable amount of Prepayment Premium shall be determined (i) if such Prepayment Premium is in the nature of a fixed percentage of the amount prepaid, by multiplying such percentage by the portion of the principal balance of the applicable note being prepaid and (ii) if the Prepayment Premium is a "yield maintenance" or "spread maintenance" premium, by separately computing the Prepayment Premium for such note based on the formula provided in the Farallon Portfolio loan documents but calculated based on the applicable interest rate for each such Farallon Portfolio Senior Loan and the portion of the principal balance of the applicable note being prepaid; o ninth, to each holder of a Farallon Portfolio Junior Loan, an amount equal to the applicable amount of Prepayment Premium actually paid by the Farallon Portfolio Borrower or other obligated entity with respect to each related note (such amount with respect to each such note, a "Note B Prepayment Premium Entitlement", and such amounts with respect to such notes, collectively, the "Aggregate Note B Prepayment Premium Entitlement"), provided that if the amount distributable pursuant to this clause is less than the Aggregate Note B Prepayment Premium Entitlement, then any such shortfall shall be borne by each such note holder on a pari passu and pro rata basis (calculated based on each such note's respective Note B Prepayment Premium Entitlement relative to the Aggregate Note B Prepayment Premium Entitlement), and provided further that such applicable amount of Prepayment Premium shall be determined (i) if such Prepayment Premium is in the nature of a fixed percentage of the amount prepaid, by multiplying such percentage by the portion of the principal balance of the applicable note being prepaid and (ii) if the Prepayment Premium is a "yield maintenance" or "spread maintenance" premium, by separately computing the Prepayment Premium for such note based on the formula provided in the Farallon Portfolio loan documents but calculated based on the applicable interest rate for each Farallon Portfolio Junior Loan and the portion of the principal balance of the applicable note being prepaid; o tenth, to each holder of a Farallon Portfolio Senior Loan and each holder of a Farallon Portfolio Junior Loan, in an amount equal to any and all other fees (including, without limitation, any late charges) payable by any Farallon Portfolio Borrower pursuant to the terms of the Farallon Portfolio loan documents, in accordance with their respective outstanding principal balances relative to the outstanding principal balance of the Farallon Portfolio Loan Combination, to the extent actually paid and not payable pursuant to the series 2007-8 pooling and servicing agreement (x) to cover interest on Advances, (y) to offset Additional Trust Fund Expenses relating in any S-97
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way to the Farallon Portfolio Loan Combination or (z) to any servicer or trustee under the pooling and servicing agreement; o eleventh, to each holder of a Farallon Portfolio Senior Loan and each holder of a Farallon Portfolio Junior Loan, in an amount equal to any default interest in excess of the interest paid in accordance with clauses second or fifth above, in accordance with their respective outstanding principal balances relative to the outstanding principal balance of the Farallon Portfolio Loan Combination, to the extent actually paid and not payable pursuant to the series 2007-8 pooling and servicing agreement (x) to cover interest on Advances, (y) to offset Additional Trust Fund Expenses relating in any way to the Farallon Portfolio Loan Combination or (z) to any servicer or trustee under the pooling and servicing agreement; and o twelfth, if any excess amount is paid by any Farallon Portfolio Borrower or otherwise and is not required to be returned to any Farallon Portfolio Borrower or to a party other than a note holder under the Farallon Portfolio loan documents, and not otherwise applied in accordance with the foregoing clauses, such amount shall be paid to each holder of a Farallon Portfolio Senior Loan and each holder of a Farallon Portfolio Junior Loan pro rata in accordance with their original principal balances (but calculated as if each note that was paid in full in connection with a prior application on a prior distribution date, had an original principal balance equal to zero). Pursuant to the Farallon Portfolio Intercreditor Agreement, if a monetary event of default or non-monetary event of default which caused a Servicing Transfer Event to occur with respect to the Farallon Portfolio Trust Mortgage Loan has occurred and is continuing, all amounts that any Farallon Portfolio Borrower tenders or that are otherwise available to pay the Farallon Portfolio Loan Combination, whether received in the form of a monthly payment, a balloon payment, liquidation proceeds, proceeds under any insurance policy or awards or settlements in respect of condemnation proceedings or similar exercise of the power of eminent domain (other than (x) proceeds, awards or settlements to be applied to the restoration or repair of the Farallon Portfolio Mortgaged Property or released to any Farallon Portfolio Borrower in accordance with the Servicing Standard or the Farallon Portfolio loan documents and (y) all amounts for required reserves or escrows required by the Farallon Portfolio loan documents to be held as reserves or escrows) shall be distributed generally in the following manner, to the extent of available funds: o first, to the servicers and the trustee under the series 2007-8 pooling and servicing agreement, as applicable, all amounts then due and payable to such parties pursuant to and in accordance with the series 2007-8 pooling and servicing agreement with respect to the Farallon Portfolio Loan Combination; o second, to each holder of a Farallon Portfolio Senior Loan on a pari passu and pro rata basis (in proportion to the respective amounts of interest (excluding default interest) then due and payable on each related note during the related interest accrual period for such note) in an amount equal to the accrued and unpaid interest (excluding default interest) during the related interest accrual period for the related note on the applicable Farallon Portfolio Senior Loan outstanding principal balances at (x) with respect to the Farallon Portfolio Trust Mortgage Loan, the applicable interest rate for such loan minus the master servicing fee rate and trustee fee rate, and (y) with respect to each Farallon Portfolio A-Note Non-Trust Mortgage Loan, the applicable interest rate for the related note minus the master servicing fee rate; o third, to each holder of the Farallon Portfolio Senior Loan, on a pari passu and pro rata basis, an amount equal to all principal payments received on the Farallon Portfolio Loan Combination (calculated based on their outstanding principal balances relative to the outstanding aggregate principal balance of the Farallon Portfolio Senior Loan), until the principal balance of each such Farallon Portfolio Senior Loan has been reduced to zero; o fourth, to each holder of a Farallon Portfolio Junior Loan, on a pari passu and pro rata basis (in proportion to the respective amounts of interest (excluding default interest) then due and payable on each related note during the related interest accrual period for such note) in an amount equal to S-98
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the accrued and unpaid interest (excluding default interest) during the related interest accrual period for the related note on the applicable Farallon Portfolio Junior Loan outstanding principal balance at (y) with respect to the Farallon Portfolio B-Note Trust Mortgage Loan, the applicable interest rate for such loan minus the master servicing fee rate and the trustee fee rate; and (z) with respect to each Farallon Portfolio B-Note Non-Trust Mortgage Loan, the applicable interest rate for the related note minus the master servicing fee rate; o fifth, to each holder of a Farallon Portfolio Junior Loan, in an aggregate amount equal to the aggregate outstanding principal balance of the Farallon Portfolio Junior Loan, on a pari passu and pro rata basis (calculated based on their respective outstanding principal balances relative to the aggregate outstanding principal balance of the Farallon Portfolio Junior Loan), to be applied in reduction of the outstanding principal balance of the Farallon Portfolio Junior Loan, until such amount has been reduced to zero; o sixth, to each holder of the Farallon Portfolio Senior Loan, an amount equal to its applicable Note A Prepayment Premium Entitlement, provided that if the amount distributable pursuant to this clause is less than the Aggregate Note A Prepayment Premium Entitlement, then any such shortfall shall be borne by each such note holder on a pari passu and pro rata basis (calculated based on each such note's respective Note A Prepayment Premium Entitlement relative to the Aggregate Note A Prepayment Premium Entitlement), and provided further that such applicable amount of Prepayment Premium shall be determined (i) if such Prepayment Premium is in the nature of a fixed percentage of the amount prepaid, by multiplying such percentage by the portion of the principal balance of the applicable note being prepaid and (ii) if the Prepayment Premium is a "yield maintenance" or "spread maintenance" premium, by separately computing the Prepayment Premium for such note based on the formula provided in the Farallon Portfolio loan documents but calculated based on the applicable interest rate for each Farallon Portfolio Senior Loan and the portion of the principal balance of the applicable note being prepaid; o seventh, to each holder of a Farallon Portfolio Junior Loan, an amount equal to its applicable Note B Prepayment Premium Entitlement, provided that if the amount distributable pursuant to this clause is less than the Aggregate Note B Prepayment Premium Entitlement, then any such shortfall shall be borne by each such note holder on a pari passu and pro rata basis (calculated based on each such note's respective Note B Prepayment Premium Entitlement relative to the Aggregate Note B Prepayment Premium Entitlement), and provided further that such applicable amount of Prepayment Premium shall be determined (i) if such Prepayment Premium is in the nature of a fixed percentage of the amount prepaid, by multiplying such percentage by the portion of the principal balance of the applicable note being prepaid and (ii) if the Prepayment Premium is a "yield maintenance" or "spread maintenance" premium, by separately computing the Prepayment Premium for such note based on the formula provided in the Farallon Portfolio loan documents but calculated based on the applicable interest rate for each Farallon Portfolio Junior Loan and the portion of the principal balance of the applicable note being prepaid; o eighth, to each holder of the Farallon Portfolio Senior Loan on a pari passu and pro rata basis, in an amount equal to any and all other fees (including, without limitation, any late charges) payable by any Farallon Portfolio Borrower pursuant to the terms of the Farallon Portfolio loan documents, in accordance with their respective percentage interests (based on their outstanding principal balances relative to the outstanding principal balance of the Farallon Portfolio Loan Combination), to the extent actually paid and not payable pursuant to the series 2007-8 pooling and servicing agreement (x) to cover interest on Advances, (y) to offset Additional Trust Fund Expenses relating in any way to the Farallon Portfolio Loan Combination or (z) to any servicer or trustee under the series 2007-8 pooling and servicing agreement; o ninth, to each holder of the Farallon Portfolio Senior Loan on a pari passu and pro rata basis, in an amount equal to any default interest in excess of the interest paid in accordance with clauses second and fourth above, in accordance with their respective percentage interests (based on their outstanding principal balances relative to the outstanding principal balance of the Farallon S-99
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Portfolio Loan Combination), to the extent actually paid and not payable pursuant to the series 2007-8 pooling and servicing agreement (x) to cover interest on Advances, (y) to offset Additional Trust Fund Expenses relating in any way to the Farallon Portfolio Loan Combination or (z) to any servicer or trustee under the series 2007-8 pooling and servicing agreement; o tenth, to each holder of a Farallon Portfolio Junior Loan, in an amount equal to all other fees (including, without limitation, any late charges) payable by any Farallon Portfolio Borrower pursuant to the terms of the Farallon Portfolio loan documents, in accordance with their respective percentage interests (based on their outstanding principal balances relative to the outstanding principal balance of the Farallon Portfolio Loan Combination), to the extent actually paid and not payable pursuant to the series 2007-8 pooling and servicing agreement (x) to cover interest on Advances, (y) to offset Additional Trust Fund Expenses relating in any way to the Farallon Portfolio Loan Combination or (z) to any servicer or trustee under the series 2007-8 pooling and servicing agreement; o eleventh, to each holder of a Farallon Portfolio Junior Loan, in an amount equal to any default interest in excess of the interest paid in accordance with clauses second, fourth, and ninth above, in accordance with their respective percentage interests (based on their outstanding principal balances relative to the outstanding principal balance of the Farallon Portfolio Loan Combination), to the extent actually paid and not payable pursuant to the series 2007-8 pooling and servicing agreement (x) to cover interest on Advances, (y) to offset Additional Trust Fund Expenses relating in any way to the Farallon Portfolio Loan Combination or (z) to any servicer or trustee under the series 2007-8 pooling and servicing agreement; o twelfth, if the proceeds of any foreclosure sale or any liquidation of the Farallon Portfolio Loan Combination or Farallon Portfolio Mortgaged Property exceed the amounts required to be applied in accordance with the foregoing clauses and, as a result of a workout the principal balance of any Farallon Portfolio Junior Loan has been reduced, such excess amount shall be paid to each holder of a Farallon Portfolio Junior Loan, on a pari passu and pro rata basis, in an aggregate amount up to the reduction, if any, of the principal balance of the Farallon Portfolio Junior Loan as a result of such workout; and o thirteenth, if any excess amount is paid by any Farallon Portfolio Borrower or otherwise and is not required to be returned to any Farallon Portfolio Borrower or to a party other than a note holder under the Farallon Portfolio loan documents, and not otherwise applied in accordance with the foregoing clauses, such amount shall be paid to each holder of a Farallon Portfolio Senior Loan and each holder of a Farallon Portfolio Junior Loan pro rata in accordance with their original principal balances (but calculated as if each note that was paid in full in connection with a prior application on a prior distribution date, had an original principal balance equal to zero). Control Rights. Each servicer shall be required, prior to taking or not taking any action that is a Major Decision (as defined below), to notify in writing the Farallon Portfolio Controlling Party (or its Operating Advisor (as defined below)) of any proposal to take (or not take) any such actions and to receive the written approval of the Farallon Portfolio Controlling Party (or its Operating Advisor); provided that (1) if the Farallon Portfolio Controlling Party (or its Operating Advisor) fails to notify the applicable servicer of its approval or disapproval of any such proposed action within ten (10) business days (or, if the Farallon Portfolio Loan Agreement provides for a shorter period for lender to give consent, no later than one (1) business day prior to such shorter period) of delivery to the Farallon Portfolio Controlling Party (or its Operating Advisor) by the applicable servicer of written notice of such a proposed action, together with all information reasonably necessary to make an informed decision with respect thereto, such action by the applicable servicer shall be deemed to have been approved by the Farallon Portfolio Controlling Party (or its Operating Advisor) and (2) with respect to any of the foregoing actions which necessitate the delivery of an asset status report, such action will be taken in accordance with the procedures set forth in paragraph (b) below and provided, further that any notice sent by the applicable servicer shall contain a statement in bold type to the effect that failure to respond within ten (10) business days shall constitute consent. Notwithstanding the foregoing, the applicable servicer may take any Major Decision or any action set forth in the asset status report before the expiration of the aforementioned ten (10) business day period if (A) the applicable S-100
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servicer has reasonably determined that failure to take such action would violate applicable law, the terms of the Farallon Portfolio loan documents, the Servicing Standard and/or the series 2007-8 pooling and servicing agreement, and (B) it has delivered written notice to the Farallon Portfolio Controlling Party at least two (2) business days prior to taking such Major Decision or action (except in cases of emergency, when no prior notice need be sent, in which event the acting party shall so advise the Farallon Portfolio Controlling Party (or its Operating Advisor) with reasonable diligence of the action taken). The special servicer shall promptly provide the Farallon Portfolio Controlling Party (or its Operating Advisor) with copies of asset status reports in accordance with the time frames set forth in, and in accordance with, the series 2007-8 pooling and servicing agreement. With respect to the Farallon Portfolio Loan Combination, if the asset status report recommends any Major Decision, then the special servicer shall provide to the Farallon Portfolio Controlling Party (or its Operating Advisor) all information in the possession of the special servicer or reasonably obtainable by the special servicer which the special servicer considers to be material in connection with evaluating any of the foregoing proposed actions or which is reasonably requested by the Farallon Portfolio Controlling Party (or its Operating Advisor) and the Farallon Portfolio Controlling Party (or its Operating Advisor) shall then have the period of time specified in paragraph (a) above (to the extent such period does not delay the special servicer from taking any action that is required by the Servicing Standard prior to the expiration of such period) within which to consult with, advise and direct the special servicer regarding the proposed action and the special servicer shall follow such advice and direction; provided that any notice sent by the special servicer shall contain a statement in bold type to the effect that failure to respond within the period of time specified in paragraph (a) above shall constitute consent; and provided, further, that (A) if the Farallon Portfolio Controlling Party (or its Operating Advisor) fails to notify the special servicer of its approval or disapproval of any such proposed action within the period of time specified in paragraph (a) above, such action by the special servicer shall be deemed to have been approved by the Farallon Portfolio Controlling Party (or its Operating Advisor), (B) with respect to any of the foregoing actions which necessitate the delivery of an asset status report, such action will be taken in accordance with the procedures set forth in the series 2007-8 pooling and servicing agreement with respect to the delivery and approval of such asset status report and (C) such rights are subject to the limitations set forth below, including but not limited to the obligation of the special servicer to act in accordance with the Servicing Standard. Notwithstanding the foregoing, any amounts funded, whether by any servicer or Trustee on behalf of any note holder or by any note holder pursuant to the Farallon Portfolio Intercreditor Agreement, under the Farallon Portfolio loan documents as a result of (1) the making of any protective advances or (2) interest accruals or accretions and any compounding thereof (including default interest) with respect to any note shall not at any time be deemed to contravene this subsection. Notwithstanding anything contained in the series 2007-8 pooling and servicing agreement or Farallon Portfolio Intercreditor Agreement, no servicer shall comply with any advice, consultation or disapproval provided by the Farallon Portfolio Controlling Party (or its Operating Advisor) if such advice, consultation or disapproval would (i) require or cause the applicable servicer to violate any applicable law, (ii) be inconsistent with the Servicing Standard, (iii) require or cause the applicable servicer to violate the provisions of the Farallon Portfolio Intercreditor Agreement or the series 2007-8 pooling and servicing agreement relating to the REMIC provisions (if applicable) or the grantor trust provisions of the Code (if applicable), (iv) require or cause the applicable servicer to violate any other provisions of the Farallon Portfolio Intercreditor Agreement or the series 2007-8 pooling and servicing agreement, or (v) require or cause the applicable servicer to violate the terms of the Farallon Portfolio Loan Combination. Appointment of Operating Advisor. The Farallon Portfolio Controlling Party shall have the right at any time to appoint an operating advisor for the Farallon Portfolio Loan Combination (the "Operating Advisor"). The Farallon Portfolio Controlling Party shall have the right in its sole discretion at any time and from time to time to remove and replace the Operating Advisor. When exercising its various rights, the Farallon Portfolio Controlling Party may, at its option, in each case, act through the Operating Advisor. The Operating Advisor may be any person or entity (other than any Farallon Portfolio Borrower, its principal or any affiliate of any Farallon Portfolio Borrower), including, without limitation, the Farallon Portfolio Controlling Party, any officer or employee of the Farallon Portfolio Controlling Party, any affiliate of the Farallon Portfolio Controlling Party or any other unrelated third party. No such Operating Advisor shall owe any fiduciary duty or other duty to any other person or entity (other than the Farallon Portfolio Controlling Party). All actions that are permitted to be taken by the Farallon S-101
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Portfolio Controlling Party may be taken by the Operating Advisor acting on behalf of the Farallon Portfolio Controlling Party. Appointment of Special Servicer. The Farallon Portfolio Controlling Party (or its Operating Advisor) may remove the special servicer with respect to the Farallon Portfolio Loan Combination and appoint a successor special servicer, in each case, at any time, and from time to time, and for any reason whatsoever or no reason at all, and, in each case, in accordance with the provisions relating thereto in the series 2007-8 pooling and servicing agreement. Other Rights. With limiting any other right of the Farallon Portfolio Controlling Party, the Farallon Portfolio Controlling Party will have, with respect to the Farallon Portfolio Loan Combination, (1) all rights given to the Farallon Portfolio Controlling Party in the series 2007-8 pooling and servicing agreement and (2) all rights given to the controlling class representative (under the series 2007-8 pooling and servicing agreement) in the series 2007-8 pooling and servicing agreement as if the Farallon Portfolio Loan Combination were a loan that was not part of a Loan Combination. "Major Decision" means: o any acceleration of the Farallon Portfolio Loan Combination (unless such acceleration is by its terms automatic under the Farallon Portfolio Loan Agreement); o any foreclosure upon or comparable conversion (which may include acquisition of REO Property) of the ownership of all or any portion of the Farallon Portfolio Mortgaged Property and/or the other collateral securing the Farallon Portfolio Loan Combination or any subsequent sale of all or any portion of the Farallon Portfolio Mortgaged Property (including REO Property) or other collateral securing the Farallon Portfolio Loan Combination; o any modification of, or waiver (a) with respect to the Farallon Portfolio Loan Combination that would result in the extension of the maturity date or extended maturity date thereof (other than an extension in accordance with the terms of the Farallon Portfolio Loan Agreement), a reduction in the interest rate or the monthly debt service payment or a deferral or a forgiveness of interest on or principal of the Farallon Portfolio Loan Combination or a modification or waiver of any other monetary term of the Farallon Portfolio Loan Combination relating to the timing or amount of any payment of principal or interest (other than default interest) or any other material sums due and payable under the Farallon Portfolio loan documents (including any Prepayment Premium), including any acceptance of a discounted payoff of the Farallon Portfolio Loan Combination, or a modification or waiver of any provision of the Farallon Portfolio Loan Combination which restricts any Farallon Portfolio Borrower or its equity owners from incurring additional indebtedness or (b) of any material non-monetary term of the Farallon Portfolio Loan Combination; o any modification of any monetary term of the Farallon Portfolio loan documents; o any proposed sale of all or any portion of the Farallon Portfolio Mortgaged Property (other than as specifically permitted by the terms of the Farallon Portfolio loan documents or in connection with a termination of the trust fund created in connection with a securitization); o any acceptance of a discounted payoff of the Farallon Portfolio Loan Combination; o any determination to bring all or any portion of the Farallon Portfolio Mortgaged Property or REO Property into compliance with applicable environmental laws or to otherwise address hazardous materials located all or any portion of the Farallon Portfolio Mortgaged Property or REO Property; o any release of any collateral for the Farallon Portfolio Loan Combination (other than in accordance with the Farallon Portfolio loan documents); o any acceptance of additional or substitute collateral for the Farallon Portfolio Loan Combination (other than in accordance with the Farallon Portfolio loan documents); S-102
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o any waiver of a "due-on-sale" or "due-on-encumbrance" clause; o any acceptance of an assumption agreement releasing any Farallon Portfolio Borrower, or any guarantor, from liability under the Farallon Portfolio Loan Combination; o the approval by any person or entity of any replacement special servicer for the Farallon Portfolio Loan Combination (other than in connection with the Trustee becoming the successor thereto pursuant to the terms of the series 2007-8 pooling and servicing agreement); o the voting, adoption or approval of any plan or reorganization, restructuring or similar plan in the bankruptcy of any Farallon Portfolio Borrower; o any renewal or replacement of the then-existing insurance policies (if lender approval is provided for in the applicable Farallon Portfolio loan documents); o any sale of all or any portion of the Farallon Portfolio Loan Combination (which would in any event be subject to the Farallon Portfolio Intercreditor Agreement) other than in connection with the exercise of a purchase option set forth in the series 2007-8 pooling and servicing agreement (provided that the foregoing shall not limit any note holder's rights to transfer or pledge all or any portion of any interest in the Farallon Portfolio Loan Combination in accordance with the Farallon Portfolio Intercreditor Agreement); o any incurrence of additional debt by any Farallon Portfolio Borrower or any mezzanine financing by any direct or indirect beneficial owner of any Farallon Portfolio Borrower except in accordance with the terms of the Farallon Portfolio loan documents and the approval of any intercreditor agreement in connection therewith; o any release of any Farallon Portfolio Borrower or any guarantor from any obligation of or liability with respect to the Farallon Portfolio Loan Combination; o any transfer or pledge of all or any portion of the Farallon Portfolio Mortgaged Property or any portion thereof or any transfer or pledge of any direct or indirect ownership interest in any Farallon Portfolio Borrower, except as may be expressly permitted by the Farallon Portfolio loan documents or any consent to an assignment and assumption of the Farallon Portfolio Loan Combination pursuant to the Farallon Portfolio loan documents except as may be expressly permitted by the Farallon Portfolio loan documents; o any proposed modification or waiver of any provision of the Farallon Portfolio loan documents governing the types, nature or amount of insurance coverage required to be obtained and maintained by any Farallon Portfolio Borrower or guarantor; o exercise of any right under the Farallon Portfolio loan documents to terminate a property management agreement for all or any portion of the Farallon Portfolio Mortgaged Property upon the occurrence of an event of default or default by the property manager or any approval rights with respect to any change of the property manager for all or any portion of the Farallon Portfolio Mortgaged Property; o any material reduction or material waiver of any Farallon Portfolio Borrower's obligations to pay any reserve amounts under the Farallon Portfolio loan documents; o any approval or material waiver or modification of any material insurance requirements set forth in the Farallon Portfolio Loan Agreement. o any adoption, implementation or determination with respect to a business plan or budget submitted by any Farallon Portfolio Borrower with respect to the Farallon Portfolio Mortgaged Property (if a lender approval is provided for in the applicable Farallon Portfolio loan documents); S-103
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o the execution or renewal of any lease (if a lender approval is provided for in the applicable Farallon Portfolio loan documents); o any determination with respect to any material alterations on all or any portion of the Farallon Portfolio Mortgaged Property (if lender approval is provided for in the applicable Farallon Portfolio loan documents); o the release to any Farallon Portfolio Borrower of any escrow for which such Farallon Portfolio Borrower is not entitled under the Farallon Portfolio loan documents or under applicable law; o entry into or approval of any documents relating to ARC Housing LLC or ARC Housing 2 LLC, including any intercreditor agreement (if a lender approval is provided for in the applicable Farallon Portfolio loan documents); o the determination of any debt service coverage test (if lender is entitled to determine same under the applicable Farallon Portfolio loan documents and to the extent lender has such discretion); o any amendment to any single purpose entity provision of the related Farallon Portfolio loan documents; o any determination regarding the use or application of condemnation awards or insurance proceeds to the extent lender has such discretion; or o other material waiver, amendment, or modification of any Farallon Portfolio Loan Document not included in the prior bullet points above. Consultation Rights. Pursuant to the Farallon Portfolio Intercreditor Agreement, if, during the Farallon Portfolio Directing Securitization Period, MLML or any entity wholly owned by MLML owns any note, then MLML and each such other entity, as applicable, shall have non-binding consultation rights with respect to the Farallon Portfolio Control Rights but subject to all timing and other limitations with respect thereto to which the Farallon Portfolio Controlling Party is subject. TABLE A Promissory Notes FIXED RATE FIVE YEAR NOTE: ------------------------------------------------------------------------------------------------------------------ FIXED RATE FIVE FIXED INTEREST FIXED RATE FIXED INTEREST YEAR NOTE A AMOUNT ($) RATE (%) FIVE YEAR NOTE B AMOUNT ($) RATE (%) TOTAL ($) ------------------------------------------------------------------------------------------------------------------ Fixed Rate Five Fixed Rate Year Note A-1 23,245,000 6.4194 Five Year Note B-1 26,755,000 6.4194 50,000,000 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Five Fixed Rate Year Note A-2 23,245,000 6.4194 Five Year Note B-2 26,755,000 6.4194 50,000,000 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Five Fixed Rate Year Note A-3 23,245,000 6.4194 Five Year Note B-3 26,755,000 6.4194 50,000,000 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Five Fixed Rate Year Note A-4 23,245,000 6.4194 Five Year Note B-4 26,755,000 6.4194 50,000,000 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Five Fixed Rate Year Note A-5 23,245,000 6.4194 Five Year Note B-5 26,755,000 6.4194 50,000,000 ------------------------------------------------------------------------------------------------------------------ S-104
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------------------------------------------------------------------------------------------------------------------ FIXED RATE FIVE FIXED INTEREST FIXED RATE FIXED INTEREST YEAR NOTE A AMOUNT ($) RATE (%) FIVE YEAR NOTE B AMOUNT ($) RATE (%) TOTAL ($) ------------------------------------------------------------------------------------------------------------------ Fixed Rate Five Fixed Rate Year Note A-6 23,245,000 6.4194 Five Year Note B-6 26,755,000 6.4194 50,000,000 ------------------------------------------------------------------------------------------------------------------ TOTAL 139,470,000 160,530,000 300,000,000 ------------------------------------------------------------------------------------------------------------------ FIXED RATE SEVEN YEAR NOTE: ------------------------------------------------------------------------------------------------------------------ FIXED RATE SEVEN FIXED INTEREST FIXED RATE FIXED INTEREST YEAR NOTE A AMOUNT ($) RATE (%) SEVEN YEAR NOTE B AMOUNT ($) RATE (%) TOTAL ($) ------------------------------------------------------------------------------------------------------------------ * Fixed Rate 23,245,000 6.5226 * Fixed Rate 26,755,000 6.5226 50,000,000 Seven Year Seven Year Note A-1 Note B-1 ------------------------------------------------------------------------------------------------------------------ * Fixed Rate * Fixed Rate Seven Year 23,245,000 6.5226 Seven Year 26,755,000 6.5226 50,000,000 Note A-2 Note B-2 ------------------------------------------------------------------------------------------------------------------ * Fixed Rate * Fixed Rate Seven Year 23,245,000 6.5226 Seven Year 26,755,000 6.5226 50,000,000 Note A-3 Note B-3 ------------------------------------------------------------------------------------------------------------------ * Fixed Rate * Fixed Rate Seven Year 23,245,000 6.5226 Seven Year 26,755,000 6.5226 50,000,000 Note A-4 Note B-4 ------------------------------------------------------------------------------------------------------------------ TOTAL 92,980,000 107,020,000 200,000,000 ------------------------------------------------------------------------------------------------------------------ FIXED RATE TEN YEAR NOTE: ------------------------------------------------------------------------------------------------------------------ FIXED RATE TEN FIXED INTEREST FIXED RATE FIXED INTEREST YEAR NOTE A AMOUNT ($) RATE (%) TEN YEAR NOTE B AMOUNT ($) RATE (%) TOTAL ($) ------------------------------------------------------------------------------------------------------------------ * Fixed Rate Ten 23,245,000 6.4650 *Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-1 Year Note B-1 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-2 Year Note B-2 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-3 Year Note B-3 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-4 Year Note B-4 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-5 Year Note B-5 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-6 Year Note B-6 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-7 Year Note B-7 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-8 Year Note B-8 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-9 Year Note B-9 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-10 Year Note B-10 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 23,245,000 6.4650 Fixed Rate Ten 26,755,000 6.4650 50,000,000 Year Note A-11 Year Note B-11 ------------------------------------------------------------------------------------------------------------------ Fixed Rate Ten 11,855,000 6.4650 Fixed Rate Ten 13,645,000 6.4650 25,500,000 Year Note A-12 Year Note B-12 ------------------------------------------------------------------------------------------------------------------ TOTAL 267,550,000 307,950,000 575,500,000 ------------------------------------------------------------------------------------------------------------------ S-105
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------------------------------------------------------------------------------------------------------------------ GRAND FIXED RATE 500,000,000 575,500,000 1,075,500,000 TOTAL ------------------------------------------------------------------------------------------------------------------ FLOATING RATE A NOTE: ------------------------------------------------- INTEREST FLOATING RATE A NOTE AMOUNT ($) RATE (%) ------------------------------------------------- Floating Rate A 500,000,000 One-month Note LIBOR + 0.75% ------------------------------------------------- GRAND TOTAL ALL NOTES ------------------------------------------------------------------------------------------------------- GRAND TOTAL FIXED AND A NOTE AMOUNT B NOTE AMOUNT TOTAL AMOUNT FLOATING ($) ($) ($) ------------------------------------------------------------------------------------------------------- 1,000,000,000 575,000,000 1,575,500,000 ------------------------------------------------------------------------------------------------------- * Included in the Farallon Portfolio Trust Mortgage Loan The Executive Hills Portfolio Loan Combination General. The Executive Hills Portfolio Trust Mortgage Loan, which has a cut-off date principal balance of $99,900,000, representing approximately 4.1% of the initial mortgage pool balance and approximately 7.1% of the initial loan group 1 balance, is part of the Loan Combination that we refer to as the Executive Hills Portfolio Loan Combination, which consists that mortgage loan and a $11,100,000 B-note non-trust loan (the "Executive Hills Portfolio B-Note Non-Trust Mortgage Loan"). The Executive Hills Portfolio B-Note Non-Trust Mortgage Loan will not be included in the fund. The Executive Hills Portfolio B-Note Non-Trust Mortgage Loan is secured by the same mortgage instruments encumbering the subject mortgaged real property and will be serviced under the pooling and servicing agreement. The relative rights of the holders of the Executive Hills Portfolio Loan Combination are governed by a co-lender agreement (the "Executive Hills Portfolio Intercreditor Agreement"). Priority of Payments. The rights of the holder of the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan to receive payments of interest, principal, and other amounts are subordinate to the rights of the holder of the Executive Hills Portfolio Trust Mortgage Loan to receive such amounts. Pursuant to the Executive Hills Portfolio Intercreditor Agreement, prior to an event of default, collections on the Executive Hills Portfolio Loan Combination (excluding any amounts as to which other provision for their application had been made in the related loan documents) will be allocated (after the application to unpaid servicing fees, reimbursed costs and expenses and/or reimbursement of advances and interest thereon, incurred under the pooling and servicing agreement) generally in the following manner, to the extent of available funds: o first, to the applicable servicer or trustee, all amounts due and payable; o second, to the Executive Hills Portfolio Trust Mortgage Loan an amount equal to all accrued and unpaid interest (excluding default interest) on its principal balance (net of related servicing fees); o third, to the Executive Hills Portfolio Trust Mortgage Loan an amount equal to its pro rata portion (based on its principal balance) of all principal payments on Executive Hills Portfolio Loan Combination in accordance with the related loan documents; o fourth, to the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan an amount equal to (a) the aggregate amount of all payments made by the holder thereof in connection with the exercise of its cure rights, (b) all accrued and unpaid interest (excluding default interest) on its respective principal balance (net of related servicing fees), and (c) its pro rata portion (based on its principal S-106
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balance) all principal payments on the Executive Hills Portfolio Loan Combination in accordance with the related loan documents; o fifth, to the Executive Hills Portfolio Trust Mortgage Loan and the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, in each case on a pro rata basis (based on their respective principal balances), any default interest, to the extent not payable to any party pursuant to the pooling and servicing agreement; o sixth, to the Executive Hills Portfolio Trust Mortgage Loan, any yield maintenance premium due with respect to that mortgage loan under the related loan documents; o seventh, to the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, any yield maintenance premium due with respect to that mortgage loan under the related loan documents; o eighth, to the Executive Hills Portfolio Trust Mortgage Loan and the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, on a pro rata basis (based on their respective principal balances), any late payment charges actually paid by borrower, to the extent not payable to any party pursuant to the pooling and servicing agreement; and o ninth, to the Executive Hills Portfolio Trust Mortgage Loan and the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, on a pro rata basis (based on their respective principal balances), any excess amounts paid by, but not required to be returned to, the borrower. Pursuant to the Executive Hills Portfolio Intercreditor Agreement, subsequent to the occurrence of and during the continuation of a monetary or non-monetary event of default that would place the loan into special servicing, collections on the Executive Hills Portfolio Loan Combination (excluding any amounts to be applied according to other provisions in the related loan documents and excluding (x) proceeds, awards or settlements to be applied to the restoration or repair of the related mortgaged property or released to the borrower in accordance with the Servicing Standard or the related loan documents and (y) all amounts for required reserves or escrows required by the related loan documents to be held as reserves or escrows) will be allocated (after application to unpaid servicing fees, unreimbursed costs and expenses and/or reimbursement of advances and/or interest thereon, incurred under the pooling and servicing agreement) generally in the following manner, to the extent of available funds: o first, to the applicable servicer or trustee, all amounts due and payable; o second, to the Executive Hills Portfolio Trust Mortgage Loan an amount equal to all accrued and unpaid interest (excluding default interest) on its principal balance (net of related servicing fees); o third, to the Executive Hills Portfolio Trust Mortgage Loan, an amount equal to its outstanding principal balance until its principal balance has been reduced to zero; o fourth, to the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, an amount equal to (a) the aggregate amount of all payments made by the holder thereof in connection with the exercise of its cure rights, (b) all accrued and unpaid interest (excluding default interest) on its respective principal balance (net of related master servicing fees) and (c) an amount equal to its principal balance until its principal balance has been reduced to zero; o fifth, to the Executive Hills Portfolio Trust Mortgage Loan and the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, in each case on a pro rata basis (based on their respective principal balances), any default interest, to the extent not payable to any party pursuant to the pooling and servicing agreement; o sixth, to the Executive Hills Portfolio Trust Mortgage Loan, any yield maintenance premium due in respect of that mortgage loan under the related loan documents; o seventh, to the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, any yield maintenance premium due in respect of that mortgage loan under the related loan documents; S-107
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o eighth, to the Executive Hills Portfolio Trust Mortgage Loan and the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, on a pro rata basis (based on their respective principal balances), any late payment charges actually paid by the borrower, to the extent not payable to any party pursuant to the pooling and servicing agreement; o ninth, to the Executive Hills Portfolio Trust Mortgage Loan and the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan, on a pro rata basis (based on their respective principal balances), any excess amounts paid by, but not required to be returned to, the borrower. Consent Rights. Under the Executive Hills Portfolio Intercreditor Agreement, the Executive Hills Portfolio Controlling Party (as defined in the "Glossary" below) will be entitled to direct the master servicer or the special servicer, and the master servicer or the special servicer, as applicable, may not take any of the following actions without the consent or deemed consent of the Executive Hills Portfolio Controlling Party: o any acceleration of the mortgage loans in the Executive Hills Portfolio Loan Combination; o any proposed or actual foreclosure upon or comparable conversion (which may include acquisition of REO Property) of the ownership of the mortgaged property or any subsequent sale of the mortgaged property (including REO Property); o any modification, extension, amendment of, or waiver with respect to a monetary term (including timing of payments) or any material non-monetary term of the Executive Hills Portfolio Loan Combination; o any proposed or actual sale of the mortgaged property for less than an amount equal to the par purchase price specified in the Executive Hills Portfolio Intercreditor Agreement; o any acceptance of a discounted payoff of the Executive Hills Portfolio Loan Combination; o any determination to bring the mortgaged property or REO Property into compliance with applicable environmental laws or to otherwise address hazardous materials located at the mortgaged property or REO Property; o any release of any portion of the mortgaged property (other than in accordance with the terms of the related loan documents); o any acceptance of additional or substitute collateral for the Executive Hills Portfolio Loan Combination (other than in accordance with the terms of the related loan documents) or any subordination of the liens granted under the terms of the related loan documents; o any waiver or determination to enforce or not enforce a "due-on-sale" or "due-on-encumbrance" clause; o any acceptance of an assumption agreement releasing the borrower, or any guarantor, from liability under the Executive Hills Portfolio Loan Combination; o any voting on any plan or reorganization, restructuring or similar plan in the bankruptcy (or similar proceeding) of the borrower; o any renewal or replacement of the then-existing insurance policies (to the lender's approval is required under the related loan documents) or any proposed modification or waiver of any insurance requirements under the related loan documents and any modification of any insurance provisions in the related loan documents; o any incurrence of additional debt by the borrower or any mezzanine financing by any direct or indirect beneficial owner of the borrower (other than in accordance with the terms of the related loan documents); S-108
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o any release of the borrower or any guarantor from liability under the Executive Hills Portfolio Loan Combination; o any transfer or pledge of the mortgaged property or any portion thereof or any transfer or pledge of any direct or indirect ownership interest in the borrower, except as may be expressly permitted by the related loan documents, or any consent to an assignment and assumption of the Executive Hills Portfolio Loan Combination pursuant to the related loan documents; o any replacement of the property manager or any material modification or termination of the property management agreement; o any material reduction or material waiver of any obligations to pay any reserve amounts under the related loan documents; o any waiver of any guarantor's obligations under any guaranty or indemnity; o any amendment to any single purpose entity provision of the related loan documents; o any determination with respect to any proposed material alterations to the mortgaged property (to the extent consent is required under the related loan documents); o any determination regarding the use or application of condemnation awards or insurance proceeds to the extent the lender has such discretion; o any waiver of a material event of default under the related loan documents; o any extension or shortening of the maturity date of the loans in the Executive Hills Portfolio Loan Combination; o any workout; o any subordination of any recorded document recorded in connection with the loans in the Executive Hills Portfolio Loan Combination; and o any forgiveness of any interest payments or principal payments of the loans in the Executive Hills Portfolio Loan Combination. Notwithstanding the foregoing, the applicable master servicer and the special servicer may not follow any advice of the Executive Hills Portfolio Controlling Party that would cause it to violate the Servicing Standard, applicable law, the related loan documents or the REMIC provisions. Consultation Rights. Under the Executive Hills Portfolio Intercreditor Agreement, the Executive Hills Portfolio Controlling Party shall be entitled to consult, in a non-binding manner, with the holder of the Executive Hills Portfolio Trust Mortgage Loan and the applicable servicer with respect to actions relating to the Executive Hills Portfolio Loan Combination and the mortgaged property. Purchase Option. The Executive Hills Portfolio Intercreditor Agreement provides that if (a) any payment of principal or interest on the Executive Hills Portfolio Loan Combination becomes 90 or more days delinquent, (b) the Executive Hills Portfolio Loan Combination has been accelerated, (c) the principal balance of the Executive Hills Portfolio Loan Combination is not paid at maturity, (d) the borrower files a petition for bankruptcy, (e) the Executive Hills Portfolio Loan Combination becomes a specially serviced loan (and the Executive Hills Portfolio Loan Combination is either in default or a default with respect thereto is reasonably foreseeable) or (f) foreclosure proceedings have been commenced, then the holder of the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan has the option to purchase the Executive Hills Portfolio Trust Mortgage Loan from the trust fund, at a price generally equal to the aggregate unpaid principal balance of the Executive Hills Portfolio Trust Mortgage Loan, together with all accrued and unpaid interest on that mortgage loans, to but not including the date of such purchase, plus any related servicing compensation, advances and interest on advances payable or reimbursable to any party to S-109
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the pooling and servicing agreement. The foregoing option shall terminate once the mortgaged property becomes REO Property. Cure Rights. In the event that the related borrower fails to make any scheduled payments due under the related loan documents, the holder of the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan will have ten (10) days from the date of receipt of notice of the subject default to cure the default. In the event of a non-monetary default by the related borrower, the holder of the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan will have thirty (30) days from the date of receipt of notice of the subject default to cure the default, provided the holder of the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan is diligently prosecuting the cure of the subject default. Without the prior consent of the holder of the Executive Hills Portfolio Trust Mortgage Loan, the holder of the Executive Hills Portfolio B-Note Non-Trust Mortgage Loan will not have the right to more than six (6) cure events during the term of the Executive Hills Portfolio Loan Combination, and no single cure event may exceed three (3) months. The Peninsula Beverly Hills Loan Combination General. The Peninsula Beverly Hills Trust Mortgage Loan, which has a cut-off date principal balance of $79,300,000, representing approximately 3.3% of the initial mortgage pool balance and approximately 5.7% of the initial loan group 1 balance, is part of the Loan Combination that we refer to as the Peninsula Beverly Hills Loan Combination, which consists of that mortgage loan and a single B-note non-trust loan (the "Beverly Hills Peninsula B-Note Non-Trust Mortgage Loan"). The Beverly Hills Peninsula B-Note Non-Trust Mortgage Loan was transferred to Pacific Life Insurance Company and will not be included in the trust fund. The Beverly Hills Peninsula B-Note Non-Trust Mortgage Loan is secured by the same mortgage instrument encumbering the subject mortgaged real property and will be serviced under the pooling and servicing agreement. The relative rights of the holders of the loans comprising the Peninsula Beverly Hills Loan Combination are governed by an intercreditor agreement (the "Peninsula Beverly Hills Intercreditor Agreement"). Priority of Payments. The rights of the holder of the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan to receive payments of interest, principal and other amounts are subordinate to the rights of the holder of the Peninsula Beverly Hills Trust Mortgage Loan to receive such amounts. Pursuant to the Peninsula Beverly Hills Intercreditor Agreement, prior to an event of default, collections on the Peninsula Beverly Hills Loan Combination (excluding any amounts as to which other provision for their application has been made in the related loan documents) will be allocated (after the application to unpaid servicing fees, unreimbursed costs and expenses and/or reimbursement of advances and interest thereon, incurred under the pooling and servicing agreement) generally in the following manner, to the extent of available funds: o first, to the applicable servicer or trustee all amounts due and payable; o second, to the Peninsula Beverly Hills Trust Mortgage Loan an amount equal to all accrued and unpaid interest (excluding default interest) on its principal balance (net of related servicing fees); o third, to the Peninsula Beverly Hills Trust Mortgage Loan in an amount equal to its pro rata portion of principal payments (based on their respective initial principal balances) on the Peninsula Beverly Hills Loan Combination; o fourth, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, in an amount equal to (i) the aggregate amount of all payments made by the holder thereof in connection with the exercise of its cure rights and (ii) unreimbursed costs and expenses; o fifth, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, an amount equal to all accrued and unpaid interest (excluding default interest) on its respective principal balance at the interest rate for the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan less related master servicing fees; o sixth, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, an amount equal to its pro rata portion of all principal payments on the Peninsula Beverly Hills Loan Combination; S-110
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o seventh, to the Peninsula Beverly Hills Trust Mortgage Loan, any yield maintenance premium actually received in respect of that mortgage loan under the related loan documents; o eighth, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, any yield maintenance premium actually received in respect of that mortgage loan under the related loan documents; o ninth, to the Peninsula Beverly Hills Trust Mortgage Loan and the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, in each case on a pro rata basis (based on their respective initial principal balances), any default interest, to the extent not payable to any party pursuant to the pooling and servicing agreement; o tenth, to the Peninsula Beverly Hills Trust Mortgage Loan, on a pro rata basis (based on its respective initial principal balance), an amount equal to any extension fees, to the extent actually paid by the borrower, to the extent not payable to any party pursuant to the pooling and servicing agreement; o eleventh, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, on a pro rata basis (based on its respective initial principal balance), an amount equal to any extension fees, to the extent actually paid by the borrower, to the extent not payable to any party pursuant to the pooling and servicing agreement; o twelfth, to the Peninsula Beverly Hills Trust Mortgage Loan and the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan on a pro rata basis (based on their respective initial principal balances), any late payment charges actually paid by the borrower, to the extent not payable to any party pursuant to the pooling and servicing agreement; and o thirteenth, to the Peninsula Beverly Hills Trust Mortgage Loan and the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, on a pro rata basis (based on their respective initial principal balances), any excess amounts paid by, but not required to be returned to, the borrower or any guarantor. Pursuant to the Peninsula Beverly Hills Intercreditor Agreement, subsequent to the occurrence and during the continuation of a monetary or non-monetary event of default that would place the loan into special servicing (other than imminent default), collections on the Peninsula Beverly Hills Loan Combination (excluding any amounts as to which other provision for their application has been made in the related loan documents and excluding (x) proceeds, awards or settlements to be applied to the restoration or repair of the related mortgaged property or released to the borrower in accordance with the Servicing Standard or the related loan documents and (y) all amounts for required reserves or escrows required by the related loan documents to be held as reserves or escrows) will be allocated (after application to unpaid servicing fees, unreimbursed costs and expenses and/or reimbursement of advances and/or interest thereon, incurred under the pooling and servicing agreement) generally in the following manner, to the extent of available funds: o first, to the applicable servicer or trustee, all amounts due and payable; o second, to the Peninsula Beverly Hills Trust Mortgage Loan an amount equal to all accrued and unpaid interest (excluding default interest) on its principal balance (net of related servicing fees); o third, to the Peninsula Beverly Hills Trust Mortgage Loan, an amount equal to its outstanding principal balance until its principal balance has been reduced to zero; o fourth, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, in an amount equal to (i) the aggregate amount of all payments made by the holder thereof in connection with the exercise of its cure rights and (ii) unreimbursed costs and expenses; S-111
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o fifth, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, an amount equal to all accrued and unpaid interest (excluding default interest) on its respective principal balance at the interest rate for the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan less related master servicing fees; o sixth, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, an amount equal to its principal balance until its principal balance has been reduced to zero; o seventh, to the Peninsula Beverly Hills Trust Mortgage Loan, any yield maintenance premium actually received in respect of that mortgage loan under the related loan documents; o eighth, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, any yield maintenance premium actually received in respect of that mortgage loan under the related loan documents; o ninth, to the Peninsula Beverly Hills Trust Mortgage Loan and the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, in each case on a pro rata basis (based on their respective initial principal balances), any default interest, to the extent not payable to any party pursuant to the pooling and servicing agreement; o tenth, to the Peninsula Beverly Hills Trust Mortgage Loan, on a pro rata basis (based on its respective initial principal balance), an amount equal to any extension fees, to the extent actually paid by the borrower, to the extent not payable to any party pursuant to the pooling and servicing agreement; o eleventh, to the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, on a pro rata basis (based on its respective initial principal balance), an amount equal to any extension fees, to the extent actually paid by the borrower, to the extent not payable to any party pursuant to the pooling and servicing agreement; o twelfth, to the Peninsula Beverly Hills Trust Mortgage Loan and the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan on a pro rata basis (based on their respective initial principal balances), any late payment charges actually paid by the borrower, to the extent not payable to any party pursuant to the pooling and servicing agreement; o thirteenth, to the Peninsula Beverly Hills Trust Mortgage Loan and the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan, on a pro rata basis (based on their respective initial principal balances), any excess amounts paid by, but not required to be returned to, the borrower or any guarantor. Consent Rights. Under the Peninsula Beverly Hills Intercreditor Agreement, the Peninsula Beverly Hills Controlling Party (as defined in the "Glossary" below) will be entitled to direct the master servicer or the special servicer, and the master servicer or the special servicer, as applicable, may not take any of the following actions without the consent of the Peninsula Beverly Hills Controlling Party: o any acceleration of the mortgage loans in the Peninsula Beverly Hills Loan Combination (unless such acceleration is by its terms automatic under the related loan documents); o any foreclosure upon or comparable conversion (which may include acquisition of REO Property) of the ownership of the mortgaged property or any subsequent sale of the mortgaged property (including REO Property); o any modification of, or waiver with respect to, (a) the material payment terms of the Peninsula Beverly Hills Loan Combination, (b) any provision of the related loan documents that restricts the borrower or its equity owners from incurring additional indebtedness or (c) any other material non-monetary term of the Peninsula Beverly Hills Loan Combination; S-112
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o any proposed sale of the mortgaged property other than as specifically permitted by the related loan documents; o any acceptance of a discounted payoff of the Peninsula Beverly Hills Loan Combination; o any determination to bring the mortgaged property or REO Property into compliance with applicable environmental laws or to otherwise address hazardous materials located at the mortgaged property or REO Property; o any release of any portion of the mortgaged property (other than in accordance with the terms of the related loan documents); o any acceptance of additional or substitute collateral for the Peninsula Beverly Hills Loan Combination (other than in accordance with the terms of the related loan documents); o any waiver of a "due-on-sale" or "due-on-encumbrance" clause or insurance provision; o any acceptance of an assumption agreement releasing the borrower, or any guarantor, from liability under the Peninsula Beverly Hills Loan Combination; o the approval by holder of the Peninsula Beverly Hills Trust Mortgage Loan of any replacement Special Servicer for the Peninsula Beverly Hills Loan Combination (other than in connection with the Trustee becoming the successor pursuant to the terms of the pooling and servicing agreement); o any adoption or approval of any plan or reorganization, restructuring or similar plan in the bankruptcy of the borrower; o any renewal or replacement of the then-existing insurance policies to the extent that such renewal or replacement does not comply with the terms of the related loan documents or any proposed modification or waiver of any insurance requirements under the related loan documents; o any approval of the incurrence of additional debt by the borrower or any mezzanine financing by any direct or indirect beneficial owner of the borrower (other than in accordance with the terms of the related loan documents) and the approval of any related intercreditor agreement; o any release of the borrower or any guarantor from liability under the Peninsula Beverly Hills Loan Combination; o any transfer or pledge of the mortgaged property or any portion thereof or any transfer or pledge of any direct or indirect ownership interest in the borrower, except as may be expressly permitted by the related loan documents or any consent to an assignment and assumption of the Peninsula Beverly Hills Loan Combination pursuant to the related loan documents; o any replacement of the property manager, if approval is required by the related loan documents; o any material reduction or material waiver of any obligations to pay any reserve amounts under the related loan documents; o any waiver of any guarantor's or indemnitor's obligations under any guaranty or indemnity; o any amendment to any single purpose entity provision of the related loan documents; o any determination with respect to any proposed material alterations to the mortgaged property (to the extent consent is required under the related loan documents); o any determination with respect to annual budgets and business plans for the mortgaged property (to the extent any such approval rights are provided in the related loan documents); and S-113
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o any determination regarding the use or application of condemnation awards or insurance proceeds to the extent the lender has such discretion. Notwithstanding the foregoing, the applicable master servicer and the special servicer may not follow any advice of the Peninsula Beverly Hills Controlling Party that would cause it to violate the Servicing Standard, applicable law, the related loan documents or the REMIC provisions. Consultation Rights. Under the Peninsula Beverly Hills Intercreditor Agreement, the Peninsula Beverly Hills Controlling Party will be entitled to consult, in a non-binding manner, with the holder of the Peninsula Beverly Hills Trust Mortgage Loan and the applicable servicer with respect to proposals to take certain actions relating to the Peninsula Beverly Hills Loan Combination and the mortgaged property and consider alternative actions recommended by the Peninsula Beverly Hills Controlling Party including, among other things, execution or renewal of any lease (if approval is required by the related loan documents) and waiver of any notice provision related to prepayment of all or any portion of the Peninsula Beverly Hills Loan Combination. Purchase Option. The Peninsula Beverly Hills Intercreditor Agreement provides that if (a) any principal or interest payment with respect to the Peninsula Beverly Hills Loan Combination becomes delinquent, (b) the Peninsula Beverly Hills Loan Combination has been accelerated, (c) the principal balance of the Peninsula Beverly Hills Loan Combination is not paid at maturity, (d) the borrower files a petition for bankruptcy or (e) the Peninsula Beverly Hills Trust Mortgage Loan becomes a specially serviced loan (and an event of default has occurred and is continuing or a default is reasonably foreseeable), then (if the holder of the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan is not then currently curing the subject default and at the time of such purchase the subject event of default is continuing), the holder of the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan has the option to purchase the Peninsula Beverly Hills Trust Mortgage Loan from the trust fund, at a price generally equal to the aggregate unpaid principal balance of the Peninsula Beverly Hills Trust Mortgage Loan, together with all accrued and unpaid interest on that mortgage loan, to but not including the date of such purchase, plus any related servicing compensation, advances and interest on advances payable or reimbursable to any party to the pooling and servicing agreement. No liquidation fee will be payable to the special servicer in connection with this purchase option as long as the holder of the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan has exercised its right to purchase the related Trust Mortgage Loan in the 90-day period following delivery of the repurchase option notice required under the Peninsula Beverly Hills Intercreditor Agreement. In addition, the pooling and servicing agreement grants to the special servicer and the controlling class holder a fair value purchase option as described below under "Servicing of the Mortgage Loans--Realization Upon Defaulted Mortgage Loans." Cure Rights. In the event that the related borrower fails to make any scheduled payments due under the related loan documents, the holder of the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan will have five (5) business days from the date of receipt of notice of the subject default (or five business days from the expiration of any applicable grace period, whichever is longer) to cure the default. In the event of a non-monetary default by the related borrower, the holder of the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan will have 30 days from the date of receipt of notice of the subject default (or 30 days from the expiration of any applicable grace period, whichever is longer) to cure the default; provided that if the subject non-monetary default cannot be cured within 30 days, but the holder of the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan has commenced and is diligently prosecuting the cure of the subject default, the cure period will be extended for an additional period not to exceed 30 additional days. Without the prior consent of the holder of the Peninsula Beverly Hills Trust Mortgage Loan, the holder of the Peninsula Beverly Hills B-Note Non-Trust Mortgage Loan will not have the right to cure more than six cure events during the term of the Peninsula Beverly Hills Loan Combination, and no single cure event may exceed three months. The Georgia-Alabama Retail Portfolio Loan Combination General. The Georgia-Alabama Retail Portfolio Trust Mortgage Loan, which has a cut-off date principal balance of $39,926,997, representing approximately 1.6% of the initial mortgage pool balance and approximately 2.8% of the initial loan group 1 balance, is part of the Loan Combination that we refer to as the Georgia-Alabama Retail Portfolio Loan Combination. The Georgia-Alabama Retail Portfolio Trust Mortgage Loan consists of a $33,000,000 A-note (the "Georgia-Alabama Retail Portfolio A-Note Trust Mortgage Loan") and a $7,000,000 B- S-114
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note (the "Georgia-Alabama Retail Portfolio B-Note Trust Mortgage Loan"). The Georgia-Alabama Retail Portfolio Loan Combination consists of the related trust mortgage loan (the "Georgia-Alabama Retail Portfolio Trust Mortgage Loan"), a mortgage loan that is pari passu in right of payment with the Georgia-Alabama Retail Portfolio A-Note Trust Mortgage Loan (the "Georgia-Alabama Retail Portfolio A-Note Non-Trust Mortgage Loan," and together with the Georgia-Alabama Retail Portfolio A-Note Trust Mortgage Loan, the "Georgia-Alabama Retail Portfolio Senior Mortgage Loans") and a subordinate mortgage loan (the "Georgia-Alabama Retail Portfolio B-Note Non-Trust Mortgage Loan" and together with the Georgia-Alabama Retail Portfolio B-Note Trust Mortgage Loan, the "Georgia-Alabama Retail Portfolio Junior Mortgage Loans"). The Georgia-Alabama Retail Portfolio Loan Combination is secured by mortgages or deeds of trust on the subject mortgaged real properties. The Georgia-Alabama Retail Portfolio A-Note Non-Trust Mortgage Loan was deposited into the ML-CFC 2007-7 Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2007-7 securitization (the "Other Securitization"). The Georgia-Alabama Retail Portfolio B-Note Non-Trust Mortgage Loan is currently held by Countrywide Commercial Real Estate Finance, Inc., or an affiliate of Countrywide Commercial Real Estate Finance, Inc., and will not be included in the trust fund. The Georgia-Alabama Retail Portfolio Loan Combination is serviced and administered under the pooling and servicing agreement related to the ML-CFC 2007-7 Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2007-7 securitization (the "Other Pooling and Servicing Agreement"). The relative rights of the holders of the loans comprising the Georgia-Alabama Retail Portfolio Loan Combination are governed by intercreditor agreements (the "Georgia-Alabama Retail Portfolio Intercreditor Agreements"). Priority of Payments. The rights of the holder of the Georgia-Alabama Retail Portfolio A-Note Non-Trust Mortgage Loan to receive payments of interest, principal and other amounts are pari passu with the rights of the holder of the Georgia-Alabama Retail Portfolio A-Note Trust Mortgage Loan to receive such amounts. The rights of the holder of the Georgia-Alabama Retail Portfolio B-Note Non-Trust Mortgage Loan to receive payments of interest, principal and other amounts are subordinate to the rights of the holders of the Georgia-Alabama Retail Portfolio Senior Mortgage Loans to receive such amounts and are pari passu to the rights of the holder of the Georgia-Alabama Retail Portfolio B-Note Trust Mortgage Loan. Pursuant to the Georgia-Alabama Retail Portfolio Intercreditor Agreements, prior to an event of default, collections on the Georgia-Alabama Retail Portfolio Loan Combination (excluding any amounts as to which other provision for their application has been made in the related loan documents) will be allocated (after the application to unpaid servicing fees, unreimbursed costs and expenses and/or reimbursement of advances and interest thereon, incurred under the series 2007-8 pooling and servicing agreement and/or the Other Pooling and Servicing Agreement) generally in the following manner, to the extent of available funds: o first, to the applicable servicer or trustee, all amounts due and payable; o second, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, on a pari passu basis, an amount equal to all accrued and unpaid interest (excluding default interest) on their principal balances, less the related servicing fees; o third, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, in an amount equal to their pro rata portion of principal payments on the Georgia-Alabama Retail Portfolio Loan Combination; o fourth, to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, in an amount equal to (a) the aggregate amount of all payments made by the holder thereof in connection with the exercise of its cure rights, (b) accrued and unpaid interest (excluding default interest) on its respective principal balance at the interest rate for the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, less related master servicing fees and (c) their pro rata portion of principal payments on the Georgia-Alabama Retail Portfolio Loan Combination in accordance with the related loan documents; o fifth, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, any yield maintenance premiums actually received in respect of the Georgia-Alabama Retail Portfolio Senior Mortgage Loans; S-115
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o sixth, to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, any yield maintenance premium actually received in respect of the Georgia-Alabama Retail Portfolio Junior Mortgage Loans; o seventh, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans and to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, in each case on a pro rata basis, any default interest, to the extent not payable to any party pursuant to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement; o eighth, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, on a pro rata basis (based on their respective initial principal balances), an amount equal to any extension fees, to the extent actually paid by the borrower and to the extent not payable to any party pursuant to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement; o ninth, to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, on a pro rata basis (based on their respective initial principal balances), an amount equal to any extension fees, to the extent actually paid by the borrower, to the extent not payable to any party pursuant to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement; o tenth, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans and to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, pro rata, any late payment charges actually paid by the borrower, to the extent not payable to any party pursuant to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement; o eleventh, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans and to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans on a pari passu basis, pro rata (based on their respective initial principal balances), any excess amounts paid by, but not required to be returned to, the borrower or loan sponsor. Pursuant to the Georgia-Alabama Retail Portfolio Intercreditor Agreement, subsequent to the occurrence and during the continuation of a monetary or other material event of default, collections on the Georgia-Alabama Retail Portfolio Loan Combination (excluding any amounts as to which other provision for their application has been made in the related loan documents and excluding (x) proceeds, awards or settlements to be applied to the restoration or repair of the related mortgaged property or released to the borrower in accordance with the Servicing Standard or the related loan documents and (y) all amounts for required reserves or escrows required by the related loan documents to be held as reserves or escrows) will be allocated (after application to unpaid servicing fees, unreimbursed costs and expenses and/or reimbursement of advances and/or interest thereon, incurred under the series 2007-8 pooling and servicing agreement and/or the Other Pooling and Servicing Agreement) generally in the following manner, to the extent of available funds: o first, to the applicable servicer or trustee, all amounts due and payable; o second, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, an amount equal to all accrued and unpaid interest (excluding default interest) on their principal balances, less related servicing fees; o third, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, principal payments, until their principal balances have been reduced to zero; o fourth, to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, in an amount equal to (a) the aggregate amount of all payments made by the holder thereof in connection with the exercise of its cure rights, (b) all accrued and unpaid interest (excluding default interest) on its respective principal balance (net of related master servicing fees) and (c) principal payments until its principal balance has been reduced to zero; o fifth, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, any yield maintenance premium actually received in respect of the Georgia-Alabama Retail Portfolio Senior Loans; S-116
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o sixth, to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, any yield maintenance premium actually received in respect of Georgia-Alabama Retail Portfolio Junior Mortgage Loans; o seventh, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, and to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, in each case on a pro rata basis, any default interest, to the extent not payable to any party pursuant to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement; o eighth, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, an amount equal to any extension fees, to the extent actually paid by the borrower, to the extent not payable to any party pursuant to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement; o ninth, to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, on a pro rata basis an amount equal to any extension fees, to the extent actually paid by the borrower, to the extent not payable to any party pursuant to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement; o tenth, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, and to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, in each case on a pro rata basis, any late payment charges actually paid by the borrower, to the extent not payable to any party pursuant to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement; o eleventh, to the Georgia-Alabama Retail Portfolio Senior Mortgage Loans, and to the Georgia-Alabama Retail Portfolio Junior Mortgage Loans, on a pro rata basis (based on their respective initial principal balances), any excess amounts paid by, but not required to be returned to, the borrower or loan sponsor. Consent Rights. Under the Georgia-Alabama Retail Portfolio Intercreditor Agreements, the Georgia-Alabama Retail Portfolio Controlling Party (as defined in the "Glossary" below) will be entitled to direct the Other Servicer and the Other Special Servicer, and the Other Servicer or the Other Special Servicer, as applicable, may not take any of the following actions without the consent of the Georgia-Alabama Retail Portfolio Controlling Party: o any acceleration of the mortgage loans in the Georgia-Alabama Retail Portfolio Loan Combination (unless such acceleration is by its terms automatic under the related loan documents); o any foreclosure upon or comparable conversion (which may include acquisition of REO Property) of the ownership of the related mortgaged property or any subsequent sale of the mortgaged property (including REO Property); o any modification of, or waiver with respect to, (a) the material payment terms of the Georgia-Alabama Retail Portfolio Loan Combination, (b) any provision of the related loan documents that restricts the related borrower or its equity owners from incurring additional indebtedness or (c) any other material non-monetary term of the Georgia-Alabama Retail Portfolio Loan Combination; o any modification of any monetary term of the Georgia-Alabama Retail Portfolio Loan Combination; o any proposed sale of the mortgaged property other than as specifically permitted by the related loan documents; o any acceptance of a discounted payoff of the Georgia-Alabama Retail Portfolio Loan Combination; o any determination to bring the mortgaged property or REO Property into compliance with applicable environmental laws or to otherwise address hazardous materials located at the mortgaged property or REO Property; S-117
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o any release of any collateral for the mortgage loan (other than in accordance with the terms of the related loan documents); o any acceptance of additional or substitute collateral for the Georgia-Alabama Retail Portfolio Loan Combination (other than in accordance with the terms of the related loan documents); o any waiver of a "due-on-sale" or "due-on-encumbrance" clause or any material waiver or modification of any material insurance requirement set forth in the related loan documents; o any acceptance of an assumption agreement releasing the borrower, or any guarantor, from liability under the Georgia-Alabama Retail Portfolio Loan Combination; o the approval by holder of the Georgia-Alabama Retail Portfolio Trust Mortgage Loan of any replacement Special Servicer for the Georgia-Alabama Retail Portfolio Loan Combination (other than in connection with the Other Trustee becoming the successor pursuant to the terms of the Other Pooling and Servicing Agreement); o any adoption or approval of any plan or reorganization, restructuring or similar plan in the bankruptcy of the borrower; o any renewal or replacement of the then-existing insurance policies to the extent lender's approval is required under the loan documents; o any sale of any mortgage loan comprising the Georgia-Alabama Retail Portfolio Loan Combination (other than in connection with the exercise of a purchase option under the Other Pooling and Servicing Agreement); o any approval of the incurrence of additional debt by the borrower or any mezzanine financing by any direct or indirect beneficial owner of the borrower (other than in accordance with the terms of the related loan documents) and the approval of any related intercreditor agreement; o any release of the borrower or any guarantor from liability under the Georgia-Alabama Retail Portfolio Loan Combination; o any transfer or pledge of the mortgaged property or any portion thereof or any transfer or pledge of any direct or indirect ownership interest in the borrower, except as may be expressly permitted by the related loan documents or any consent to an assignment and assumption of the Georgia-Alabama Retail Portfolio Loan Combination pursuant to the related loan documents; o the exercise of any right under the loan documents to terminate the property manager or any approval rights with respect to a change in property manager; and o any material reduction or material waiver of any obligations to pay any reserve amounts under the related loan documents. The Georgia-Alabama Retail Portfolio Controlling Party (as defined in the "Glossary" below) is currently the controlling class representative (as designee of the holder of the Georgia-Alabama Retail Portfolio B-Note Trust Mortgage Loan) and the holder of the Georgia-Alabama Retail Portfolio B-Note Non-Trust Mortgage Loan, collectively. In the event the holders of the Georgia-Alabama Retail Portfolio Junior Mortgage Loans fail to agree on a course of action within three (3) business days (or such reasonable time period as agreed to by such holders, subject to the restrictions on timing set forth in the Georgia-Alabama Retail Portfolio Intercreditor Agreement) after receipt of notice of a request for Major Action (as such term is defined in the Georgia-Alabama Retail Portfolio Intercreditor Agreement), each Georgia-Alabama Retail Portfolio Junior Mortgage Loan holder shall provide the Other Servicer with a proposal specifying whether to approve or disapprove the Major Action and the Other Servicer shall determine, based on the proposals, whether to approve or disapprove the Major Action, subject to the provisions in the Georgia-Alabama Retail Portfolio Intercreditor Agreement, including that the Other Servicer shall S-118
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not make any decision that it reasonably and in good faith considers to be inconsistent with the Servicing Standard or the REMIC provisions of the code. Consultation Rights. Under the Georgia-Alabama Retail Portfolio Intercreditor Agreement, the holder of the Georgia-Alabama Retail Portfolio Trust Mortgage Loan and the Other Servicer and/or Other Special Servicer are permitted to consult, on a non-binding basis, with the Georgia-Alabama Retail Portfolio Controlling Party with respect to certain actions relating to the Georgia-Alabama Retail Portfolio Loan Combination and the related mortgaged properties including, among other things, execution or renewal of any lease (if approval is required by the related loan documents) and waiver of any notice provisions related to prepayment of all or any portion of the Georgia-Alabama Retail Portfolio Loan Combination. Purchase Option. The Georgia-Alabama Retail Portfolio Intercreditor Agreement provides that if (a) any principal or interest payment with respect to the Georgia-Alabama Retail Portfolio Loan Combination becomes delinquent, (b) the Georgia-Alabama Retail Portfolio Loan Combination has been accelerated, (c) the principal balance of the Georgia-Alabama Retail Portfolio Loan Combination is not paid at maturity, (d) the related borrower files a petition for bankruptcy or (e) the Georgia-Alabama Retail Portfolio Trust Mortgage Loan becomes a specially serviced loan (and an event of default has occurred and is continuing), then the holder of either of the Georgia-Alabama Retail Portfolio Junior Loans has the option to purchase the Georgia-Alabama Retail Portfolio Trust Mortgage Loan from the trust fund and the Georgia-Alabama Retail Portfolio A-Note Non-Trust Mortgage Loan from the Other Securitization, at a price generally equal to the aggregate unpaid principal balance of the loans being purchased, together with all accrued and unpaid interest on that mortgage loan, to but not including the date of such purchase, plus any related servicing compensation, advances and interest on advances payable or reimbursable to any party to the Other Pooling and Servicing Agreement or the 2007-8 pooling and servicing agreement. In addition, the pooling and servicing agreement grants to the special servicer and the controlling class holder a fair value purchase option as described below under "Servicing of the Mortgage Loans--Realization Upon Defaulted Mortgage Loans." Cure Rights. In the event that the related borrower fails to make any scheduled payments due under the related loan documents, the holders of the Georgia-Alabama Retail Portfolio Junior Mortgage Loans each will have five business days from the date of receipt of notice of the subject default (or five business days from the expiration of any applicable grace period, whichever is longer) to cure the default. In the event of a non-monetary default by the related borrower, the holders of the Georgia-Alabama Retail Portfolio Junior Mortgage Loans each will have 30 days from the date of receipt of notice of the subject default (or 30 days from the expiration of any applicable grace period, whichever is longer) to cure the default; provided that if the subject non-monetary default cannot be cured within 30 days, but a holder of the Georgia-Alabama Retail Portfolio Junior Mortgage Loan has commenced and is diligently prosecuting the cure of the subject default, the cure period will be extended for an additional period not to exceed 30 additional days. Without the prior consent of the holder of the Georgia-Alabama Retail Portfolio Trust Mortgage Loan, the holders of the Georgia-Alabama Retail Portfolio Junior Mortgage Loan will not have the right to cure more than six cure events during the term of the Georgia-Alabama Retail Portfolio Loan Combination and no single cure event may exceed three months. The MezzCap Loan Combinations The Timbercreek Apartments Mortgage Loan, which has a cut-off date principal balance of $5,317,000, representing approximately 0.2% of the initial mortgage pool balance and approximately 0.5% of the initial loan group 2 balance, is part of the Loan Combination that we refer to as the Timbercreek Apartments Loan Combination. The related borrower has encumbered the subject mortgaged real property with subordinate debt, which constitutes the related B-Note Non-Trust Loan. The aggregate debt consisting of the underlying trust mortgage loan and the related B-Note Non-Trust Loan, which two mortgage loans constitute a Loan Combination, is secured by a single mortgage or deed of trust on the subject mortgaged real property. We intend to include the underlying mortgage loan in the trust fund. That B-Note Non-Trust Loan was sold immediately after origination to Mezz Cap Finance, LLC, and will not be included in the trust fund. We refer to the Timbercreek Apartments Loan Combination as a "MezzCap Loan Combination." S-119
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In the case of the MezzCap Loan Combination, the underlying mortgage loan and related B-Note Non-Trust Loan are cross-defaulted. The B-Note Non-Trust Loan has the same maturity date and prepayment structure as the related underlying trust mortgage loan. For purposes of the information presented in this prospectus supplement with respect to the underlying mortgage loan that is part of the MezzCap Loan Combination, unless the context clearly indicates otherwise, the loan-to-value ratio and debt service coverage ratio information reflects only the underlying mortgage loan and does not take into account the related B-Note Non-Trust Loan. In the case of the MezzCap Loan Combination, the trust, as the holder of the related underlying mortgage loan, and the holder of the related B-Note Non-Trust Loan are parties to an intercreditor agreement, which we refer to as the MezzCap Intercreditor Agreement. The servicing and administration of the underlying mortgage loan (and, to the extent described below, the related B-Note Non-Trust Loan) that is part of the MezzCap Loan Combination will be performed by the applicable master servicer and the special servicer on behalf of the trust (and, in the case of the related B-Note Non-Trust Loan, on behalf of the holder of that loan). The applicable master servicer will be required to collect payments with respect to any B-Note Non-Trust Loan only following the occurrence of certain events of default with respect to the MezzCap Loan Combination set forth in the related MezzCap Intercreditor Agreement, each of which events of default is referred to as a MezzCap Material Default. The following describes certain provisions of the MezzCap Intercreditor Agreement. Priority of Payments. The rights of the holder of each B-Note Non-Trust Loan that is part of the MezzCap Loan Combination to receive payments of interest, principal and other amounts are subordinate to the rights of the holder of the related underlying mortgage loan to receive such amounts. So long as a MezzCap Material Default has not occurred or, if a MezzCap Material Default has occurred but is no longer continuing with respect to a MezzCap Loan Combination, the borrower under the MezzCap Loan Combination will be required to make separate payments of principal and interest to the holder of the related underlying trust mortgage loan and B-Note Non-Trust Loan. Escrow and reserve payments will be made to the applicable master servicer on behalf of the trust as the holder of the underlying mortgage loans. Any voluntary principal prepayments will be applied as provided in the related loan documents; provided that any prepayment resulting from the payment of insurance proceeds or condemnation awards or accepted during the continuance of an event of default will be applied as though there were an existing MezzCap Material Default. If a MezzCap Material Default occurs and is continuing with respect to the MezzCap Loan Combination, then all amounts tendered by the borrower on the related B-Note Non-Trust Loan will be subordinate to all payments due with respect to the subject underlying trust mortgage loan and the amounts with respect to the MezzCap Loan Combination will be paid in the following manner: o first, to the master servicer, the special servicer and the trustee, up to the amount of any unreimbursed costs and expenses paid by such entity, including unreimbursed advances and interest thereon; o second, to the master servicer and the special servicer, in an amount equal to the accrued and unpaid servicing fees and/or other compensation earned by them; o third, to the subject underlying mortgage loan, in an amount equal to interest (other than default interest) due with respect to the subject underlying mortgage loan; o fourth, to the subject underlying mortgage loan, in an amount equal to the principal balance of the subject underlying mortgage loan until paid in full; o fifth, to the subject underlying mortgage loan, in an amount equal to any prepayment premium, to the extent actually paid, allocable to the subject underlying mortgage loan; o sixth, to the related B-Note Non-Trust Loan up to the amount of any unreimbursed costs and expenses paid by the holder of the related B-Note Non-Trust Loan; o seventh, to the related B-Note Non-Trust Loan, in an amount equal to interest (other than default interest) due with respect to the related B-Note Non-Trust Loan; o eighth, to the related B-Note Non-Trust Loan, in an amount equal to the principal balance of the related B-Note Non-Trust Loan until paid in full; S-120
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o ninth, to the related B-Note Non-Trust Loan, in an amount equal to any prepayment premium, to the extent actually paid, allocable to the related B-Note Non-Trust Loan; o tenth, to the subject underlying mortgage loan and the related B-Note Non-Trust Loan, in that order, in an amount equal to any unpaid default interest accrued on the subject underlying mortgage loan and the related B-Note Non-Trust Loan, respectively; and o eleventh, to the subject underlying mortgage loan and the related B-Note Non-Trust Loan, pro rata, based upon the initial principal balances, any amounts actually collected that represent late payment charges, other than a prepayment premium or default interest, that are not payable to the applicable master servicer, the special servicer or the trustee; and o twelfth, any excess, to the subject underlying mortgage loan and the related B-Note Non-Trust Loan, pro rata, based upon the initial principal balances. Notwithstanding the foregoing, amounts payable with respect to a B-Note Non-Trust Loan that is part of the MezzCap Loan Combination will not be available to cover all costs and expenses associated with the related underlying mortgage loan. Unless a MezzCap Material Default exists with respect to the MezzCap Loan Combination, payments of principal and interest with respect to the related B-Note Non-Trust Loan will be distributed to the holder of the related B-Note Non-Trust Loan and, accordingly, will not be available to cover certain expenses that, upon payment out of the trust fund, will constitute Additional Trust Fund Expenses. For example, a Servicing Transfer Event could occur with respect to the MezzCap Loan Combination, giving rise to special servicing fees, at a time when no MezzCap Material Default exists. In addition, following the resolution of all Servicing Transfer Events (and presumably all MezzCap Material Defaults) with respect to the MezzCap Loan Combination, workout fees would be payable. The special servicer has agreed that special servicing fees, workout fees and principal recovery fees earned with respect to any B-Note Non-Trust Loan that is part of the MezzCap Loan Combination will be payable solely out of funds allocable thereto. However, special servicing compensation earned with respect to an underlying mortgage loan that is part of the MezzCap Loan Combination, as well as interest on related advances and various other servicing expenses, will be payable out of collections allocable to that underlying mortgage loan and/or general collections on the mortgage pool if collections allocable to the related B-Note Non-Trust Loan are unavailable or insufficient to cover such items. If, after the expiration of the right of the holder of the B-Note Non-Trust Loan that is part of the MezzCap Loan Combination to purchase the related underlying mortgage loan (as described under "--Purchase Option" below), the related underlying mortgage loan or the subject B-Note Non-Trust Loan is modified in connection with a workout so that, with respect to either the related underlying mortgage loan or the subject B-Note Non-Trust Loan, (a) the outstanding principal balance is decreased, (b) payments of interest or principal are waived, reduced or deferred or (c) any other adjustment is made to any of the terms of the MezzCap Loan Combination, then all payments to the trust, as the holder of the related underlying mortgage loan, will be made as if the workout did not occur and the payment terms of the related underlying mortgage loan will remain the same. In that case, the holder of the subject B-Note Non-Trust Loan will be required to bear the full economic effect of all waivers, reductions or deferrals of amounts due on either the related underlying mortgage loan or the subject B-Note Non-Trust Loan attributable to the workout (up to the outstanding principal balance, together with accrued interest, of the subject B-Note Non-Trust Loan). So long as a MezzCap Material Default has not occurred with respect to the MezzCap Loan Combination, the master servicer will have no obligation to collect payments with respect to the related B-Note Non-Trust Loan. A separate servicer of that B-Note Non-Trust Loan will be responsible for collecting amounts payable in respect of that B-Note Non-Trust Loan. That servicer will have no servicing duties or obligations with respect to the related underlying mortgage loan or the related mortgaged real property. If a MezzCap Material Default occurs with respect to the MezzCap Loan Combination, the master servicer or the special servicer, as applicable, will (during the continuance of that MezzCap Material Default) collect and distribute payments for both the related underlying mortgage loan and the related B-Note Non-Trust Loan according to the sequential order of priority provided for in the MezzCap Intercreditor Agreement. S-121
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Consent Rights. Subject to certain limitations with respect to modifications and certain rights of the holder of a B-Note Non-Trust Loan that is part of the MezzCap Loan Combination to purchase the related underlying mortgage loan (as discussed in the next paragraph and under "--Purchase Option" below), the holder of that B-Note Non-Trust Loan has no voting, consent or other rights with respect to the master servicer's or special servicer's administration of, or the exercise of rights and remedies with respect to, the MezzCap Loan Combination. In the case of the MezzCap Loan Combination, the ability of the master servicer or the special servicer, as applicable, to enter into any assumption, amendment, deferral, extension, increase or waiver of any term or provision of the related B-Note Non-Trust Loan, the related underlying mortgage loan or the related loan documents, is limited by the rights of the holder of the related B-Note Non-Trust Loan to approve modifications and other actions as contained in the MezzCap Intercreditor Agreement; provided that the consent of the holder of a B-Note Non-Trust Loan will not be required in connection with any modification or other action with respect to the MezzCap Loan Combination after the expiration of the right of the holder of the related B-Note Non-Trust Loan to purchase the related underlying mortgage loan; and provided, further, that no consent or failure to provide consent by the holder of the related B-Note Non-Trust Loan may cause the master servicer or special servicer to violate applicable law or any term of the series 2007-8 pooling and servicing agreement, including the Servicing Standard. The holder of a B-Note Non-Trust Loan that is part of the MezzCap Combination may not enter into any assumption, amendment, deferral, extension, increase or waiver of the subject B-Note Non-Trust Loan or the related loan documents without the prior written consent of the trustee, as holder of the related underlying mortgage loan, acting through the master servicer and/or the special servicer as specified in the series 2007-8 pooling and servicing agreement. Purchase Option. In the case of the MezzCap Loan Combination, upon the occurrence of any one of certain defaults that are set forth in the MezzCap Intercreditor Agreement, the holder of the related B-Note Non-Trust Loan will have the right to purchase the related underlying mortgage loan at a purchase price determined under the MezzCap Intercreditor Agreement and generally equal to the sum of (a) the outstanding principal balance of the related underlying mortgage loan, (b) accrued and unpaid interest on the outstanding principal balance of the related underlying mortgage loan (excluding any default interest or other late payment charges), (c) any unreimbursed servicing advances made by the master servicer, the special servicer or the trustee with respect to the related mortgaged real property, together with any advance interest thereon, (d) reasonable out-of-pocket legal fees and costs incurred in connection with enforcement of the MezzCap Loan Combination by the master servicer or the special servicer in accordance with its duties and related to an event of default, (e) any interest on any unreimbursed P&I advances made by the master servicer the trustee with respect to the related underlying mortgage loan, (f) any related master servicing fees, primary servicing fees, special servicing fees and trustee's fees payable under the series 2007-8 pooling and servicing agreement, and (g) out-of-pocket expenses incurred by the trustee, the special servicer or the master servicer with respect to the MezzCap Loan Combination together with advance interest thereon. ADDITIONAL LOAN AND PROPERTY INFORMATION Delinquencies. Each mortgage loan seller will represent in its mortgage loan purchase agreement that, with respect to the mortgage loans that we will purchase from that mortgage loan seller, no scheduled payment of principal and interest under any mortgage loan was 30 days or more past due as of the cut-off date for such mortgage loan, without giving effect to any applicable grace period, nor was any scheduled payment 30 days or more delinquent with respect to any monthly debt service payment at any time since the date of its origination, without giving effect to any applicable grace period. None of the mortgage loans has experienced any losses of principal or interest (through forgiveness of debt or restructuring) since origination. Tenant Matters. Described and listed below are certain aspects of the some of the tenants at the mortgaged real properties for the mortgage loans-- o One hundred eighty-one (181) of the mortgaged real properties, securing approximately 33.0% of the initial mortgage pool balance and approximately 57.4% of the initial loan group 1 balance, are, in each case, a retail property, an office property or an industrial/warehouse property that is leased to one or more major tenants that each occupies at least 25% of the net rentable area of the S-122
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particular property. A number of companies are major tenants at more than one of the mortgaged real properties. o Sixty-eight (68) of the mortgaged real properties, securing approximately 8.3% of the initial mortgage pool balance and approximately 14.5% of the initial loan group 1 balance, are entirely or substantially leased to a single tenant. o There are several cases in which a particular entity is a tenant at more than one of the mortgaged real properties, and although it may not be a major tenant at any of those properties, it is significant to the success of the properties. o Certain tenant leases at the mortgaged real properties (including mortgaged real properties leased to a single tenant) have terms that are shorter than the terms of the related mortgage loans and, in some cases, significantly shorter. See Annex A-1 to this prospectus supplement for information regarding lease term expirations with respect to the three largest tenants at the mortgaged real properties. o Certain of the mortgaged real properties (for example, loan number 6 representing security for approximately 2.3% of the initial mortgage pool balance and approximately 5.5% of the initial loan group 2 balance), are multifamily rental properties that have a material tenant concentration of students. Those kinds of mortgaged real properties may experience more fluctuations in occupancy rate than other types of properties. o One (1) loan, representing approximately 10.3% of the initial mortgage pool balance and approximately 24.2% of the initial loan group 2 balance is secured by manufactured housing properties of which certain affiliates of the related borrower have master leased or may master lease portions of the mortgaged properties, and in turn sublease individual manufactured homes and lots to residential subtenants. o With respect to certain of the mortgage loans, one or more of the tenants may be local, state or federal governmental entities (including mortgaged real properties leased to a single tenant). These entities may have the right to terminate their leases at any time, subject to various conditions, including notice to the landlord or a loss of available funding. o With respect to certain of the mortgage loans, one or more tenants (which may include significant tenants) have lease expiration dates or early termination options, that occur prior to the maturity date of the related mortgage loan. Additionally, mortgage loans may have concentrations of leases expiring at varying rates in varying percentages prior to the related maturity date and in some situations, all of the leases, at a mortgaged real property may expire prior to the related maturity date. Even if vacated space is successfully relet, the costs associated with reletting, including tenant improvements and leasing commissions, could be substantial and could reduce cash flow from the mortgaged real properties. o With respect to certain of the mortgage loans, one or more of the tenants at the related mortgaged real property may be "dark", have yet to take possession of their leased premises or may have taken possession of their leased premises but have yet to open their respective businesses to the general public and, in some cases, may not have commenced paying rent under their leases. Ground Leases. In the case of each of seven (7) mortgaged real properties, representing approximately 3.0% of the initial mortgage pool balance and approximately 5.2% of the initial loan group 1 balance, and approximately 0.1% of the initial loan group 2 balance, the related mortgage constitutes a lien on the related borrower's leasehold or sub-leasehold interest in the subject mortgaged real property, but not on the corresponding fee interest. In each case (except as specified below), the related ground lease or sub-ground lease, after giving effect to all extension options exercisable at the option of the relevant lender, expires more than ten (10) years after the stated maturity of the related mortgage loan and the ground lessor has agreed to give the holder of the related mortgage loan notice of, and the right to cure, any default or breach by the related ground lessee. S-123
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In the case of one (1) mortgage loan (loan number 3), secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Executive Hills Portfolio, representing approximately 4.1% of the initial mortgage pool balance and approximately 7.1% of the initial loan group 1 balance, with respect to one of the nine mortgaged real properties included in the portfolio, the related borrower holds a fee simple interest for a majority of the subject mortgaged real property and a leasehold interest for a small portion of the subject mortgaged real property. Neither the building nor the parking structure are situated on the leasehold portion of the subject mortgaged property. Such leasehold portion only includes paved surface parking. The related ground lease for the leasehold portion of the subject mortgaged real property expires approximately five (5) years prior to the stated maturity of the related mortgage loan. The mortgage loan was closed with the borrower having 30 days to obtain, among other things, a twenty-five (25) year extension of the ground lease term from the ground lessor. The terms of the post-closing agreement have not yet been satisfied and the time frame has been extended an additional 60 days. In addition, in the case of one (1) mortgage loan, (loan number 28), secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Residence Inn Carlsbad, representing approximately 0.8% of the initial mortgage pool balance and approximately 1.4% of the initial loan group 1 balance, the mortgage loan is secured by both the related borrower's leasehold interest and the ground lessor's fee interest in the mortgaged property. Although this mortgaged real property is being characterized as a fee interest above, the mortgage loan documents permit the release of the fee interest subject to the satisfaction of certain conditions including: o the ground lessor or any subsequent owner executes estoppel agreements required by the lender; o the debt service coverage ratio is at least 1.35x (or if a mezzanine loan is in place, then the debt service coverage ratio must be at least 1.20x); o the lender has received all required documentation to effectuate such release; and o the sale is an arms-length transaction. See "Risk Factors--Lending on Ground Leases Creates Risks for Lenders That Are Not Present When Lending on an Actual Ownership Interest in a Real Property" and "Legal Aspects Of Mortgage Loans--Foreclosure--Leasehold Considerations" in the accompanying base prospectus. Additional and Other Financing. Additional Secured Debt. In the case of each of the Trust Mortgage Loans, the related mortgage also secures the related Non-Trust Loan, which will not be included in the trust fund. See "--The Loan Combinations" above for a description of certain aspects of the related Loan Combinations. In the case of one (1) mortgage loan, (loan number 61), secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Casino Self Storage, representing approximately 0.4% of the initial mortgage pool balance and approximately 0.7% of the initial loan group 1 balance, there is a junior lien on the related mortgaged property held by the City of Moorpark, California. Pursuant to a certain 2003 settlement agreement resulting from a zoning dispute between the related borrower and the city, the city agreed to a certain zoning classification and the related borrower agreed to pay the city $1,200,000 in installments over a period of 14 years. The related borrower's obligation to pay the city is secured by a deed of trust which is junior to any permanent financing , including the mortgage loan, pursuant to a subordination agreement in favor of any permanent lender. The outstanding balance on the deed of trust is $960,000. In the case of eight (8) mortgage loans, representing approximately 7.0% of the initial mortgage pool balance (five (5) mortgage loans in loan group 1, representing approximately 9.7% of the initial loan group 1 balance, and three (3) mortgage loans in loan group 2, representing approximately 3.3% of the initial loan group 2 balance), the owners of the related borrowers are permitted to incur subordinate debt secured by a lien on the related mortgaged real property, as identified in the table below. The incurrence of this subordinate indebtedness is generally subject to certain conditions, that may include any one or more of the following conditions-- o consent of the mortgage lender; S-124
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o satisfaction of loan-to-value tests, which provide that the aggregate principal balance of the related mortgage loan and the subject subordinate debt may not exceed a specified percentage of the value of the related mortgaged real property and debt service coverage tests, which provide that the combined debt service coverage ratio of the related mortgage loan and the subject subordinate loan may not be less than a specified number; o subordination of the subordinate debt pursuant to a subordination and intercreditor agreement; and/or o confirmation from each rating agency that the subordinate financing will not result in a downgrade, qualification or withdrawal of the then current ratings of the offered certificates. MORTGAGE LOAN CUT-OFF MAXIMUM COMBINED LTV LOAN GROUP MORTGAGED REAL PROPERTY DATE BALANCE RATIO MINIMUM COMBINED DSCR ---------- ---------------------------- --------------------- -------------------- --------------------- 1 Executive Hills Portfolio $99,900,000 80% 1.20x Pride Drive Business 1 Center(1) 23,500,000 80% 1.20x 2 The Haven Apartments 23,000,000 80% 1.20x 2 Edge Lake Apartments(2) 9,000,000 80% 1.10x 1 Douglasville Day Center(3) 6,900,000 75% 1.25x(3) 1 Paramount Self Storage 2,840,565 70% 1.40x 2 Swansonian Apartments 2,300,000 80% 1.20x 1 1515 Walsh Ave Industrial(4) 2,126,207 75% 1.25x _____________ (1) Not permitted to be incurred in the first 12 months of the related loan closing or in the 24 months prior to the loan maturity date. (2) Not permitted to be incurred until 12 months after the related loan closing date. (3) Not permitted to be incurred in the first 24 months of the related loan closing. DSCR shown is the actual DSCR. The DSCR assuming an interest rate of 9.25% is 1.15x. (4) Not permitted to be incurred until 6 months after the related loan closing date. Except as described above, the mortgage loans do not permit the related borrowers to enter into additional subordinate or other financing that is secured by the related mortgaged real properties without the lender's consent. See "Risk Factors--Risks Relating to the Mortgage Loans--A Borrower's Other Loans May Reduce the Cash Flow Available to the Mortgaged Real Property Which May Adversely Affect Payment on Your Certificates; Mezzanine Financing Reduces a Principal's Equity in, and Therefore Its Incentive to Support, a Mortgaged Real Property" in this prospectus supplement. See also, See "Risk Factors--Additional Secured Debt Increases the Likelihood That a Borrower Will Default on a Mortgage Loan Underlying Your Offered Certificates" and "Legal Aspects Of Mortgage Loans--Subordinate Financing" in the accompanying base prospectus. Mezzanine Debt. In the case of three (3) mortgage loans, representing approximately 1.1% of the initial mortgage pool balance (one (1) mortgage loan in loan group 1, representing approximately 0.4% of the initial loan group 1 balance, and two (2) mortgage loans in loan group 2, representing approximately 1.9% of the initial loan group 2 balance), the owner(s) of the related borrower have pledged their interests in the borrower to secure secondary financing in the form of mezzanine debt, as indicated in the table below. INTEREST MORTGAGE ORIGINAL RATE ON LOAN LOAN MORTGAGED PROPERTY LOAN CUT-OFF MEZZANINE DEBT AGGREGATE MATURITY DATE OF MEZZANINE NUMBER GROUP NAME DATE BALANCE BALANCE DEBT BALANCE MEZZANINE LOAN LOAN ------ ----- -------------------- ------------ -------------- ------------ ---------------- --------- 55 2 Plaza Apartments $ 11,120,000 $1,380,000 $ 12,500,000 5/8/12 12.50% 70 2 Brooklyn Apartments $ 8,800,000 $ 340,000 $ 9,140,000 5/8/17 12.50% Mooresville Town 89 1 Square $ 6,067,231 $ 580,000 $ 6,647,231 7/18/17 12.50% In the case of each of the above described mortgage loans with existing mezzanine debt, the mezzanine loan was made by the related mortgage loan seller as mezzanine lender simultaneously with the origination of the mortgage loan and is subject to an intercreditor agreement entered into between the holder of the mortgage loan and S-125
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the mezzanine lender, under which, generally, among other covenants and agreements between the mezzanine lender and the mortgage lender, the mezzanine lender-- o has agreed, among other things, not to acquire the equity ownership interests in the related mortgage borrower constituting collateral securing its related mezzanine loan without either the consent of the holder of the mortgage loan or written confirmation from the rating agencies that an enforcement action would not cause the downgrade, withdrawal or qualification of the then current ratings of the offered certificates, unless certain conditions are met relating to the identity and status of the transferee of the collateral and the replacement property manager and, in certain cases, the delivery of an acceptable non-consolidation opinion letter by counsel, and o has subordinated and made junior its related mezzanine loan to the related mortgage loan (other than as to its interest in the pledged collateral) and has the option to purchase the related mortgage loan if that mortgage loan becomes a defaulted mortgage loan, and the option to cure the default. In the case of thirty-two (32) mortgage loans, representing approximately 20.0% of the initial mortgage pool balance (twenty-six (26) mortgage loans in loan group 1, representing approximately 26.4% of the initial loan group 1 balance, and six (6) mortgage loans in loan group 2, representing approximately 11.3% of the initial loan group 2 balance), the owners of the related borrowers are permitted to pledge their ownership interests in the borrowers as collateral for mezzanine debt in the future, as identified in the table below. The incurrence of this mezzanine indebtedness is generally subject to certain conditions, that may include any one or more of the following conditions-- o consent of the mortgage lender; o satisfaction of loan-to-value tests, which provide that the aggregate principal balance of the related mortgage loan and the subject mezzanine debt may not exceed a specified percentage of the value of the related mortgaged real property and debt service coverage tests, which provide that the combined debt service coverage ratio of the related mortgage loan and the subject mezzanine loan may not be less than a specified number; o subordination of the mezzanine debt pursuant to a subordination and intercreditor agreement; and/or o confirmation from each rating agency that the mezzanine financing will not result in a downgrade, qualification or withdrawal of the then current ratings of the offered certificates. FUTURE MEZZ -------------------- MORTGAGE MAX LOAN CUT-OFF COMBINED LOAN NUMBER GROUP PROPERTY NAME BALANCE LTV MIN COMBINED DSCR ----------- ------- ----------------------------------- ----------- --------- ------------------ 4 1 Peninsula Beverly Hills(1) $79,300,000 80% 1.15x(7) 6 2 Towers at University Town Center $56,835,903 90% 1.05x 8 1 Douglas Corporate Center I & II $36,000,000 75% N/A 13 1 Hilltop Plaza(8) $24,600,000 80% 1.20x(7) 15 1 Pride Drive Business Center(2) $23,500,000 80% 1.20x 17 1 Hollister Business Park $23,000,000 85% 1.10x 16 2 The Haven Apartments $23,000,000 90% 1.05x 28 1 Residence Inn Carlsbad(1) $19,000,000 80% 1.20x(7) 29 1 CVS Distribution Facility $18,700,000 76% 1.50x 32 1 Edgewater in Denver(4) $17,600,000 80% 1.20x(7) 34 2 Oakleigh Apartments $15,471,261 85% 1.10x 37 1 Legacy Oaks at Spring Hill $15,000,000 85% 1.07x 36 1 Solita Soho Hotel $15,000,000 75% 1.40x 44 1 Celebration at Six Forks(4) $13,370,000 90% 1.10x 46 1 Alexander Village at Brier Creek(4) $13,150,000 90% 1.10x 56 2 PKL Multifamily Portfolio $11,080,000 90% N/A S-126
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FUTURE MEZZ -------------------- MORTGAGE MAX LOAN CUT-OFF COMBINED LOAN NUMBER GROUP PROPERTY NAME BALANCE LTV MIN COMBINED DSCR ----------- ------- ----------------------------------- ----------- --------- ------------------ 60 1 Federal Way Crossings II $10,500,000 80% 1.20x 62 1 El Pueblito Shopping Center $10,000,000 90% 1.05x 68 2 Edge Lake Apartments(3) $ 9,000,000 80% 1.10x 79 1 Walgreens - Tarzana $ 6,870,000 85% 1.10x 91 1 Raleigh Eastgate Shopping Center(4) $ 6,000,000 90% 1.10x 95 1 Grandview Plaza(5) $ 5,700,000 80% 1.16x(6) 100 1 HK Systems(9) $ 5,300,000 80% 1.15x 113 1 925 Broadbeck Drive $ 4,305,000 85% 1.07x 117 1 PKL Commercial Portfolio $ 4,200,000 90% N/A 121 1 Carson Street Retail $ 3,877,931 80% 1.15x 122 1 Kerr Drug - Durham $ 3,820,000 90% 1.05x 124 1 Kerr Drug - Hillsborough $ 3,720,000 90% 1.05x 138 1 2247 North Milwaukee $ 2,997,340 80% 1.20x 149 1 FedEx Moline $ 2,725,000 85% 1.05x 179 1 PetCo - Modesto $ 2,000,000 80% 1.15x 193 2 Saticoy Street Apartments $ 1,650,000 75% 1.20x(7) _____________________________________ (1) Not permitted to be incurred until 24 months after the securitization closing date. (2) Not permitted to be incurred in the first 12 months of the related loan closing or in the 24 months prior to the loan maturity date. (3) Not permitted to be incurred in the first 12 months of the related loan closing. (4) Not permitted to be incurred in the first 24 months of the related loan closing. (5) Not permitted to be incurred in the first 36 months of the related loan closing. (6) The DSCR must be equal to or greater than the DSCR of the related mortgage loan at closing. (7) DSCR shown for each loan is the actual DSCR. The DSCR for each loan assuming an interest rate of 9.25% is 1.00x, 0.90x, 0.90x, 0.90x and 1.00x, respectively. (8) Not permitted to be incurred until 24 months after the related loan closing and only in connection with the transfer of property and assumption of the loan pursuant to the related loan agreement. (9) LTV and DSCR shown are after a transfer of the related mortgaged property. The LTV and DSCR prior to such transfer are 90% and 1.07x, respectively. While a mezzanine lender has no security interest in or rights to the mortgaged real property securing the related mortgage borrower's mortgage loan, a default under a mezzanine loan could cause a change in control in the related mortgage borrower as a result of the realization on the pledged ownership interests by the mezzanine lender. See "Risk Factors--Risks Relating to the Mortgage Loans--A Borrower's Other Loans May Reduce the Cash Flow Available to the Mortgaged Real Property Which May Adversely Affect Payment on Your Certificates; Mezzanine Financing Reduces a Principal's Equity in, and Therefore Its Incentive to Support, a Mortgaged Real Property" in this prospectus supplement. Unsecured and Other Debt. The mortgage loans generally do not prohibit the related borrower from incurring other obligations in the ordinary course of business relating to the mortgaged real property, including, but not limited to, trade payables and capital expenditures, or from incurring indebtedness and/or entering into financing leases secured by or covering equipment or other personal property located at or used in connection with the mortgaged real property. Therefore, under certain of the mortgage loans, the borrower has incurred or is permitted to incur additional financing that is not secured by the mortgaged real property. In addition, borrowers that have not agreed to certain special purpose covenants in the related loan documents are not prohibited from incurring additional debt. S-127
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In addition to the foregoing types of additional debt a borrower may have incurred or is permitted to incur, we are aware, that in the case of two (2) mortgage loans (loan numbers 42 and 93), representing approximately 0.8% of the initial mortgage pool balance, the related borrowers have incurred, or are permitted to incur, subordinate unsecured indebtedness. In the case of one mortgage loan (loan number 2) secured by the mortgaged real property identified on Annex A-1 to this prospectus supplement as Farallon Portfolio, representing approximately 10.3% of the initial mortgage pool balance and approximately 24.2% of the initial loan group 2 balance, certain affiliates of the related borrower are permitted to enter into a revolving credit facility secured by a non-controlling interest in the related borrower, in the maximum amount of up to (x) $15,000,000 during the first year of the related mortgage loan and (y) $25,000,000 thereafter. Except as disclosed under this "--Additional and Other Financing" subsection, we have not been able to confirm whether the respective borrowers under the mortgage loans have any other debt outstanding. We make no representation with respect to the mortgage loans as to whether any other subordinate financing currently encumbers any mortgaged real property, whether any borrower has incurred material unsecured debt or whether a third-party holds debt secured by a pledge of an equity interest in a related borrower. Zoning and Building Code Compliance. In connection with the origination of each mortgage loan, the related originator examined whether the use and operation of the mortgaged real property were in material compliance with zoning, land-use, building, fire and health ordinances, rules, regulations and orders then-applicable to that property. Evidence of this compliance may have been in the form of legal opinions, surveys, recorded documents, letters from government officials or agencies, title insurance endorsements, engineering or consulting reports and/or representations by the related borrower. In some cases, a certificate of occupancy was not available. Where the property as currently operated is a permitted nonconforming use and/or structure, an analysis was generally conducted as to-- o the likelihood that a material casualty would occur that would prevent the property from being rebuilt in its current form; and o whether existing replacement cost hazard insurance or, if necessary, supplemental law or ordinance coverage would, in the event of a material casualty, be sufficient-- 1. to satisfy the entire mortgage loan; or 2. taking into account the cost of repair, to pay down the mortgage loan to a level that the remaining collateral would be adequate security for the remaining loan amount. Notwithstanding the foregoing, we cannot assure you, however, that any such analysis, or that the above determinations, were made in each and every case. Lockboxes. Fifty-nine (59) mortgage loans, representing approximately 56.9% of the initial mortgage pool balance (fifty-one (51) mortgage loans in loan group 1, representing approximately 50.6% of the initial loan group 1 balance and eight (8) mortgage loans in loan group 2, representing approximately 65.5% of the initial loan group 2 balance), generally provide that all rents, credit card receipts, accounts receivables payments and other income derived from the related mortgaged real properties will be paid into one of the following types of lockboxes, each of which is described below. S-128
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o LOCKBOXES IN EFFECT ON THE DATE OF CLOSING. Income (or a portion thereof sufficient to pay monthly debt service) is paid directly to a lockbox account controlled by the lender, or both the borrower and the lender, except that with respect to multifamily and manufactured housing properties, income is collected and deposited in the lockbox account by the manager of the mortgaged real property and, with respect to hospitality properties, cash or "over-the-counter" receipts are deposited into the lockbox account by the manager, while credit card receivables are deposited directly into a lockbox account. In the case of such lockboxes, funds deposited into the lockbox account are disbursed either-- 1. in accordance with the related loan documents to satisfy the borrower's obligation to pay, among other things, debt service payments, taxes and insurance and reserve account deposits; or 2. to the borrower on a daily or other periodic basis, until the occurrence of a triggering event, following which the funds will be disbursed to satisfy the borrower's obligation to pay, among other things, debt service payments, taxes and insurance and reserve account deposits. In some cases, the lockbox account is currently under the control of both the borrower and the lender, to which the borrower will have access until the occurrence of the triggering event, after which no such access will be permitted. In other cases, the related loan documents require the borrower to establish the lockbox but each account has not yet been established. For purposes of this prospectus supplement, a lockbox is considered to be a "hard" lockbox when income from the subject property is paid directly by tenants (or, with respect to manufactured housing properties, by borrowers or a property manager) into a lockbox account controlled by the lender. A lockbox is considered to be a "soft" lockbox (for all property types other than manufactured housing) when income from the subject property is paid into a lockbox account controlled by the lender, by the borrower or a property manager. o SPRINGING LOCKBOX. Income is collected by or otherwise accessible to the borrower until the occurrence of a triggering event, following which a lockbox of the type described above is put in place, from which funds are disbursed to a lender controlled account and used to pay, among other things, debt service payments, taxes and insurance and reserve account deposits. Examples of triggering events may include: 1. a failure to pay the related mortgage loan in full on or before any related anticipated repayment date; or 2. a decline by more than a specified amount, in the net operating income of the related mortgaged real property; or 3. a failure to meet a specified debt service coverage ratio; or 4. an event of default under the mortgage. For purposes of this prospectus supplement, a springing lockbox is an account, which may be a hard or soft lockbox, that is required to be established by the borrower upon the occurrence of a trigger event. The fifty-nine (59) mortgage loans referred to above provide for lockbox accounts as follows: % OF INITIAL % OF INITIAL LOAN % OF INITIAL LOAN NUMBER OF MORTGAGE POOL GROUP 1 PRINCIPAL GROUP 2 PRINCIPAL LOCKBOX TYPE MORTGAGE LOANS BALANCE BALANCE BALANCE ------------------------------- -------------- ------------- ----------------- ------------------ Hard 33 40.7% 28.9% 56.6% Soft 7 6.9% 5.3% 8.9% None at Closing, Springing Hard 11 6.4% 11.2% 0.0% None at Closing, Springing Soft 6 2.3% 3.9% 0.0% Soft at Closing, Springing Hard 2 0.7% 1.2% 0.0% S-129
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Hazard, Liability and Other Insurance. Although exceptions exist, the loan documents for each of the mortgage loans generally require the related borrower to maintain with respect to the corresponding mortgaged real property the following insurance coverage-- o hazard insurance in an amount that generally is, subject to an approved deductible, at least equal to the lesser of-- 1. the outstanding principal balance of the mortgage loan; and 2. the full insurable replacement cost or insurable value of the improvements located on the insured property; o if any portion of the improvements on the property was in an area identified in the federal register by the Federal Emergency Management Agency as having special flood hazards, flood insurance meeting the requirements of the Federal Insurance Administration guidelines, in an amount that is equal to the least of-- 1. the outstanding principal balance of the related mortgage loan; 2. the full insurable replacement cost or insurable value of the improvements on the insured property; and 3. the maximum amount of insurance available under the National Flood Insurance Act of 1968; o commercial general liability insurance against claims for personal and bodily injury, death or property damage; and o business interruption or rent loss insurance. Certain mortgage loans permit a borrower to satisfy its insurance coverage requirement by permitting its tenant to self-insure (including with respect to terrorism insurance coverage). In general, the mortgaged real properties securing the mortgage loans, including those properties located in California, are not insured against earthquake risks. In the case of those properties located in California, other than those that are manufactured housing communities or self storage facilities, a third-party consultant conducted seismic studies to assess the probable maximum loss for the property. However, with respect to the following mortgaged properties located in California, identified on Annex A-1 as loan numbers 197, 209, 214, 215, 216, 217 and 218, no seismic studies were conducted. With respect to any seismic study conducted in California or other locations, except as indicated in the following sentence, none of the resulting reports concluded that a mortgaged real property was likely to experience a probable maximum loss in excess of 20% of the estimated replacement cost of the improvements. In the case of the mortgage loan identified on Annex A-1 to this prospectus supplement as Bank of Everett Tower, representing approximately 0.3% of the initial mortgage pool balance and approximately 0.6% of the initial loan group 1 balance, the probable maximum loss exceeds 20% and the related borrower has earthquake insurance in place. In the case of the mortgage loans identified on Annex A-1 to this prospectus supplement as 1544 Placentia Ave Apartments and 1607 Greenfield Apartments, collectively representing approximately 0.2% of the initial mortgage pool balance and approximately 0.4% of the initial loan group 2 balance, although the probable maximum loss was determined to exceed 20%, the lender waived its requirement that the borrower carry earthquake insurance In the case of the mortgage loan identified on Annex A-1 to this prospectus supplement as U-Haul Vacaville, representing approximately 0.2% of the initial mortgage pool balance and approximately 0.4% of the initial loan group 1 balance, although the probable maximum loss was determined to exceed 25%, the lender waived its requirement that the borrower carry earthquake insurance. S-130
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Each master servicer (with respect to each of the mortgage loans serviced by it, including those of such mortgage loans that have become specially serviced mortgage loans), and the special servicer, with respect to REO Properties, will be required to use reasonable efforts, consistent with the Servicing Standard, to cause each borrower to maintain, or if the borrower does not maintain, the applicable master servicer will itself maintain, to the extent available at commercially reasonable rates and that the trustee has an insurable interest therein, for the related mortgaged real property, all insurance required by the terms of the loan documents and the related mortgage. Where insurance coverage at the mortgaged real property for any mortgage loan is left to the lender's discretion, the master servicers will be required to exercise such discretion in accordance with the Servicing Standard, and to the extent that any mortgage loan so permits, the related borrower will be required to exercise its efforts to obtain insurance from insurers which have a minimum claims-paying ability rating of at least "A" by each of S&P and Fitch (or the obligations of which are guaranteed or backed by a company having such claims-paying ability), and where insurance is obtained by a master servicer, such insurance must be from insurers that meet such requirements. In addition to the foregoing, neither master servicer will be required to cause to be maintained or to itself obtain and maintain any earthquake or environmental insurance policy unless a policy providing such coverage was in effect either at the time of the origination of the related mortgage loan or at the time of initial issuance of the certificates. In some cases, however, insurance may not be available from insurers that are rated by any of S&P and Fitch. In that case, the applicable master servicer or the special servicer, as the case may be, will be required to use reasonable efforts, consistent with the servicing standard, to cause the borrower to maintain, or will itself maintain, as the case may be, insurance with insurers having the next highest ratings that are offering the required insurance at commercially reasonable rates. Various forms of insurance maintained with respect to any of the mortgaged real properties for the mortgage loans, including casualty insurance, environmental insurance and earthquake insurance, may be provided under a blanket insurance policy. That blanket insurance policy will also cover other real properties, some of which may not secure loans in the trust. As a result of total limits under any of those blanket policies, losses at other properties covered by the blanket insurance policy may reduce the amount of insurance coverage with respect to a property securing one of the mortgage loans in the trust. See "Risk Factors--Risks Related to the Mortgage Loans--The Absence or Inadequacy of Insurance Coverage on the Property May Adversely Affect Payments on Your Certificates" in this prospectus supplement and "Risk Factors--Lack of Insurance Coverage Exposes a Trust to Risk for Particular Special Hazard Losses" in the accompanying base prospectus. With limited exception, the mortgage loans generally provide that insurance and condemnation proceeds are to be applied either-- o to restore the mortgaged real property; or o towards payment of the mortgage loan. If any mortgaged real property is acquired by the trust through foreclosure, deed in lieu of foreclosure or otherwise following a default on the related mortgage loan, the special servicer will be required to maintain for that property generally the same types of insurance policies providing coverage in the same amounts as were previously required under the related mortgage loan. The special servicer will not be required to obtain any insurance for an REO Property that was previously required under the related mortgage if (a) such insurance is not available at any rate; or (b) as determined by the special servicer following due inquiry conducted in a manner consistent with the Servicing Standard and subject to the rights of and consultation with the controlling class representative, such insurance is not available at commercially reasonable rates and the subject hazards are not commonly insured against by prudent owners of similar real properties in similar locales. The master servicers and the special servicer may each satisfy their obligations regarding maintenance of the hazard insurance policies referred to in this prospectus supplement by maintaining a blanket insurance policy or a master force-placed insurance policy insuring (or entitling the applicable party to obtain insurance) against hazard losses on all of the mortgage loans for which they are responsible. If any blanket insurance policy maintained by a master servicer or the special servicer contains a deductible clause, however, the applicable master servicer or the S-131
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special servicer, as the case may be, will be required, in the event of a casualty covered by that policy, to pay out of its own funds all sums that-- o are not paid because of the deductible clause; and o would have been paid if an individual hazard insurance policy referred to above had been in place. The applicable originator and its successors and assigns are the beneficiaries under separate title insurance policies with respect to each mortgage loan. It is expected that each title insurer will enter into co-insurance and reinsurance arrangements with respect to the title insurance policy as are customary in the title insurance industry. Subject to standard exceptions, including those regarding claims made in the context of insolvency proceedings, each title insurance policy will provide coverage to the trustee for the benefit of the certificateholders for claims made against the trustee regarding the priority and validity of the borrower's title to the subject mortgaged real property. ASSESSMENTS OF PROPERTY CONDITION Property Inspections. All of the mortgaged real properties for the mortgage loans were inspected in connection with the origination or acquisition of the related mortgage loan to assess their general condition. No inspection revealed any patent structural deficiency or any deferred maintenance considered material and adverse to the interests of the holders of the offered certificates, except in such cases where adequate reserves have been established. Appraisals. All of the mortgaged real properties for the mortgage loans were appraised by a state certified appraiser or an appraiser belonging to the Appraisal Institute in accordance with the Federal Institutions Reform, Recovery and Enforcement Act of 1989. The primary purpose of each of those appraisals was to provide an opinion of the fair market value of the related mortgaged real property. There can be no assurance that another appraiser would have arrived at the same opinion of value. The resulting appraised values are shown on Annex A-1 to this prospectus supplement. Environmental Assessments. A third-party environmental consultant conducted a Phase I environmental site assessment, or updated a previously conducted assessment (which update may have been pursuant to a database update), with respect to the mortgaged real properties, other than the mortgaged real properties securing the mortgage loans identified on Annex A-1 to this prospectus supplement as loan numbers 115, 152, 159, 160, 165, 171, 191, 197, 198, 199, 201, 203, 209, 210, 213, 214, 215, 216, 217 and 218. All of the Phase I environmental site assessments or updates occurred during the 12-month period ending on the cut-off date, except with respect to loan numbers 7.15. In the case of three (3) mortgaged real properties, representing approximately 0.6% of the initial mortgage pool balance, and approximately 1.1% of the initial loan group 1 balance, a third-party consultant also conducted a Phase II environmental site assessment of each such mortgaged real property. The environmental testing at any particular mortgaged real property did not necessarily cover all potential environmental issues. For example, tests for radon, lead-based paint and lead in water were generally performed only at multifamily rental properties and only when the originator of the related mortgage loan believed this testing was warranted under the circumstances. If the environmental investigations described above identified material adverse or potentially material adverse environmental conditions at or with respect to any of the respective mortgaged real properties securing a mortgage loan or at a nearby property with potential to affect a mortgaged real property, then one of the following occurred: o an environmental consultant investigated those conditions and recommended no further investigations or remediation; or S-132
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o an operation and maintenance plan or other remediation was required and/or an escrow reserve was established to cover the estimated costs of obtaining that plan and/or effecting that remediation; or o those conditions were remediated or abated prior to the closing date; or o a letter was obtained from the applicable regulatory authority stating that no further action was required; or o an environmental liability insurance policy was obtained, a letter of credit was provided, an escrow reserve account was established, another party has acknowledged responsibility, or an indemnity from the responsible party was obtained to cover the estimated costs of any required investigation, testing, monitoring or remediation; or o in those cases where an offsite property is the location of a leaking underground storage tank or groundwater or soil contamination, a responsible party has been identified under applicable law, and generally either-- 1. that condition is not known to have affected the mortgaged real property; or 2. the responsible party has either received a letter from the applicable regulatory agency stating no further action is required, established a remediation fund, engaged in responsive remediation, or provided an indemnity or guaranty to the borrower; or 3. an environmental insurance policy was obtained (which was not for the primary benefit of a secured lender). In some cases, the identified condition related to the presence of asbestos-containing materials, lead-based paint, mold, and/or radon. Where these substances were present, the environmental consultant often recommended, and the related loan documents required-- o the establishment of an operation and maintenance plan to address the issue, or o in some cases involving asbestos-containing materials, lead-based paint, mold and/or radon, an abatement or removal program or a long-term testing program. In a few cases, the particular asbestos-containing materials, lead-based paint, mold and/or radon was in need of repair or other remediation. This could result in a claim for damages by any party injured by that condition. In certain cases, the related lender did not require the establishment of an operation and maintenance plan despite the identification of issues involving asbestos-containing materials and/or lead-based paint. In some cases, the environmental consultant did not recommend that any action be taken with respect to a potentially material adverse environmental condition at a mortgaged real property securing a mortgage loan, because a responsible party with respect to that condition had already been identified. There can be no assurance, however, that such a responsible party will be financially able to address the subject condition. In some cases where the environmental consultant recommended specific remediation of an adverse environmental condition, the related originator of a mortgage loan required the related borrower generally: o to carry out the specific remedial measures prior to closing; o carry out the specific remedial measures post-closing and, if deemed necessary by the related originator of the subject mortgage loan, deposit with the lender a cash reserve in an amount generally equal to 100% to 125% of the estimated cost to complete the remedial measures; or o to monitor the environmental condition and/or to carry out additional testing, in the manner and within the time frame specified in the related loan documents. S-133
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Some borrowers under the mortgage loans have not satisfied all post-closing obligations required by the related loan documents with respect to environmental matters. There can be no assurance that recommended operations and maintenance plans have been or will continue to be implemented. In some cases, the environmental assessment for a mortgaged real property identified potential and, in some cases, significant environmental issues at nearby properties. The resulting environmental report indicated, however, that-- o the mortgaged real property had not been affected or had been minimally affected, o the potential for the problem to affect the mortgaged real property was limited, or o a person responsible for remediation had been identified. The information provided by us in this prospectus supplement regarding environmental conditions at the respective mortgaged real properties is based on the environmental site assessments referred to in this "--Environmental Assessments" subsection and has not been independently verified by-- o us, o any of the other parties to the pooling and servicing agreement, o any of the mortgage loan sellers, o any of the underwriters, or o the affiliates of any of these parties. There can be no assurance that the environmental assessments or studies, as applicable, identified all environmental conditions and risks at, or that any environmental conditions will not have a material adverse effect on the value of or cash flow from, one or more of the mortgaged real properties. See "Risk Factors--Risks Related to the Mortgage Loans--Lending on Income-Producing Real Properties Entails Environmental Risks" in this prospectus supplement. Secured Creditor Environmental Insurance Policy. Certain mortgaged real properties are covered by individual secured creditor impaired property environmental insurance policies. In general, each policy insures the trust fund against losses resulting from certain known and unknown environmental conditions in violation of applicable environmental standards at the subject mortgage real properties during the applicable policy periods, which periods continue at least five years beyond the maturity date of the mortgage loans to which they relate, provided no foreclosure has occurred. Subject to certain conditions and exclusions, each insurance policy, by its terms, generally provides coverage, up to a maximum of 125% of the original loan balance against (i) losses resulting from default under the mortgage loans to which they relate if on site environmental conditions in violation of the applicable environmental standards are discovered at the mortgage real properties during the policy periods and no foreclosures of the mortgaged real properties have taken place, (ii) clean-up costs discovered by the insured resulting from environmental conditions in violation of the applicable environmental standards at or emanating from the mortgaged real properties, and (iii) losses from third-party claims against the trust during the policy period for any losses for bodily injury, property damage or related claim expenses caused by conditions in violation of applicable environmental standards. The premiums for each of the secured creditor impaired property policies described above, have been or, as of the date of initial issuance of the offered certificates, will have been paid in full. We cannot assure you, however, that should environmental insurance be needed, coverage would be available or uncontested, that the terms and conditions of such coverage would be met, that coverage would be sufficient for the claims at issue or that coverage would not be subject to certain deductibles. S-134
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Engineering Assessments. Except as indicated in the following paragraph, in connection with the origination of the mortgage loans, a licensed engineer inspected the related mortgaged real properties except the properties securing the mortgage loans identified on Annex A-1 to this prospectus supplement as loan numbers 115, 151, 152, 159, 160, 165, 171, 176, 191, 197, 198, 199, 201, 203, 209, 210, 213, 214, 215, 216, 217 and 218, to assess the structure, exterior walls, roofing, interior structure and mechanical and electrical systems. The resulting engineering reports were prepared: o in the case of six hundred forty-two (642) mortgaged real properties, representing security for approximately 98.5% of the initial mortgage pool balance, during the 12-month period preceding the cut-off date, The resulting reports indicated deferred maintenance items and/or recommended capital improvements on the mortgaged real properties. Generally, with respect to a majority of the mortgaged real properties, where the engineer's recommended repairs, corrections or replacements were deemed material by the related originator, the related borrowers were required to carry out the necessary repairs, corrections or replacements, and in some instances, to establish reserves, generally in an amount ranging from 100% to 125% of the licensed engineer's estimated cost of the recommended repairs, corrections or replacements to fund deferred maintenance or replacement items that the reports characterized as in need of prompt attention. ASSIGNMENT OF THE MORTGAGE LOANS On or before the date of initial issuance of the offered certificates, each mortgage loan seller will transfer its mortgage loans to us, and we will then transfer all the mortgage loans to the trust. In each case, the transferor will assign the subject mortgage loans, without recourse, to the transferee. In connection with the foregoing transfers, the related mortgage loan seller will be required to deliver the following documents, among others, to the custodian with respect to each of the mortgage loans-- o either: 1. the original promissory note, endorsed without recourse to the order of the trustee or in blank; or 2. if the original promissory note has been lost, a copy of that note, together with a lost note affidavit and indemnity; o the original or a copy of the related mortgage instrument, together with originals or copies of any intervening assignments of that instrument, in each case, unless the particular document has not been returned from the applicable recording office, with evidence of recording or certified by the applicable recording office; o the original or a copy of any separate assignment of leases and rents, together with originals or copies of any intervening assignments of that instrument, in each case, unless the particular document has not been returned from the applicable recording office, with evidence of recording or certified by the applicable recording office; o either: 1. a completed assignment of the related mortgage instrument in favor of the trustee or in blank, in recordable form except for completion of the assignee's name if delivered in blank and except for missing recording information; or 2. a certified copy of that assignment as sent for recording; S-135
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o either: 1. a completed assignment of any separate related assignment of leases and rents in favor of the trustee or in blank, in recordable form except for completion of the assignee's name if delivered in blank and except for missing recording information; or 2. a certified copy of that assignment as sent for recording; o an original or copy of the lender's policy or certificate of title insurance or, if a title insurance policy has not yet been issued or located, a commitment for title insurance, which may be a pro forma policy or a marked version of the policy that has been executed by an authorized representative of the title company or an agreement to provide the same pursuant to binding escrow instructions executed by an authorized representative of the title company; o in those cases where applicable, the original or a copy of the related ground lease; o originals or copies of any consolidation, assumption, substitution and modification agreements in those instances where the terms or provisions of the related mortgage instrument or promissory note have been consolidated or modified or the subject mortgage loan has been assumed; and o a copy of any related letter of credit (the original of which will be required to be delivered to the applicable master servicer). provided that mortgage loan seller may deliver certain documents, including those identified in the third, fourth and fifth bullets, within the 30-day period following the date of issuance of the offered certificates. The custodian is required to hold all of the documents delivered to it with respect to the mortgage loans, in trust for the benefit of the certificateholders. Within a specified period of time following that delivery, the custodian will be further required to conduct a review of those documents. The scope of the custodian's review of those documents will, in general, be limited solely to confirming that those documents have been received. None of the trustee, either master servicer, the special servicer or custodian is under any duty or obligation to inspect, review or examine any of the documents relating to the mortgage loans to determine whether the document is valid, effective, enforceable, in recordable form or otherwise appropriate for the represented purpose. If-- o any of the above-described documents required to be delivered by the respective mortgage loan sellers to the custodian is not delivered or is otherwise defective in the manner contemplated by the pooling and servicing agreement; and o that omission or defect materially and adversely affects the value of, or the interests of the certificateholders in, the subject loan, then the omission or defect will constitute a material document defect as to which the certificateholders will have the rights against us described below under "--Repurchases and Substitutions," provided that no document defect (other than with respect to a mortgage note, mortgage, title insurance policy, ground lease or any letter of credit) will be considered to materially and adversely affect the interests of the certificateholders or the value of the related mortgage loan unless the document with respect to which the document defect exists is required in connection with an imminent enforcement of the lender's rights or remedies under the related mortgage loan, defending any claim asserted by any borrower or third party with respect to the mortgage loan, establishing the validity or priority of any lien on any collateral securing the mortgage loan or for any immediate servicing obligations. S-136
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Within a specified period following the later of-- o the date on which the offered certificates are initially issued; and o the date on which all recording information necessary to complete the subject document is received by the custodian, the custodian or one or more independent third-party contractors retained at the expense of the mortgage loan sellers must submit for recording in the real property records of the applicable jurisdiction each of the assignments of recorded loan documents in the trustee's favor described above. Because most of the mortgage loans are newly originated, many of those assignments cannot be completed and recorded until the related mortgage and/or assignment of leases and rents, reflecting the necessary recording information, is returned from the applicable recording office. REPRESENTATIONS AND WARRANTIES In each mortgage loan purchase agreement, the applicable mortgage loan seller has represented and warranted with respect to each mortgage loan (subject to certain exceptions specified in each mortgage loan purchase agreement), as of the issuance date, or as of such other date specifically provided in the representation and warranty, among other things, generally that: (a) The information relating to the mortgage loan set forth in the loan schedule attached to the related mortgage loan purchase agreement will be true and correct in all material respects as of the cut-off date. (b) Immediately prior to its transfer and assignment of the mortgage loan, it had good title to, and was the sole owner of, the mortgage loan. (c) The related mortgage instrument is a valid and, subject to the exceptions and limitations on enforceability set forth in clause (d) below, enforceable first priority lien upon the related mortgaged real property, prior to all other liens and there are no other liens and/or encumbrances that are pari passu with the lien of the mortgage, in any event subject, however, to the Permitted Encumbrances, which Permitted Encumbrances do not, individually or in the aggregate, materially interfere with the security intended to be provided by the related mortgage, the current principal use of the related mortgaged real property, the value of the mortgaged real property or the current ability of the related mortgaged real property to generate income sufficient to service the mortgage loan. (d) The promissory note, the mortgage instrument and each other agreement executed by or on behalf of the related borrower in connection with the mortgage loan is the legal, valid and binding obligation of the related borrower, subject to any non-recourse provisions contained in any of the foregoing agreements and any applicable state anti-deficiency or market value limit deficiency legislation. In addition, each of the foregoing documents is enforceable against the related borrower in accordance with its terms, except as enforcement may be limited by (1) bankruptcy, insolvency, reorganization, receivership, fraudulent transfer and conveyance or other similar laws affecting the enforcement of creditors' rights generally, (2) general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law, and (3) public policy considerations regarding provisions purporting to provide indemnification for securities law violations, except that certain provisions in those documents may be further limited or rendered unenforceable by applicable law, but, subject to the limitations set forth in the foregoing clauses (1), (2) and (3), such limitations or unenforceability will not render those loan documents invalid as a whole or substantially interfere with the lender's realization of the principal benefits and/or security provided thereby. (e) It has not received notice and has no actual knowledge, of any proceeding pending for the condemnation of all or any material portion of the mortgaged real property for the mortgage loan. S-137
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(f) There exists an American Land Title Association or equivalent form of the lender's title insurance policy (or, if the title policy has yet to be issued, a pro forma policy or a marked up title insurance commitment binding on the title insurer) on which the required premium has been paid, insuring the first priority lien of the related mortgage instrument or, if more than one, mortgage instruments, in the original principal amount of the mortgage loan after all advances of principal, subject only to Permitted Encumbrances, which Permitted Encumbrances do not, individually or in the aggregate, materially interfere with the security intended to be provided by the related mortgage, the current principal use of the related mortgaged real property, the value of the mortgaged real property or the current ability of the related mortgaged real property to generate income sufficient to service the mortgage loan. (g) The proceeds of the mortgage loan have been fully disbursed, except in those cases where the full amount of the mortgage loan has been disbursed, but a portion of the proceeds is being held in escrow or reserve accounts pending satisfaction of specific leasing criteria, repairs or other matters with respect to the related mortgaged real property, and there is no requirement for future advances under the mortgage loan. (h) If the related mortgage instrument is a deed of trust, a trustee, duly qualified under applicable law, has either been properly designated and currently so serves or may be substituted in accordance with the deed of trust and applicable law. (i) Except as identified in the engineering report prepared by an independent engineering consultant obtained in connection with the origination of the mortgage loan (if such a report was prepared), to its knowledge, the related mortgaged real property is in good repair and free and clear of any damage that would materially and adversely affect its value as security for the mortgage loan, except in any such case where an escrow of funds, letter of credit or insurance coverage exists sufficient to effect the necessary repairs and maintenance. In addition to the above-described representations and warranties, each mortgage loan seller will also make additional representations and warranties regarding the mortgage loans being sold by them to depositor, which (subject to certain exceptions specified in each mortgage loan purchase agreement), will include representations and warranties generally to the following effect: o the borrower is obligated to be in material compliance with environmental laws and regulations; o the mortgage loan is eligible to be included in a REMIC; o there are no liens for delinquent real property taxes on the related mortgaged real property; o the related borrower is not the subject of bankruptcy proceedings; o if applicable, a mortgage loan secured by a borrower's leasehold interest contains certain provisions for the benefit of the lender; and o the borrower is obligated to provide financial information regarding the related mortgaged real property on at least an annual basis. REPURCHASES AND SUBSTITUTIONS In the case of (i) a breach of any of the loan-specific representations and warranties in any mortgage loan purchase agreement that materially and adversely affects the value of a mortgage loan or the interests of the certificateholders in that mortgage loan or (ii) a material document defect as described above under "--Assignment of the Mortgage Loans" above, the applicable mortgage loan seller, if it does not cure such breach or defect in all material respects within a period of 90 days following its receipt of notice thereof, is obligated pursuant to the applicable mortgage loan purchase agreement (the relevant rights under which have been assigned by us to the trustee) to either substitute a qualified substitute mortgage loan (so long as that substitution is effected prior to the second anniversary of the Closing Date) and pay any substitution shortfall amount or to repurchase the affected S-138
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mortgage loan within such 90-day period at the purchase price described below; provided that, unless the breach or defect would cause the mortgage loan not to be a qualified mortgage within the meaning of section 860G(a)(3) of the Code, the applicable mortgage loan seller generally has an additional 90-day period to cure such breach or defect if it is diligently proceeding with such cure. Each mortgage loan seller is solely responsible for its repurchase or substitution obligation, and such obligations will not be our responsibility. The purchase price at which a mortgage loan seller will be required to repurchase a mortgage loan as to which there remains an uncured material breach or material document defect, as described above, will be generally equal to the sum (without duplication) of-- o the unpaid principal balance of that mortgage loan at the time of purchase, plus o all unpaid interest due and accrued with respect to that mortgage loan at its mortgage interest rate to, but not including, the due date in the collection period of purchase (exclusive of any portion of that interest that constitutes Additional Interest), plus o all unpaid interest accrued on Advances made under the pooling and servicing agreement with respect to that mortgage loan, plus o all unreimbursed servicing advances made under the pooling and servicing agreement with respect to that mortgage loan, plus o any reasonable costs and expenses, including, but not limited to, the cost of any enforcement action, incurred by the applicable master servicer, the special servicer, the trustee or the trust fund in connection with any such purchase by a mortgage loan seller (to the extent not included in the preceding bullet), plus o other Additional Trust Fund Expenses related to that mortgage loan, including special servicing fees, plus o if the circumstances (which are discussed under "Servicing of the Mortgage Loans--Servicing and Other Compensation and Payment of Expenses--The Principal Recovery Fee") under which a principal recovery fee would be payable to the special servicer are present, a principal recovery fee. If (i) any mortgage loan is required to be repurchased or substituted for in the manner described above, (ii) such mortgage loan is then a Crossed Loan, and (iii) the applicable document defect (including any omission) or breach of a representation and warranty does not constitute a defect or breach, as the case may be, as to any other Crossed Loan in such Crossed Group (without regard to this paragraph), then the applicable defect or breach, as the case may be, will be deemed to constitute a defect or breach, as the case may be, as to any other Crossed Loan in the Crossed Group for purposes of this paragraph, and the related mortgage loan seller will be required to repurchase or substitute for such other Crossed Loan(s) in the related Crossed Group unless (A) the weighted average debt service coverage ratio for all the remaining related Crossed Loans for the four calendar quarters immediately preceding the repurchase or substitution is not less than the weighted average debt service coverage ratio for all such related Crossed Loans, including the affected Crossed Loan, for the four calendar quarters immediately preceding the repurchase or substitution; and (B) the weighted average loan-to-value ratio of the remaining related Crossed Loans determined at the time of repurchase or substitution, based upon an appraisal obtained by the special servicer, is not greater than the weighted average loan-to-value ratio for all such Crossed Loans, including the affected Crossed Loan, at the time of repurchase or substitution. In the event that one or more of such other Crossed Loans satisfy the aforementioned criteria, the mortgage loan seller may elect either to repurchase or substitute for only the affected Crossed Loan as to which the related breach or defect exists or to repurchase or substitute for all of the Crossed Loans in the related Crossed Group. To the extent that the related mortgage loan seller repurchases or substitutes only for an affected Crossed Loan as described in the immediately preceding paragraph while the trustee continues to hold any related Crossed Loans, we and the related mortgage loan seller will agree in the related mortgage loan purchase agreement to forbear from enforcing any remedies against the other's Primary Collateral, but each is permitted to exercise remedies against the Primary Collateral securing its respective affected Crossed Loans, so long as such exercise does not materially impair the ability of the other party to exercise its remedies against its Primary Collateral. If the exercise S-139
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of remedies by one party would materially impair the ability of the other party to exercise its remedies with respect to the Primary Collateral securing the Crossed Loans held by such party, then both parties have agreed in the related mortgage loan purchase agreement to forbear from exercising such remedies until the loan documents evidencing and securing the relevant mortgage loans can be modified to remove the threat of material impairment as a result of the exercise of remedies. Notwithstanding the foregoing discussion, if any mortgage loan is otherwise required to be repurchased or substituted for in the manner described above, as a result of a document defect or breach with respect to one or more mortgaged real properties that secure a mortgage loan that is secured by multiple properties, the related mortgage loan seller will not be required to effect a repurchase or substitution of the subject mortgage loan if-- o the affected mortgaged real property(ies) may be released pursuant to the terms of any partial release provisions in the related loan documents and such mortgaged real property(ies) are, in fact, released, o the remaining mortgaged real property(ies) satisfy the requirements, if any, set forth in the loan documents and the applicable mortgage loan seller provides an opinion of counsel to the effect that such release would not cause either of REMIC I or REMIC II to fail to qualify as a REMIC under the Code or result in the imposition of any tax on prohibited transactions or contributions after the startup day of either REMIC I or REMIC II under the Code, and o the related mortgage loan seller obtains written confirmation from each applicable rating agency that the release will not result in a qualification, downgrade or withdrawal of any of the then-current ratings of the offered certificates. Except with respect to breaches of certain representations regarding the borrower's obligation to pay certain costs (in respect of which the remedy is the payment of costs), the foregoing substitution or repurchase obligation constitutes the sole remedy available to the certificateholders and the trustee for any uncured material breach of any mortgage loan seller's representations and warranties or material document defects regarding its mortgage loans. There can be no assurance that the applicable mortgage loan seller will have the financial resources to repurchase any mortgage loan at any particular time. Each mortgage loan seller is the sole warranting party in respect of the mortgage loans sold to us by such mortgage loan seller, and neither we nor any of our affiliates will be obligated to substitute or repurchase any such affected mortgage loan in connection with a material breach of a mortgage loan seller's representations and warranties or material document defects if such mortgage loan seller defaults on its obligation to do so. CHANGES IN MORTGAGE POOL CHARACTERISTICS The description in this prospectus supplement of the mortgage pool is based upon the mortgage pool as it is expected to be constituted at the time the offered certificates are issued, with adjustments for the monthly debt service payments due on the mortgage loans on or before the cut-off date. Prior to the issuance of the offered certificates, one or more mortgage loans may be removed from the mortgage pool if we consider the removal necessary or appropriate. A limited number of other mortgage loans may be included in the mortgage pool prior to the issuance of the offered certificates, unless including those mortgage loans would materially alter the characteristics of the mortgage pool as described in this prospectus supplement. We believe that the information in this prospectus supplement will be generally representative of the characteristics of the mortgage pool as it will be constituted at the time the offered certificates are issued; however, the range of mortgage interest rates and maturities, as well as the other characteristics of the mortgage loans described in this prospectus supplement, may vary, and the actual initial mortgage pool balance may be as much as 5% larger or smaller than the initial mortgage pool balance specified in this prospectus supplement. A current report on Form 8-K, together with the pooling and servicing agreement, will be filed with the Securities and Exchange Commission and be available to purchasers of the offered certificates on or shortly after the date of initial issuance of the offered certificates. If mortgage loans are removed from or added to the mortgage pool, that removal or addition will be noted in that current report on Form 8-K. S-140
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TRANSACTION PARTICIPANTS THE ISSUING ENTITY In connection with the issuance of the certificates, the issuing entity will be ML-CFC Commercial Mortgage Trust 2007-8, a common law trust created under the laws of the State of New York pursuant to the pooling and servicing agreement. ML-CFC Commercial Mortgage Trust 2007-8 is sometimes referred to in this prospectus supplement and the accompanying base prospectus as the "issuing entity," the "trust" or the "trust fund." We will transfer the mortgage loans to the trust in exchange for the issuance of the certificates to us or at our direction. The trust assets will initially consist of the mortgage loans, any collections of interest or principal thereon that are allocable to the period after the cut-off date but were received on or prior to the date of initial issuance of the certificates, and any related reserve or escrow funds being held pending application as of the date of initial issuance of the certificates. The trust's activities will be limited to the transactions and activities entered into in connection with the securitization described in this prospectus supplement and, except for those activities, the trust will not be authorized and will have no power to borrow money or issue debt, merge with another entity, reorganize, liquidate or sell assets or engage in any business or activities. Consequently, the trust will not be permitted to hold any assets, or incur any liabilities, other than those described in this prospectus supplement. Because the trust will be created pursuant to the pooling and servicing agreement, the trust and its permissible activities can only be amended or modified by amending the pooling and servicing agreement. See "Description of the Governing Documents--Amendment" in the accompanying base prospectus. The fiscal year end of the trust will be December 31. The trust will not have any directors, officers or employees. The trustee, the master servicers and the special servicer will be responsible for administration of the trust assets, in each case to the extent of its duties expressly set forth in the pooling and servicing agreement. Those parties may perform their respective duties directly or through sub-servicers and/or agents. Because the trust fund will be a common law trust, it may not be eligible for relief under the federal bankruptcy laws, unless it can be characterized as a "business trust" for purposes of the federal bankruptcy laws. Bankruptcy courts look at various considerations in making this determination, so it is not possible to predict with any certainty whether or not the trust would be characterized as a "business trust." THE DEPOSITOR We are Merrill Lynch Mortgage Investors, Inc., the depositor for the series 2007-8 securitization transaction. We will acquire the mortgage loans from the sponsors and the other mortgage loan seller and will transfer the mortgage loans to the trust. At this time, we are only engaged in the securitization of mortgage loans of the type described in the accompanying base prospectus. The accompanying base prospectus contains a more detailed description of us under the heading "The Depositor." THE SPONSORS AND MORTGAGE LOAN SELLERS MERRILL LYNCH MORTGAGE LENDING, INC. Merrill Lynch Mortgage Lending, Inc. ("MLML"), our affiliate, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters and an affiliate of Merrill Lynch Capital Services, Inc., the swap counterparty, is one of the sponsors and mortgage loan sellers. MLML has been originating and/or acquiring multifamily and commercial mortgage loans for securitization since 1994. S-141
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The table below indicates the size and growth of MLML's commercial mortgage loan securitization program: MERRILL LYNCH MORTGAGE LENDING US LOAN SECURITIZATION/SALE (IN MILLIONS) 2004 2005 2006 YTD 2007 -------- -------- -------- -------- Fixed Rate Loans $1,965.7 $5,252.1 $6,525.0 $3,122.8 Floating Rate Loans 532.0 1,515.5 2,235.0 318.5 -------- -------- -------- -------- TOTAL $2,497.7 $6,767.6 $8,760.0 $3,441.3 For additional information regarding MLML, see "The Sponsor" in the accompanying base prospectus. COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. Countrywide Commercial Real Estate Finance, Inc. ("CRF") is a California corporation with its principal offices located in Calabasas, California. CRF is a wholly owned direct subsidiary of Countrywide Capital Markets, Inc., which is a wholly owned direct subsidiary of Countrywide Financial Corporation. Countrywide Financial Corporation, through its subsidiaries, provides mortgage banking and diversified financial services in domestic and international markets. Founded in 1969, Countrywide Financial Corporation is headquartered in Calabasas, California. CRF is an affiliate of Countrywide Securities Corporation, one of the underwriters and a registered broker dealer specializing in underwriting, buying, and selling mortgage backed debt securities. CRF is also an affiliate of Countrywide Home Loans, Inc. ("CHL"), a New York corporation headquartered in Calabasas, CA. CHL is engaged primarily in the mortgage banking business, and as part of that business, originates, purchases, sells and services mortgage loans. CHL originates mortgage loans through a retail branch system and through mortgage loan brokers and correspondents nationwide. Mortgage loans originated or serviced by CHL are principally first lien, fixed or adjustable rate mortgage loans secured by single family residences. CHL and its consolidated subsidiaries, including Countrywide Servicing, service substantially all of the mortgage loans CHL originates or acquires. In addition, Countrywide Servicing has purchased in bulk the rights to service mortgage loans originated by other lenders. CRF was founded in 2004 and originates and purchases from other lenders, commercial and multifamily mortgage loans for the purpose of securitizing them in commercial mortgage backed securitization ("CMBS") transactions. CRF also engages in the origination, and/or buying and selling, of mortgages and other interests related to commercial real estate for investment and other purposes. Neither CRF, CHL, Countrywide Servicing nor any of their affiliates services the commercial and multifamily loans that CRF originates or acquires for securitization in CMBS transactions. The table below indicates the size and growth of CRF's commercial mortgage loan origination program: COUNTRYWIDE COMMERCIAL REAL ESTATE LOAN ORIGINATION (IN MILLIONS) THROUGH 2004 2005 2006 6/30/07(1) TOTAL ------ -------- -------- ---------- --------- Fixed Rate Loans $358.4 $3,564.2 $4,488.3 $3,843.7 $12,254.6 Floating Rate Loans $ 0 $ 360.6 $1,182.6 $839.4 $2,382.6 ------ -------- -------- ---------- --------- TOTAL $358.4 $3,924.8 $5,670.9 $4,683.1 $14,637.2 _______________ (1) Does not include the series 2007-8 securitization. CRF's Securitization Program. CRF originates multifamily and commercial mortgage loans throughout the United States since 2004 and may potentially originate abroad. CRF originates both fixed and floating rate multifamily and commercial mortgage loans. To date, substantially all of the multifamily and commercial mortgage loans contributed to commercial mortgage securitizations by CRF have been originated, directly or through correspondents, by CRF. S-142
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In the normal course of its securitization program, CRF, may also acquire multifamily and commercial mortgage loans from various third party originators. These mortgage loans may have been originated using underwriting guidelines not established by CRF. The trust fund relating to a series of offered certificates may include mortgage loans originated by one or more of these third parties. CRF may also originate multifamily and commercial mortgage loans in conjunction with third party correspondents and, in those cases, the third party correspondents may perform the underwriting based on various criteria established or reviewed by CRF, and CRF would originate the subject mortgage loan on a specified closing date prior to inclusion in the subject securitization. In connection with its commercial mortgage securitization transactions, CRF generally transfers the subject mortgage assets to a depositor, who then transfers those mortgage assets to the issuing entity for the related securitization. The issuing entity issues commercial mortgage pass through certificates backed by, and supported by the cash flows generated by, those mortgage assets. CRF and its affiliates also work with rating agencies, unaffiliated mortgage loan sellers and servicers in structuring the securitization transaction. Neither CRF nor any of its affiliates acts as servicer of any multifamily or commercial mortgage loan in the commercial mortgage securitizations for which it contributes these loans. Instead, CRF and/or the applicable depositor contract with other entities to service the multifamily and commercial mortgage loans following their transfer into a trust fund established with respect to a series of certificates. In connection with CRF contributing mortgage loans to a commercial mortgage securitization transaction, CRF may be obligated, specifically with respect to the mortgage loans that it is contributing, generally pursuant to a mortgage loan purchase agreement or other comparable agreement, to: o deliver various specified loan documents; o file and/or record or cause a third party to file and/or record on its behalf various specified loan documents and assignments of those documents; and o make various loan specific representations and warranties. If it is later determined that any mortgage asset contributed by CRF fails to conform to the specified representations and warranties or there is a defect in or an omission with respect to certain specified mortgage loan documents related to that mortgage asset, which breach, defect or omission, as the case may be, is determined to have a material adverse effect on the value of the subject mortgage asset or such other standard as is described in the related prospectus supplement, then after being notified, CRF will generally have an obligation to cure the subject defect, omission or breach or to repurchase or, under certain circumstances, substitute the subject mortgage asset. The table below indicates the size and growth of CRF's commercial mortgage loan securitization program: COUNTRYWIDE COMMERCIAL REAL ESTATE LOAN SECURITIZATION/SALE (IN MILLIONS) 2005 2006 THROUGH 6/30/2007(1) TOTAL -------- -------- ------------------- --------- Fixed Rate Loans $2,911.5 $4,240.3 $3,327.6 $10,479.4 Floating Rate Loans 102.1 335.7 324.4 762.2 -------- -------- ------------------- --------- TOTAL $3,013.6 $4,576.0 $3,652.0 $11,241.6 ________________ (1) Does not include the series 2007-8 securitization. CRF's Underwriting Standards. Set forth below is a discussion of certain general underwriting guidelines of CRF with respect to multifamily and commercial mortgage loans originated by CRF. The underwriting guidelines described below may not apply to multifamily and commercial mortgage loans acquired by CRF from third party originators. Notwithstanding the discussion below, given the unique nature of income producing real properties, the underwriting and origination procedures and the credit analysis with respect to any particular multifamily or S-143
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commercial mortgage loan may differ significantly from one asset to another, and will be driven by circumstances particular to that property, including, among others, its type, current use, physical quality, size, environmental condition, location, market conditions, capital reserve requirements and additional collateral, tenants and leases, borrower identity, borrower sponsorship and/or performance history. Consequently, there can be no assurance that the underwriting of any particular multifamily or commercial mortgage loan will conform to the general guidelines described in this "--CRF's Underwriting Standards" section. 1. LOAN ANALYSIS. CRF performs both a credit analysis and a collateral analysis with respect to each multifamily and commercial mortgage loan it originates. The credit analysis of the borrower may include a review of third party credit reports, reports resulting from judgment, lien, bankruptcy and pending litigation searches and, if applicable, the loan payment history of the borrower and its principals. Generally, borrowers are required to be single purpose entities, although exceptions may be made from time to time on a case by case basis. The collateral analysis includes an analysis, in each case to the extent available, of historical property operating statements, a current rent roll, a budget and a projection of future performance and a review of tenant leases. Depending on the type of real property collateral involved and other relevant circumstances, CRF's underwriting staff and/or legal counsel will review leases of significant tenants. CRF may also perform a limited qualitative review with respect to certain tenants located at the real property collateral, particularly significant tenants, credit tenants and sole tenants. CRF generally requires third party appraisals, as well as environmental reports, building condition reports and, if applicable, seismic reports. Each report is reviewed for acceptability by a CRF staff member or a third party reviewer. The results of these reviews are incorporated into the underwriting report. 2. LOAN APPROVAL. Prior to commitment, all multifamily and commercial mortgage loans to be originated by CRF must be approved by the CRF credit committee, which is comprised of representatives of CRF and its affiliates. The requirements of the committee vary by loan size. The committee may approve a mortgage loan as presented, request additional due diligence, modify the loan terms or decline a loan transaction. 3. DEBT SERVICE COVERAGE RATIO. The repayment of a multifamily or commercial mortgage loan is typically dependent upon the successful operation of the related real property collateral and the ability of that property to generate income sufficient to make debt service payments on the loan. Accordingly, in connection with the origination of any multifamily or commercial mortgage loan, CRF will analyze whether cash flow expected to be derived from the subject real property collateral will be sufficient to make the required payments under that mortgage loan, taking into account, among other things, revenues and expenses for, and other debt currently secured by, or that in the future may be secured by, the subject real property collateral as well as debt secured by pledges of the ownership interests in the related borrower. The debt service coverage ratio of a multifamily or commercial mortgage loan is an important measure of the likelihood of default on the loan. In general, the debt service coverage ratio of a multifamily or commercial mortgage loan at any given time is the ratio of-- o the amount of income, net of operating expenses and capital expenditures, derived or expected to be derived from the related real property collateral for a given period that is available to pay debt service on the subject mortgage loan, to o the sum of the scheduled payments of principal and/or interest during that given period required to be paid (i) on the subject mortgage loan under the related loan documents and (ii) on any other loan that is secured by a lien of senior or equal priority on the related real property collateral. However, the amount described in the first bullet of the preceding sentence is often a highly subjective number based on variety of assumptions regarding, and adjustments to, revenues and expenses with respect to the related real property collateral. S-144
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For example, when calculating the debt service coverage ratio for a multifamily or commercial mortgage loan, CRF may utilize annual net cash flow that was calculated based on assumptions regarding projected rental income, expenses and/or occupancy, including, without limitation, one or more of the following: o the assumption that a particular tenant at the subject real property collateral that has executed a lease, but has not yet taken occupancy and/or has not yet commenced paying rent, will take occupancy and commence paying rent on a future date; o the assumption that an unexecuted lease that is currently being negotiated with respect to a particular tenant at the subject real property collateral or is out for signature will be executed and in place on a future date; o the assumption that a portion of currently vacant and unleased space at the subject real property collateral will be leased at current market rates and consistent with occupancy rates of comparable properties in the subject market; o the assumption that certain rental income that is to be payable commencing on a future date under a signed lease, but where the subject tenant is in an initial rent abatement or free rent period or has not yet taken occupancy, will be paid commencing on such future date; o assumptions regarding the probability of renewal of particular leases and/or the re leasing of certain space at the subject real property collateral and the anticipated effect on capital and re leasing expenditures; and o various additional lease up assumptions and other assumptions regarding the payment of rent not currently being paid. There is no assurance that the foregoing assumptions made with respect to any prospective multifamily or commercial mortgage loan will, in fact, be consistent with actual property performance. Generally, the debt service coverage ratio for multifamily and commercial mortgage loans originated by CRF, calculated as described above, will be equal to or greater than 1.20:1 (subject to the discussion under "--Additional Debt" below); however, exceptions may be made when consideration is given to circumstances particular to the mortgage loan or related real property collateral. For example, CRF may originate a multifamily or commercial mortgage loan with a debt service coverage ratio below 1.20:1 based on, among other things, the amortization features of the mortgage loan (for example, if the mortgage loan provides for relatively rapid amortization) the type of tenants and leases at the subject real property collateral, the taking of additional collateral such as reserves, letters of credit and/or guarantees, CRF's judgment of improved property performance in the future and/or other relevant factors. In addition, CRF may originate a multifamily loan on a property in what is considered by CRF to be a strong market at a debt service coverage ratio that is lower than 1.20:1. 4. LOAN TO VALUE RATIO. CRF also looks at the loan to value ratio of a prospective multifamily or commercial mortgage loan as one of the factors it takes into consideration in evaluating the likelihood of recovery if a property is liquidated following a default. In general, the loan to value ratio of a multifamily or commercial mortgage loan at any given time is the ratio, expressed as a percentage, of-- o the sum of the then outstanding principal balance of the subject mortgage loan and any other loans that are secured by liens of senior or equal priority on the related real property collateral, to o the estimated as is or as stabilized value of the related real property collateral based on an appraisal, a cash flow analysis, a recent sales price or another method or benchmark of valuation. Generally, the loan to value ratio for multifamily and commercial mortgage loans originated by CRF, calculated as described above, will be equal to or less than 81% (subject to the discussion under "--Additional Debt" below); however, exceptions may be made when consideration is given to circumstances particular to the mortgage loan or related real property collateral. For example, CRF may originate a multifamily or commercial mortgage loan with a loan to value ratio above 81% based on, among other things, the amortization features of the S-145
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mortgage loan (for example, if the mortgage loan provides for relatively rapid amortization), the type of tenants and leases at the subject real property collateral, the taking of additional collateral such as reserves, letters of credit and/or guarantees, CRF or the appraiser's judgment of improved property performance in the future and/or other relevant factors. 5. ADDITIONAL DEBT. When underwriting a multifamily or commercial mortgage loan, CRF will take into account whether the subject real property collateral and/or direct or indirect interest in a related borrower are encumbered by additional debt and will analyze the likely effect of that additional debt on repayment of the subject mortgage loan. It is possible that CRF or an affiliate will be the lender on that additional debt. The debt service coverage ratio described above under "--Debt Service Coverage Ratio" and the loan to value ratio described above under "--Loan to Value Ratio" may be below 1.20:1 and above 81%, respectively, based on the existence of additional debt secured by the related real property collateral or directly or indirectly by equity interests in the related borrower. 6. ASSESSMENTS OF PROPERTY CONDITION. As part of the underwriting process, CRF will analyze the condition of the real property collateral for a prospective multifamily or commercial mortgage loan. To aid in that analysis, CRF may, subject to certain exceptions, inspect or retain a third party to inspect the property and will obtain the property assessments and reports described below. (a) Appraisals. CRF will, in most cases, require that the real property collateral for a prospective multifamily or commercial mortgage loan be appraised by a state certified appraiser or an appraiser belonging to the Appraisal Institute, a membership association of professional real estate appraisers. In addition, CRF will generally require that those appraisals be conducted in accordance with the Uniform Standards of Professional Appraisal Practices developed by The Appraisal Foundation, a not for profit organization established by the appraisal profession. Furthermore, the appraisal report will usually include or be accompanied by a separate letter that includes a statement by the appraiser that the guidelines in Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 were followed in preparing the appraisal. In some cases, however, CRF may establish the value of the subject real property collateral based on a cash flow analysis, a recent sales price or another method or benchmark of valuation. (b) Environmental Assessment. CRF may require a Phase I environmental assessment with respect to the real property collateral for a prospective multifamily or commercial mortgage loan. However, when circumstances warrant, CRF may utilize an update of a prior environmental assessment or a desktop review. Alternatively, CRF might forego an environmental assessment in limited circumstances, such as when it requires the borrowers or its principal to obtain an environmental insurance policy or an environmental guarantee. Furthermore, an environmental assessment conducted at any particular real property collateral will not necessarily cover all potential environmental issues. For example, an analysis for radon, lead based paint and lead in drinking water will usually be conducted only at multifamily rental properties and only when CRF or the environmental consultant believes that such an analysis is warranted under the circumstances. Depending on the findings of the initial environmental assessment, CRF may require additional record searches or environmental testing, such as a Phase II environmental assessment with respect to the subject real property collateral. (c) Engineering Assessment. In connection with the origination process, CRF may require that an engineering firm inspect the real property collateral for any prospective multifamily or commercial mortgage loan to assess the structure, exterior walls, roofing, interior structure and/or mechanical and electrical systems. Based on the resulting report, CRF will determine the appropriate response to any recommended repairs, corrections or replacements and any identified deferred maintenance. (d) Seismic Report. If the subject real property collateral includes any material improvements and is located in California or in seismic zones 3 or 4, CRF may require a report to establish the probable maximum or bounded loss for the improvements at the property as a result of an earthquake. If that loss is equal to or greater than 20% of the estimated replacement cost for the improvements at S-146
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the property, CRF may require retrofitting of the improvements or that the borrower obtain earthquake insurance if available at a commercially reasonable price. It should be noted, however, that in assessing probable maximum loss different assumptions may be used with respect to each seismic assessment, it is possible that some of the real properties that were considered unlikely to experience a probable maximum loss in excess of 20% of estimated replacement cost might have been the subject of a higher estimate had different assumptions been used. 7. ZONING AND BUILDING CODE COMPLIANCE. In connection with the origination of a multifamily or commercial mortgage loan, CRF will generally examine whether the use and occupancy of the related real property collateral is in material compliance with zoning, land use, building rules, regulations and orders then applicable to that property. Evidence of this compliance may be in the form of one or more of the following: legal opinions; surveys; recorded documents; temporary or permanent certificates of occupancy; letters from government officials or agencies; title insurance endorsements; engineering or consulting reports; zoning reports; and/or representations by the related borrower. Where a property as currently operated is a permitted non conforming use and/or structure and the improvements may not be rebuilt to the same dimensions or used in the same manner in the event of a major casualty, CRF will analyze whether-- o any major casualty that would prevent rebuilding has a sufficiently remote likelihood of occurring; o casualty insurance proceeds together with the value of any additional collateral would be available in an amount estimated by CRF to be sufficient to pay off the related mortgage loan in full; o the real property collateral, if permitted to be repaired or restored in conformity with current law, would in CRF's judgment constitute adequate security for the related mortgage loan; and/or o to require the related borrower to obtain law and ordinance insurance (which may or may not be adequate to cover any potential related loss). 8. ESCROW REQUIREMENTS. Based on its analysis of the real property collateral, the borrower and the principals of the borrower, CRF may require a borrower under a multifamily or commercial mortgage loan to fund various escrows for taxes and/or insurance, capital expenses, replacement reserves and/or environmental remediation. CRF conducts a case by case analysis to determine the need for a particular escrow or reserve. Consequently, the aforementioned escrows and reserves are not established for every multifamily and commercial mortgage loan originated by CRF. Furthermore, CRF may accept an alternative to a cash escrow or reserve from a borrower, such as a letter of credit or a guarantee from the borrower or an affiliate of the borrower or periodic evidence that the items for which the escrow or reserve would have been established are being paid or addressed. In certain situations, CRF may not require any reserves or escrows. Notwithstanding the foregoing discussion under this "--CRF's Underwriting Standards" section, CRF may sell mortgage loans to the depositor for inclusion in the trust fund that vary from, or do not comply with, CRF's underwriting guidelines. In addition, in some cases, CRF's and/or its affiliates may not have strictly applied these underwriting guidelines as the result of a case by case permitted exception based upon other compensating factors. KEYBANK NATIONAL ASSOCIATION. KeyBank Nation Association ("KeyBank") is a national banking association that is a wholly-owned subsidiary of KeyCorp (NYSE: KEY). KeyBank is the parent of KeyCorp Real Estate Capital Markets, Inc., one of the master servicers and is an affiliate of KeyBanc Capital Markets Inc., one of the underwriters. KeyBank maintains its primary offices at Key Tower, 127 Public Square, Cleveland, Ohio 44114, and its telephone number is (216) 689-6300. KeyBank has approximately 950 banking centers located in 13 states. As of March 31, 2007, KeyBank had total assets of approximately $89.408 billion, total liabilities (including minority interest in consolidated subsidiaries) of approximately $82.512 billion and approximately $6.896 billion in stockholder's equity. KeyBank provides financial services, including commercial real estate financing, throughout the United States. In 2006, KeyBank's Real Estate Capital Group originated a total of $16.0 billion in construction, development, permanent and private equity loans from 32 offices nationwide. Of this total, $3.3 billion was S-147
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originated for sale through commercial mortgage-backed securities (CMBS) transactions, acquisition by Fannie Mae or Freddie Mac, or sale to life insurance companies and pension funds. KeyBank began selling commercial mortgage loans into CMBS transactions in 2000. KeyBank's commercial mortgage loans that are originated for sale into a CMBS transaction (or through a sale of whole loan interests to third party investors) are generally fixed rate and are secured primarily by retail, office, multifamily, industrial, self-storage, and hospitality properties. As of December 31, 2006, KeyBank had originated approximately $8.2 billion of commercial mortgage loans that have been securitized in 33 securitization transactions. The following table sets forth information for the past three years regarding the amount of commercial mortgage loans that KeyBank (i) originated for the purposes of securitization in CMBS transactions and (ii) actually securitized in CMBS transactions (which amounts include mortgage loans that were originated or purchased by KeyBank). YEAR LOANS ORIGINATED LOANS SECURITIZED ------------------- ---------------- ----------------- 2006 (in billions) $2.221 $1.905 2005 (in billions) $1.385 $1.323 2004 (in billions) $1.213 $1.099 Generally, KeyBank originates the commercial mortgage loans that it contributes to CMBS transactions. However, if KeyBank purchases mortgage loans from third-party originators (which mortgage loans may have been originated using underwriting guidelines not established by KeyBank), KeyBank re-underwrites those mortgage loans and performs other procedures to ascertain the quality of those mortgage loans, which procedures are subject to approval by a credit officer of KeyBank. KeyBank originates commercial mortgage loans and, together with other sponsors or loan sellers, participates in a securitization by transferring the mortgage loans to an unaffiliated securitization depositor, which then transfers the mortgage loans to the issuing entity for the related securitization. KeyBank initially selects the mortgage loans that it will contribute to the securitization, but it has no input on the mortgage loans contributed by other sponsors or loan sellers. KeyBank generally participates in securitizations with multiple mortgage loan sellers and an unaffiliated depositor. KeyBank's wholly-owned subsidiary, KeyCorp Real Estate Capital Markets, Inc., acts as the primary servicer of KeyBank's commercial mortgage loans that are securitized and in most cases, including this transaction, acts as a master servicer for securitizations in which KeyBank participates. Other than the securitization of commercial mortgage loans, KeyBank securitizes federal and private student loans that it originates or purchases from third parties. KeyBank's Underwriting Standards General. Set forth below is a general discussion of certain of KeyBank's underwriting guidelines for originating commercial mortgage loans. KeyBank also generally applies these underwriting guidelines when it re-underwrites commercial mortgage loans acquired from third-party originators. KeyBank generally does not outsource to third parties any credit underwriting decisions or originating duties other than those services performed by providers of environmental, engineering and appraisal reports and other related consulting services. The underwriting and origination procedures and credit analysis described below may vary from one commercial mortgage loan to another based on the unique circumstances of the related commercial property (including its type, current use, size, location, market conditions, tenants and leases, performance history and/or other factors), and KeyBank may, on a case-by-case basis, permit exceptions to its underwriting guidelines based upon other compensating factors. Consequently, there can be no assurance that the underwriting of any particular underlying mortgage loan sold into this transaction by KeyBank strictly conformed to the general guidelines described in this "--KeyBank's Underwriting Standards" section. Loan Analysis. KeyBank generally performs both a credit analysis and a collateral analysis for each commercial mortgage loan as well as a site inspection of the related real property collateral. The credit analysis of the borrower generally includes a review of third-party credit reports and/or judgment, lien, bankruptcy and pending litigation searches as well as searches to determine OFAC and PATRIOT Act compliance. Generally, borrowers of S-148
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loans greater than $4.0 million are required to be special-purpose entities, although exceptions are made on a case-by-case basis. The collateral analysis generally includes an analysis, in each case to the extent available and applicable, of the historical property operating statements, rent rolls and a review of certain significant tenant leases. KeyBank's credit underwriting also generally includes a review of third-party appraisals, as well as environmental reports, property condition reports and seismic reports, if applicable. Loan Approval. Prior to commitment, all commercial mortgage loans to be originated or purchased by KeyBank must be approved by a dedicated credit officer of KeyBank. The credit officer may approve a mortgage loan as recommended, request additional due diligence, modify the loan terms or decline a loan transaction. Debt Service Coverage Ratio and Loan-to-Value Ratio. KeyBank's underwriting includes a calculation of the debt service coverage ratio (DSCR) in connection with the origination of a commercial mortgage loan. The DSCR will generally be calculated based on the underwritten net cash flow from the subject property as determined by KeyBank and payments on the mortgage loan based on actual principal and/or interest due on the mortgage loan. However, underwritten net cash flow is a subjective number based on a variety of assumptions regarding, and adjustments to, revenues and expenses with respect to the related real property collateral, and there is no assurance that those assumptions or adjustments will, in fact, be consistent with actual property performance. KeyBank's underwriting also generally includes a calculation of the loan-to-value ratio of a prospective commercial mortgage loan in connection with its origination. In general, the loan-to-value ratio of a commercial mortgage loan at any given time is the ratio, expressed as a percentage, of (i) the then outstanding principal balance of the mortgage loan, to (ii) the estimated value of the related real property collateral based on an appraisal. See also the discussion of "UW Net Cash Flow" in the "Glossary" to this prospectus supplement and "Annex A-1 Characteristics of the Mortgage Loans" and "Annex A-2 Certain Statistical Information Regarding the Mortgage Loans" in this prospectus supplement. Property Assessments. As part of its underwriting process, KeyBank will obtain the following property assessments. Appraisals. KeyBank will require independent appraisals in connection with the origination of each commercial mortgage loan that meet the requirements of the "Uniform Standards of Professional Appraisal Practice" as adopted by the Appraisal Standards Board of the Appraisal Foundation and the guidelines in Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. Environmental Assessment. KeyBank will require a Phase I environmental assessment with respect to the real property collateral for a prospective commercial mortgage loan. However, when circumstances warrant, KeyBank may utilize an update of a prior environmental assessment, a transaction screen or a desktop review. Depending on the findings of the initial environmental assessment, KeyBank may require additional environmental testing, such as a Phase II environmental assessment with respect to the subject real property collateral, an environmental insurance policy, an escrow of funds or a guaranty or indemnity with respect to environmental matters. Property Condition Assessment. KeyBank will require that an engineering firm inspect the real property collateral for any prospective commercial mortgage loan to assess the structure, exterior walls, roofing, interior structure and/or mechanical and electrical systems. Based on the resulting report, KeyBank will determine the appropriate response to any recommended repairs, corrections or replacements and any identified deferred maintenance. Seismic Report. If the subject real property collateral includes any material improvements and is located in California or in seismic zones 3 or 4, KeyBank may require a report to establish the probable maximum or bounded loss for the improvements at the property as a result of an earthquake. If that loss is in excess of 20% of the estimated replacement cost for the improvements at the property, KeyBank may require retrofitting of the improvements or that the borrower obtain earthquake insurance if available at a commercially reasonable price. Zoning and Building Code Compliance. KeyBank will generally examine whether the use and occupancy of the subject real property collateral securing a commercial mortgage loan is in material compliance with zoning, land-use, building rules, regulations and orders then applicable to that property. Evidence of this compliance may be in the form of one or more of the following: legal opinions; surveys; recorded documents; temporary or S-149
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permanent certificates of occupancy; letters from government officials or agencies; title insurance endorsements; engineering, appraisal or consulting reports; and/or representations by the related borrower. Escrow Requirements. Based on its analysis of the real property collateral, the borrower and the principals of the borrower, KeyBank may require a borrower under a commercial mortgage loan to fund various escrows for taxes and/or insurance, capital expenses, replacement reserves, potential re-tenanting expenses and/or environmental remediation. KeyBank conducts a case-by-case analysis to determine the need for a particular escrow or reserve. Consequently, the aforementioned escrows and reserves are not established for every multifamily and commercial mortgage loan originated by KeyBank. Furthermore, KeyBank may accept an alternative to a cash escrow or reserve from a borrower, such as a letter of credit or a guarantee or periodic evidence that the items for which the escrow or reserve would have been established are being paid or addressed. Notwithstanding the foregoing discussion under this "--KeyBank's Underwriting Standards" section, the depositor may purchase underlying mortgage loans for inclusion in the issuing entity that vary from, or do not comply with, KeyBank's underwriting guidelines. THE MASTER SERVICERS AND THE SPECIAL SERVICER KEYCORP REAL ESTATE CAPITAL MARKETS, INC. KeyCorp Real Estate Capital Markets, Inc. ("KRECM") will be a master servicer under the series 2007-8 pooling and servicing agreement. KRECM will act as the master servicer with respect to the mortgage loans acquired by us from Merrill Lynch Mortgage Lending, Inc. and KeyBank National Association. KRECM is an Ohio corporation that is a wholly-owned subsidiary of KeyBank National Association, one of the mortgage loan sellers and a sponsor, and an affiliate of KeyBanc Capital Markets Inc., one of the underwriters. KeyBank National Association and KeyBanc Capital Markets Inc. are both wholly-owned subsidiaries of KeyCorp. KRECM maintains servicing offices at 911 Main Street, Suite 1500, Kansas City, Missouri 64105 and 1717 Main Street, Suite 1000, Dallas, Texas 75201. KRECM has been engaged in the servicing of commercial mortgage loans since 1995 and commercial mortgage loans originated for securitization since 1998. The following table sets forth information about KRECM's portfolio of master or primary serviced commercial mortgage loans as of the dates indicated. LOANS 12/31/2004 12/31/2005 12/31/2006 ----------------------------------------------------------- ------------ -------------- --------------- By Approximate Number: 5,345 11,218 11,322 By Approximate Aggregate Principal Balance (in billions): $34.094 $73.692 $94.726 Within this servicing portfolio are, as of December 31, 2006, approximately 9,384 loans with a total principal balance of approximately $70 billion that are included in approximately 116 commercial mortgage-backed securitization transactions. KRECM's servicing portfolio includes mortgage loans secured by multifamily, office, retail, hospitality and other types of income-producing properties that are located throughout the United States. KRECM also services newly-originated commercial mortgage loans and mortgage loans acquired in the secondary market for issuers of commercial and multifamily mortgage-backed securities, financial institutions and a variety of investors and other third-parties. Based on the aggregate outstanding principal balance of loans being serviced as of December 31, 2006, the Mortgage Bankers Association of America ranked KRECM the fifth largest commercial mortgage loan servicer in terms of total master and primary servicing volume. KRECM is approved as a master servicer, primary servicer and special servicer for commercial mortgage-backed securities rated by Moody's, S&P and Fitch. Moody's does not assign specific ratings to servicers. KRECM is on S&P's Select Servicer list as a U.S. Commercial Mortgage Master Servicer, and S&P has assigned to KRECM the rating of STRONG as a master servicer, primary servicer and special servicer. Fitch has assigned to KRECM the ratings of CMS1- as a master servicer, CPS1- as a primary servicer and CSS2+ as a special servicer. S&P's and Fitch's ratings of a servicer are based on an examination of many factors, including the servicer's financial condition, management team, organizational structure and operating history. No securitization transaction involving commercial mortgage loans in which KRECM is or has been acting as master servicer has experienced a master servicer event of default as a result of any action or inaction of KRECM as master servicer, including as a result of KRECM's failure to comply with the applicable servicing criteria in connection with any securitization transaction. S-150
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KRECM's servicing system utilizes a mortgage-servicing technology platform with multiple capabilities and reporting functions. This platform allows KRECM to process mortgage servicing activities including: (i) performing account maintenance; (ii) tracking borrower communications; (iii) tracking real estate tax escrows and payments, insurance escrows and payments, replacement reserve escrows and operating statement data and rent rolls; (iv) entering and updating transaction data; and (v) generating various reports. KRECM generally uses the CMSA format to report to trustees of commercial mortgage-backed securities (CMBS) transactions and maintains a website (www.Key.com/Key2CRE) that provides access to reports and other information to investors in CMBS transactions for which KRECM is a master servicer. Certain duties and obligations of the master servicer and the provisions of the series 2007-8 pooling and servicing agreement are described in this prospectus supplement under "Servicing of the Mortgage Loans." KRECM's ability to waive or modify any terms, fees, penalties or payments on the underlying mortgage loans and the effect of that ability on the potential cash flows from the underlying mortgage loans are described in the prospectus supplement under "Servicing of the Mortgage Loans--The Controlling Class Representative and the Loan Combination Controlling Parties"; "--Enforcement of Due-on-Sale and Due-on-Encumbrance Provisions"; and "--Modifications, Waivers, Amendments and Consents." The master servicer's obligations to make debt service advances and/or servicing advances, and the interest or other fees charged for those advances and the terms of the master servicer's recovery of those advances, are described in this prospectus supplement under "Description of the Offered Certificates--Advances of Delinquent Monthly Debt Service Payments and Reimbursement of Advances" and "Servicing of the Mortgage Loans --Required Appraisals" and "--Servicing and Other Compensation and Payment of Expenses." KRECM will not have primary responsibility for the custody of original documents evidencing the underlying mortgage loans. Rather, the trustee acts as custodian of the original documents evidencing the underlying mortgage loans. But on occasion, KRECM may have custody of certain original documents as necessary for enforcement actions involving particular mortgage loans or otherwise. To the extent KRECM performs custodial functions as the master servicer, original documents will be maintained in a manner consistent with the Servicing Standard. Certain terms of the series 2007-8 pooling and servicing agreement regarding the master servicer's removal, replacement, resignation or transfer are described in this prospectus supplement under "Servicing of the Mortgage Loans--Events of Default" and "--Rights Upon Event of Default." The manner in which collections on the underlying mortgage loans are to be maintained is described under "Servicing of the Mortgage Loans--Collection Accounts" in this prospectus supplement. Generally, all amounts received by KRECM on the underlying mortgage loans are initially deposited into a common clearing account with collections on other commercial mortgage loans serviced by KRECM and are then allocated and transferred to the appropriate account described under "Servicing of the Mortgage Loans--Collection Accounts" in this prospectus supplement within the time required by the series 2007-8 pooling and servicing agreement. Similarly, KRECM generally transfers any amount that is to be disbursed to a common disbursement account on the day of the disbursement. KRECM maintains the accounts it uses in connection with servicing commercial mortgage loans with its parent company, KeyBank National Association. The following table sets forth the ratings assigned to KeyBank National Association's long-term deposits and short-term deposits. S&P FITCH MOODY'S ---------- ---------- --------- Long-Term Deposits: A A A1 Short-Term Deposits: A-1 F1 P-1 KRECM believes that its financial condition will not have any material adverse effect on the performance of its duties under the series 2007-8 pooling and servicing agreement and, accordingly, will not have any material adverse impact on the mortgage pool performance or the performance of the series 2007-8 certificates. There are currently no legal proceedings pending, and no legal proceedings known to be contemplated by governmental authorities, against KRECM or of which any of its property is the subject, that is material to the series 2007-8 certificateholders. S-151
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KRECM has developed policies, procedures and controls for the performance of its master servicing obligations in compliance with applicable servicing agreements, servicing standards and the servicing criteria set forth in Item 1122 of Regulation AB. These policies, procedures and controls include, among other things, procedures to (i) notify borrowers of payment delinquencies and other loan defaults, (ii) work with borrowers to facilitate collections and performance prior to the occurrence of a servicing transfer event, and (iii) if a servicing transfer event occurs as a result of a delinquency, loss, bankruptcy or other loan default, transfer the subject loan to the special servicer. KRECM's servicing policies and procedures for the servicing functions it will perform under the series 2007-8 pooling and servicing agreement for assets of the same type included in the series 2007-8 securitization transaction are updated periodically to keep pace with the changes in the CMBS industry. For example, KRECM has, in response to changes in federal or state law or investor requirements, (i) made changes in its insurance monitoring and risk-management functions as a result of the Terrorism Risk Insurance Act of 2002 and (ii) established a website where investors and mortgage loan borrowers can access information regarding their investments and mortgage loans. Otherwise, KRECM's servicing policies and procedures have been generally consistent for the last three years in all material respects. KRECM is, as the master servicer, generally responsible for both master servicing functions and primary servicing functions with respect to the underlying mortgage loans it is obligated to service under the series 2007-8 pooling and servicing agreement. However, KRECM will be permitted to appoint one or more subservicers to perform all or any portion of its primary servicing functions under the series 2007-8 pooling and servicing agreement, as further described in this prospectus supplement under "Servicing of the Mortgage Loans--Sub-Servicers." At the request of certain of the mortgage loan sellers, KRECM intends to appoint two (2) subservicers to perform primary servicing functions for certain underlying mortgage loans or groups of underlying mortgage loans (in each case aggregating less than 10% of the initial mortgage pool balance) pursuant to subservicing agreements that will require and entitle the respective subservicers to handle collections, hold escrow and reserve accounts and respond to and make recommendations regarding assignments and assumptions and other borrower requests. In addition, KRECM may from time to time perform some of its servicing obligations under the series 2007-8 pooling and servicing agreement through one or more third-party vendors that provide servicing functions such as tracking and reporting of flood zone changes, performing UCC searches or filing UCC financing statements and amendments. KRECM will, in accordance with its internal procedures and applicable law, monitor and review the performance of the subservicers that it appoints and any third-party vendors retained by it to perform servicing functions. KRECM is not an affiliate of the depositor, the sponsors (other than KeyBank National Association), the issuing entity, the special servicer, the trustee, or any originator of any of the underlying mortgage loans identified in this prospectus supplement (other than KeyBank National Association). The information set forth in this prospectus supplement concerning KRECM has been provided by it. KRECM will make no representations as to the validity or sufficiency of the series 2007-8 pooling and servicing agreement, the series 2007-8 certificates, the underlying mortgage loans or this prospectus supplement. See also "Servicing of the Mortgage Loans--General," "--Servicing and Other Compensation and Payment of Expenses," "--Enforcement of Due-on-Sale and Due-on-Encumbrance Provisions," "--Modifications, Waivers, Amendments and Consents," "--Required Appraisals," "--Collection Accounts" and "--Inspections; Collection of Operating Information" below in this prospectus supplement. WELLS FARGO BANK, NATIONAL ASSOCIATION. Wells Fargo Bank, National Association ("Wells Fargo Bank") will act as master servicer with respect to those mortgage loans acquired by us from Countrywide Commercial Real Estate Finance, Inc. and transferred by us to the trust. Certain servicing and administration functions will also be provided by one or more primary servicers that previously serviced the mortgage loans for the applicable mortgage loan seller. Wells Fargo Bank has originated and serviced commercial mortgage loans since before 1975 and has serviced securitized commercial mortgage loans since 1993. Wells Fargo Bank is approved as a master servicer, primary servicer and special servicer for commercial mortgage-backed securities rated by Moody's, S&P and Fitch. S-152
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Moody's does not assign specific ratings to servicers. S&P has assigned to Wells Fargo Bank the ratings of STRONG as a primary servicer and as a master servicer and ABOVE AVERAGE as a special servicer. Fitch has assigned to Wells Fargo Bank the ratings of CMS2 as a master servicer, CPS1 as a primary servicer and CSS1 as a special servicer. S&P's and Fitch's ratings of a servicer are based on an examination of many factors, including the servicer's financial condition, management team, organizational structure and operating history. As of March 31, 2007, the commercial mortgage servicing group of Wells Fargo Bank was responsible for servicing approximately 12,165 commercial and multifamily mortgage loans with an aggregate outstanding principal balance of approximately $107.8 billion, including approximately 10,812 loans securitized in approximately 97 commercial mortgage-backed securitization transactions with an aggregate outstanding principal balance of approximately $103.0 billion, and also including loans owned by institutional investors and government sponsored entities such as Freddie Mac. The properties securing these loans are located in all 50 states and include retail, office, multifamily, industrial, hospitality and other types of income-producing properties. According to the Mortgage Bankers Association of America, as of December 31, 2006, Wells Fargo Bank was the fourth largest commercial mortgage servicer in terms of the aggregate outstanding principal balance of loans being master and/or primary serviced in commercial mortgage-backed securitization transactions. Wells Fargo Bank has developed policies, procedures and controls for the performance of its master servicing obligations in compliance with applicable servicing agreements, servicing standards and the servicing criteria set forth in Item 1122 of Regulation AB. These policies, procedures and controls include, among other things, measures for notifying borrowers of payment delinquencies and other loan defaults and for working with borrowers to facilitate collections and performance prior to the occurrence of a Servicing Transfer Event. A Wells Fargo Bank proprietary website (www.wellsfargo.com/com/comintro) provides investors with access to investor reports for commercial mortgage-backed securitization transactions for which Wells Fargo Bank is master servicer. Wells Fargo Bank may appoint one or more sub-servicers to perform all or any portion of its duties under the pooling and servicing agreement. Wells Fargo Bank monitors and reviews the performance of sub-servicers appointed by it. Wells Fargo Bank has received an issuer rating of "Aaa" from Moody's. Wells Fargo Bank's long term deposits are rated "Aaa" by Moody's, "AA" by S&P and "AA+" by Fitch. Wells Fargo & Company is the holding company for Wells Fargo Bank. Wells Fargo & Company files reports with the Securities and Exchange Commission as required under the Securities Exchange Act of 1934, as amended. Such reports include information regarding Wells Fargo Bank and may be obtained at the website maintained by the Securities and Exchange Commission at www.sec.gov. There are no legal proceedings pending against Wells Fargo Bank, or to which any property of Wells Fargo Bank is subject, that are material to the certificateholders, nor does Wells Fargo Bank have actual knowledge of any proceedings of this type contemplated by governmental authorities. THE SPECIAL SERVICER MIDLAND LOAN SERVICES, INC. Midland Loan Services, Inc. ("Midland") will be the special servicer and in this capacity will initially be responsible for the servicing and administration of the specially serviced mortgage loans and REO properties pursuant to the pooling and servicing agreement. Midland is a Delaware corporation and a wholly-owned subsidiary of PNC Bank, National Association. Midland is an affiliate of a company that is the external manager of an entity that may be the initial controlling class representative/directing certificateholder under the pooling and servicing agreement. Midland's principal servicing office is located at 10851 Mastin Street, Building 82, Suite 300, Overland Park, Kansas 66210. Midland is a real estate financial services company that provides loan servicing, asset management and technology solutions for large pools of commercial and multifamily real estate assets. Midland is approved as a master servicer, special servicer and primary servicer for investment-grade commercial and multifamily mortgage- S-153
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backed securities ("CMBS") by S&P, Moody's and Fitch. Midland has received the highest rankings as a master, primary and special servicer of real estate assets under U.S. CMBS transactions from both S&P and Fitch. S&P ranks Midland as "Strong" and Fitch ranks Midland as "1" for each category. Midland is also a HUD/FHA-approved mortgagee and a Fannie Mae-approved multifamily loan servicer. Midland has detailed operating procedures across the various servicing functions to maintain compliance with its servicing obligations and the servicing standards under Midland's servicing agreements, including procedures for managing delinquent and special serviced loans. The policies and procedures are reviewed annually and centrally managed and available electronically within Midland's Enterprise!(R) Loan Management System. Furthermore Midland's disaster recovery plan is reviewed annually. Midland will not have primary responsibility for custody services of original documents evidencing the underlying mortgage loans. Midland may from time to time have custody of certain of such documents as necessary for enforcement actions involving particular mortgage loans or otherwise. To the extent that Midland has custody of any such documents for any such servicing purposes, such documents will be maintained in a manner consistent with the servicing standard. No securitization transaction involving commercial or multifamily mortgage loans in which Midland was acting as master servicer, primary servicer or special servicer has experienced a servicer event of default as a result of any action or inaction of Midland as master servicer, primary servicer or special servicer, as applicable, including as a result of Midland's failure to comply with the applicable servicing criteria in connection with any securitization transaction. Midland has made all advances required to be made by it under the servicing agreements on the commercial and multifamily mortgage loans serviced by Midland in securitization transactions. From time-to-time Midland is a party to lawsuits and other legal proceedings as part of its duties as a loan servicer (e.g., enforcement of loan obligations) and/or arising in the ordinary course of business. Midland does not believe that any such lawsuits or legal proceedings would, individually or in the aggregate, have a material adverse effect on its business or its ability to service loans pursuant to the pooling and servicing agreement. Midland currently maintains an Internet-based investor reporting system, CMBS Investor Insight(R), that contains performance information at the portfolio, loan and property levels on the various commercial mortgage-backed securities transactions that it services. Certificateholders, prospective transferees of the certificates and other appropriate parties may obtain access to CMBS Investor Insight through Midland's website at www.midlandls.com. Midland may require registration and execution of an access agreement in connection with providing access to CMBS Investor Insight. As of June 30, 2007, Midland was servicing approximately 24,550 commercial and multifamily mortgage loans with a principal balance of approximately $222 billion. The collateral for such loans is located in all 50 states, the District of Columbia, Puerto Rico, Guam and Canada. Approximately 17,250 of such loans, with a total principal balance of approximately $149 billion, pertain to commercial and multifamily mortgage-backed securities. The related loan pools include multifamily, office, retail, hospitality and other income-producing properties. As of June 30, 2007, Midland was named the special servicer in approximately 141 commercial mortgage-backed securities transactions with an aggregate outstanding principal balance of approximately $107 billion. With respect to such transactions as of such date, Midland was administering approximately 98 assets with an outstanding principal balance of approximately $351 million. Midland has been servicing mortgage loans in commercial mortgage-backed securities transactions since 1992. The table below contains information on the size and growth of the portfolio of commercial and multifamily mortgage loans in commercial mortgaged-backed securities and other servicing transactions for which Midland has acted as master and/or primary servicer from 2004 to 2006. S-154
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CALENDAR YEAR END (APPROXIMATE AMOUNTS IN BILLIONS) ---------------------------------------------- PORTFOLIO GROWTH - MASTER/PRIMARY 2004 2005 2006 ------------------------- --------- ---------- ---------- CMBS $70 $104 $139 Other $28 $ 32 $ 61 Total $98 $136 $200 Midland has acted as a special servicer for commercial and multifamily mortgage loans in commercial mortgage-backed securities transactions since 1992. The table below contains information on the size and growth of the portfolio of specially serviced commercial and multifamily mortgage loans and REO properties that have been referred to Midland as special servicer in commercial mortgage-backed securities transaction from 2004 to 2006. CALENDAR YEAR END (APPROXIMATE AMOUNTS IN BILLIONS) -------------------------------------------- PORTFOLIO GROWTH - CMBS SPECIAL SERVICING 2004 2005 2006 ------------------------- --------- ---------- ---------- Total $49 $65 $89 THE TRUSTEE LaSalle Bank National Association ("LaSalle") will act as trustee under the pooling and servicing agreement, on behalf of the certificateholders. In addition, LaSalle will act as custodian on behalf of the trustee. The trustee's corporate trust office is located at 135 South LaSalle Street, Suite 1625, Chicago, Illinois, 60603. Attention: Global Securities and Trust Services--ML-CFC Commercial Mortgage Trust 2007-8 or at such other address as the trustee may designate from time to time. LaSalle is a national banking association formed under the federal laws of the United States of America. Its parent company, LaSalle Bank Corporation, is an indirect subsidiary of ABN AMRO Bank N.V., a Netherlands banking corporation. On April 22, 2007, ABN AMRO Holding N.V. agreed to sell ABN AMRO North America Holding Company, the indirect parent of LaSalle Bank National Association, to Bank of America Corporation. The proposed sale currently includes all parts of the Global Securities and Trust Services Group within LaSalle Bank engaged in the business of acting as trustee, securities administrator, master servicer, custodian, collateral administrator, securities intermediary, fiscal agent and issuing and paying agent in connection with securitization transactions. The contract between ABN AMRO Bank N.V. and Bank of America Corporation was filed on Form 6-K with the Securities and Exchange Commission on April 25, 2007. The contract provides that the sale of LaSalle Bank is subject to regulatory approvals and other customary closing conditions. LaSalle has extensive experience serving as trustee on securitizations of commercial mortgage loans. Since 1994, LaSalle has served as trustee or paying agent on over 700 commercial mortgage-backed security transactions involving assets similar to the mortgage loans to be included in the trust. As of June 30, 2007, LaSalle served as trustee or paying agent in over 470 commercial mortgage-backed security transactions. The long-term unsecured debt of LaSalle is rated "A+" by S&P, "Aa3" by Moody's and "AA-" by Fitch. The depositor, the master servicers, the special servicer and the trustee may maintain other banking relationships in the ordinary course of business with the trustee. In its capacity as custodian, LaSalle will hold the mortgage loan files exclusively for the use and benefit of the trust. The custodian will not have any duty or obligation to inspect, review or examine any of the documents, instruments, certificates or other papers relating to the mortgage loans delivered to it to determine that the same are valid. The disposition of the mortgage loan files will be governed by the pooling and servicing agreement. LaSalle provides custodial services on over 1100 residential, commercial and asset-backed securitization transactions and maintains almost 3.0 million custodial files in its two vault locations in Elk Grove, Illinois and Irvine, California. LaSalle's two vault locations can maintain a total of approximately 6 million custody files. All custody files are segregated and maintained in secure and fire resistant facilities in compliance with customary industry standards. The vault construction complies with Fannie Mae/Ginnie Mae guidelines applicable to document custodians. LaSalle maintains disaster recovery protocols to ensure the preservation of custody files in the event of force S-155
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majeure and maintains, in full force and effect, such fidelity bonds and/or insurance policies as are customarily maintained by banks which act as custodians. LaSalle uses unique tracking numbers for each custody file to ensure segregation of collateral files and proper filing of the contents therein and accurate file labeling is maintained through a monthly reconciliation process. LaSalle uses a proprietary collateral review system to track and monitor the receipt and movement internally or externally of custody files and any release or reinstatement of collateral. Using information set forth in this prospectus supplement, the trustee will develop the cashflow model for the trust. Based on the monthly loan information provided by the master servicers, the trustee will calculate the amount of principal and interest to be paid to each class of certificates on each Distribution Date. In accordance with the cashflow model and based on the monthly loan information provided by the master servicers, the master servicers will perform distribution calculations, remit distributions on the Distribution Date to certificateholders and prepare a monthly statement to certificateholders detailing the payments received and the activity on the Mortgage Loans during the collection period. In performing these obligations, the trustee will be able to conclusively rely on the information provided to it by the master servicers, and the trustee will not be required to recompute, recalculate or verify the information provided to it by the master servicers. There are no legal proceedings pending against LaSalle, or to which any property of LaSalle is subject, that is material to the certificateholders, nor does LaSalle have actual knowledge of any proceedings of this type contemplated by governmental authorities. In addition to having express duties under the pooling and servicing agreement, the trustee, as a fiduciary, also has certain duties unique to fiduciaries under applicable law. In general, the trustee will be subject to certain federal laws and, because the pooling and servicing agreement is governed by New York law, certain New York state laws. As a national bank acting in a fiduciary capacity, the trustee will, in the administration of its duties under the pooling and servicing agreement, be subject to certain regulations promulgated by the Office of the Comptroller of the Currency, specifically those set forth in Chapter 12, Part 9 of the Code of Federal Regulations. New York common law has required fiduciaries of common law trusts formed in New York to perform their duties in accordance with the "prudent person" standard, which, in this transaction, would require the trustee to exercise such diligence and care in the administration of the trust as a person of ordinary prudence would employ in managing his own property. However, under New York common law, the application of this standard of care can be restricted contractually to apply only after the occurrence of a default. The pooling and servicing agreement provides that the trustee is subject to the prudent person standard only for so long as an event of default has occurred and remains uncured. See also "Description of the Governing Documents--The Trustee," "--Duties of the Trustee," "--Matters Regarding the Trustee" and "--Resignation and Removal of the Trustee" in the accompanying base prospectus. AFFILIATIONS AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We, the depositor, are affiliated with the following parties: (i) Merrill Lynch Mortgage Lending, Inc, a sponsor and mortgage loan seller, (ii) Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters and (iii) Merrill Lynch Capital Services, Inc., the swap counterparty Merrill Lynch Mortgage Lending, Inc., a sponsor and mortgage loan seller, is affiliated with the following parties: (i) Merrill Lynch Mortgage Investors, Inc, the depositor, (ii) Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters and (iii) Merrill Lynch Capital Services, Inc., the swap counterparty. Countrywide Commercial Real Estate Finance, Inc., a sponsor and mortgage loan seller, is affiliated with Countrywide Securities Corporation, one of the underwriters. KeyBank National Association, a sponsor and mortgage loan seller, is affiliated with KeyCorp Real Estate Capital Markets, Inc., one of the master servicers and KeyBanc Capital Markets Inc., one of the underwriters. Midland Loan Services, Inc., the special servicer, is an affiliate of a company that is the external manager of an entity that may be the initial controlling class representative. S-156
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LaSalle Bank National Association and Merrill Lynch Mortgage Lending, Inc. ("MLML") are parties to a custodial agreement whereby LaSalle, for consideration, provides custodial services to MLML for certain commercial mortgage loans originated or purchased by it. Pursuant to this custodial agreement, LaSalle is currently providing custodial services for most of the mortgage loans to be sold by MLML to the depositor in connection with this securitization. The terms of the custodial agreement are customary for the commercial mortgage-backed securitization industry providing for the delivery, receipt, review and safekeeping of mortgage loan files. SERVICING OF THE MORTGAGE LOANS GENERAL Except as described below, the servicing of the mortgage loans in the trust will be governed by the pooling and servicing agreement. This section contains summary descriptions of some of the provisions of the pooling and servicing agreement relating to the servicing and administration of the mortgage loans and any real estate owned by the trust. You should also refer to the accompanying base prospectus, in particular the section captioned "Description of the Governing Documents" for additional important information regarding provisions of the pooling and servicing agreement that relate to the rights and obligations of the master servicers and the special servicer. The servicing of the Georgia-Alabama Retail Portfolio Loan Combination will be governed exclusively by the Other Pooling and Servicing Agreement and the Georgia-Alabama Retail Portfolio Intercreditor Agreement. All decisions, consents, waivers, approvals and other actions in respect of the Georgia-Alabama Retail Portfolio Loan Combination will be effected in accordance with the Other Pooling and Servicing Agreement. Consequently, the servicing provisions set forth herein will not be applicable to the Georgia-Alabama Retail Portfolio Loan Combination, the servicing of which will instead be governed by the Other Pooling and Servicing Agreement. The servicing standards under the Other Pooling and Servicing Agreement are substantially similar to the Servicing Standard under the pooling and servicing agreement. The pooling and servicing agreement provides that the master servicers and the special servicer must each service and administer the mortgage loans and any real estate owned by the trust for which it is responsible, directly or through sub-servicers, in accordance with-- o any and all applicable laws; and o the express terms of the pooling and servicing agreement and the respective mortgage loans. Furthermore, to the extent consistent with the preceding paragraph, the master servicers and the special servicer must each service and administer the mortgage loans and any real estate owned by the trust for which it is responsible in accordance with the Servicing Standard. In general, the master servicers will be responsible for the servicing and administration of-- o all mortgage loans as to which no Servicing Transfer Event has occurred; and o all worked out mortgage loans as to which no new Servicing Transfer Event has occurred. The special servicer, on the other hand, will be responsible for the servicing and administration of each mortgage loan as to which a Servicing Transfer Event has occurred and which has not yet been worked out with respect to that Servicing Transfer Event. The special servicer will also be responsible for the administration of each mortgaged real property that has been acquired by the trust with respect to a defaulted mortgage loan through foreclosure, deed-in-lieu of foreclosure or otherwise. Despite the foregoing, the pooling and servicing agreement will require each master servicer to continue to receive payments and prepare certain reports to the trustee required to be prepared with respect to any specially serviced mortgage loans that were previously non-specially serviced mortgage loans it was responsible for servicing and, otherwise, to render other incidental services with respect to any specially serviced mortgage loans and REO S-157
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Properties. None of the masters servicers or the special servicer will have responsibility for the performance by either of the other servicers of its respective obligations and duties under the pooling and servicing agreement. The applicable master servicer will transfer servicing of a mortgage loan to the special servicer upon the occurrence of a Servicing Transfer Event with respect to that mortgage loan. The special servicer will return the servicing of the subject mortgage loan to the applicable master servicer, and that mortgage loan will be considered to have been worked out, if and when all Servicing Transfer Events with respect to that mortgage loan cease to exist as described in the definition of "Servicing Transfer Event" in the glossary to this prospectus supplement, in which event that mortgage loan would be considered to be a worked out mortgage loan. The Farallon Portfolio Loan Combination, Executive Hills Portfolio Loan Combination, Peninsula Beverly Hills Loan Combination and the MezzCap B-Note Non-Trust Loans will be serviced by the applicable master servicer and the special servicer in accordance with the pooling and servicing agreement and the related Loan Combination Intercreditor Agreement. SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES The Master Servicing Fee. The principal compensation to be paid to each master servicer with respect to its master servicing activities will be the related master servicing fee. With respect to each master servicer, the master servicing fee: o will be earned with respect to each and every mortgage loan in the trust that it is responsible for servicing as of the date of the initial issuance of the certificates, including-- 1. each such mortgage loan, if any, that becomes a specially serviced mortgage loan; and 2. each such mortgage loan, if any, as to which the corresponding mortgaged real property has become REO Property; and o in the case of each applicable mortgage loan, will-- 1. be calculated on the same interest accrual basis as that mortgage loan, which will be any of a 30/360 Basis or an Actual/360 Basis (except in the case of partial periods of less than a month, when it will be calculated on the basis of the actual number of days elapsed in that partial period and a 360-day year); 2. accrue at the related master servicing fee rate; 3. accrue on the same principal amount as interest accrues or is deemed to accrue from time to time with respect to that mortgage loan; and 4. be payable (a) monthly from amounts received with respect to interest on that mortgage loan and/or (b) if the subject mortgage loan and any related REO Property has been liquidated, out of general collections on the mortgage pool. Subject to certain conditions, the master servicers are each entitled, under the pooling and servicing agreement, to receive, or to assign or pledge to any qualified institutional buyer or institutional accredited investor (other than a Plan), an excess servicing strip, which is a portion of the master servicing fee. If a master servicer resigns or is terminated as a master servicer, it (or its assignee) will continue to be entitled to receive the excess servicing strip and will be paid that excess servicing strip (except to the extent that any portion of that excess servicing strip is needed to compensate any successor master servicer for assuming its duties as a master servicer under the pooling and servicing agreement). We make no representation or warranty regarding whether, following any resignation or termination of a master servicer, (a) any holder of the excess servicing strip would dispute the trustee's determination that any portion of the excess servicing strip was necessary to compensate a successor master servicer or (b) the ability of the trustee to successfully recapture the excess servicing strip or any portion of that strip S-158
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from any holder of the excess servicing strip, in particular if that holder were the subject of a bankruptcy or insolvency proceeding. The master servicing fee rate with respect to the mortgage loans varies on a loan-by-loan basis and ranges from 0.02% per annum to 0.10% per annum. The weighted average master servicing fee rate for the mortgage pool was 0.02829% per annum as of the cut-off date. That master servicing fee rate includes any sub-servicing fee rate payable to any third-party servicers that sub-service or primary service the loans on behalf of a master servicer. Investment Income. Each master servicer will be authorized, but not required, to invest or direct the investment of funds held in its collection account, or in any and all accounts maintained by it that are escrow and/or reserve accounts, only in Permitted Investments. See "--Collection Account" below. Each master servicer will be entitled to retain any interest or other income earned on those funds, in general, and will be required (subject to certain exceptions set forth in the pooling and servicing agreement) to cover any losses of principal from its own funds. The special servicer will be authorized, but not required, to invest or direct the investment of funds held in its REO account in Permitted Investments. See "--REO Properties" below. The special servicer will be entitled to retain any interest or other income earned on those funds, in general, and will be required (subject to certain exceptions set forth in the pooling and servicing agreement) to cover any losses of principal from its own funds without any right to reimbursement. Prepayment Interest Shortfalls. The pooling and servicing agreement provides that, if any Prepayment Interest Shortfalls are incurred by reason of voluntary principal prepayments being made by borrowers with respect to any mortgage loans (other than specially serviced mortgage loans) during any collection period (other than principal prepayments made out of insurance proceeds, condemnation proceeds or liquidation proceeds and other than following a material default), the applicable master servicer must make a nonreimbursable payment with respect to the related distribution date in an amount equal to the lesser of: o the total amount of those Prepayment Interest Shortfalls incurred with respect to mortgage loans master serviced by that master servicer; and o the sum of the following components of that master servicer's total servicing compensation for that same collection period-- 1. that portion of the master servicing fees that represents an accrual at a rate of 0.01% per annum; and 2. the total amount of Prepayment Interest Excesses that were collected by that master servicer during the subject collection period; provided, however, that if a Prepayment Interest Shortfall occurs as a result of the applicable series 2007-8 master servicer's allowing the related borrower to deviate from the terms of the related loan documents regarding principal prepayments (other than (a) subsequent to a material default under the related loan documents, (b) pursuant to applicable law or a court order, or (c) at the request or with the consent of the special servicer or the controlling class representative), then, for purposes of determining the payment that the applicable master servicer will be required to make to cover that Prepayment Interest Shortfall, the reference to "master servicing fee" in clause 1 of the second bullet of this paragraph will be construed to include the entire master servicing fee payable to that master servicer for that same collection period, inclusive of any portion payable to a third-party primary servicer, and the amount of any investment income earned by that master servicer on the related principal prepayment while on deposit in its collection account. No other master servicing compensation will be available to cover Prepayment Interest Shortfalls, and the applicable master servicer's obligation to make payments to cover Prepayment Interest Shortfalls in respect of a particular collection period will not carry over to any following collection period. In addition, the applicable master servicer will be required to apply any Prepayment Interest Excesses with respect to a particular collection period, that are not otherwise used to cover Prepayment Interest Shortfalls as described above, to cover any shortfalls in interest caused as a result of the prepayment of a mortgage loan by the application of a condemnation award or S-159
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casualty insurance proceeds, in each case that are actually received, in reduction of the subject mortgage loan's principal balance. Any payments made by the master servicers with respect to any distribution date to cover Prepayment Interest Shortfalls will be included among the amounts payable as principal and interest on the certificates on that distribution date as described under "Description of the Offered Certificates--Payments" in this prospectus supplement. If the aggregate amount of the payments made by the master servicers with respect to any distribution date to cover Prepayment Interest Shortfalls is less than the total of all the Prepayment Interest Shortfalls incurred with respect to the mortgage pool during the related collection period, then the resulting Net Aggregate Prepayment Interest Shortfall will be allocated among the respective interest-bearing classes of the certificates (other than the class X certificates), in reduction of the interest payable on those certificates, as and to the extent described under "Description of the Offered Certificates--Payments--Payments of Interest" in this prospectus supplement. Principal Special Servicing Compensation. The principal compensation to be paid to the special servicer with respect to its special servicing activities will be-- o the special servicing fee; o the workout fee; and o the principal recovery fee. The Special Servicing Fee. The special servicing fee: o will be earned with respect to-- 1. each specially serviced mortgage loan (other than the Georgia-Alabama Retail Portfolio Trust Mortgage Loan, for which such fee will be earned by the special servicer under the Other Pooling and Servicing Agreement), if any; and 2. each mortgage loan, if any, as to which the corresponding mortgaged real property has become REO Property; and o with respect to each such mortgage loan, will-- 1. be calculated on the same interest accrual basis as that mortgage loan, which will be any of a 30/360 Basis or an Actual/360 Basis (except in the case of partial periods of less than a month, when it will be calculated on the basis of the actual number of days elapsed in that partial period and a 360-day year); 2. accrue at a special servicing fee rate of 0.25% per annum; 3. accrue on the same principal amount as interest accrues or is deemed to accrue from time to time on that mortgage loan; and 4. will be payable monthly from related liquidation proceeds, insurance proceeds and condemnation proceeds and then from general collections on all the mortgage loans and any REO Properties, that are on deposit in the master servicers' collection accounts from time to time. The Workout Fee. The special servicer will, in general, be entitled to receive a workout fee with respect to each specially serviced mortgage loan that has been worked out by it. The workout fee will be payable out of, and will be calculated by application of a workout fee rate of 1.0% to, each collection of interest and principal received on the subject mortgage loan for so long as it remains a worked out mortgage loan. The workout fee with respect to any worked out mortgage loan will cease to be payable if a new Servicing Transfer Event occurs with respect to the mortgage loan. However, a new workout fee would become payable if the mortgage loan again became a worked out mortgage loan with respect to that new Servicing Transfer Event. If the special servicer is terminated or resigns, S-160
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it will retain the right to receive any and all workout fees payable with respect to those mortgage loans that became worked out mortgage loans during the period that it acted as special servicer and remained (and with respect to those mortgage loans that, subject to the conditions set forth in the pooling and servicing agreement, were about to become) worked out mortgage loans at the time of its termination or resignation. The successor special servicer will not be entitled to any portion of those workout fees. Although workout fees are intended to provide the special servicer with an incentive to better perform its duties, the payment of any workout fee will reduce amounts payable to the certificateholders. The Principal Recovery Fee. Except as described in the following paragraph, the special servicer will be entitled to receive a principal recovery fee with respect to: (a) each specially serviced mortgage loan (other than the Georgia-Alabama Retail Portfolio Trust Mortgage Loan)(or any replacement mortgage loan substituted for it) for which the special servicer obtains a full or discounted payoff from the related borrower; and (b) any specially serviced mortgage loan or REO Property (other than the Georgia-Alabama Retail Portfolio Trust Mortgage Loan and any related REO Property) as to which the special servicer receives any liquidation proceeds, insurance proceeds or condemnation proceeds. The principal recovery fee will be payable from any full or discounted payoff, liquidation proceeds, insurance proceeds or condemnation proceeds. As to each such specially serviced mortgage loan and REO Property, the principal recovery fee will be payable from, and will be calculated by application of a principal recovery fee rate of 1.0% to, the related payment or proceeds. Notwithstanding anything to the contrary described in the prior paragraph, no principal recovery fee will be payable based on, or out of, payments or proceeds received in connection with: o the repurchase or replacement of any mortgage loan by a loan seller for a breach of representation or warranty or for defective or deficient loan documentation, as described under "Description of the Mortgage Pool--Repurchases and Substitutions" in this prospectus supplement within the time period (or extension thereof) provided for such repurchase or replacement or, if such repurchase or replacement occurs after such time period, if the mortgage loan seller was acting in good faith to resolve such breach or defect, within such further period that will not end beyond the date that is one hundred twenty (120) days following the end of the initial time period, which is ninety (90) days, provided for such repurchase or replacement; o except as described under "--Realization Upon Defaulted Mortgage Loans" below with respect to certain assignees, the pur