Springing Cash Management Agreement

As explained below, there are different types of Lockbox accounts. Reserve accounts are usually book sub-accounts of the Lockbox account. The bank for each operating account, Lockbox account and cash management account may be equal or different, although it is fairly typical that Lockbox Bank and Cash Management Bank are identical. Some lenders require that one or more of the accounts be opened with the lender. Timing Is Everything One problem to mention is that both hard and soft lockbox can create cash flow problems due to the timing of rental income and the mortgage payment due date. He can take the Lockbox bank one to three days after receiving the rent payments to provide the funds. In addition, the Lockbox Bank wire at Lender/Servicer must be installed one day in advance, effectively eliminating a day from the time bar. In essence, this means that if a loan has a payment date on the fifth day of the month, it is likely that the rents must be paid before the first or second day of the month to be used for that month`s payment. We usually see that the money is “captured” from these accounts until next month, because the funds have not been repaid on time. The lender should obtain a DACA from each third-party bank from which the borrower has a deposit account. A deposit bank that signs a DACA agrees to follow the lender`s instructions regarding the borrower`s money paid, without the borrower taking further action or the borrower`s agreement. Such an agreement gives the lender “control” of the deposit account required for perfection under the UCC.

As is clear now, a “Springing” lock-box offers the lender any security. Hard Lockbox: The borrower has no control over cash flow. Here`s how it works: all rents pass through the lender-controlled account and are then transferred to the cash management account. Tenants are ordered to pay rent directly into the lender`s controlled account or, in the case of a dwelling or hotel, rent must be paid into the account controlled after receipt by the administrator. On the date of payment, funds are transferred from the cash management account to the lender to service the debt and compensate the borrower for the monthly operating costs. Excess cash flow from the property is generally used in a cash guarantee, TI/LC or a fiduciary replacement reserve.