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Master Loan Participation & Servicing Agreement

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MASTER LOAN PARTICIPATION AND
SERVICING AGREEMENT


This Master Loan Participation and Servicing Agreement (the "Agreement") is entered into by and among Specialty Mortgage Trust, Inc., a Maryland corporation, (Beneficiary") and Gonzo Financial, Inc. a Nevada corporation ("Gonzo"), with reference to the following facts:


A. Beneficiary desires that Gonzo service certain real estate and other loans (the "Loans") evidenced by various loan documents (the "Loan Documents"), which may include, without limitation, promissory notes (the "Notes"), secured by security agreements and deeds of trust (the "Deed of Trust") encumbering certain real property and other collateral (the "Collateral").


B. The parties hereto desire to set forth the terms and conditions for the servicing of the Loans by Gonzo.


Based upon the foregoing, and in consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:


1. Loan Participation and Ownership. Beneficiary agrees that, subject to the satisfaction of all conditions to the funding of the respective Loans, Beneficiary's ownership of the respective Loans shall be as set forth in a certificate of participation (the "Participation Certificate") to be executed by Beneficiary upon funding of Beneficiary's share of each respective Loan in the form of the Participation Certificate attached hereto as Exhibit "A" or as otherwise agreed by Beneficiary and the other participants (the "Participants") in the Loans. The percentage ownership interests of the Participants in the Loans are hereafter referred to as the participants' "Participation Percentages." Ownership in the Loans shall include participation in the commitment to make the Loans, the principal and interest of the Loans, the Loan


-1- 2 Documents, and any Collateral for the Loans, all for the prorata account, benefit and risk of the Participants in accordance with their relative Participation Percentages. Beneficiary shall be vested, upon funding of the respective Loans as set forth in Article 2., to the extent of its relative Participation Percentage, with beneficial ownership of and equitable title to the Loans and all documents of every nature relating to the Loans. The interest of Beneficiary and the other Participants in the Loans shall be of equal priority unless otherwise agreed by the Participants.


2. Loan Fundings. Beneficiary agrees to fund its proportionate share of the Loans in accordance with its relative Participation Percentage in each Loan. The determination of the satisfaction of all funding conditions for the Loans shall be made by Gonzo, in accordance with the terms of this Agreement. Upon notice from Gonzo that the conditions of the Loan Documents for the particular Loan have been satisfied, Beneficiary agrees to fund the Loan by sending cash payment, in immediately available funds, to Gonzo or as designated not later than 12:00 p.m. P.S.T. on the day immediately following receipt of the funding notice.


3. Disclaimer of Warranties; Risk of Loss. Except as set forth herein, no representations and warranties are made with respect to the Loans and all Loan participations shall be made without recourse to Gonzo, its shareholders, directors, officers, agents, representatives, and assigns. All losses in the Loans shall be borne by Beneficiary in accordance with its Participation Percentage in the respective Loan. Beneficiary hereby agrees to pay its respective prorata share (based upon relative Participation Percentages) of any and all losses, damages, expenses or claims or demands, including reasonable counsel fees incurred in investigating or defending the same and caused by, relating to, arising out of, resulting from, or in any way connected with the Loans, the servicing thereof and the transactions contemplated therein or on account of any act or omission to act except to the extent that damages are caused solely by Gonzo's intentional act or omission, in which event such losses, damages, and expenses shall be paid by Gonzo. Gonzo does not assume and shall have no responsibility or liability, express or implied, for the collectability, enforceability, genuineness or validity of the Loan Documents, for the value or physical conditions of


-2- 3 any Collateral, or for the financial condition of any Borrower and/or guarantor or other obligor on all or any portion of the Loans. Beneficiary assumes the obligation to determine independently the validity and enforceability of the Loan Documents and to make its own appraisal of the Collateral and the credit worthiness of the borrowers of the Loans (the "Borrowers") and any guarantor or other obligor on all or any portion of the Loans. Without limiting the generality of the foregoing, Beneficiary represents and warrants that it, independently and without reliance upon Gonzo or any information provided or to be provided by Gonzo, shall determine to its satisfaction the suitability of its joining in the making of the Loans and all other matters relating to the credit worthiness of each Borrower, any guarantor of the Loans, or any portion thereof, the value of all or any portion of the Collateral and the terms and conditions of the Loan Documents, and that Beneficiary is not and shall not rely on any representations or statements made by Gonzo or any information provided by Gonzo with respect thereto.


4. Administration and Servicing of Loans.


4.1 Relationship of Gonzo, Beneficiary, and other Participants.


Beneficiary and Gonzo each agree and intend that the relationship created by this Agreement and participations in the Loans shall be only as owners of the undivided participation interests in the Loans and shall not be that of lender and borrower, joint ventures, or partners. Neither the execution of this Agreement, nor the selling of any interest in the Loans and the security therefore, nor any agreement to share in profits or losses as provided herein, is intended to be, nor shall it be construed to be, the formation of a partnership or joint venture, or the issuance or sale of a security, between the parties to this Agreement or any of the other Participants. Beneficiary represents that it is a sophisticated investor possessing experience in transactions such as the Loans and is not acquiring its interest in the Loans with a view toward resale thereof. It is agreed that Gonzo is not to act as agent for Beneficiary, but is to act in all loan administration and servicing matters hereunder as an independent contractor on behalf of Beneficiary and the other Participants in the Loans.


-3- 4
4.2 Servicing Responsibilities. Gonzo hereby assumes the responsibility for administering and servicing the Loans, as specified in this Agreement, and shall retain such responsibility while this Agreement remains in effect, unless a new servicer is designated. In its management and administration of the Loans or in connection with the exercise of any rights or remedies under the Loan Documents or at law, Gonzo shall use the same diligence and care as customarily used by Gonzo with respect to loans held entirely for its own account, In no event shall Gonzo be liable for any action taken at the direction of the requisite Participation Percentage of the Participants as set forth in Section 4.3 below or as otherwise set forth in this Agreement. Subject to the other provisions of this Agreement, Gonzo shall have all of the rights of a holder of the Notes and as Lender under the Loan Documents and is specifically authorized, without limitation, to execute with binding effect all Loan Documents on behalf of Beneficiary. As servicer of the Loans, Gonzo specifically agrees to perform the following.


(1) to monitor and deal with the Loan Documents on behalf of the Participants;


(2) to disburse the proceeds of the Loans in accordance with the Loan Documents;


(3) to service and manage the Loans and the Collateral in the ordinary course of business and in accordance with its usual practices in managing loans for its own account;


(4) to examine the Collateral and the books and records of Borrowers relating to the Loans as it shall deem necessary;


(5) to reques
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