[date]
[address]
[Salutation]
We are pleased to advise you that [name] (Lender) has approved your application for a loan to develop approximately [number] acres into a residential subdivision containing [number] subdivided lots with roads and utilities (Project). The Loan and this commitment are subject to the following terms and conditions and the terms and conditions contained in the Standard Terms and Conditions attached hereto at Exhibit A and by reference made a part hereof:
1. Borrower. [name], a(n) [identify], having a mailing address of [address] (Borrower).
2. Loan Amount. The amount of the Loan shall be equal to the lesser of (a) [$ amount] and [$ amount], or (b) [percent] of the appraised value of the Project pursuant to an appraisal acceptable to Lender and satisfying the
requirements of state and federal statutes and regulations.
3. Loan Term. The Loan shall be due and payable on [date] (Expiration Date).
4. Interest Rate. Prior to a default, the outstanding principal balance of the Loan shall bear interest at a rate per annum equal to [$ amount] plus the Index. The Index shall be [$ amount]. After a default, the Loan shall bear interest at a rate per annum that is [percent] above the rate that would be in effect if an event of default had not occurred. Interest shall be calculated on the basis of a 360- day year applied to the actual number of days involved.
5. Payments. Interest only shall be due and payable each month during the term of the Loan, commencing one month following the date of the closing of the Loan. In any and all events, the entire unpaid principal balance of the Loan, together with all accrued and unpaid interest thereon, shall be due and payable on the Expiration Date.
6. Prepayment of Principal. The Loan may be prepaid in whole or in part at any time and from time to time without premium or penalty.
7. Disbursement and Other Terms of Loan. The Loan shall be closed before the commencement of construction of the Project by Borrower and shall be governed by the terms and provisions of a construction loan agreement (Agreement) in such form and with such provisions as Lender may require. Unless waived by Lender, all construction contracts shall be in recordable form and contain fixed-price and no-lien provisions and be in compliance with applicable statutes. The Agreement will govern the procedures for the disbursement of the proceeds from the Loan as construction progresses. Prior to the closing, Borrower shall deliver to Lender a detailed project budget and a certified and detailed cost breakdown for the purchase of the real estate and the construction of the Project, including the construction of all roadways, utilities, and site improvements and the completion of all landscaping necessary for the intended use and operation of the Project, supported by executed
copies of contracts, acceptable to Lender, from the general contractor, which reflects the source of funds, if any, necessary to cover the portion of the costs in excess of the Loan.
On or before the closing, Borrower shall furnish satisfactory evidence to Lender of its investment in the Project of an amount equal to the total costs of the Project shown in the cost breakdown less the amount of the Loan. Such investment shall be evidenced by paid invoices or receipts and shall be accompanied by appropriate lien waivers. During the term of the Loan, should Lender reasonably determine that the subdivided lots are notbeing sold at a rate that will permit the total cost of
the Project to be paid with the remaining undisbursed portion of the Loan, in Lender's sole determination, no further advances of the Loan shall be made until Borrower shall have deposited with Lender funds in the amount ofsuch costs.
Each request by Borrower for disbursement of the proceeds from the Loan must be made pursuant to a borrower's receipt and certification executed by an authorized representative of Borrower, together with a cost and completion certificate of an architect or engineer acceptable to Lender but employed at the expense of Borrower and such lien waivers as Lender may require, all on forms and in substance satisfactory to Lender. No disbursement shall be made on work requiring governmental inspections until appropriate approvals have been obtained. Final disbursement of the proceeds of the Loan shall be made when construction has been fully completed and inspected and approved by the architect or engineer. All construction draws must be supported by a current title insurance endorsement satisfactory to Lender that provides for affirmative coverage against unfiled mechanics and materialmen's liens through the date of disbursement of the draw.
The Loan shall be made on a revolving basis provided that the total amount disbursed shall not exceed [$ amount]. So long as the Loan is not in default, the Mortgage shall be partially released for each subdivided lot sold for a release price equal to [percent] of the gross sales price of the subdivided lot sold provided that the sales price shall not be less than [$ amount] for each subdivided lot.
The Project must be constructed in strict compliance with all ordinances, codes, statutes, and regulations and in a good and professional manner in strict accordance with the Plans and Specifications. All construction work shall be subject to final inspection by a representative of Lender.
8. Security. All obligations of Borrower in respect of the Loan shall be secured by:
a. First Mortgage. A first mortgage of the premises commonly known as [name] (Real Estate) together with a security interest in all furnishings, fixtures, and equipment, now owned or hereafter acquired and used or held for use in connection with the construction, equipping, operation, or maintenance thereof.
b. Assignment of Leases. A conditional assignment and pledge of any and all leases and rents with respect to the Real Estate.
c. Security Interests. A security interest in all accounts, accounts receivable, inventory, licenses, instruments, equipment, securities, documents, chattel paper, contract rights, general intangibles, and leases now owned or hereafter acquired by Borrower, in its own right or with others and wherever located, free and clear of all rights, liens, encumbrances, or title retention claims of any other party.
General Assignment. An assignment of all of Borrower's right, title, and interest in the Plans and Specifications and all construction contracts and subcontracts and contractor's, subcontractor's and supplier's warranties relating to the construction,
equipping, operation, or maintenance of the Project, and any other additional security as may be set forth elsewhere herein.
9. Unconditional Guaranty. Payment of the Loan and all obligations of the Borrower shall be unconditionally guaranteed by [name], in form and substance approved by Lender (Guaranty).
10. Loan Documents. The Loan shall be evidenced by the Agreement, a Promissory Note, Mortgage, Assignment of Rents and Leases, Security Agreement, and Indemnification for Environmental Matters and such other documents as Lender may require. All instruments, documents, and other terms required in connection with the Loan shall be in form and content satisfactory to Lender and may be prepared by or approved by counsel selected by Lender.
11. Payment of Expenses. Borrower shall pay all costs incidental to the Loan, including, but not limited to, title insurance, survey charges, the cost of environmental inspections, attorney fees, appraisals, insurance, inspecting engineers' and architects' fees, broker's fees, and any and all other incidental expenses of the Lender, regardless of whether the Loan is closed.
12. Default. Any one or more of the following shall constitute an event of default: (1) failure to pay when due any principal of or interest on the Loan or any other obligation or liability owed to Lender by Borrower; (2) failure to observe or perform any agreement or covenant contained in the documents evidencing the Loan; (3) breach of any warranty, representation, certification, or statement contained in the documents evidencing the Loan or in any certification or other agreement or document executed or delivered in connection with the documents evidencing the Loan; (4) dissolution, liquidation, or termination of the business of Borrower; (5) death of any individual that is a Borrower or guarantor; (6) assignment by Borrower, or any guarantor, for the benefit of its creditors; (7) appointment of a receiver or a trustee for Borrower, or any guarantor, or any of its assets; (8) the filing of a petition to adjudicate Borrower, or any guarantor, as bankrupt; (9) default by Borrower or guarantor under any agreement with or undertaking to Lender in connection with the Loan; or (10) any material adverse change in the financial, operating, or othercondition of Borrower or any guarantor.
After an event of default, at the option of Lender and without further notice or demand to Borrower, the Loan shall become immediately due and payable. All rights and remedies of Lender herein specified are cumulative and in addition to, not in limitation of, any rights and remedies that it may have by law or at equity.
13. Covenants. During the term of the Loan, Borrower shall cause furnish to Lender, as soon as practicable, but in any event within thirty days after the end of each month of Borrower, a rent roll and statement of income and expenses showing in reasonable detail all income and expenses of Borrower with respect to the operation of the Project. All such Statements shall be prepared by Borrower and certified as to accuracy by the Borrower. All such financial statements shall be prepared in accordance with generally accepted accounting principles applied on a basis consistent with prior practice unless otherwise specifically noted thereon.
In addition, during the term of the Loan, Borrower shall furnish to Lender an annual personal financial statement of any guarantor in such form and detail as may be prescribed by Lender. Other covenants follow.
14. Commitment Fee. Borrower shall pay to Lender as a commitment fee in respect of the Loan the sum of [$ amount]. Such commitment fee shall be deemed earned upon acceptance of this agreement.
15. Acceptance. This agreement is not binding on Lender unless an executed copy hereof is returned to the undersigned on or before [date]. In the event the Loan committed hereunder is not closed on or before [date], this agreement shall be null and void and have no further force or effect. Closing of the Loan is subject to the condition that, in Lender's sole discretion, there is no material deterioration of Borrower's financial position and that Borrower has the power and financial capacity to repay all amounts owing or to be owed in connection with the Loan. Any extension of this Commitment shall be made only with the written approval of Lender.
[Signatures,
dates]
Exhibit A
Standard Terms and Conditions for Real Estate Loans
1. Title. Prior to the Closing, Borrower shall furnish to Lender a preliminary commitment for a mortgagee's policy of title insurance (ALTA form) in an amount equal to the Loan and issued by a title company acceptable to Lender that commits to insure to Lender that Borrower has good and marketable title in fee simple to the Project and perpetual, nonexclusive easements under terms and conditions acceptable to Lender for all easements for ingress and egress to and from the Project, all free and clear of all liens, encumbrances, easements, encroachments, or other interests of any kind, except such minor defects of title as shall be satisfactory to Lender and its counsel, and except for the line of current taxes not delinquent, and that the mortgage to be executed and delivered by Borrower to Lender shall be a first lien on the Project. The preliminary commitment shall include a zoning endorsement certifying the zoning of the Real Estate and shall commit to provide such affirmative coverage as Lender may require. The closing shall be an "insured" closing with the issuance by the title company of "gap coverage" at closing
2. Survey. Prior to the Closing, Borrower shall furnish to Lender a current minimum standard ALTA or ILTA survey of the Real Estate and all easements for ingress and egress to and from the Real Estate prepared by a registered professional engineer or land surveyor acceptable to Lender that shows the dimensions with distances, degrees and angles, the total square foot area, and a complete metes and bounds description with reference to the beginning point and all adjoining or abutting streets and alleys and the nearest intersecting streets with dimensions; the location or proposed location of all improvements, driveways, and parking areas; number of parking spaces; front, rear, and side building setback lines; utility lines; easements and rights of way, by specific description and such other information as Lender may require, including but not limited to the designation of any flood plain and wetlands areas. The survey shall also contain a certification by the engineer or surveyor concerning compliance with the zoning classification or variance applicable to the Project. The engineer or surveyor shall execute such minimum standard certifications as Lender and the title insurer may require. The survey will be certified to Lender as well as title insurer.
3. Environmental. Prior to the Closing, the Borrower shall furnish to the Lender all environmental reports of the Real Estate of which Borrower has any knowledge. In addition, Borrower shall obtain an environmental inspection report for the Project prepared for and certified by and environmental consultant acceptable to Lender, stating that there are not present on, under, in, or about the Project any asbestos, polychlorinated biphenyls or any other hazardous materials, and that the condition of the Project currently complies will all Indiana and United States environmental protection laws. For purposes hereof, "hazardous materials" will include but not be limited to substances defined as "hazardous substances," "hazardous materials," or "toxic substances" in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA), 42 USC Section 9601 et seq.; and those substances defined as "hazardous waste" in Section 25117 of the California Health and Safety Code or as "hazardous substances" in Section 25316 of the California Health and Safety Code or any similar laws of the State of Indiana; and/or in the regulations adopted in publications promulgated pursuant to such laws, or as such laws or regulations may be further amended, modified, or supplemented. Such report shall be in form and substance acceptable to the Lender.
If the Project is within the definition of the term "property" contained in Section 6 of the Indiana Responsible Property Transfer Law (IRPTL), Borrower will provide the disclosure document requirement by IRPTL to
all required parties within the required time, and will comply with all other applicable terms of IRPTL. In addition, Borrower will provide Lender with an Indemnity Agreement that will survive the Loan regarding environmental matters.
4. Flood Area and Wetlands. Prior to the Closing, Borrower shall provide satisfactory evidence that the Project is not located in an area designated as requiring flood insurance as established by the Flood Disaster Act of 1973 or an area designated as "Wetlands" under any statute, regulation, or ruling.
5. Insurance. Prior to or concurrently with the Closing, Borrower shall furnish to Lender evidence of hazard insurance (fire and extended coverage) or builder's risk insurance in non-reporting from providing coverage for fire, vandalism, and malicious mischief and such other occurrences as is commercially available and reasonable for the protection of both Borrower and Lender, with a standard mortgagee endorsement in favor of Lender, in such amount as Lender may from time to time reasonably require during the Loan. In addition, Borrower shall furnish to Lender evidence of published liability insurance with Lender named as an additional insured; property damage insurance with Lender named as loss payee; workers' compensation and other insurance required by the laws of the applicable jurisdiction with Lender named as a certificate holder and such other insurance as Lender may
require, including but not limited to business interruption and/or rent loss coverage with Lender named as loss payee. All such insurance shall be in amounts and in forms and with insurers acceptable to Lender.
6. Zoning and Permits. Prior to or concurrently with the Closing, Borrower shall furnish to Lender appropriate evidence that the intended use of the Project and any construction of improvements, if applicable, are authorized by zoning classifications or variances applicable to the Real Estate and that all necessary approvals and permits required for the development or use of the Real Estate and the construction of any improvements, if applicable, have been obtained from appropriate governmental authorities having jurisdiction. Borrower shall provide evidence satisfactory to Lender that the Project will be able to successfully accommodate all storm drainage flowing from adjacent properties and successfully and legally discharge all storm drainage into adjacent land. Borrower shall also provide evidence to demonstrate that the Project has or shall have access to dedicated streets, sewer service, and other necessary utilities.
7. Security Interest in Personal Property and Fixtures. Borrower will grant to Lender a security interest having first priority in all inventory (building materials), equipment, and fixtures owned by Borrower and purchased from the proceeds of the Loan or to be used in connection with the Project free and clear of all other security interests or title retention devices. Borrower shall furnish to Lender such evidence as it may require concerning the identification of such equipment and fixtures and payment for the same. Borrower shall execute such UCC financing statements as Lender or its counsel deems necessary to secure such interest.
8. Secondary Financing, Liens, and Encumbrances. The Loan documents shall provide that Borrower shall not, without the prior written consent of Lender, permit to exist any other mortgage lien or encumbrance on the Project, or otherwise permit any secondary financing on the Project, including personal property and fixtures.
9. Leases. All leases for all or any part of the Real Estate and/or the Project shall be security for the Loan and the terms and provisions of such leases shall be subject to the review and approval by Lender and its counsel. All such leases, and any guaranties of such leases, shall be assigned by Borrower to Lender at the time of the Closing under an assignment of leases in such form and with such provisions as Lender shall require; provided, however, that Borrower shall be allowed to collect all rentals until an event of default shall occur. If required by Lender, Borrower shall cause each nonresidential tenant of the Project to execute and deliver to Lender the following: (1) an estoppel letter certifying such information as Lender may require and (2) a subordination and attornment agreement in form and substance as Lender may require that subordinates such tenant's lease to the lien of the real estate mortgage securing the Loan in such manner as Lender may require.
10. Late Payment Charges. The documents evidencing the Loan shall provide that Borrower shall pay a "late charge" for the purpose of defraying expense incident to handling with respect to any monthly installment of interest and/or principal under the Loan, or portion thereof, not paid within ten days after the date when first due, at the rate of [$ amount] until any such installment, or portion thereof, has been paid in full. Provided, however, the application of a late charge shall not be construed as a waiver by Lender of its option to declare a default if any payment of any monthly installment of interest and/or principal, or portion thereof, is not made when due, and the assessment of a
late charge shall not affect the right of Lender to increase the rate of interest as provided in the documents evidencing the Loan on all amounts not paid when due.
11. Evidence of Authority, Organization, Good Standing, and Opinion of Counsel. Prior to the Closing, Borrower shall furnish and certify to Lender for Borrower and each applicable guarantor, true and correct copies of the articles of incorporation and code of bylaws in the case of a corporation, its articles of partnership and certificate of assumed business name or limited partnership in the case of a partnership or such other instrument(s) by which Borrower's or any such guarantor's existence is reflected in the case of a trust or other entity, together with appropriate resolutions of its shareholders, board of directors, partners, trustee or managing authority, as the case may be, specifying the persons and their capacities authorized to execute and deliver all documents required by Lender in connection with the Loan. A certificate of good standing/existence issued not more than thirty days prior to Closing shall be furnished at the time of the Closing for Borrower and any guarantor that is a corporation or limited partnership, and Borrower shall provide an opinion of counsel in form acceptable to Lender regarding the enforceability of the
loan documents, the lack of threatened or existing litigation, the authority of Borrower, and such other matters as Lenders may reasonably require.
12. Prohibition on Sale. During the term of the Loan, Borrower shall not sell, convey, transfer, or otherwise dispose of, or attempt to sell, convey, transfer, or otherwise dispose of, the Borrower's interest in the Real Estate or the Project unless any such sale, conveyance, transfer, or other disposition is first approved in writing by Lender. It is expressly understood and agreed that any such consent by Lender, if given, shall be on such terms and conditions as Lender may in its discretion prescribe, including, but not limited to, an increase in the interest rate provided under the Note, and the payment by Borrower, or purchaser of any service fee of Lender.
13. Expenses. Borrower shall pay all expenses incidental to the processing, making, and closing of the Loan by Lender including, but not limited to, title insurance premiums and examination, appraisal fees, survey expense, inspection fees, closing costs, recording and filing fees, mortgage, intangible taxes, and the fees and expense of counsel for Lender. Such expenses shall be paid by Borrower regardless of whether the Loan is closed and this obligation shall be in addition to any obligation of Borrower to pay the amount of liquidated damages, it any, required by the Commitment. Lender shall have the right to pay any such expenses and obtain reimbursement by deduction from any advancements of the Loan.
14. Approval of Counsel. All documents and leases in connection with the Loan and all matters of title and survey applicable thereto shall be subject to approval in form and substance by counsel for Lender. In this regard, Lender shall have the right to require an opinion from counsel for Borrower in form, scope, and substance satisfactory to counsel for Lender as to the legality, validity, and binding effect of all documents required in connection with the Loan and as to such matters as Lender and its counsel shall deem appropriate.
15. Borrower. The Commitment of Lender is personal to Borrower and neither the Commitment nor any rights of Borrower thereunder shall be assignable by operation of law or otherwise and the Loan may be terminated, at the option of Lender, in the event of any of the following:
a. Borrower shall assign or transfer the Commitment or any rights thereunder without the prior written consent of Lender.
b. Borrower shall fail to comply with any of the terms and conditions of the Commitment within the time specified unless waived in writing by Lender.
c. The nonpayment by Borrower of any expenses to be paid by it in connection with the Commitment or the Loan.
d. The filing by or against Borrower, any guarantor, or any major lessee of any petition in bankruptcy or insolvency or for reorganization of the appointment of a receiver or trustee for Borrower, any guarantor or major lease, or their property or assets, or an assignment by Borrower, any guarantor, or major lessee for the benefit of creditors.
e. Any representations made by Borrower in the loan application that shall prove untrue.
f. Any material change in the financial condition of Borrower or any guarantor.
g. Any infirmity of title to the Real Estate and Project or the Project that is not acceptable to Lender and its counsel.
In the event of termination of the Loan by Lender based on any such default, all obligations of Lender to complete the Loan shall also terminate and the commitment fees shall be considered fully earned with Borrower remaining
liable for the repayment to Lender of the principal of and interest on the loan, any liquidated damages, if any, specified by the Commitment and for all expenses.
16. Notices and Communications. All notices and communications to Lender that are required or permitted under the Commitment or these terms and conditions shall be made to [name], [address], and to Borrower at the
address reflected in the Commitment.
17. Miscellaneous. Time and all terms and conditions shall be of the essence of the Commitment. No waiver or modification of the terms or conditions of the Commitment shall be effective unless in writing and signed by the party against whom enforcement is sought. Borrower, by its acceptance of the Commitment, agrees to indemnify and save harmless Lender against loss, cost, or expense, including reasonable attorney fees, resulting from any claim by any person or entity for brokerage or commission in connection with the transactions contemplated by the Commitment or the Loan or against any loss or expense incurred by Lender in processing the Loan or by virtue of the Commitment. The purpose of the Loan is primarily for business purposes, and no part of the Loan will be used for personal, household, family, or agricultural purposes.
[Signatures]
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