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CRE Finance World, Winter 2012

New CREFC Mediation Proposal: A Response To SEC’s Proposed Breach Enforcement Regulation PartnerJoseph Philip Forte, Esq Alston & Bird LLP T has created proposed “Model Dispute Resolution” relief prior to or during the mediation if it is necessary in order tofor mutually acceptable times and locations and providing alldocuments and information requested by the mediator. Eachparty should attend the mediation session and make available aperson with full settlement authority. Any party may seek equitablehe Commercial Real Estate Finance Council (CREFC)language to be included into CMBS transactions to serveas a template to resolve disputes between issuers andinvestors. The model language was developed in response to the growing amount of litigation by investors who allege breaches preserve the status quo or for other emergency relief pending the of representations and warranties and the SEC’s new focus on the completion of the mediation. contest of investors’ repurchase requests. The Mediator The new language would be incorporated into Mortgage Loan The party starting the process can choose an agency from a list Purchase Agreements (“MLPAs”) and Pooling and Servicing of organizations that have been certified by CREFC, or any other Agreements (“PSAs”) to inject consistency and transparency into recognized mediation agency that has been mutually agreed to by the process and provide protection to CMBS investors against the parties. The parties will then select n individual neutral mediator poor originator loan underwriting. CREFC has submitted the Model from a CREFC-certified mediation agency’s panel of qualified Provisions to the SEC as a proposed template for an enforceable mediators. All parties must work with the mediator and comply with breach repurchase protocol under the SEC’s proposed risk the agency’s published rules of procedure. To assist the mediator retention regulation. in understanding CMBS documents, structures and the market, the mediator may consult in writing with neutral members of a In General CMBS Mediation Advisory Board comprised of experts (appointed The proposed Dispute Resolution and Remedies Provision is an by CREFC) to obtain business and legal expert advice in the real alternative dispute resolution and remedies section that is intended estate finance and structured finance industries and markets. to be included in PSAs and MLPAs. The intent is to expedite the resolution of disputes involving reps and warranties without litigation, Costs at least in the first instance. Under the provision, parties are required Parties will be responsible for paying their own fees and expenses. to mediate (not arbitrate) any breach claims before commencing The parties will share equally any costs arising from the mediation. legal action such as litigation, administrative proceedings or arbitration. However, if a mortgage loan seller is required to repurchase the The language would cover any dispute arising from a request for loan or resulting REO property, it will reimburse the special servicer cure, substitution or repurchase. The mediation would be conducted for the loan or property and for all costs and expenses incurred in accordance with official CMBS Mediation Guidelines that will be in connection with the mediation. In the event that one party does developed and published by CREFC. not comply with the process or the award, the counterparty will be awarded costs and fees resulting from the non-compliant party’s The Process failure to participate in the mediation process. Either party in a dispute involving the cure, substitution or re- purchase of a loan can commence mediation by filing a written Tolling request with the designated mediation agency and notifying the Any statute of limitations, statute of repose or doctrine of laches opposing party in writing. The request should provide sufficient will be tolled as of the date the written request is delivered to detail about the subject of the dispute and the specific relief being the mediation agency and the opposing party. The parties waive requested. The mediation would be mandatory once requested any right to assert in any litigation, administrative proceeding or by either party. arbitration that the time proscribed has run or expired during the tolling period. Upon proper termination of the mediation, the tolling Although the mediation would be non-binding, the parties must period will end three days after the date that the termination notice make a good faith effort to resolve the dispute through the is sent. process. The parties must cooperate by scheduling proceedings CRE Finance World Winter 2012 78


CRE Finance World, Winter 2012
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