PLEDGE AGREEMENT
PLEDGE AGREEMENT (“Agreement”), dated ______________, between___________________
and its successors or assigns (the “Lender”), and the Obligor(s) identified below (the “obligor”).
PRELIMINARY STATEMENT
The Lender is originating a Mortgage Loan (hereinafter defined) to the Borrower identified
below, secured by a mortgage or deed of trust by the Mortgagor identified below on the real
property located at the address and in the original principal amount as set forth below. In
connection with the Mortgage Loan, the Obligor has agreed to pledge collateral for the
Mortgage Loan to the Lender, which includes a security interest in the Account (hereinafter
defined) maintained at the Securities Intermediary (hereinafter defined).
Obligor(s): _____________________________________________________________________
Borrower(s), if different than Obligor: _____________________________________________
Mortgagor(s), if different than Obligor: ______________________________________________
Mortgaged Property: ____________________________________________________________
_________________________________________________________________________
Loan Amount: $_________________________________________________________________
Pledged Account No:_____________________________________________________________
When this Pledge Agreement is signed, the value of the securities and cash in the Account must
be at least equal to the Initial Pledge Amount (hereinafter defined).
In consideration of the mutual promises contained herein and for other good and valuable
consideration, the parties hereto agree as follows:
Section1. Definitions.
For all purposes of this Agreement except as otherwise expressly provided herein or unless the
context otherwise requires, capitalized terms not otherwise defined herein have the following
meanings:
“Account” means the broker-managed account established and maintained by the Obligor with
the Securities Intermediary. Self-directed accounts are ineligible.
“Account Control Agreement” means the Pledge Collateral Account Control Agreement or an
alternative form of such agreement provided by a Securities Intermediary and approved by the
Lender.
“Base Pledge Amount” means $_____________. The percentage of equity required under the
Lender’s underwriting guidelines multiplied by the Property Value, minus any down payment or
equity. For example, a loan program with a maximum LTV of 80% would have an equity
requirement of 20%. That 20% multiplied by the Property Value, minus any down payment or
equity, is the Base Pledge Amount.
“Borrower” means the Obligor unless identified as a different person in the Preliminary
Statement.
“Business Day” means any day other than (i) a Saturday or Sunday, or (ii) a day on which
banking institutions in the State of California are authorized or obligated by law or executive
order to be closed.
“Cash Pledged Collateral” has the meaning set forth in Section 8(b).
“Eligible Assets” means the securities listed on Exhibit B.
“Effective LTV” means the percentage obtained by subtracting the Base Pledge Amount from
the Loan Amount, then dividing by the Property Value.
“Entitlement Order” means any instruction or direction given to the Securities Intermediary to
liquidate any Financial Asset, to withdraw any Financial Asset from the Account or to cancel any
open orders, and any other “entitlement order” as such term is defined by section 8-102 (a)(8)
of the New York UCC.
“Financial Asset” means “financial asset” as defined by Section 8-102(a)(9) of the New York
UCC with the effect of the Financial Asset election under Section 2(a) of this Agreement and
includes without limitation any security, interest, obligation, contract or other property
whatsoever credited to the Account. This includes without limitation stock, bonds, money
market funds, mutual funds, checks, promissory notes, and cash.
“Initial Pledge Amount” means the market value of securities and cash in the Account as of the
date of this Agreement that is at least equal to the sum of (1) for securities included, Two
Hundred percent (200%) of the value of the securities in the Account used to meet the Base
Pledge Amount and (2) for cash included, One hundred percent (100%) of the value of cash in
the Account used to meet the Base Pledge Amount.
“Loan Amount” means the amount set forth in the Preliminary Statement and as evidenced by
the mortgage note.
“Maintenance Pledge Amount” means the market value of securities and cash in the Account
that is at least to the sum of (1) for securities included, One Hundred Sixty Eight percent
(168%) of the value of the securities in the Account used to meet the Base Pledge Amount and
(2) for cash included, One Hundred percent (100%) of the value of cash in the Account used to
meet the Base Pledge Amount.
“Mortgage” means the Mortgage or Deed of Trust from the Mortgagor to the Lender, which
Mortgage encumbers the Mortgaged Property and secures the Mortgage Loan.
“Mortgage Loan” means an individual mortgage loan and all rights with respect thereto,
evidenced by a mortgage note and secured by a Mortgage encumbering the Mortgaged
Property.
“Mortgage Loan Documents” means a Note, Mortgage, Account Control Agreement, Pledge
Agreement, or any other documents executed by the Obligor, Borrower or Mortgagor and
delivered to the lender, evidencing or securing the Mortgage Loan.
“Mortgaged Property” means the underlying real property securing repayment of a mortgage
note, consisting of a fee simple interest in a single parcel of real property improved by a
residential dwelling or a qualified leasehold interest.
“Mortgagor” means the Obligor, unless identified as a different person or entity in the
Preliminary Statement.
“New York UCC” means the New York Uniform Commercial Code.
“Obligor” means the Obligor identified in the Preliminary Statement.
“Pledged Collateral” has the meaning set forth in Section 2(b)(i).
“Property Value” means the lesser of the appraised value or purchase price of the Mortgaged
Property, excluding personal property.
“Security Entitlement” means the rights and privileges of the Obligor with respect to each and
all Financial Assets credited to the Account and “security entitlement” as defined in Section
8102(a)(17) of the New York UCC.
“Securities Intermediary” means an approved Investment Broker/Dealer responsible for
managing the Account. The Securities Intermediary must execute an Account Control
Agreement for each Mortgage Loan originated under the Pledged Asset Loan Program.
Section 2. Security Interest in Account.
(a) Financial Asset election. The parties hereto hereby elect that each item
credited to the Account at any time, including without limitation stocks,
bonds, money market funds, mutual funds, checks, promissory notes and
cash, shall be treated as a Financial Asset. This election is made for the
purpose of simplifying and clarifying the creation and perfection of a security
interest in the Account.
(b) Security Interest.
i. As security for the obligations under the Mortgage Loan, the Obligor
hereby assigns, pledges, grants and conveys to the lender all of the
Obligor’s right, title and interest in the Account and all Security
Entitlements therein whether now existing or hereafter acquired and
all proceeds of any such property (collectively , the “Pledged
Collateral”). The Pledged Collateral initially includes all assets set
forth in Exhibit A and Exhibit C.
ii. Except as expressly permitted in Section 5 of this Agreement, the
Obligor shall not sell, assign, transfer, or otherwise dispose of, or
grant any option with respect to, or pledge or otherwise encumber
or withdraw from the Account, the Pledged Collateral or any interest
therein.
iii. The Lender agrees with the Obligor that it will issue an Entitlement
Order only in accordance with the provisions of this Agreement. If
the lender grants a security interest in Lender’s right, title and
interest in the Pledged Collateral to any Person, such Person may
issue Entitlement Orders to the Securities Intermediary without
further consent by the Obligor. Such Entitlement Orders shall be
subject to the terms of this Agreement.
(c) Continuing Obligations of Obligor. The Obligor shall take all actions necessary
or requested by the Lender in order to assure that the Lender has at all times,
while this Agreement remains in effect, a continuing perfected first priority lien
and security interest in the Pledged Collateral.
(d) Responsibility for Account. Regardless of how the Account is titled, including
an Account titled in the name of the Lender for the benefit of the Obligor,
Obligor and Lender hereby agree that the Obligor owns the Account. Obligor
agrees that Lender shall not be responsible for any diminution or loss of value of
the Account or the assets contained therein attributed to declines in the market
value of the Account or because of any restrictions on the Account contained in
this Agreement. In addition, all items of income, gain, expense, and loss
recognized in the Account shall be the responsibility of the Obligor and reported
to the Internal Revenue Service and all state and local taxing authorities under
the name and taxpayer identification of the Obligor.
Section 3. Representations and Warranties of the Obligor.
The Obligor represents and warrants to the Lender as of the date hereof that:
(a) The Obligor has the full right, power and authority to make, execute and
deliver this Agreement.
(b) The Obligor is the sole legal and equitable owner of the Pledged Collateral
free and clear of any interest or lien of any third person or other
encumbrances whatsoever, except for the rights of the Lender pursuant to
this Agreement.
(c) The Security interests of the Lender hereunder are and shall at all times be
perfected and valid first priority security interests in the Pledged Collateral.
(d) The Obligor has rights in the collateral in which the security interest is being
granted that are sufficient therefore, and value has been given within the
meaning of Section 9-203 of the New York UCC.
(e) The Pledged Collateral constituting Eligible Assets held in the Account as of
the date hereof has a market value of not less than the initial Pledge
Amount, and all such Eligible Assets have been in the Account for at least
seven (7) Business Days prior to the date hereof.
(f) The proceeds of the Mortgage Loan will not be used to purchase, carry or
trade any securities, or to repay any debt used to purchase, carry or trade
securities, and the Obligor has duly executed the Federal Reserve Form U-1
or G-3 so stating.
(g) The Obligor is not, and at no time will be, a controlling person within the
meaning of applicable securities law with respect to any Pledged Collateral
and no such Pledged Collateral is or at any time will be subject to restrictions
on distribution under such laws.
(h) The Account is not a self-directed account.
Section 4. Withdrawl or Liquidation of Pledged Collateral by Lender.
(a) Subject to applicable law, in the event the Obligor, Borrower or Mortgagor,
as applicable, is in default under or breaches any covenant or agreement set
forth in the Mortgage Loan Documents, then at any time thereafter, unless
and until such breach or default is cured, the Obligor hereby authorizes the
Lender to liquidate and/or withdraw any Pledged Collateral from the
Account, which shall be applied by the Lender as follows: first, to all amounts
owing under the Mortgage Loan for fees, expenses and other amounts not
representing interest or principal; second, to accrued and unpaid interest on
the Mortgage Loan; and third, to the outstanding principal balance of the
Mortgage Loan. Subject to applicable law, if at the time of such default the
Pledged Collateral is greater than or equal to the Maintenance Pledge
Amount, then the Lender shall provide notice to the Obligor prior to taking
any action under this section 4. The Lender shall be entitled to exercise any
and all other remedies available to it pursuant to the Mortgage Loan
Documents, at law or in equity, including without limitation foreclosing the
Mortgage. The Lender shall have sole discretion as to whether and when to
exercise any of the remedies under this Agreement and the Mortgage Loan
Documents, as well as the order in which any such remedies may be
exercised.
(b) Liquidation and/or withdrawal of any Pledged Collateral by the Lender from
the Account, or the delay or failure to do so, shall not be deemed (i) to cure
any default pursuant to the Mortgage Loan Documents, (ii) a tender of
arrears or tender of performance sufficient to require reinstatement of the
Mortgage Loan, or (iii) a waiver of acceleration or of the Lender’s right to
accelerate the balance due under the Mortgage Loan Documents, or to
foreclose the Mortgage.
(c) In the event the Securities Intermediary provides notice of its intent to
terminate the Account Control Agreement, the Obligor shall, within 3
business days, obtain a new Account Control Agreement upon terms
acceptable to the Lender or Lender may liquidate and/or withdraw any
Pledged Collateral from the Account.
Section 5. Limitations on Trading and Withdrawals by Obligor.
(a) Except upon the prior written consent of the Lender, the Obligor will not (i)
purchase any securities with funds in the Account other than Eligible Assets,
(ii) withdraw cash or securities or buy or sell Eligible Assets other than as
provided in sub clause (b) of this section 5, (iii) borrow any funds on margin
using any Pledged Collateral as collateral or (iv) otherwise pledge, grant or
permit to exist a security interest in any Pledged Collateral. The Obligor
acknowledges and agrees that the Lender may impose additional limitations
on any security or other property which may be purchased with funds in the
Account if the Lender is not reasonably assured of a continuing perfected
first priority security interest in such security or other property. The Lender
in its sole discretion may revise the definition of Eligible Assets from time to
time by adding further restrictions or limitations on the types of securities
permitted, or by excluding specific securities, by providing written notice
thereof to the Obligor, but such revised definition shall not apply
retroactively to require the Obligor to dispose of any securities in the
Account not meeting the definition subsequent to such change.
(b) Unless prohibited by the terms of the Account Control Agreement, the
Obligor may withdraw cash or securities from the Account, provided the
Account at all times maintains the Initial Pledge Amount and provided that
the Mortgagor has made all payments required pursuant to the Mortgage
Loan and is not in breach or default under the Mortgage Loan Documents. In
the event the Account falls below the Initial Pledge Amount, the Obligor may
not directly or indirectly withdraw cash or securities from the Account.
(c) Unless prohibited by the terms of the Account Control Agreement, the
Obligor may, without the consent of the Lender, buy or sell any Eligible
Assets in the Account at any time, provided the value of the Pledged
Collateral does not fall below the Initial Pledge Amount. The Obligor shall
provide all electronic trade confirmations to BofI Federal Bank or by mail to
Pledged Loan Accounting, BofI Federal Bank, 12777 High Bluff Drive, Suite
100, San Diego, CA 92130. Such trade shall be sent within 48 hours of such
trade.
Section 6. Value of Pledged Collateral.
The Obligor agrees that at all times hereafter the Pledged Collateral constituting Eligible Assets
in the Account will have a market value of not less than the Maintenance Pledge Amount.
Section 7. Release of Pledge Collateral.
The Lender may, in its sole discretion, terminate and release security interest in the Account
upon the Obligor fulfilling either of the following:
7.1
Termination and release based upon appraisal:
(a) Obligor submits a request in writing, no sooner than thirty six (36) months after the
origination of the Mortgage Loan, to the Lender requesting that termination and release
of its security interest in the Account be initiated;
(b) Borrower is current on all the payments required by the terms of the Mortgage Loan
with no delinquencies in the most recent twelve (12) months; and
(c) Lender obtains an appraisal of the Mortgaged Property, at Obligor’s or borrowers
expense , acceptable to the Lender, that evidences a loan to value ratio of the then
outstanding balance on the Mortgage Loan to the appraised value that is less than the
original Effective LTV.
7.2
Termination and release based on payment of principal:
(a) Obligor submits a request in writing to the Lender requesting that termination and
release of its security interest in the Account be initiated
(b) Borrower is current on all payments required by the terms of the Mortgage Loan
with either (i) no delinquencies in the most recent twelve (12) months or (ii) if the
Mortgage Loan has been outstanding less than twelve (12) months, no delinquencies in
the history of the Mortgage Loan; and
(c) Lender obtains an appraisal of the Mortgaged Property, at Obligor’s or borrowers
expense , acceptable to the Lender, that evidences a loan to value ratio of the then
outstanding balance on the Mortgage Loan to the appraised value that is less than the
original Effective LTV.
Section 8.
Remedies
(a) If at any time the aggregate market value of the Pledged Collateral shall be less than
the Maintenance Pledge Amount and the Obligor has not, within three (3) Business
Days, or such shorter period as Lender deems necessary due to market conditions,
from the date on which the aggregate market value of the Pledged Collateral
becomes less than the Maintenance Pledge Amount, deposited in the Account
additional cash and/or Eligible Assets acceptable to the Lender with an aggregate
market value sufficient to increase the aggregate market value of the Pledged
Collateral to at least the Initial Pledge Amount, then the Lender may issue
Entitlement Orders at its option, from time to time.
(b) Any cash withdrawn by the Lender pursuant to the terms of this Agreement shall be
held by or on behalf of the Lender as “Cash Pledged Collateral” until the earlier to
occur of (i) the application of such funds to amounts owing under the Mortgage
Loan, as more particularly set forth in Section 4, in the event of a default by the
Borrower, Mortgagor, or Obligor, as applicable, under the Mortgage Loan
Documents which is not timely cured after notice, if required, or (ii) upon the full
repayment of all amounts owing under the Mortgage Loan. The Obligor
acknowledges and agrees that any Cash Pledged Collateral will not be held in trust
and may be commingled with other assets of or held by or on behalf of the lender.
The Lender may invest the Cash Pledged Collateral in accordance with its normal
cash management procedures. Any income or loss allocable to the investment of
any cash Pledged Collateral shall be for the account of the Lender.
(c) In lieu of investing the Cash Pledged Collateral with other assets of or held by or on
behalf of the lender, the Lender may, at its option, elect to invest the Cash Pledged
Collateral in money market mutual funds or in such other investments as the Lender
deems appropriate. Upon liquidation, the Lender shall provide the Obligor with
written notice that the Account has been liquidated and the date of such liquidation.
Notwithstanding anything to the contrary contained herein, if the Borrower,
Mortgagor or Obligor, as applicable, is not in default under the Mortgage Loan
Documents, the Obligor may elect, by providing written notice to the Lender of such
election, to have the funds from the liquidation applied to the outstanding principal
balance of the Mortgage Loan.
(d) In the event of default by the Borrower, Mortgagor or Obligor, as applicable, of any
covenant or agreement contained in the Mortgage Loan Documents, which default
is not timely cured after any required notice by the Lender to the Obligor, as more
particularly set forth in Section 4, the Lender may, at its option, withdraw cash from
(e)
(f)
(g)
(h)
the Account and/or sell any other Pledged Collateral in the Account and apply any
such cash and the proceeds of any such other Pledged Collateral, together with any
Cash Pledged Collateral, up to the Loan Amount, as provided in Section 4. The
Borrower shall remain liable for the unpaid principal balance of the Mortgage Loan
in excess of any amount so applied. In addition to the foregoing, the Lender may
exercise any and all other remedies available to it under the Mortgage Loan
Documents. The Lender shall return any excess Cash Pledged Collateral to the
Obligor when the Borrower cures all defaults under the Mortgage Loan Documents
or upon full repayment of all amounts owing under the Mortgage Loan.
The Lender may exercise any or all of the remedies set forth herein without notice of
sale or other notice or advertisement, except as expressly provided herein. Any such
sales may be made by the Lender, or the financial/securities intermediaries, or its
affiliates on any exchange or other market where such business is usually transacted
or at public or private sale. The Lender or its affiliates may be the purchaser for its
own account. Notwithstanding the foregoing in the case of any Pledged Collateral
consisting of securities that are no longer Eligible Assets because they are no longer
traded on a national securities exchange, or a recognized over the counter market,
the Lender shall not be a purchaser at a private sale without the consent of the
Obligor. Any giving of prior demand or call or prior notice of the time and place of
such sale shall not be considered a waiver of the Lender’s right to sell without any
such demand, call or notice as herein provided.
In addition to the rights and remedies set forth in this Agreement, the Lender shall
have the right to exercise any one or more of the rights and remedies of a secured
creditor under the New York UCC. All rights and remedies available to the Lender
hereunder shall be cumulative and in addition to any and all other rights and
remedies otherwise available to it at law, in equity or otherwise, and any one or
more of such rights and remedies may be exercised simultaneously or successively.
If 100% of the Pledged Collateral in the Account becomes cash, upon the request of
the Obligor, the Lender may release to the Obligor any amount of cash in excess of
the Base Pledge Amount.
The Obligor shall be liable for (i) any penalty, premium, fee or other charge and (ii)
any tax reporting and all monies payable with respect thereto, in each case that may
arise from any early withdrawal or liquidation of the Pledged Collateral in
connection with the Lender’s exercise of its rights and remedies under this
Agreement.
Section 9. Term of this Agreement.
This Agreement shall become effective when signed by the Obligor and the security interest
created herein shall attach upon funding of the Mortgage Loan and shall continue in full force
and effect until the outstanding principal balance of the Mortgage Loan has been paid in full or
the Lender’s security interest in the Account is terminated and released pursuant to the terms
of Section 7 of this Agreement.
Section 10. Lender
As used herein, the “Lender” refers to (i) the entity named as Lender herein, or (ii) any entity to
which the Mortgage Loan has been transferred or assigned by the Lender, or (iii) any other
entity to which the Mortgage Loan has been subsequently transferred or assigned. In addition,
if so directed by the Lender by written notice delivered to the Securities Intermediary, the
Securities Intermediary shall accept and act upon directions given by any entity designated by
the Lender in such notice as servicer of the Mortgage Loan, as if directions were given by the
Lender. Any notice designating a servicer shall remain effective until revoked by the Lender by
written notice delivered to Securities Intermediary. Securities Intermediary shall accept and act
upon directions only from such parties as provided herein.
Section 11. Indemnification.
(a) Neither the Lender nor any of its directors, officers agents or employees shall be
liable for any action taken or omitted to be taken by it or them hereunder or in
connection herewith except for its or their own gross negligence, material failure, to
perform hereunder or material breach of their covenants, representations or
warranties hereunder, lack of good faith or willful misconduct.
(b) The Obligor agrees to indemnify and hold the Lender and its directors, officers,
agents and employees harmless against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever, including reasonable attorneys’ fees, that may be
imposed on, incurred by, or asserted against the Lender in any way relating to or
arising out of this Agreement or any action taken or not taken by the Lender
hereunder, unless such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements were imposed on, incurred by or
asserted against the Lender because of the material breach by the Lender of any of
its obligations hereunder, or as a result of any gross negligence, lack of good faith or
willful misconduct on the part of the Lender or any of its directors, officers, agents,
or employees. The foregoing indemnification shall survive any termination of this
Agreement.
Section 12. Miscellaneous.
(a) Severability. If any provision of this Agreement shall for any reason whatsoever be
held invalid, then to the fullest extent permitted by law such provision shall be
deemed severable from the remaining provisions of this Agreement and shall in no
way affect the validity or enforceability of the other provisions of this Agreement. If
the invalidity of any part, provision, representation or warranty of this Agreement
shall deprive any party of the economic benefit intended to be conferred by this
Agreement, the parties shall negotiate, in good-faith, to develop a structure, the
economic effect of which is nearly as possible the same as the economic effect of
this Agreement without regard to such invalidity.
(b) Counterparts. This Agreement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all counterparts
shall together constitute but one and the same instrument.
(c) Waiver. The Lender shall not by any act, delay, omission or otherwise be deemed
to have waived any of its rights or remedies hereunder, and no waiver shall be valid
unless in writing, signed by the Lender, and then only to the extent therein set forth.
A waiver by the Lender of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Lender would otherwise
have on any future occasion. No failure to exercise, nor any delay in exercising on
the part of the Lender, any right, power or privilege hereunder, shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of any
rights or remedies provided by law or equity.
(d) Obligations Joint and Several. If there is more than one Obligor, their obligations
hereunder are joint and several.
(e) Headings. Section headings used herein are for convenience of reference only, are
not part of this Agreement and are not to affect the constitution of or to be taken
into consideration in interpreting this Agreement.
(f) Agreement Binding. This Agreement shall be binding upon the Obligor and the
Obligor’s heirs and personal representatives and inure to the benefit of the Lender
and its successors and assigns.
(g) Entire Agreement. This Agreement, together with the Account Control Agreement
and the Mortgage Loan Documents, constitute the entire agreement among the
parties with respect to the subject matter hereof.
(h) Amendment. This Agreement may be modified only by a written instrument
executed by the Lender and the Obligor.
(i) Choice of Law. This Agreement shall be governed by the laws of the State of New
York.
(j) Assignment. A successor or assignee of Lender’s rights and obligations under the
Mortgage Loan will succeed to Lender’s rights and obligations under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Pledge Agreement the day and
year first written above.
OBLIGOR:
_______________________________________
OBLIGOR:
_______________________________________
Lender:
By: ____________________________________