Loan Participation Agreement: Definition, Terms, Example
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What is a Loan Participation Agreement?
A loan participation agreement is an agreement between a lender (lead lender) and a party who purchases an interest in an underlying loan (participant). In this agreement, the lead lender maintains control over the loan and manages the relationship with the borrower. The lead lender is responsible for originating the loan, communicating with the borrower, and servicing the loan. The lead lender accepts payments from the borrower, initiates collection actions, and forecloses on the loan collateral in the event of a default. Participants are not permitted to make claims against the borrower and can only request reimbursement for their participation from the lead lender.
Common Sections in Loan Participation Agreements
Below is a list of common sections included in Loan Participation Agreements. These sections are linked to the below sample agreement for you to explore.
Loan Participation Agreement Sample
1) |
Bank is a national banking association legally and properly organized and validly existing and is in good standing under the laws of the United States.
|
2) |
Bank has the power and authority to own its properties, to carry on its business in the manner in which it conducts such business and to execute, acknowledge
and deliver this Agreement and the Servicing Agreement connection with the sale of the Participation Interest and this Agreement. |
3) |
Compliance by Bank with the terms and conditions of this Agreement does not conflict with, or result in a breach of or default under, any other agreement or
instrument to which Lender is a party, or any federal or state law, regulation, ruling or interpretation to which Lender is subject. |
4) |
There is no litigation, administrative action, arbitration, proceeding or investigation pending or, to the best knowledge of the Bank, threatened against the
Bank in any federal, state or local court, or before any administrative agency or arbitrator, or before any other tribunal duly authorized to resolve disputes which would have a material adverse effect on the Participation Interest.
|
5) |
Bank is the sole owner of the Loans (subject to Participant’s Participation Interest therein), has full legal authority, has taken all required corporate
action and obtained all consents required to sell, transfer and assign the Participation Interest to Participant, and (subject to Participant’s Participation Interest therein), is free and clear of all claims and encumbrances of any type.
|
6) |
All documents or instruments pertaining to the sale of the Participation Interest are properly authorized, executed and valid and binding on Bank.
|
7) |
Each Loan has been closed, advanced, booked, administered and serviced by Bank in accordance with the Policies and Procedures. |
8) |
To the Bank’s knowledge, each Loan Document executed is genuine, was duly authorized, executed and delivered and is the legal, valid and binding obligation
of each party thereto, enforceable in
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accordance with its terms except as such enforcement may be limited (i) by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights
generally, (ii) by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (iii) to the extent that certain of the remedial provisions of the Loan Documents may be limited by
applicable law, provided that such limitations do not make the remedies provided for in the Loan Documents inadequate for the practical realization of the benefits of the security intended to be afforded thereby. |
9) |
All recordable instruments included in the Loan Documents have been duly recorded in all places necessary to perfect valid security interests or mortgage liens,
as the case may be, and create valid security interests or mortgage liens, as the case may be, of the intended priority. |
10) |
All costs, fees and expenses incurred in underwriting, closing and funding any Loan and recording any instruments have been paid or are not assessable against
the Participant. |
11) |
All applicable federal and state laws, regulations, rulings and interpretations applicable to the making and servicing of any Loan have been complied with.
|
12) |
As of the Effective date none of the Loans are in none accrual status. |
13) |
No Loan is an adjustable interest rate loan product (“ARM”), an equity line of credit (“PEL”) or a revolving line of credit
(“HELOC”). |
14) |
To the Bank’s knowledge, none of the Loan Documents is subject to any valid set-off, abatement, diminution, counterclaim or defense, including but not
limited to a defense of usury, or any right of recession, and no such set-off, abatement, diminution, counterclaim or defense, including a defense of usury, or right of rescission, has been asserted with respect thereto.
|
15) |
The information set forth on Schedules A and B with respect to such Loans is true and correct in all material respects as of the date or dates respecting which
the information is furnished. The amount of each Loan set forth on Schedules A and B is due and owing, as of the Effective Date, to the Bank from the Borrowers named in the Loan Document. |
1) |
Participant has reviewed the Policies and Procedures and Loan Documentation, and conducted such other portfolio analysis and due diligence examination as it has
deemed to be necessary and appropriate in connection with entering into this Agreement. |
2) |
Participant represents that it is a corporation duly organized, validity existing and in good standing under the laws of the State of Delaware.
|
3) |
Participant represents and warrants that it is authorized and has the power to enter into this Agreement and purchase the Participation Interest, and that all
documents or instruments pertaining to the purchase by Participant of the Participation Interest are properly executed and binding on Participant. |
4) |
Participant represents and warrants to Bank that (a) Participant does not consider the acceptance of its participation hereunder to constitute the
“purchase” or “sale” of a “security” within the meaning of the Securities Act of 1933, the Securities Exchange Act of 1934 or Rule 10b-5 promulgated thereunder, the Trust Indenture Act of 1939, the securities laws of
the State of North Carolina, any other applicable securities statute or law, or any rule or regulation under any of the foregoing; (b) Participant acknowledges that it may not derive profits from the efforts of Bank or any third party in respect of
the
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acquisition of Participation Interest; (c) this participation constitutes a commercial transaction by Participant with Bank regarding the obligations of the Borrowers under the Loan Documents and
does not represent a common joint venture with Bank or an “investment” (as the term is commonly understood) in Bank or any Borrower, (d) Participant is accepting the Participation Interest for its own account in respect of a commercial
transaction made in the ordinary course of its commercial business and not with a view to or in connection with any subdivision, resale, or distribution thereof, and (e) Participant is engaged in the business of entering into commercial transactions
(including transactions of the nature contemplated herein), can bear the economic risk related to its participation in the Loans, and has had access to all information deemed necessary by it in making its decision whether or not to participate in
the Loans. |
5) |
Participant represents and warrants that (a) it has independently reviewed the Loan Documents (b) Participant has conducted and will continue to conduct, to the
extent it deems appropriate or necessary, an independent investigation of each Borrower, including, without limitation, an investigation relating to the creditworthiness of each Borrower, and (c) Participant has not relied, and will not rely upon
Bank for any such investigation or assessment of risk. |
| BANK |
| WACHOVIA BANK, NATIONAL ASSOCIATION |
| By: |
| Title: |
| PARTICIPANT |
| WACHOVIA PREFERRED FUNDING HOLDING CORP. |
| By: |
| Title: |
Reference:
Security Exchange Commission - Edgar Database, EX-10.A 6 dex10a.htm LOAN PARTICIPATION AGREEMENT, Viewed October 24, 2021, View Source on SEC.
Who Helps With Loan Participation Agreements?
Lawyers with backgrounds working on loan participation agreements work with clients to help. Do you need help with a loan participation agreement?
Post a project in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate loan participation agreements. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.
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