Springing real estate mortgage investment conduit
A method and combination which allow Real Estate Investment Trust (REIT) issuers to issue Mortgage-Backed Securities (MBS) via a trust structure while allowing non-REIT entities to finance the equity portion of the deal are provided. An upfront solution is provided to address the traditional constraints of equity financing under a Real Estate Investment Trust (REIT) exemption of the Taxable Mortgage Pool (TMP) when a Taxable Mortgage Pool (TMP) triggering event takes place so that the trust becomes a REMIC, thereby allowing non-REIT financing entity to sell the equity components.
1 . A method for financing equity, the method comprising:
creating a trust classifiable as a taxable mortgage pool (TMP);
acquiring at closing approximately 100% of the trust certificates by at least one entity qualifying as a real estate investment trust (REIT), or as a qualified REIT subsidiary (QRS), within the meaning of Section 856(i) of the Internal Revenue Code of 1986 (Code);
defining at the closing at least one real estate mortgage investment conduit (REMIC) election;
upon occurrence of a TMP triggering event, which causes an issuing entity to become taxable as a corporation within the meaning of the Code, converting the trust certificates to REMIC certificates pursuant to the at least one REMIC election defined at the closing.
2 . The method as claimed in claim 1 , wherein the converting of the trust certificates to the REMIC certificates comprises:
taking possession by a lender of an equity held by the issuing entity and notifying the trust;
notifying a master servicer of the taking of the possession by the lender;
buying out by the master service of Real Estate Owned (REO) property;
notifying the trust of the buying out; and
making the at least one REMIC election within the trust.
3 . The method as claimed in claim 1 , wherein the TMP triggering event comprises at least one of:
the at least one entity failing to qualify as a REIT after the closing;
an entire equity being transferred to a non-REIT entity, or to another non-qualifying entity; and
the equity being split so that at least a portion of the equity is transferred to a non-REIT entity, or to another non-qualifying entity.
4 . The method as claimed in claim 1 , further comprising issuing the REMIC certificates from the trust.
5 . The method as claimed in claim 1 , further comprising:
upon the occurrence of the TMP triggering event, transferring at least a portion of the owner trust certificates to a new trust, wherein the at least one REMIC election is made in the new trust; and
issuing the REMIC certificates from the new trust.
6 . The method as claimed in claim 1 , further comprising making a plurality of REMICs elections.
7 . The method as claimed in claim 4 , wherein the REMIC certificates represent ownership of at least one of regular interests and residual interests.
8 . The method as claimed in claim 6 , wherein each of the plurality of the REMICs comprises a segregated pool of assets.
9 . The method according to claim 1 , wherein an indenture trustee administers the at least one REMIC.
10 . The method of claim 4 , wherein the REMIC certificates comprise multi-class securities.
11 . The method of claim 10 , wherein the multi-class securities comprise time-tranched securities.
12 . A method for financing equity, the method comprising:
creating a first trust classifiable as a taxable mortgage pool (TMP);
acquiring at closing approximately 100% of the first trust certificates by at least one entity qualifying as a real estate investment trust (REIT), or as a qualified REIT subsidiary (QRS), within the meaning of Section 856(i) of the Internal Revenue Code of 1986 (Code);
defining at the closing at least one real estate mortgage investment conduit (REMIC) election;
upon occurrence of a TMP triggering event, which causes an issuing entity to become taxable as a corporation within the meaning of the Code, converting the first trust certificates to REMIC certificates pursuant to the at least one REMIC election defined at the closing;
transferring at least a portion of the first trust certificates to a second trust, wherein the at least one REMIC election is made in the second trust; and
issuing the REMIC certificates from the second trust.
13 . The method as claimed in claim 12 , wherein the converting of the first trust certificates to the REMIC certificates comprises:
taking possession by a lender of an equity held by the issuing entity and notifying the first trust;
notifying a master servicer of the taking of the possession by the lender;
buying out by the master service of Real Estate Owned (REO) property; and
notifying the first trust of the buying out; and
wherein the transferring of the portion of the first trust certificates to the second trust comprises:
transferring non-REO property to the second trust; and
making the at least one REMIC election within the second trust.
14 . The method as claimed in claim 12 , wherein the TMP triggering event comprises at least one of:
the at least one entity failing to qualify as a REIT after the closing;
an entire equity being transferred to a non-REIT entity, or to another non-qualifying entity; and
the equity being split so that at least a portion of the equity is transferred to a non-REIT entity, or to another non-qualifying entity.
15 . The method as claimed in claim 12 , further comprising issuing the REMIC certificates from the second trust.
16 . The method as claimed in claim 12 , further comprising making a plurality of REMICs elections.
17 . The method as claimed in claim 15 , wherein the REMIC certificates represent ownership of at least one of regular interests and residual interests.
18 . The method as claimed in claim 16 , wherein each of the plurality of the REMICs comprises a segregated pool of assets.
19 . The method according to claim 12 , wherein an indenture trustee administers the at least one REMIC.
20 . The method of claim 15 , wherein the REMIC certificates comprise multi-class securities.
21 . The method of claim 20 , wherein the multi-class securities comprise time-tranched securities.
22 . A combination comprising:
a first trust classifiable as a taxable mortgage pool (TMP); and
at least one entity acquiring at closing approximately 100% of the first trust certificates, the at least one entity qualifying as a real estate investment trust (REIT), or as a qualified REIT subsidiary (QRS), within the meaning of Section 856(i) of the Internal Revenue Code of 1986 (Code);
wherein at least one real estate mortgage investment conduit (REMIC) election is defined at closing, and
upon occurrence of a TMP triggering event, which causes an issuing entity to become taxable as a corporation within the meaning of the Code, the first trust certificates are converted to REMIC certificates pursuant to the at least one REMIC election defined at the closing.
23 . The combination as claimed in claim 22 , further comprising an indenture trustee for administering the at least one REMIC.
24 . The combination as claimed in claim 22 , further comprising a second trust, wherein:
at least a portion of the owner trust certificates is transferred to the second trust;
the at least one REMIC election is made in the second trust; and
the REMIC certificates are issued from second new trust.
25 . The combination as claimed in claim 22 , wherein the REMIC certificates comprise multi-class securities.
26 . The combination as claimed in claim 25 , wherein the multi-class securities comprise time-tranched securities.