W11 LOAN DOCUMENTATION AND DISBURSEMENT

documentation

• establishes the relationship between the lender and the borrower and forms the basis for any legal action on a court of law.​

• It is an essential part of the credit process and is required for each phase of the credit cycle, including credit application, credit analysis, credit approval, credit monitoring, collateral evaluation, impairment recognition, foreclosure of impaired loan and realization of security.​

purpose of documentation

• To set into a written form of the agreement between the lender and the borrower​

• To clearly define the respective rights and obligations of the parties​

• To provide the lender a clear course of action in the event of default​

• To serve as evidence in the event of litigation​

importance of documentation

1. Legal protection

2. Risk assessment

3. Transparency

4. Compliance

The lender should ensure thatcontractual agreements with theirborrowers are vetted by their legal advisers​

basic principles in documentation

There is no binding contract unless the parties have the legal capacity to enter the contract and have given their consent to be bound under the terms and conditions of the contract​

things to note

1. All necessary legal documents prior to the initial release/ restructuring or availment should be secured ​

2. ​Standard loan and collateral documents ​should be used as evidences of ​indebtedness or to provide support to ​credit extensions

3. ​Specimen signatures of all signatories ​should be maintained and updated ​

4. Account officers should serve as witness​ to the signing of all legal documents ​and should verify the signatures of ​borrowers to ascertain authenticity. ​

5. Names of all signatories should be printed. ​

principal credit/lending documents

1. Loan/Line Agreement

2. Receivables Financing / Discounting Line / Agreement

availment documents

1. promissory note

2. disclosure statement

collateral / security documents

1. real estate mortgage

2. chattel mortgage

3. mortgage trust indenture

4. assignment of receivables

5. joint and several signatures

Loan/Line Agreement

• Contract between the lender and the client covering the grant of loan by the former to the latter under certain terms and conditions. ​

• Generally, it stipulates the loan type and purpose, amount, interest rate, penalties and charges, manner of repayment, availment, events of default, representations, warranties, covenants, and other stipulations or provisions not generally covered by the Promissory Note or collateral document securing the obligation.​

Receivables Financing/Discounting Line/Agreement

Core document covering the terms and conditions whereby the proceeds of the credit facility are to be used for financing receivables.

Restructuring Agreement

This is used to document new terms and conditions affecting loan transactions in instances where borrower fails to meet his maturing obligations and/or by way of payment arrangement.​

Promissory Note

An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. It is a principal evidence of indebtedness and is to be considered along with the loan/line agreement.​

Disclosure Statement

A document disclosing to the client the details of the loans to be released

Real Estate Mortgage

A contract by which a client or third-party mortgagor secures in favor of the lender the fulfillment of principal obligation subjecting as security immovable (real) properties or real rights over them in the event the principal obligation is not fulfilled at the time stipulated.​

Chattel Mortgage

Like REM except that the subject is chattel or personal property

Mortgage trust indenture

A type of mortgage given to a trustee for the purpose of securing numerous creditors

Assignment of Receivables

A bilateral contract whereby one person transmits to another his rights, title, interests and actions against a third person either by way of payment or as a security.​

Joint and Several Signatures (JSS)/Comprehensive Surety Agreement

Binds the key officers and management solidarily or severally with the principal borrower making them liable in case of default/non-payment due to misappropriation, fraud, mismanagement, etc.​

collateral or security documents

executed to accompany loan agreements. These are, in effect, accessory contracts that cannot exist or stand alone without the principal lending documents.​

release or availment

should be in accordance with the approved terms and conditions and subject to completion of all necessary and appropriate legal documents​

conditions to meet prior the release or availment

• All pre-release requirements and conditions have been complied with, and proper legal documentation has been completed including the registration of mortgage documents with appropriate registrars ​

• The credit line has not expired or has not been exceeded ​

• Borrower has no past due availment ​

• Amount to be released will not exceed the approved credit limit or in accordance with the approved schedule of releases ​

• All availment documents have been signed by the borrower, and signed by the account officer as witness and other documents duly authenticated ​

• All PNs with Deed of Assignment should be accomplished and executed by the borrower and signed by the account officer as witness ​

• Releases should pass through different authorized signatories. No one person or division can singularly approve or effect a release ​

  Releases may be made in the following manner: ​

   One-time/lump sum release ​

   Partial release ​

• All original documents related to each availment should be reviewed and maintained.​

• Exceptions, deviations or deferrals from standard terms and conditions should be subject to approval ​

• Cancellation of mortgages and release of collateral are allowed upon full payment of the loan, including other attendant obligation such as insurance, real estate taxes, etc​

• Release of mortgages, guarantees, and other documents after the full payment of the loan should be consistent with the provisions ​

take note

• The lender must establish policies on information to be documented at each stage of the credit cycle.​

• The lender should maintain a checklist that can show that all their policies and procedures ranging from receiving applications to the disbursement of funds have been complied with. The checklist should also include the identity of individuals and/or committees involved in the decision-making process​

credit files

• refer to all the documents that are related to the account​

• The credit file provides credit officers a convenient reference about the basic information on the subject, and a history of the credit relationship with the borrower ​

take note

• The format of credit files must be standardized, and files neatly maintained with an appropriate system of cross indexing to facilitate review and follow up​

• A separate credit file should be maintained for each customer and if a subsidiary file is created, it should be properly cross-indexed to the main credit file​

• All photocopied documents submitted by the client should be stamped “certified true copy” upon presentation of the original copy and authenticated by the account officer ​

• Photocopied documents including the amendments thereto sourced from the government agency/s or office/s must be authenticated by the authorized officer from the source government agency/s or office/s ​

• Credit files should also be stored in fireproof cabinets and should not be removed from the lender’s premises​

• Credit folders must be treated as confidential and only authorized personnel may have access to these files ​

• The documents in the credit folders must be reviewed and maintained in good order ​