A single mortgage loan split into a senior A piece and a subordinate B piece, held by different investors but documented as one loan against the property.
The longer version
Unlike a mezzanine structure, an A/B split keeps one mortgage and one borrower. The division happens on the lender side through a co-lender or participation agreement that allocates payments, losses, and control rights between the A holder and the B holder. The borrower often deals with a single servicer and may never interact with the B holder at all.
The split matters at closing because the collateral file, the note endorsement, and the servicing arrangements have to reflect two holders of one obligation. It matters again in a workout, where the B holder absorbs loss first and the control rights written into the co-lender agreement determine who directs the servicer.
Common questions
- Is an A/B note the same as a participation?
- They are close relatives. Both divide one loan among holders. An A/B structure creates two distinct notes with a defined payment and loss waterfall, while a participation sells an undivided interest in the whole loan without splitting the note itself.
- Who services an A/B loan?
- One servicer administers the whole loan. The co-lender agreement sets which holder can direct that servicer, and that control usually shifts to the A holder once the B piece is written down.
- Does the borrower sign anything different?
- Generally no. The borrower signs one note and one mortgage. The split is documented between the lenders, which is why borrowers often learn about it only when the servicer changes.