In one sentence
An account arrangement directing tenant or borrower receipts to a lender-controlled account rather than to the borrower directly.
The longer version
A hard lockbox sends rents to a lender-controlled account from day one, and funds are released to the borrower according to a waterfall. A soft lockbox lets the borrower keep receipts until a trigger event, at which point control shifts. The difference is a major negotiation point because it determines who holds the cash day to day.
The arrangement requires tenant direction letters, a deposit account control agreement with the bank, and clear waterfall mechanics. Each of those is a separate deliverable with a separate counterparty, which is why lockbox items are frequently the last to clear on a closing checklist.
Common questions
- What is the difference between a hard and a soft lockbox?
- A hard lockbox routes receipts to the lender-controlled account immediately. A soft lockbox leaves cash with the borrower until a trigger event, then shifts control.
- What is a deposit account control agreement?
- The agreement among borrower, lender, and depository bank that perfects the lender's security interest in the account and sets who may direct the funds.
- Do tenants have to be notified?
- For a hard lockbox, yes. Tenant direction letters instruct them where to send rent, and collecting those from a large tenant roster takes time.
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