In one sentence
The handling of defaulted or at-risk loans by a specialist servicer with authority to modify, foreclose, or otherwise resolve them, common in CMBS.
The longer version
In securitized structures, performing loans sit with a master servicer and troubled ones transfer to a special servicer with the authority and expertise to work them out. The transfer trigger is defined in the servicing agreement.
Special servicing is where the loan documents, the intercreditor terms, and the servicing standard all get tested at once, and where a complete file earns its keep.
Common questions
- When does a loan go to special servicing?
- On a default or imminent default, such as missed payments, a maturity default, a bankruptcy, or a material event the servicing agreement defines as a transfer trigger.
- What does a special servicer do?
- Works out or resolves troubled loans through modifications, forbearance, discounted payoffs, foreclosure or note sales, acting for the trust's investors.
- Can a loan return from special servicing?
- Yes. Once the issue is resolved and the loan has performed for a period, it can return to the primary servicer as a corrected loan.
Keep reading
- The post-closing audit trailWhat examiners ask for and how to have it ready.
- How life companies run commercial mortgage operationsThe long servicing tail.
- Loan participations: a working guideLead and participant, document flow, ongoing obligations.
- Loan administrationWhere this is tracked after funding.