Case Study

Finding and Correcting Errors in Modified Loan Cashflows Within CBMS

Loan modifications within CMBS can introduce significant complexity into cashflow calculations. Oakleaf was approached by a Commercial Mortgage-backed Securities (CMBS) certificateholder to investigate the effects of several large loan modifications that had occurred within their CMBS, and specifically to assess whether the modified cashflows were correctly paid to certificateholders. Oakleaf’s Mortgage Litigation Support Services team was tasked with the identification of calculation errors in the modified loan cashflows and with recalculating corrected loan and certificate cashflows.


Oakleaf’s approach consisted of a loan level analysis and a trust level analysis.

In the loan level analysis, we analyzed the cashflows of the modified loans to assess cashflow compliance with the loan modification agreements. We recalculated what the principal and interest payments should have been pursuant to the loan modification agreement, including the deferred interest, forgiven (lost) interest, and principal losses. The recalculated payments were then used to compare with those reported by the trustee, and instances were identified in which the special servicer and/or master servicer did not report loan cashflows in adherence to the loan modification agreements. Because of errors in how the servicers treated losses, we also identified discrepancies in loan balances between the records of the trust and those of the servicer.

In the trust level analysis, the Oakleaf team examined how interest and principal payments and losses were applied each month to each certificateholder. We recalculated what the monthly allocation of principal, interest, and losses should have been pursuant to the Pooling and Servicing Agreement. The recalculated payments were then used to compare with those calculated and reported by the paying agent. A month-by-month reconciliation of principal, interest, and losses for each class of certificates was performed. Using this reconciliation, monthly under- and over-payments of principal and interest for each class of certificates were identified. These under-payment calculations served as the basis for the certificateholders’ communications with the Paying agent in an attempt to rectify the situation, and, served as the evidence and testimony supporting the certificateholders’ efforts in a Trust Instruction Proceeding to recover their lost payments.

Lastly, Oakleaf examined special “one-time” cashflows (subsequent recoveries, adjustments, legal settlements, liquidation proceeds) that occurred during the trust’s existence, and we calculated how such special one-time cashflows should have been allocated to certificateholders.


  • Oakleaf’s analysis resulted in the identification of payment errors and the payments that would be necessary to correct the errors. Oakleaf’s clients used this evidence and testimony in a Trust Instruction Proceeding (ongoing as of July 2021) to recover their funds.
  • Oakleaf’s analysis provided detailed and well-documented identification of errors, including:
    • Identification of collateral (loan) cashflows which were incorrectly administered, including which loans and periods and the amounts in error.
    • Identification of classes of certificates that were impacted, including which classes were underpaid and which were overpaid, the amounts of underpayment or overpayment, and the specific months.
    • Provided certificateholders with well-documented supporting calculations necessary to substantiate the calculation errors.
    • Supported certificateholders and certificateholders’ counsel with expert reporting and testimony in a Trust Instruction Proceeding.

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