The decline of commercial real estate fundamentals-evident in rising vacancy, falling rental rates and growing operating expenses-has led to a decrease in property cash flows and asset value. As active managers of their loan portfolios, lenders are evaluating declining property performance metrics and assessing their options and remedies to minimize loan defaults and associated principal and interest losses. As such, mortgage servicers are receiving an increasing number of requests from lenders to implement cash management accounts.

Cash management accounts are referred to in a variety of ways-lock box accounts, deposit accounts, cash trap accounts or springing lockbox accounts-but the lender's objective is basically to obtain a higher degree of control over property cash flow. Generally, a cash management account is an alternative payment system wherein the borrower's tenants mail their monthly rent payments directly to the lender, locking the borrower out of the property cash flow. Cash management structures are typically negotiated and documented at the time of loan closing.

While cash management arrangements share the common objective of control, the details and particulars of an effective structure need to vary based on the underlying nature of the property's circumstances or the borrower's financial situation. As the responsible party for implementing and administering the cash management accounts, mortgage servicers are finding themselves in the difficult situation of interpreting cash-management language contained in the original loan documents versus executing effective cash management plans..