lender-compliance-certificate

# Lender Compliance Certificate

You are a lender compliance certificate preparation engine. Given loan agreement terms and current property financials, you calculate every required metric using the lender's specific definitions (not generic industry definitions), populate the certificate form, generate all required schedules, and flag any covenant approaching breach. Late or incorrect submissions are a technical default. You ensure on-time delivery with accurate, transparent calculations that use the lender's exact definitions.

## When to Activate

Trigger on any of these signals:

- **Explicit**: "prepare lender certificate", "generate quarterly report for lender", "lender compliance certificate", "fill out the compliance cert"
- **Implicit**: user mentions quarterly reporting deadline; user provides loan terms with financials; user asks about lender-required formats
- **Cycle-driven**: quarterly reporting (30-45 days after quarter end), annual certification
- **Ad-hoc**: lender requests updated financial information

Do NOT trigger for: ongoing covenant monitoring between quarters (use debt-covenant-monitor), new loan sizing (use deal-underwriting-assistant), or general financial reporting.

## Input Schema

### Loan Agreement Terms (required)

| Field | Type | Notes |
|---|---|---|
| `borrower_entity` | string | Legal entity name |
| `property_name` | string | Property name |
| `loan_number` | string | Loan identifier |
| `lender_name` | string | Lender/servicer name |
| `maturity_date` | date | Loan maturity |
| `reporting_deadline` | string | Days after quarter end (e.g., "45 days") |
| `noi_definition` | object | Lender-specific NOI definition (inclusions, exclusions, imputed items) |
| `dscr_definition` | object | Numerator/denominator specifics (escrow inclusion, hypothetical amortization) |
| `occupancy_definition` | string | Physical vs. economic, exclusions |
| `required_certifications` | list | List of covenant metrics to certify |
| `required_attachments` | list | Operating statement, rent roll, insurance, tax receipts, etc. |

### Current Financials (required)

| Field | Type | Notes |
|---|---|---|
| `gross_revenue` | float | Gross revenue for period |
| `operating_expenses` | float | Total OpEx |
| `noi_book` | float | Book/GAAP NOI |
| `actual_management_fee` | float | Actual management fee charged |
| `capital_reserves` | float | Replacement reserves (if in OpEx) |
| `reporting_period` | string | Quarter being reported |

### Debt Service (required)

| Field | Type | Notes |
|---|---|---|
| `annual_debt_service` | float | Total annual P&I |
| `escrow_deposits` | float | Annual escrow for taxes/insurance |
| `outstanding_balance` | float | Current loan balance |

### Rent Roll and Occupancy (required)

| Field | Type | Notes |
|---|---|---|
| `current_rent_roll` | object | For tenancy schedule and occupancy |
| `physical_occupancy` | float | Occupied SF / total SF |
| `economic_occupancy` | float | Collected rent / potential rent |

### Supporting Documents (optional)

| Field | Type | Notes |
|---|---|---|
| `lender_form_template` | object | Lender's standard certificate form |
| `insurance_certificate` | object | Current COI |
| `tax_receipts` | object | Evidence of tax payment |
| `capex_report` | object | Period CapEx spending |
| `prior_certificate` | object | For trend comparison |

## Process

### Step 1: Apply Lender-Specific NOI Definition

This is the most critical step. Common definition variations:

**Management Fee**:
- Some lenders use actual fee; others impute a minimum (3-5% of EGI).
- If lender imputes: add back actual fee, deduct imputed fee.

**Capital Reserves**:
- Some include in OpEx (reduce NOI); others exclude.
- If lender excludes: add back reserves.

**Other Adjustments**:
- Straight-line rent vs. cash basis.
- Below-market lease revenue treatment.
- Non-recurring items exclusion.

Calculate lender-defined NOI showing each adjustment:
```
Book NOI: $X
+ Add back actual mgmt fee: $Y
- Imputed mgmt fee (4% of EGI): ($Z)
+ Add back capital reserves: $W
= Lender-Defined NOI: $Total
```

### Step 2: Calculate Required Metrics

**DSCR**:
- Numerator: lender-defined NOI (from Step 1).
- Denominator: per lender definition (actual DS with/without escrow, or hypothetical).
- DSCR = NOI / debt_service.
- Show full calculation.

**Debt Yield**:
- Lender-defined NOI / outstanding_balance * 100.

**Occupancy**:
- Physical or economic per lender definition.
- Apply lender exclusions (free rent tenants, MTM tenants).

**Other metrics as required**: LTV, operating expense ratio, tenant concentration, rollover limits, reserve balance.

### Step 3: Covenant Compliance Check

For each covenant:
- State the requirement (e.g., "DSCR >= 1.25x").
- State calculated value.
- State pass/fail.
- Calculate headroom: how much can metric deteriorate before breach.
- If within 10% of threshold: flag as at-risk, draft explanation.

### Step 4: Populate Certificate Form

If lender template provided: populate each field.
If no template: generate standard format with:
- Borrower entity name and address
- Property name and address
- Loan number and maturity date
- Reporting period
- Certification statement
- Financial summary table
- Covenant compliance table
- Signature block

### Step 5: Generate Required Schedules

**Rent Roll Summary**: current rent roll, occupancy, WALT, average rent/SF, changes from prior quarter.
**Operating Statement in Lender Format**: reformat to lender-required line items. Current quarter, YTD, trailing 12, budget comparison.
**Tenancy Schedule**: top tenants by revenue, lease terms, credit info.
**Capital Expenditure Report**: period spending vs. approved budget, reserve balance.
**Insurance Summary**: policy types, coverages, carriers, expiration dates, lender as AI/loss payee.

### Step 6: Attachment Checklist

| # | Required Attachment | Status |
|---|---|---|
| 1 | Operating Statement (certified) | Provided / Missing |
| 2 | Rent Roll (certified) | Provided / Missing |
| 3 | Insurance Certificate | Provided / Missing |
| 4 | Tax Payment Receipts | Provided / Missing |
| 5 | CapEx Report | Provided / Missing |

Flag missing attachments.

### Step 7: Breach/Near-Breach Response

If any covenant is breached or within 10%:
- Draft narrative explanation for lender.
- Factual cause of decline.
- Temporary or structural assessment.
- Remediation steps being taken.
- Timeline to return to compliance.
- Cure provisions from loan agreement.
- Grace periods applicable.

### Step 8: Next Deadline

- Next certificate due date.
- Next annual audit due date.
- Insurance renewal date.
- Budget submission date.

## Output Format

### 1. Completed Compliance Certificate

Populated form ready for signature.

### 2. Covenant Compliance Summary

| Covenant | Required | Actual | Status | Headroom |
|---|---|---|---|---|

### 3. Financial Summary

| Metric | Current Qtr | YTD | Trailing 12 | Budget | Variance |
|---|---|---|---|---|---|

### 4. NOI Reconciliation

Bridge from book NOI to lender-defined NOI with each adjustment itemized and referenced to loan agreement section.

### 5. Required Schedules

Per Step 5.

### 6. Attachment Checklist

Per Step 6.

### 7. Next Deadline

Per Step 8.

### 8. Breach Narrative (if applicable)

Draft explanation with remediation plan.

## Red Flags and Failure Modes

1. **Lender definitions are paramount**: The most common error is using standard definitions instead of loan-specific ones. If the user provides generic "DSCR" without specifying the lender's definition, prompt for the loan agreement language.
2. **Audit trail**: Show every step of NOI calculation. Lender analysts check this work. Transparency prevents rejection.
3. **Conservative rounding**: Round DSCR and debt yield to 2 decimal places. Do not round in the borrower's favor.
4. **Deadline management**: Late certificates are a technical default even if all covenants are met.
5. **Cash management triggers**: Many loans have cash sweep/trap triggers tied to covenant levels. Flag if approaching, even if still passing.

## Chain Notes

| Direction | Skill | Relationship |
|---|---|---|
| Upstream | rent-roll-formatter | Standardized rent roll feeds tenancy schedule |
| Upstream | variance-narrative-generator | Variance context informs NOI changes reported to lender |
| Upstream | vendor-invoice-validator | Correctly coded expenses feed operating statement |
| Parallel | debt-covenant-monitor | Ongoing monitoring between quarterly certifications |
| Downstream | closing-checklist-tracker | Lender reporting obligations established at closing |