Pooling Agreement: Everything You Need to Know
A pooling agreement is a contract in which shareholders of corporation create a voting trust by pooling their voting rights and transferring them to a trustee.3 min read
2. What Is a Pooling and Servicing Agreement?
3. What Is a Pooling Arrangement?
4. Mortgages and Securitization
5. Aspects of a PSA
6. Obtaining a PSA
A pooling agreement is a type of contract in which shareholders of a corporation create a voting trust by pooling their voting rights and transferring them to a trustee. This is also called a voting agreement or shareholder-control agreement since it is used to control the affairs of the corporation.
What Is Vote Pooling?
The right to vote is often one of the primary rights given to corporate shareholders. Shareholders can use various strategies to help leverage their votes, one of which is vote pooling. With this strategy, a group of shareholders agrees to vote the same way for directors ahead of time, making it more difficult to sway the vote. While vote pooling is generally legal, it may be disallowed by your shareholder agreement. For this reason, it's important to consult an attorney before entering a pooling agreement.
What Is a Pooling and Servicing Agreement?
Also called a PSA, a pooling and servicing agreement dictates the obligations and rights over a pool of mortgage loans required of parties to the agreement. This controls what can be done with this type of trust and is created when mortgages are bundled into securities and sold to investors.
If your home is being foreclosed, you should access the PSA to determine where your fees go and how the loan servicer is paid, as well as how mortgages may be modified, how payments are collected, and what process must be followed to foreclose on the loan.
In most cases, pool agreements do not allow parties to transfer or assign their rights.
What Is a Pooling Arrangement?
Pooling arrangements are used by ship owners to optimize a return on their vessels by grouping them with similar ships to create a fleet with increased availability and revenue.
Mortgages and Securitization
When you obtain a mortgage loan, the bank gives you the money to buy a home in exchange for a contract in which you promise to pay back the amount plus interest. The home serves as collateral, or security, for the loan.
With securitization, several similar mortgage loans are bundled together and sold in a package called mortgage-backed securities. These investments are often purchased by trusts in which investors in the trust receive payments.
The PSA, in this case, controls the activities of the trust. It typically includes the following individuals:
- The servicer, who collects monthly loan payments and distributes the proceeds to the investors
- The originator, who creates the secured assets (in this case, the mortgage itself)
- The investors, who buy shares in the trust
Aspects of a PSA
The main elements of a PSA include information about:
- The steps that must be taken to establish a trust
- How mortgage loan bundles can be acquired by the trust
- The process by which securities will be issued
- The obligations, rights, and duties of each party to the PSA
- Who retains late fees and other fees collected from the debtor
- How payments are collected
- How loan modification and foreclosure are handled
Obtaining a PSA
Public securities are required to file a PSA with the Securities and Exchange Commission (SEC), with copies available to the public on the agency's EDGAR system. If you are having trouble paying your mortgage, you should obtain a copy of this document by searching by the name of your original lender and/or by the name of the loan pool. The date you made the loan is also useful during your search. For example, if you are attempting to short sell your property and the lender will not approve this transaction, the PSA might provide some insight as to why they prefer to foreclose.
Start by clicking company filings and then searching for the name of the lender or the name of the trust. Clicking on the identification number will return a list of documents filed by that lender or trust. The PSA may be uploaded on its own or included as part of a document such as a Prospectus. You can note the name and document number and then request a certified copy of the PSA from the SEC. A lawyer can help you understand this document and its implications.
If you need help with a pooling agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.