The Real Estate Encyclopedia
What is a Defeasance?
Category - Home Ownership Questions - General Home Ownership FAQ's

Defeasance is a substitution of collateral. It is not a simple prepayment but a 30-45 day process that usually is coordinated with a commercial sale or refinance.

Typically, a commercial real estate borrower will contact a Defeasance Consultant who facilitates the defeasance process and uses the proceeds from the sale or refinance to purchase a portfolio of U.S. government securities that is sufficient to make all of the remaining debt service payments. The securities are pledged to the lender, and the lender releases the real estate from the lien of the mortgage. The note, which remains outstanding, and the portfolio of securities are assigned by the borrower to an successor borrower who makes the ongoing debt service payments.

Nearly every fixed-rate conduit/CMBS loan originated since 1998 requires the borrower to defease the loan before selling or refinancing. Note that REMIC regulations prohibit defeasance during the first two years from the date the loan is securitized (not the date the loan was closed).

 



External Links
www.defeasewithease.com
 
 
Category(s)
Home Ownership Questions - General Home Ownership FAQ's
Mortgage Questions - Mortgage Loans FAQ's
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