Defeasance is a process of commercial real estate finance by which borrower substitutes other income-generating collateral for a piece of real property to facilitate the removal of an existing lien without pre-paying the existing note. The original note remains in place after the defeasance though it is collateralized and serviced by the substitute securities to make the monthly debt service payments on the mortgage being defeased.
The premium the borrower uses to defease is the total cost of purchasing the securities less the outstanding balance on the loan. Secured loans cannot be defeased until two years after the day of the securitization. The lockout date is the first date the securized loan can be defeased. The borrower may have the option of prepaying the loan anytime from one to six months before maturity of a loan penalty or the premium. Borrowers can be allowed to purchase defeasance collateral to provide for payments through the start of the open period by eliminating the final interest payments.
Add A Comment