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Defeasance Update 2008
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What is defeasance?
Nearly every fixed-rate conduit/CMBS loan originated since 1998 requires the borrower to defease their loan before selling or refinancing. Defeasance has become so prevalent in securitized loans that life
insurance companies, HUD and others seeking to preserve the ability to securitize their loans have incorporated defeasance into their form loan documents, as well.
Put simply, defeasance is a substitution of collateral. Typically, a defeasance is coordinated to close contemporaneously with a sale or refinance. The borrower uses proceeds from the refinance or sale 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 unaffiliated successor borrower who makes the ongoing debt service payments as
scheduled.
The complex defeasance process involves a host of professionals, from attorneys and accountants to servicers, trustees and rating agencies. Defeasance is not a prepayment. The entire defeasance process takes
30 to 45 days on average of which 2 to 3 days are allocated to the closing process.
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Contact us and you will
see how we got the slogan: "Defease With Ease"
®.
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