defeasance

The first, and most significant, is the cost of the defeasance portfolio.

Once the defeasance process is understood, several competing interests become apparent.

This type of defeasance is a relatively new methodology.

The second cost component is the third party fees incurred during the defeasance process.

The defeasance consultant can have an impact on both the creation of the portfolio and benefit from the end result.

Defeasance consultants can detail tax and accounting implications associated with sharing arrangements.

The most efficient and therefore least expensive defeasance portfolio is in the best interest of the original borrower.

By and large, the defeasance consultant may contact several sources for the securities on behalf of the borrower.

How does the borrower choose a defeasance consultant?

This is known as a defeasance.

Defeasance is a process by which interest and principal payments will come from a pool of Treasury securities rather than from the city.

There is no legal defeasance, since the sponsor typically is the beneficiary of the funding arrangement.

While certainly less complex than some of the other functions a consultant provides, the orchestration of the defeasance is a very necessary role.

Loan documents typically require that successor borrowers take the place of original borrowers upon defeasance.

Unlike yield maintenance, defeasance is neither a type of prepayment nor a prepayment penalty.

A defeasance provision in loan documents should allow borrowers to defease upon the expiration of this period.

As previously mentioned, this tactic also enables borrowers to benefit if the right to prepay the loan survives the defeasance.

The original note remains in place after a defeasance, but it is collateralized and serviced by the substituted securities instead of the real estate.

Eliminate any loan document provisions that preclude the right to prepay the loan after a defeasance has occurred.

Rules governing the structuring of the defeasance collateral stipulate that the earned interest cannot be applied toward scheduled loan payments.

The lockout expiration date is the date a securitized loan first becomes eligible for defeasance.

Custom securities are not available in many cases and though defeasance collateral portfolios can be structured for high efficiency, some residual value is likely to accrue.

Commercial mortgages often contain lockout provisions after which they can be subject to defeasance, yield maintenance and prepayment penalties to protect bondholders.

Typically borrowers will hire a defeasance consultant to assist with the defeasance process.

This entity will hold title to the defeasance collateral for the balance of the loan term and be responsible for making the remaining debt service payments.