DEFINITION of 'Defeasance Process'

A process to substitute collateral when looking to sell or refinance an existing property which was acquired through a real-estate loan. Plainly speaking, the defeasement process involves the remainder of the amount owing on the loan being used to purchase government securities which are then given to the lender in exchange for releasing the property for refinance or sale by the borrower. It is a complicated process involving many outside parties such as lawyers and accountants, and takes on average 30-45 days to complete. If a quick sale is necessary, the process can often be sped up, however, a premium is paid for this expediation.

BREAKING DOWN 'Defeasance Process'

While there are variations on the steps taken to ensure proper execution of the defeasement process, it is most often involves multiple steps and multiple parties. The cost of the process is determined by the transaction costs of purchasing the securities as well as the labor costs of all of the involved parties.

RELATED TERMS
  1. Defeasance

    A provision that voids a bond or loan when the borrower sets ...
  2. Defeased Securities

    Securities that have been secured by another asset, such as cash ...
  3. Defeasance Clause

    A mortgage provision indicating that the borrower will be given ...
  4. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  5. Borrowing Base

    The amount of money a lender will loan to a company based on ...
  6. Loan

    The act of giving money, property or other material goods to ...
Related Articles
  1. Investing

    Defeasance Reduces Commercial Real Estate Fees

    Try this alternative to short-term variable-rate financing when using leverage to buy property.
  2. Investing

    Explaining Defeasance

    Defeasance refers to a provision that enables a bond or a loan to be voided once the borrower sets aside enough cash or securities to service its debt.
  3. Personal Finance

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  4. Investing

    The Reality of Commercial Real Estate Loans

    It’s corporations and partnerships that most commonly take out commercial real estate loans.
  5. Retirement

    When Are Mortgage Lenders Better Than Banks?

    Individuals seeking a mortgage loan should consider factors or circumstances that may make a mortgage lender a better choice than a traditional bank.
  6. Personal Finance

    How to Lower Refinance Closing Costs

    Refinancing a mortgage can save you money but it isn't free. There are closing costs associated with a refinance and how much you pay for them depends on you.
  7. Financial Advisor

    Tips To Improve Chances Of A Small Business Loan

    Enhance your small business loan eligibility by keeping these important tips in mind.
  8. Investing

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...
  9. Personal Finance

    9 Things to Know Before You Refinance Your Mortgage

    Whether or not a mortgage refinance is right for you depends more on individual circumstances than this week's mortgage interest rates.
  10. Managing Wealth

    Hard Money Loans: Know This Tool for Real Estate Investors

    A hard money loan may be a faster route to financing than a bank loan, but be sure you understand the pluses and minuses before you take one on.
RELATED FAQS
  1. Is it possible to refinance a house you're renting out?

    Find out whether it is possible to refinance rental property. Lenders have strict qualifying standards and expect owners ... Read Answer >>
  2. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
Trading Center