Defeasance Process

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. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  3. 100% Mortgage

    A mortgage loan in which the borrower receives a loan amount ...
  4. Advance Rate

    The maximum percentage of the value of a collateral that a lender ...
  5. MBA Refinance Index

    A weekly measurement put together by the Mortgage Bankers Association, ...
  6. No-Appraisal Loan

    A mortgage that does not require an appraisal of the property’s ...
Related Articles
  1. Credit & Loans

    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 ...
  2. Economics

    The Reality of Commercial Real Estate Loans

    It’s corporations and partnerships that most commonly take out commercial real estate loans.
  3. Credit & Loans

    All About Government Loans

    There are many reasons to seek a government loan rather than one from a private lender. Government loans typically have low interest rates and offer fixed or subsidized options, as well as deferred ...
  4. Credit & Loans

    Commercial Real Estate Loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
  5. Home & Auto

    What Is A Mortgage?

    A mortgage is a loan used to purchase a home, where the property serves as the borrower's collateral.
  6. Investing Basics

    The Complete Guide to Financing an Investment Property

    If you're considering adding an investment property to your portfolio, you need to know what your options are for financing its purchase.
  7. Get Approved for a Mortgage in an Hour

    The traditional mortgage approval process takes 2-4 weeks, but tech companies have reduced the time to get approved for a mortgage to less than one hour.
  8. Credit & Loans

    7 Bad Reasons To Refinance Your Mortgage

    When low mortgage rates are everywhere, it might seem like a good time to refinance. Make sure you are doing it for the right reasons.
  9. Personal Finance

    Tips To Improve Chances Of A Small Business Loan

    Enhance your small business loan eligibility by keeping these important tips in mind.
  10. Credit & Loans

    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. ...
RELATED FAQS
  1. 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 >>
  2. What is the difference between secured and unsecured debts?

    Learn the differences between secured and unsecured debt; discover how banks buffer risks associated with each type of loan ... Read Answer >>
  3. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
  4. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Answer >>
  5. How would child support payment that I receive affect my debt ratio on a refinance?

    My husband is not on the home loan with me, and I am trying to refinance my home.  ... Read Answer >>
  6. What factors should I consider when shopping for the best mortgage lender?

    Comparing lenders to obtain the best mortgage loan requires research and willingness to shop around for the best loan to ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center