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. Defeasance Clause

    A mortgage provision indicating that the borrower will be given ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Advance Rate

    The maximum percentage of the value of a collateral that a lender ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Loan Stock

    Common or preferred stock shares that are used as collateral ...
Related Articles
  1. 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.
  2. 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 ...
  3. Investing

    The Reality of Commercial Real Estate Loans

    It’s corporations and partnerships that most commonly take out commercial real estate loans.
  4. Personal Finance

    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 ...
  5. 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. ...
  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. Personal Finance

    How to Pick the Right Lender When Refinancing a Mortgage

    Refinancing your mortgage has never been easier with the range of lenders and access to information that are available to you.
  8. Personal Finance

    How to Find the Best Refinance Companies

    From traditional lenders to online loans, here's everything you need to know about refinancing your mortgage.
  9. Investing

    Use Real Estate To Put Off Tax Bills

    Find out how you can build wealth and reduce your taxes.
  10. Personal Finance

    Student Loan Refinancing: The Pros and Cons

    To refinance your student loan or not? Here are the top pros and cons to consider.
Trading Center