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.

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.

Investment dictionary. . 2012.

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