Trimont Defeasance - Defeasance Overview

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Defeasance is a substitution of collateral that allows the borrower to refinance, sell, or reposition a property that would otherwise be disallowed by the encumbering loan documents. Defeasance has replaced yield maintenance as the preferred form of call protection in fixed rate conduit loans and is typically the borrowers only option for being released from such loans.

Defeasance is not a prepayment. The loan remains outstanding, but a portfolio of qualifying government securities replaces the original property as collateral for the loan. The defeased note and the new securities collateral are assumed by an independent successor borrower entity and the original borrower and real estate collateral are released from the obligations under the CMBS loan.

The defeasance process runs concurrent with the refinance or sale closing and typical takes about thirty days. The borrower’s responsibilities are only to engage a consultant, engage legal counsel and deliver certain documents and signatures. The attorneys and defeasance consultant handle the rest.

There are five core legal defeasance documents and several legal opinions produced that evidence the defeasance and ensure that all key requirements have been met. The documents are highly standardized and relatively non-negotiable. It is critical that the transaction is accurately documented and executed in such a way as to not contradict the provisions of the loan document or disrupt the REMIC status of the trust.

TriMont as your defeasance consultant will coordinate the execution of the legal documents and opinions as well as the various other parties that must come together to meet your closing schedule. In addition to borrower counsel, servicer counsel and successor borrower counsel involved in the document and opinion execution, our professionals will work with the servicer, rating agencies, accountant, title company, securities broker and securities intermediary to ensure that all requirements of your closing are brought together efficiently and on schedule.