Defeasanced definitions
| Word backwards | decnasaefed |
|---|---|
| Part of speech | The word "defeasanced" is a verb. |
| Syllabic division | de-feas-anced |
| Plural | The plural of defeasanced is defeasances. |
| Total letters | 11 |
| Vogais (2) | e,a |
| Consonants (5) | d,f,s,n,c |
Defeasance is a process in real estate finance where a borrower substitutes a portfolio of securities for the real estate collateral that underlies a mortgage. This allows the borrower to release the property from the lender's lien once certain conditions are met, typically through the establishment of an irrevocable trust.
Benefits of Defeasance
One of the main benefits of defeasance is that it allows borrowers to maintain control over their property while still satisfying their debt obligations. By substituting securities for the real estate collateral, borrowers can take advantage of lower interest rates and better loan terms, ultimately reducing their debt service costs.
Defeasance Process
The process of defeasance involves several key steps. First, the borrower purchases a portfolio of securities, typically consisting of U.S. Treasuries or other highly rated bonds. These securities are placed in an irrevocable trust, which generates cash flow to service the debt. Once the necessary securities are purchased and the trust is established, the lender releases the property from the mortgage lien, allowing the borrower to retain control of the property.
Defeasance vs. Prepayment
Defeasance is often compared to prepayment, another method of satisfying a mortgage. While prepayment involves paying off the outstanding balance of a loan in full, defeasance allows borrowers to substitute securities for the real estate collateral without fully repaying the loan. This can be advantageous for borrowers who want to retain control of their property or take advantage of lower interest rates without incurring penalties for early repayment.
In conclusion, defeasance is a useful tool for borrowers looking to refinance their property while maintaining control and flexibility. By substituting securities for real estate collateral, borrowers can achieve lower debt service costs and better loan terms, ultimately benefiting their overall financial position.
Defeasanced Examples
- The mortgage was defeasanced after the borrower paid off the loan.
- The bond issuer defeasanced the bond by setting aside enough funds to cover future payments.
- The legal team defeasanced the lawsuit by presenting new evidence in court.
- The landlord defeasanced the lease agreement after the tenant violated the terms.
- The company defeasanced its debt by selling off assets to raise funds.
- The bank defeasanced the loan after the borrower defaulted on payments.
- The contract was defeasanced due to a breach of confidentiality.
- The government defeasanced the tax liability by offering a tax credit to eligible citizens.
- The insurance company defeasanced the claim by proving the policyholder was at fault.
- The homeowner defeasanced the mortgage by refinancing at a lower interest rate.