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The Defeasance Process

Overview of the Process

A Defeasance has six main steps which are outlined below. The closing itself is a 3 day process where the defeasance simultaneously closes with the underlying real estate sale or refinance transaction.

 
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Step 1: Notify servicer and kickoff defeasance

  • Borrower and Capital Defeasance Group notify servicer of defeasance
  • Identify and notify transaction working parties
  • Conference call with working parties to explain deliverables, expectations, deadlines

Step 2: Review and finalize defeasance documents

  • Defeasance pledge and security agreement; defeasance account agreement
  • Defeasance assignment, assumption and release; defeasance certificate, waiver and consent
  • Each party reviews; finalized by Servicer counsel

Step 3: Obtain original borrower documentation and opinions

  • Original borrower articles of formation, resolutions, certificate of good standing
  • Original borrower reps, warranties and certification
  • NY law, enforceability and REMIC opinions

Step 4: Construct and optimize securities portfolio

  • Determine eligible securities
  • Create optimal, lowest cost defesance portfolio
  • Obtain accountant’s verification report

Step 5: Create Successor Borrower entity

  • Form Successor Borrower entity
  • Obtain custodial account for securities
  • Obtain SB opinions from SB counsel

Rating agency review

  • Only required for larger, more significant loans in securitization

Step 6: Three day closing process

  • Day 1: Purchase defeasance collateral portfolio
  • Day 2: Deliver securities; buyer/lender funds escrow
  • Day 3: Transfer securities, settle payments; release lien

Read more about the 3 day closing process.