Defeasance Process



Defeasance is a legal-heavy process that requires a significant amount of due diligence and documentation to maintain the payment structure of the mortgage and to uphold the tax-free status of the REMIC. A typical defeasance takes three or four weeks to complete; defeasances that require Rating Agency review or Special Servicer review can take longer (up to six weeks). The closing of the defeasance is coordinated around the closing of the refinancing or sale of the property. This is typically a three day closing process which can be shortened to two days. The Equity Defeasance Process is comprised of five stages.


Stage 1

  • The Borrower contacts Equity Defeasance to assist them with the defeasance process.
  • Borrower and Equity Defeasance notify the Servicer of their request to defease the loan.
  • Borrower sends in a Defeasance Deposit to the Servicer to officially commence the process.
  • A Working Parties List is created and a Kickoff Call is scheduled.
The Five Stages of Defeasance Arrow

Stage 2

  • The Kickoff Call is held with all the Defeasance Parties and the specific details of the transaction are discussed.
  • The due diligence and documentation requirements are outlined by the Servicer's Counsel.
The Five Stages of Defeasance Arrow

Stage 3

  • The Defeasance Documents are drafted and distributed. They are reviewed and amended (if necessary) until all parties sign off on the final drafts.
  • Equity Defeasance structures an optimized securities portfolio for the Accountant to review.
  • The Accountant verifies the sufficiency of the portfolio and provides a Draft Verification Report.
  • The other Due Diligence items are provided by the Borrower and its counsel, the Successor Borrower and its counsel, and the Servicer's Counsel.
The Five Stages of Defeasance Arrow

Stage 4

  • Equity Defeasance contacts all the Defeasance Parties to ensure the due diligence has been completed.
  • Rating Agency Review (if necessary) is completed by the Rating Agencies.
The Five Stages of Defeasance Arrow

Stage 5

The First Day (the Circling Day) of Closing
Equity Defeasance purchases (circles) the optimized securities portfolio on behalf of the Borrower.
The Second Day (the Funding Day) of Closing
The refinance/sale proceeds are funded into the escrow account. The Accountant provides the Final Verification Report.
The Third Day (the Closing Day) of Closing
The securities are delivered, wires are sent out to pay for the securities and the transaction costs, the mortgage is released, and the defeasance closes.