💸 Paying off debt 📄 Contract becomes void

defeasance

1 9.9

Money or investments kept to pay a loan so the property has no mortgage

noun
/dɪˈfiːzəns/

Specialized

: defeasancia

In a defeasance arrangement, the borrower sets aside funds to ensure that a debt is paid off, eliminating any claims from the lender.

Examples

Defeasance costs are certainly cost prohibitive on some deals these days, but when forced to execute one, borrowers can still save $30,000-$100,000 per deal by choosing the right defeasance consultant.

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We can give you more than that bank's 5-year fixed rate without charging a prepay penalty or having defeasance or yield maintenance.

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Defeasance on the Back of a Cocktail Napkin

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Yes, the exit costs tied to defeasance are currently high, but one potential benefit is the ability to defease at a discount.

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Now, if you get a low enough rate from your life company or CMBS lender, provided you can endure the tortuous process and the lower loan amount, you are not going to think about paying it off early, so who the heck cares about defeasance and its cousins, step down and yield maintenance?

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The company opted for defeasance to simplify its financial obligations and avoid potential legal issues with creditors.
By using defeasance, they were able to remove the legal claims on their property while ensuring debt payments were secured.

Surface Forms

defeasance singular

defeasances plural

Morphology

defeasance = defease (transparent) = defease + ance

Formed regularly from the verb 'defease' with the noun-forming suffix '-ance'; the noun denotes the act or state expressed by the verb.

Etymology

Defeasance comes from the parts de- and feasance, where feasance comes from Latin facere meaning 'to make' and de- means 'remove'. So a defeasance is a legal step that 'undoes' a debt claim by setting money aside to clear it.