While it can seem intimidating, from a borrower’s perspective, the defeasance process amounts to completing a checklist of items like with any other transaction.
In order to preserve the tax-free status of a REMIC trust, securitized loans fall under a strict set of rules when it comes to obtaining an early release. Therefore, defeasance is a standardized process with little room for negotiation between largely boilerplate documents and standard deliverables.
How do I get started?
To officially kick off the process, a notice of intent to defease and good faith deposit, which typically amounts to $20K-$40K, will need to be delivered to the master servicer. You can complete a defeasance in less than 30 days but expedite fees will be incurred – feel free to check out our resource outlining the kick-off process.
Below we’ve outlined some items required for closing that you can begin to prepare when you are ready to move forward with the transaction.
What will your defeasance consultant need to get things going?
The consultant will use these items to help with drafting the defeasance notice, working parties list, and coordinating a kickoff call.
On the kickoff call, Servicer’s Counsel will cover a checklist of items which will need to be completed for the defeasance to close.
Typical Borrower deliverables include:
Note: Members and Managing entities of the Original Borrower may also need to provide the above items as to satisfy counsel’s checklist.
Servicer’s counsel will use these items to draft defeasance documents and complete their diligence ahead of the closing. All parties will work towards a specific closing date on the transaction.
Once the servicer’s counsel has confirmed receipt of all items necessary to proceed with the defeasance closing, the borrower can breathe easier knowing that the hard part is done.
Have a question? Reach out to defeasanceteam@pensford.com or 704-887-9880. For help on all things hedging, reach out to the experts at pensfordteam@pensford.com or (704) 887-9880.