defease

Looking back to the mid-1990s, it was unheard of to defease a securitized commercial mortgage.

A defeasance provision in loan documents should allow borrowers to defease upon the expiration of this period.

The premium a borrower pays to defease (what some refer to incorrectly as a "penalty") is the total cost of purchasing the securities less the outstanding balance on the loan.

Frequently, the first thing many borrowers notice in loan documents is a provision related to the earliest date - the lockout expiration date - that borrowers can defease the loan.

If borrowers must defease to the maturity date and cannot have the flexibility of purchasing defeasance collateral portfolios that make a final payment before the maturity date, loan documents should provide that any right to prepay the loan should survive the defeasance.