It is a legal process to release your commercial property from its debt obligation as collateral for a loan.
These accounts help the borrower to set aside funds to repay the debt and offset it in their balance sheet.
When you take a mortgage you present your property as collateral against the money that you borrow to purchase the commercial real estate property.
In most commercial mortgages, you won’t be able to pay off your mortgage before a specific time due to pre-payment penalties.
Your mortgage is sold in the secondary financial market in bundles along with other loans after you sign your loan agreement with the lender.
These loans are used to create investment instruments known as commercial mortgage-backed securities (CMBS).
If the borrower decides to pay the loan earlier than the matured date, the investors lose the opportunity to make profits with the interest amount that is charged on the loan.
Hence if the borrower wants to pay off early, they either need to bare the pre-payment penalty or use the defeasance clause.