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Defeasance is used if the borrower needs to pay off the loan before its maturity. It allows the mortgage to be with the CMBS until it matures while the borrower holds the right and the title of the collateral.\u00a0<\/b><\/p>
It replaces your property as collateral with a government securities portfolio like US agencies and treasury bonds.\u00a0<\/b><\/p>
Money earned from this newly created portfolio is used to make monthly payments for the leftover months and the lump sum payment at the end of the loan maturity date.\u00a0<\/b><\/p>
The government securities that are defeased are considered less risky for the CMBS investors.<\/b><\/p>
Once the defeasance clause is executed successfully, the collateral is released from the debt obligation and the borrower gets the right to own the property free to sell or refinance the property without paying any pre-payment penalty.\u00a0<\/b><\/p>
All this happens while your mortgage still lives on in the CMBS. Since the debt is replaced with another low-risk security, both the amounts offset each other in the borrower\u2019s balance sheet.<\/b><\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t