Intermediate1 hour8 terms

Real Estate Defeasance Key Terms

Navigating defeasance in real estate can be complex. This collection offers carefully selected key terms that might be helpful when exploring this specialized financing strategy. Use it as a quick reference to understand commonly referenced concepts and terminology you may encounter.

Term Collection

Government Securities

Government securities are debt instruments issued by a national government to finance its spending, representing a low-risk investment for lenders and serving as a benchmark for other interest rates in the economy.

Intermediate2-3 min

Special Purpose Vehicle

A Special Purpose Vehicle (SPV) is a legally separate entity, often a subsidiary, created by a parent company to isolate financial risk, facilitate specific transactions, or manage assets and liabilities for a particular project, commonly used in real estate for securitization or complex financing.

Intermediate5 min

Prepayment Penalty

A prepayment penalty is a fee charged by a lender if a borrower pays off a loan earlier than scheduled, compensating the lender for lost future interest income.

Intermediate13 min

Loan Servicer

A financial institution responsible for managing the administrative tasks of a mortgage loan, including collecting payments, managing escrow accounts, and communicating with borrowers, on behalf of the loan owner.

Intermediate2-3 min

Yield Maintenance

Yield maintenance is a prepayment penalty designed to protect a lender's yield on a commercial loan by ensuring they receive the same return had the borrower not prepaid, typically calculated as the present value of the difference between the loan's interest rate and a benchmark Treasury yield.

Advanced5 min

Mortgage Note

A mortgage note is a legally binding document signed by a borrower, promising to repay a loan used to purchase real estate, outlining the specific terms of repayment.

Intermediate3 min

Loan Assumption

Loan assumption allows a buyer to take over an existing mortgage from a seller, often retaining the original interest rate and terms, which can be advantageous in rising interest rate environments.

Intermediate18-20 min

Defeasance

Defeasance is a complex financial and legal process in commercial real estate where a borrower substitutes a portfolio of U.S. Treasury securities for the original property as collateral, effectively releasing the property from the mortgage lien, typically to facilitate a sale or refinancing when the loan contains a lockout period or strict prepayment penalty.

Advanced12-15 min