Commercial Property Defeasance Sales

Commercial real estate owners often seek to sell or refinance properties. The process to accomplish the sale or refinance is not as easy as it may seem when the mortgage to the property has been securitized and sold to investors. When this has happened, a Chicago defeasance sale attorney can assist the seller with the facilitation of a defeasance sale. 

When a Defeasance Sale is Needed

When the owner of a commercial property takes out a mortgage on that property, the mortgage may be securitized by the lender and sold to investors as commercial mortgage-backed securities (CMBSs). When a mortgage has been securitized, it is typically lumped together with comparable (in terms of risk) loans. The resulting CMBS is then issued a credit rating and sold to an investor. As this is generally how commercial mortgages are dealt with, the notes that accompany these mortgages contain prohibitions against prepayment. 

Because they are not able to pay the loan off early, when the owner wishes to sell the property or refinance it, the process is not as simple as having the note canceled and the mortgage satisfied. Instead, since the mortgage is now a part of a CMBS, the property owner must enter into a new transaction, such as a defeasance sale, and a Chicago defeasance sale attorney, like the Law Office of Alexis Hart McDowell, assists with its coordination. 

How Defeasance Sales Work

Defeasance transactions are a way for a borrower to replace the real estate that is secured by the mortgage with a different collateral, essentially freeing the real estate of its lien. The new collateral is typically a portfolio of U.S. Treasury backed obligations, including bonds and notes. A skilled broker is then able to use this portfolio to contrive the amounts that are needed to cover the payments required by the note. In many cases, not only is the collateral securing the loan substituted, but so is the borrower. The new borrower takes over the obligations under the note, thereby releasing the old borrower as well.  

The Cost of Defeasance Sales

The cost of a defeasance sale to a borrower depends on different factors. The first thing to consider is the cost of the substitute collateral. Is there a difference in the amount of the interest rate on the mortgage and the new collateral? If so, the borrower may incur an additional premium. Other costs to consider include the fees associated with the facilitation of a new borrower, accountant and attorneys fees. Your Chicago defeasance sale attorney can assist in determining how much a defeasance sale will cost.

Parties To A Defeasance Sale

There are multiple parties involved in a defeasance sale, including:

• Counsel for Seller: The seller of the property in a defeasance sale has their own attorney that ensures all steps are taken to protect the rights of the seller, and that once the transaction is complete the seller is no longer liable for any unexpected debt. 

• Counsel for Buyer: Counsel for the buyer in a defeasance sale ensures that the buyer is protected throughout the process and obtains the property they have contracted to buy under the terms they agreed to.

• Defeasance Consultant: Defeasance consultants coordinate the defeasance sale with all involved parties and ensure the process moves forward as smoothly as possible.  

• Counsel for Lender: The lender in a defeasance sale typically has their own lawyer to make certain the lender’s rights are protected and the amount the lender is loaning has sufficient collateral.

• Counsel for Loan Servicer: Counsel for the loan servicer prepares the necessary documents and collects due diligence items for the sale. 

• Accountant (Verification Agent): The accountant typically determines what securities will be used and that they are adequate collateral. 

Speak with a Chicago Defeasance Sale Attorney at Enterprise Esquire

Defeasance sales are a niche area of real estate law, and they require a Chicago defeasance sale attorney familiar with how the process works. To learn more about how they work, or to facilitate a defeasance sale, contact the professionals at the Law Office of Alexis Hart McDowell. At Enterprise Esquire we are experienced real estate attorneys and look forward to providing you with the legal assistance you need.