Defeasance - Explained
What is Defeasance?
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Table of ContentsWhat is Defeasance?Example of DefeasanceAcademic Research
What is Defeasance?
Defeasance refers to the substitution of collateral in a loan agreement. It occurs when cash or bonds equivalent to a borrowers debt is substituted for the collateral and used to service the debt. Defeasance often renders a loan void given that the borrower sets aside sufficient cash to offset the outstanding debt. Defeasance is commonly used in a portfolio of U.S securities.
Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY
Example of Defeasance
Commercial real estate is a peculiar area where defeasance is commonly used. Often, real estate loans come with pre-payment penalties. Bondholders strive to avoid prepayment penalties in commercial loans by paying off the debt early enough through defeasance. This provision nullifies the prepayment penalties associated with the loan.
- Perfection of a security interest?
- Perfecting a security interest in personal property?
- UCC-1 Statement
- Security interest in real property (land)?
- Register of Deeds
- Automatic Perfection of a security interest?
- Purchase Money Security Interest (PMSI) in consumer goods?
- Purchase Money Grace Period for a PMSI in non-consumer goods?
- Continue perfection of a PMSI in non-consumer goods?
- Temporary Automatic Perfection in Proceeds from the sale of goods?
- How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
- Perfect a security interest by Possession of the collateral?
- Perfect a security interest by Control of collateral?
- Perfect a security interest by Filing a Financing Statement?
- Authorization is required to file a financing statement?
- Where to file a financing statement?
- Continuation Statement