CORPORATE & INSTITUTIONAL FAQS

Defeasance involves a substitution of collateral for a loan, whereby the mortgaged property is replaced with government securities. The cash flow from these government securities must be sufficient to cover the debt service requirements for the remaining term of the loan.  Unlike a pay off, the loan is not paid off, but the mortgaged property is released. 

Wachovia provides a full range of defeasance services.  Visit our Defeasance page for a description of our capabilities, a defeasance calculator and information about contacting our Defeasance group.

Upon receipt of a good-faith deposit, the typical defeasance will take approximately three weeks to close.  Timing, however, varies based on numerous factors, including the motivation of the borrower and the complexity of the loan.  Loan documents generally require that borrowers provide prior notice, typically 30 to 60 days, of their intent to defease; however, it may be possible to have this requirement waived under certain conditions.

The defeasance process begins once the borrower sends the good-faith deposit to Wachovia.  This deposit will be applied toward certain costs and fees incurred in connection with the defeasance closing.

In addition to the borrower and Wachovia (as servicer), the typical parties to the defeasance process include an accounting firm, successor borrower, securities dealer, escrow agent, securities intermediary, and their respective counsel.  Other parties may include rating agencies and a special servicer, depending on the size of the loan and complexity of the defeasance closing.

Wachovia requires that accounting firms be experienced with the defeasance process to ensure the reliability of its opinion and accurate reporting.  We can provide borrowers with names of accounting firms with such experience.  The accounting firm will need to provide an expert opinion and verification that the payment stream of the government securities is sufficient to cover the debt service requirements for the remaining term of the loan.

The purchase of government securities sufficient to cover the debt service requirements for the remaining term of the loan requires a dealer familiar with the defeasance process.  The borrower may engage Wachovia Securities for this service.  In-house dealer availability provides the borrower with cost-effective, experienced personnel.

The successor borrower is a newly created special purpose entity that will hold the government securities in its name and assume the borrower’s obligations under the promissory note.  Wachovia will be responsible for hiring and coordinating with the successor borrower for each defeasance.