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Parties to a Defeasance and Their Roles




 Your Counsel

An essential piece to the puzzle is your real estate attorney as they will be tasked with reviewing the defeasance documents and coordinating delivery of the required deliverables. While one might think that a special attorney will need to be used, your typical attorney is more than capable of navigating the process. Being that defeasances are reliant on a standardized process and checklist, negotiations are typically minimal since the defeasance documents are based on forms that have been reviewed/negotiated between the master servicer and rating agencies. Guidance will be available from Pensford, servicer’s counsel, and other third parties throughout the process should your counsel have any questions.



Master Servicer

Once officially engaged, the master servicer will engage counsel who will represent the servicer throughout the transaction. The master servicer will be involved in the background by doing things such as providing its counsel the official loan documents, confirming receipt of loan payments, approving the closing, executing documents, etc. They will continue to service the loan following a successful closing.




Servicer’s Counsel

Servicer’s counsel is in many ways the star of the show and all things flow through them. They will distribute a checklist of deliverable items that must be provided to complete their diligence. The items will also be used by them to draft and distribute defeasance documents in preparation for the defeasance closing. The defeasance closing is driven by the underlying sale/refi closing, so the sooner all deliverables are into servicer’s counsel, the sooner they can wrap up their checklist. The goal is to fulfill the checklist requirements no later than two days before closing but sooner is always better. Once all of the requirements have been satisfied, counsel will provide their authorizations to facilitate the securities purchase and subsequent closing.





Defeasance Consultant

Pensford's role is to quarterback the process and ensure things are moving along as they should. Prior to kicking off the process, we provide estimates, discuss timing considerations, risks, and other quality insights to ensure the process commences at the appropriate time to meet your timeline. Throughout the process we work to ensure the borrower’s best interests are put first and things are progressing as they should so that the borrower can focus on other aspects of the underlying closing. Unlike some other advisors, we are an independent third party with no potential conflicts of interest, meaning our only interest in the transaction is ensuring it’s smooth, efficient, and transparent for the borrower. We also pride ourselves on availability and responsiveness so that the borrower always gets quick answers to questions and feels like they’re working with a partner who’s always there. For more on our defeasance services, visit our resources linked here.


Securities Intermediary (SI)

The SI will house the securities portfolio, once purchased, in a custodian account that is established earlier in the process. As the securities mature, the SI will use the proceeds to make the debt payments to the servicer as outlined in the collateral and loan agreements.



Successor Borrower (SB)

The SB will take the borrower’s place by assuming the loan obligations at the defeasance closing. The SB is a single purpose entity which will becomes the legal holder of the securities portfolio, although nothing can be done with the portfolio as it is being used to secure the debt and make the remaining debt service payments. The SB designation is outlined in the loan agreement and on many occasions will be at the discretion of the lender.


Certified Public Accountant (CPA)

Per the loan documents, a review of the securities portfolio by a nationally recognized accounting firm is required. The accountant will evaluate the defeasance collateral and affirm that it will generate sufficient cash on time and in accordance with the defeasance requirements to satisfy the scheduled debt payments as outlined within the loan documents.




Title/Escrow Agent

You’re a real estate borrower so we don’t need to tell you how important title/escrow agents are and their typical role! With that said, the escrow agent will execute a defeasance specific Escrow Instruction Letter which outlines specific steps that must be followed in order to successfully effectuate the defeasance closing. One of the most important requirements is that escrow will release the defeasance wire (to pay for the security portfolio) which must be received by the SI prior to the underlying sale/refi closing occurring. The defeasance wire is time sensitive and missing this window can cause the defeasance to fail to close, so responsiveness and an understanding of defeasance mechanics is critical to ensure a smooth closing.

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