2. Defeasance Clause
If you really need to know this term, call a professional. If you’re just curious, read on. Defeasance occurs when you want to terminate a loan early that is not prepayable. It is required that you substitute other collateral (usually a form of U.S. government securities) for the property securing the loan.
The amount of the securities required to be posted must be enough to pay off the principal, interest and fees of the loan. This occurs most often in the event of sale. You still must pay back the loan. Many times, this means posting much more security than the remaining loan balance.
Forbearance is a lender’s decision to delay taking legal action on a delinquent loan at the request of a borrower. In other words, the lender may give you some time to comply with your loan documents before it starts the foreclosure process. This can only take place at the lender’s absolute discretion and is determined on a case-by-case basis.
These definitions are brief and only address the common understanding of the terms, but there are many nuances that may affect the meaning based on the context in which they are used. It’s always best to consult a real estate professional if you have any questions about the terms or details of a transaction.
Ben Vestal is the executive vice president of the Argus Self Storage Sales Network, a real estate brokerage and development company based in Denver. Argus also operates www.selfstorage.com, a marketing medium for industry owners. For more information, call 800.55.STORE.