Defeasance Assignment Assumption and Release Agreement: Understanding the Basics
A Defeasance Assignment Assumption and Release Agreement, commonly known as a DAARA, is a legal document used in commercial real estate deals to release a property from a mortgage lien. Essentially, it allows a borrower to pay off a loan early by purchasing government securities that will be used to pay off the debt when it is due. This can save the borrower money in interest and provide them with greater flexibility in managing their debt.
The DAARA is a complex document, so it is important to understand its terms and requirements. Here are some key elements to keep in mind:
1. Defeasance
The term “defeasance” refers to the process of releasing a property from a mortgage lien. Typically, a borrower must pay off the full balance of a loan to release the property from the lien. With defeasance, however, the borrower can purchase government securities to repay the debt, allowing them to retain ownership of the property without the lien.
2. Assignment and Assumption
The DAARA outlines the assignment and assumption of the debt from the original lender to the borrower. The borrower agrees to assume the loan, while the lender assigns the loan to the borrower. This allows the borrower to have control over the loan and complete the defeasance process.
3. Release
The DAARA provides for the release of the property from the mortgage lien once the government securities have been purchased and deposited into a custodial account. The lender must approve the release, and the borrower must comply with all other terms and conditions of the DAARA before the release can occur.
4. Government Securities
The DAARA requires the borrower to purchase government securities that will be used to pay off the debt when it is due. These securities must be of a type and amount that is agreed upon by both the borrower and the lender. The borrower must also provide documentation showing that the securities have been purchased and deposited into a custodial account.
5. Fees and Costs
The DAARA may include fees and costs associated with the defeasance process. These may include legal fees, custodial fees, and other expenses associated with preparing and completing the document. The borrower is typically responsible for paying these fees and costs.
In conclusion, a Defeasance Assignment Assumption and Release Agreement is a complex legal document that can help borrowers save money and gain flexibility in managing their debt. Those considering a DAARA should work closely with their legal and financial advisors to understand the terms and requirements and ensure that they are making a sound financial decision.
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