When it comes to defeasance, getting an accurate quote is crucial for borrowers looking to navigate the complex process of replacing collateral in a commercial real estate (CRE) loan. However, not all defeasance consultants may have your best interests at heart. Hidden fees and misrepresented quotes can quickly turn a seemingly straightforward transaction into a costly headache.
Read ahead to explore the key elements of a defeasance quote, red flags to watch out for, and essential questions to ask to ensure you’re getting a fair deal.
What’s Included in a Standard Defeasance Quote?
A standard defeasance quote should provide you with a clear breakdown of the costs and fees associated with the process. Here are the key items you should expect to find on a legitimate defeasance quote:
Securities Analysis
A thorough securities analysis is essential to determine the cost of purchasing government securities to replace the collateral. This analysis should be detailed and transparent, showing you the securities’ current market value.
Estimated Transaction Fees
Transaction fees are a significant part of the defeasance process. These fees can include legal expenses, document preparation, and other administrative costs. Your quote should provide an estimated figure for these fees so you can plan accordingly.
Total Estimated Defeasance Costs
The total estimated defeasance costs should be the sum of the securities analysis and transaction fees. This figure gives you a clear picture of the financial impact of the defeasance on your loan.
What Defeasance Quote Red Flags Should You Avoid?
To protect yourself from hidden fees and misrepresented quotes, keep an eye out for these red flags when reviewing defeasance offers:
1. No Total Transaction Fee Representation:
If the quote lacks a clear representation of the total transaction fees, it can be a sign that there are hidden costs waiting to surprise you after you’ve signed the contract. Always seek clarity on the total cost.
2. No Line-Item Expense Breakdown:
A reputable defeasance consultant should be willing to provide a detailed breakdown of all expenses associated with the transaction. If you receive a quote with vague or unexplained costs, proceed with caution.
What Defeasance Quote Questions Should You Ask?
To ensure transparency and avoid unexpected expenses, don’t hesitate to ask your defeasance consultant the following questions:
1. What Is the Custodian Fee?
The custodian fee covers the cost of storing the government securities used in the defeasance process. Make sure you understand this fee and how it will be calculated.
2. What Is the Successor Borrower Fee?
In the event of a loan assumption, there may be fees associated with transferring the defeasance responsibilities to the new borrower. Clarify this fee and when it applies.
3. What Is the Servicer Processing Fee?
This fee covers the administrative work carried out by the loan servicer during the defeasance process. Understanding this cost is essential for budgeting purposes.
4. What Is the Accountant Sufficiency Report
The accountant sufficiency report ensures that the replacement collateral meets the lender’s requirements. Understand the purpose of this report and any associated costs.
5. What Are Your Firm’s Consultant Fees?
Consultant fees can vary widely among defeasance providers. Get a clear understanding of what your chosen consultant charges for their services.
6. What Are the Rating Agency Fees
If the defeasance process requires a rating agency’s involvement, clarify the associated fees and how they will be handled.
Getting an accurate defeasance quote and avoiding hidden fees is essential for borrowers looking to navigate the defeasance process successfully. By understanding the standard items to expect, recognizing red flags, and asking the right questions, you can ensure transparency and make informed decisions when choosing a defeasance consultant. Thorough research and due diligence can save you from costly surprises down the road. At Thirty Capital Financial, we prioritize transparency and accuracy in our defeasance quotes, putting your best interests first.
About Thirty Capital Financial:
Thirty Capital Financial is a leading service provider to the commercial real estate industry. Our team of advisors have spent decades providing solutions for defeasance, interest rate hedging, and debt management. With our personalized approach, we provide you with the tools, solutions, and strategies to confidently manage debt while supporting the growth of your company. Contact us today to speak with an expert defeasance consultant!
