Defeasance


Defeasance Also referred to as defease

A provision in loan/bond that removes it as a liability on the balance sheet if cash is set aside to service the debt. The offsetting cash is also removed from the balance sheet.

This can also be used to refer to the process of the legal title being restored to the borrower of a property once all payments and terms of a mortgage have been satisfied.

If I have $10 million in bonds, and set aside $10 million in cash and use the defeasance then they both will be removed from the balance sheet.