Wachovia Cites IRS Defeasance Letter

Wachovia Securities, which services securitized commercial mortgages and facilitates related defeasance transactions, has announced the receipt of a private letter ruling from the Internal Revenue Service that may help reduce defeasance costs for borrowers.Charlotte, N.C.-based Wachovia said the ruling expands the time period for using securities in the defeasance process, but noted that it has not been published by the IRS and "may only be relied upon by the taxpayer who requested it." In a defeasance, a borrower substitutes government securities as collateral for a loan to obtain a release of the property that originally secured the loan, Wachovia noted. Existing practice required the securities to provide a stream of payments to fund the loan's debt service within four months of receipt. The IRS letter, which Wachovia received on behalf of a client, indicates that tax rules would not be violated by using securities maturing within 12 months rather than four, the company said. T.J. Maher, a managing director in Wachovia's Municipal Products Group, said expanding the period from 120 to 365 days will expand the security combinations available to borrowers.