What is the defeasance clause definition?
How do you legally define it?
What are the important elements that you must know!
In this article, we will break down the “defeasance clause definition”, so you know all there is to know about it!
Let’s dig into our legal dictionary!
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Defeasance clause definition
How do you define a defeasance clause?
In simple terms, a defeasance provision is a contractual obligation requiring a mortgage lender to provide a borrower full title to a property subject to the mortgage once the terms and conditions of the mortgage are met and all borrowed funds paid back.
In essence, further to a defeasance clause, a borrower will never acquire title to a property if the mortgage payments are not made or there is an event of default.
On the flip side, if the terms of the mortgage agreement are met, the borrower is entitled to free and clear title to the property.
The mortgage lender’s defeasible title to the property will be defeated and will no longer have any rights to assert against the property or claim ownership.
The defeasance clause is used in mortgages and lending agreements to secure the payment of the debt by the borrower.
In some states, you’ll have a defeasance clause in a mortgage deed as they follow the common law mortgage theory (as opposed to the lien theory followed by most states).
Under the mortgage theory, the lender gets a defeasible title to the property until the sums borrowed are paid back in full.
Once the borrower reimburses the debt in full, the defeasible title is defeated.
At that point in time, the borrower acquires full and unencumbered title to the property.
Defeasance clause is pronounced as “de-feezanse klauz”
Use in sentence
The bank imposed a defeasance clause as a condition to granting Jack a loan to purchase a property.
Jack was assured that once the mortgage is fully paid off, the bank will no longer need a defeasance clause as a pledge to secure the payment of the loan and will transfer the title to the property to Jack.
Here is how we define defeasance provision:
- It’s a clause found in a contract
- One party lends money to the other and retains a defeasible title to the property to secure the loan reimbursement
- When the borrower pays off the loan, the lender’s defeasible deed is defeated
- The borrower obtains a full and clear title to the property once all the mortgage agreement terms are met
Definition: A defeasible clause allows a borrower to obtain title to the property once the mortgage is paid off.
By the same token, the mortgage lender is required to transfer the title to the property to the borrower once the mortgage is satisfied.