Define: Defeasance Clause

A defeasance clause is a provision in a legal contract, typically found in mortgage agreements, that allows the borrower to extinguish their debt by meeting certain conditions, such as making all required payments and fulfilling any other obligations specified in the contract.

The purpose of a defeasance clause is to provide a mechanism for the borrower to release their property from the mortgage lien once the debt has been fully paid off. It ensures that the borrower regains full ownership of the property without any encumbrances.

The specific conditions for activating a defeasance clause can vary depending on the terms of the contract. However, common requirements include making all scheduled payments, providing any necessary documentation, and complying with any other obligations outlined in the agreement.

In some cases, a defeasance clause may be waived or modified through mutual agreement between the parties involved. However, any changes to the clause should be documented in writing and signed by all parties to ensure enforceability.

If the borrower fails to meet the conditions specified in the defeasance clause, they may not be able to release the property from the mortgage lien. In such cases, the lender may have the right to enforce the terms of the contract, which could include foreclosure proceedings.

Defeasance clauses are most commonly found in mortgage agreements, but they can also be included in other types of contracts where the repayment of a debt is involved. However, the specific language and conditions of the clause may vary depending on the nature of the contract.

Defeasance clauses must comply with applicable laws and regulations governing mortgage agreements and contract law. It is important to consult with a legal professional to ensure that the clause is legally enforceable and does not violate any legal requirements.

In some cases, it may be possible to add a defeasance clause to an existing mortgage agreement through a contract amendment. However, this would require the agreement of all parties involved and should be done in accordance with the legal requirements governing contract modifications.

The inclusion or removal of a defeasance clause is typically subject to negotiation between the parties involved. However, it is important to consider the potential implications and consequences before agreeing to any changes to the clause.

Including a defeasance clause in a mortgage agreement provides the borrower with a clear path to release their property from the mortgage lien once the debt is fully paid off. This can provide peace of mind and ensure that the borrower regains full ownership of the property without any encumbrances.