DEFINITION of 'Defeasance Clause'

A mortgage provision indicating that the borrower will be given the title to the property once all mortgage terms are met. The defeasance clause is not required in states using property liens as collateral for a mortgage. In this sense, the clause is a substitute for collateral.

BREAKING DOWN 'Defeasance Clause'

Most states allow property liens when mortgages are issued, and don't follow the common law theory requiring a defeasance clause. In real estate, a lien gives the mortgagee the right to foreclose the property upon default of the terms in order to recoup what was owed.

RELATED TERMS
  1. Defeasance

    A provision that voids a bond or loan when the borrower sets ...
  2. Defeasance Process

    A process to substitute collateral when looking to sell or refinance ...
  3. Contingency Clause

    A contract provision that requires a specific event or action ...
  4. Defeased Securities

    Securities that have been secured by another asset, such as cash ...
  5. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  6. Lien

    The legal right of a creditor to sell the collateral property ...
Related Articles
  1. Personal Finance

    What Is A Mortgage?

    A mortgage is a loan used to purchase a home, where the property serves as the borrower's collateral.
  2. Taxes

    Investing In Property Tax Liens

    Property tax liens can be a viable investment alternative for experienced investors that are familiar with the real estate market.
  3. Personal Finance

    Why Your Will Needs a 'Titanic Clause'

    If you don't have a Titanic clause in your will and disaster strikes, there's no guarantee that your intended beneficiaries will inherit your assets.
  4. Personal Finance

    Shopping for a Mortgage in 2017? Use This Tool First

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2017 can all be done online.
  5. Retirement

    Additional Streams of Income for Seniors

    Find out how a reverse mortgage can work in your favor during retirement.
  6. Financial Advisor

    Top Alternatives Assets for Capital Preservation

    At best, alternative investments can help preserve capital by avoiding correlation with stocks and by beating inflation. Here's a look at some options.
  7. Personal Finance

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  8. Financial Advisor

    Reverse Mortgages: Right for Clients? Not Often

    Reverse mortgages are a legitimate vehicle for folks age 62 and up to tap into the equity in their homes for other uses. Here's what to consider with them.
  9. Personal Finance

    Finding the Best Mortgage Rates in 2017

    As home-buying technology has progressed, the process of finding the best mortgages rates can all be done online. Here's how:
RELATED FAQS
  1. How do I avoid a tax lien on my property?

    Find out the best way to prevent the government from placing a lien on your property, including the consequences of having ... Read Answer >>
  2. What types of liens are seen as good and which are bad for my credit?

    Understand what a lien is and what types of liens are most common for individuals, and learn which types of liens are good ... Read Answer >>
  3. What is the difference between a lien and an encumbrance?

    Understand the legal terms ''lien'' and ''encumbrance,'' and learn the significant distinction between these two essential ... Read Answer >>
Trading Center