Release Clause

What is 'Release Clause'

A release clause is a mortgage term that refers to a provision within a mortgage. The release clause allows for the freeing of part of a property from claim by the creditor after a proportional amount of the mortgage has been paid. Generally a release clause may also be associated with a real estate brokerage transaction requiring a release of other offers if a specified offer has been accepted.

BREAKING DOWN 'Release Clause'

Release clauses are used in various aspects of mortgage real estate transactions. In real estate law they refer to a mortgage contract provision releasing a creditor from a portion of a collateral claim on a real property. This can give the mortgagor full rights to a portion of the property after a specified period of time. In real estate brokerage transactions, a release clause can allow a seller to obtain the best offer with acceptance of multiple offers.

Standard Mortgage Loan Provisions

A borrower approved for a mortgage loan must agree to and sign a mortgage loan contract. Contracts terms will be based on their credit application and mortgage collateral. The terms of the contract will also include the total length of time in which the loan will be paid off and the payment periods which typically are monthly.

A mortgage loanĀ is a type of secured loan. Therefore the mortgage loan contract will also include clauses regarding the mortgage title and a lien against the collateral which gives the lender right to take action on seizing the property in the case of a foreclosure.

Negotiating a Release Clause

A mortgage contract release clause can be negotiated by the mortgagor to protect them against the seizing of collateral. If a mortgagor includes a mortgage release clause in their mortgage contract then the lender is released from a specified claim after a certain portion of the mortgage has been paid. Generally a release clause could release the lien and property title making the remainder of the loan unsecured. In this situation a lender would lose first order priority to the property after a specific payment milestone. This would cause the lender to seek standard collection procedures if a borrower defaults after a specified milestone has been reached.

Release clauses may also be commonly associated with housing developments including multiple tracts of land. This would allow the owner to sell off part of the property, as with a developer who wishes to subdivide land that is financed with a mortgage loan.

Transaction Release Clause

With a transaction release clause, a seller is given a specified amount of time in which they can accept an offer but continue to receive additional offers. Transaction release clauses are typically associated with a 72-hour time frame. This allows a seller to accept multiple offers within 72 hours of an initial offer. If multiple offers are given within the 72-hour period the seller has the right to accept the best offer and release other offers.