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Definition

Defeasance Clause

Defeasance Clause indicates a legal clause or part of a mortgage agreement where the owner of the property can again own it upright once he/she has paid the full amount of the loan or the mortgage payment.

A mortgagee who borrowed the money from a lender obtained a document of defeasible charge to the asset as a guarantee for the existing debt under early English common law. Any such deed was subjected to conquest or deletion upon completion of the obligation.

If the borrower fails to repay the loans even for a single day, his/her claim becomes an asset in legal or equitable absolute, giving the mortgagee complete control of the asset. These common-law laws governing this sort of mortgage deal are included in a defeasance clause.

 

For example, Mia has taken a loan because of a huge loss in her business. As she doesn't have any savings or cash at hand, she decided to mortgage her house. After investing in different business sectors, slowly she started to regain the loss she faced. Because of the profits, she was able to make all the mortgage payments in time. 

When she appointed the agreement of mortgage, she made sure that there is a Defeasance Clause in the deed that would give her an assurance of reclaiming the property. So, she made all the loan payments timely and had her own property upright.

 

Use of the Term in Sentences

  • The term Defeasance Clause is commonly used to indicate a legal clause that states that if the borrower makes all the mortgage payments of the property, he or she will own it fully again. 
  • Defeasance Clause is basically a legal term used in agreements and/or deeds.

 

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