What does a defeasance clause in a mortgage provide for?

A defeasance clause is a term within a mortgage contract that states the property’s title (a fancy word for “ownership”) will be transferred to the borrower (mortgagor) when they satisfy payment conditions from the lender (mortgagee).

What is the purpose of defeasance?

Defeasance entails a borrower setting aside sufficient funds, often in cash and bonds, to cover his or her associated debts. This functions as a way to render the debt obligation null and void without the risk of prepayment penalties.

When would the defeasance clause in a mortgage take effect?

Defeasance clauses are based on the concept of defeasance, which nullifies a deed or contract. Ultimately, defeasance occurs when the borrower finishes making all of the payments on the loan and no longer owes anything to the lender.

Who does a defeasance clause protect?

Defeasance clause exists to protect the interests of the home buyer. The lender is legally bound to hand over all property rights to the buyer when they pay off the loan. The homebuyer then gets to own the house outright and in full.

Which clause in a mortgage would prohibit an assumption of the mortgage?

Most importantly, an alienation clause prevents the homebuyer from assuming the mortgage. Without this clause, the buyer could assume the existing mortgage and repay it at that interest rate, rather than obtaining a new loan at prevailing rates.

What is a defeasance transaction?

In a defeasance transaction, a borrower substitutes new collateral in exchange for the lender’s release of the old collateral.

What does it mean when a loan is defeased?

Defeasance refers to the replacement of the collateral of a loan with securities (generally fixed-rate government bonds) that will offer a lender an equivalent return.

What is the mortgage clause in a mortgage?

A mortgagee clause is a part of your homeowners insurance policy that protects your lender (the mortgagee) from losses incurred due to damage to your property. Many mortgage providers will require a mortgagee clause to grant you a mortgage.

What are mortgage clauses?

Legal Definition of mortgage clause : a clause in an insurance contract (as for fire insurance) that entitles a named mortgagee to be paid for damage or loss to the property — see also open mortgage clause, standard mortgage clause.

What is a defeasance document?

In the case of mortgages, defeasance refers to the point at which the borrower will receive title to the property after making all of the required payments. A defeasance clause is typically found only in mortgages issued in certain states, known as “title theory” states.

What is an assumption agreement for mortgage?

An assumable mortgage allows someone to find a house they want to buy and take over the seller’s existing home loan without applying for a new mortgage. This means the remaining balance, mortgage rate, repayment period and other loan terms stay the same, but the responsibility for the debt is transferred to the buyer.

What clause makes a mortgage assumable?

Alienation Clause Terms Mortgage alienation clauses prevent assumable mortgage contracts from occurring. An alienation clause requires a mortgage lender to be immediately repaid if an owner transfers ownership rights or sells a collateral property.

Which clause in a mortgage limits the lender’s rights in a foreclosure?

The exculpatory clause limits the lender’s rights in a foreclosure to the amount received from the sale of the foreclosed property. If the balance of the promissory note has not been paid in full from the proceeds of the sale, the lender cannot obtain a deficiency judgment for the unsatisfied amount.

When a mortgagee is named in a mortgagee clause?

When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy, the loss reimbursement will be paid to the mortgagee as their interest may appear; and, the mortgagee’s rights of recovery will not be defeated by any act or neglect of the insured.

What clauses are found in a mortgage instrument?

Loan Clauses

• Clause is the term used to identify a certain section of a contract or policy. There are many different clauses that can come up in regards to a loan.
• Acceleration clause.
• Alienation clause.
• Prepayment clause.
• Lock-in clause.
• Subordination clause.

How do mortgage clauses protect lenders?

This type of clause safeguards the lender from incurring financial losses in cases where the mortgaged property becomes damaged, as it requires the insurer to guarantee payouts when any claims covered by the property insurance policy are made. Mortgagee clauses are also known as mortgage clauses or loss payee clauses.

What is an assumption agreement?

An assumption agreement, sometimes called an assignment and assumption agreement, is a legal document that allows one party to transfer rights and/or obligations to another party. It allows one party to “assume” the rights and responsibilities of the other party.