Defeasance Clause

Defeasance Clause

A provision of a mortgage—an interest in land given to a mortgagee-lender to secure the payment of a debt—which promises that the mortgagor-borrower will regain title to the mortgaged property when all the terms of the mortgage have been met.

Defeasance clauses are found in mortgages in the few states that still follow the common-law theory of mortgages. At early English Common Law, a mortgagee who lent money to a mortgagor received in exchange a deed of defeasible fee to the property, offered as security for the payment of the debt. Such title was subject to defeat or cancellation upon payment of the debt on the law day, that is, at its maturity, andthe mortgagor would at that time regain title to the property. If the mortgagor failed to pay the debt, even by only one day, the mortgagee's title became an estate in fee simple absolute, which gave the mortgagee absolute ownership of the property. A defeasance clause embodies these common-law principles that govern this type of mortgage agreement.

Defeasance clauses are not found in mortgages based upon the lien theory, observed in most states. The mortgage creates a lien for the mortgagee on the mortgaged property, which gives the mortgagee the right to its possession only after the mortgage has been foreclosed. Since the mortgage has not been given defeasible title, there is no need for a defeasance clause.