A clause in a mortgage releasing the indebtedness once the loan is paid off is called?

A clause in a mortgage releasing the indebtedness once the loan is paid off is called?

• A. Acceleration
• B. Defeasance
• C. Subordination
• D. Release

Answer: (B)

Defeasance is the clause in a mortgage that releases the indebtedness once the loan is paid in full. It typically requires the borrower to place a separate pool of securities (often U.S. Treasury securities) in a trust that generates enough funds to cover the remaining payments, so the lender’s risk is effectively unchanged while the lien is removed. Once the defeasance is funded and the loan is paid, the mortgage lien is discharged and the title can transfer free of debt. This differs from acceleration, which makes the entire loan due immediately after a default; subordination, which changes the order of lien priorities; and a general release, which simply removes the lien without describing the specific payoff mechanism.

Defeasance is the clause in a mortgage that releases the indebtedness once the loan is paid in full. It typically requires the borrower to place a separate pool of securities (often U.S. Treasury securities) in a trust that generates enough funds to cover the remaining payments, so the lender’s risk is effectively unchanged while the lien is removed. Once the defeasance is funded and the loan is paid, the mortgage lien is discharged and the title can transfer free of debt. This differs from acceleration, which makes the entire loan due immediately after a default; subordination, which changes the order of lien priorities; and a general release, which simply removes the lien without describing the specific payoff mechanism.