What is defeasance? A defeasance clause is a provision in a commercial real estate loan agreement that lets a borrower replace the asset securing the loan with substitute collateral—typically a portfolio of U.S. government bonds—that provides similar cash flows over the loan's remaining term.
Final answer: A defeasance clause requires lenders to execute a satisfaction of mortgage once the loan is fully paid. This clause ensures that the borrower regains clear title to the property.
A due-on-sale clause is a mortgage provision that requires the borrower to repay the lender in full if the property is sold.
Acceleration Clause. Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
A due-on-sale clause is a provision in a loan or promissory note that enables lenders to demand that the remaining balance of a mortgage be repaid in full in the event that a property is sold or transferred.
An acceleration clause is a term sometimes included in a mortgage contract that gives the lender authority to request the full repayment of a borrower's remaining loan amount. Normally, an acceleration clause can be triggered in specific situations, such as a breach of contract between the borrower and lender.
Alienation Clause Terms
An alienation clause requires a mortgage lender to be immediately repaid if an owner transfers ownership rights or sells a collateral property. These clauses are included for both residential and commercial mortgage borrowers.
The grace period is the provision in most loan and insurance contracts which allows payment to be received for a certain period of time after the actual due date. During this period no late fees will be charged, and the late payment will not result in default or cancellation of the loan.
Interest. A loan expense charged for the use of borrowed money. Interest is paid by a borrower to a lender. The expense is calculated as a percentage of the unpaid principal amount of the loan.
Key Takeaways. A prepayment penalty clause states that a penalty will be assessed if the borrower significantly pays down or pays off the mortgage, usually within the first five years of the loan. Prepayment penalties serve as protection for lenders against losing interest income.
A future estate vested subject to complete defeasance is an estate created in favor of one or more ascertained persons in being, which would become an estate in possession upon the expiration of the preceding estates, but may end or may be terminated as provided by the creator at, before or after the expiration of such ...
An alienation clause requires a borrower to pay the remainder of their mortgage loan balance off immediately during the sale or transfer of a property title and before a new buyer can take ownership. It goes into effect regardless of whether the transfer is voluntary or not.
The mortgagee (lender) may require the borrower to provide certain documents in order to execute the defeasance clause. These documents may include a partial release agreement, an assignment of mortgage, a subordination agreement, or a satisfaction of mortgage.
A mortgagee clause is found in many property insurance policies and provides protection for a mortgage lender if a property is damaged. While lenders do receive protections with the mortgagee clause, borrowers benefit as well from reimbursements for repairs to the home as well as any documented lost property.
Most lenders prefer that you spend no more than 28% of your gross monthly income on PITI payments (the housing expense ratio), and no more than 36% of your gross monthly income on paying your total debt (the debt-to-income ratio). For this reason, the qualifying ratio may be referred to as the 28/36 rule.
Key Takeaways. An acceleration clause or covenant is a contract provision that allows a lender to require a borrower to repay all of an outstanding loan if specific requirements are not met.
PMI protects the lender from the risk of loss if you default on your mortgage, and the premiums are typically paid monthly by the borrower.
What is an Automatic Premium Loan? An automatic premium loan is a provision in a life insurance policy that allows the insurer to automatically deduct the premium amount overdue from the policy value whenever the policyholder is unable – or neglects – to pay the premium.
due on sale clause/Alienation Clause. A clause, included in many mortgages, permitting the lender to require the borrower to repay the outstanding balance when the property is sold.
Acceleration Clause
Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
If timely payment is not made by the borrower, the note holder can file an action to recover payment. Depending upon the amount owed and/or specified in the note, a summons and complaint may be filed with the court or a motion in lieu of complaint may be filed for an expedited judgment.
A defeasance clause is a provision of a mortgage agreement that states that the borrower will be given the full title to the property once mortgage terms are met. In other words, once Frank pays off a property he is the sole owner and the bank will no longer be able to foreclose on it.
A due-on-sale clause is a provision in a loan or promissory note that enables lenders to demand that the remaining balance of a mortgage be repaid in full in the event that a property is sold or transferred.
A loan agreement is a formal contract outlining important counterparty information and responsibilities, as well as credit terms like the loan amount, the type of loan being extended, the repayment schedule, and the interest rate.