Defeasance: A Comprehensive Guide to Its Legal Meaning and Use

Q: How does defeasance work?

It typically involves a borrower setting aside funds or collateral to cancel a loan or lease obligation.

Q: Is defeasance the same as refinancing?

No, refinancing involves taking out a new loan to pay off an existing one, while defeasance directly nullifies the obligation.

Q: Can I handle defeasance myself?

Yes, with the right legal templates, you can manage the process yourself, but consulting a professional is advisable for complex situations.

Q: Do state laws affect defeasance?

Yes, the rules governing defeasance can vary by state, so it&#039;s important to consult local laws.

Definition & Meaning

Defeasance refers to a legal provision that allows certain conditions in contracts, such as leases and loans, to become void when specific actions are taken. For instance, if a borrower sets aside sufficient cash to pay off a bond, the bond can be considered null and void. Similarly, a mortgage may be cancelled once the mortgage loan is fully repaid. This concept is often utilized in financial transactions to provide flexibility for borrowers and lenders.

Table of content

Legal Use & context

Defeasance is commonly used in financial and real estate law. It allows borrowers to release themselves from obligations under certain conditions, which can be beneficial for both parties involved. This term is particularly relevant in:

Real estate transactions
Loan agreements
Lease contracts

Users may manage these agreements themselves by utilizing legal templates available through US Legal Forms, drafted by qualified attorneys.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Here are a couple of examples of defeasance:

Example 1: A borrower sets aside enough cash to pay off a bond. Once the cash is deposited, the bond is rendered void.
Example 2: A homeowner repays their mortgage in full. Upon repayment, the mortgage is cancelled, and the lien on the property is lifted.

State-by-state differences

Examples of state differences (not exhaustive):

State	Defeasance Rules
California	Allows defeasance in certain loan agreements with specific terms.
New York	Defeasance is commonly used in commercial real estate transactions.
Texas	Defeasance provisions are often included in mortgage contracts.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition	Key Difference
Defeasance	A provision that voids certain obligations upon meeting specific conditions.	Focuses on cancelling obligations like loans or leases.
Release	The act of freeing a party from a contract or obligation.	Can be unilateral or mutual; does not always involve specific conditions.
Substitution	Replacing one asset or collateral with another.	Involves changing the collateral rather than cancelling obligations.

Common misunderstandings

What to do if this term applies to you

If you find yourself in a situation where defeasance may apply, consider the following steps:

Review your loan or lease agreement to understand the defeasance provisions.
Consult with a financial advisor or attorney to determine your options.
Explore US Legal Forms for templates that can help you navigate the process.
If your situation is complex, seek professional legal assistance.

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Quick facts

Attribute	Details
Typical Fees	Varies based on the agreement and state laws.
Jurisdiction	Applies in all states, but specific rules may vary.
Possible Penalties	Failure to comply with defeasance terms may lead to financial penalties or legal action.

Key takeaways

Frequently asked questions

What is defeasance?

Defeasance is a provision that allows certain legal obligations to become void when specific actions are taken.