What Is a Defeasance Clause?
When a Florida property owner takes out a mortgage, the lender places a lien on the property. This lien gives the bank the legal right to foreclose if the borrower stops making payments. The defeasance clause is the provision that terminates the lender's lien once the debt is fully satisfied.
In simple terms: the defeasance clause is the mortgage's "self-destruct" mechanism. Once you pay off every dollar you owe, the lien is automatically defeated ("defeased"), and the lender must release their claim on your property.
How Defeasance Works
When the borrower makes the final mortgage payment, the lender is legally obligated to:
- Record a Satisfaction of Mortgage — File an official document with the county Clerk of Court confirming that the mortgage is paid in full and the lien is released.
- Deliver the Original Note — Return the original promissory note to the borrower, marked "PAID" or "CANCELED."
Under Florida Statute 701.04, if the lender fails to record the Satisfaction of Mortgage within 60 days of receiving full payment, the lender is liable for damages and the borrower's attorney's fees.
Commercial Defeasance
In commercial real estate, "defeasance" has a more complex meaning. When a borrower wants to sell a property that is collateral for a securitized (CMBS) loan but the loan has a prepayment lockout, the borrower can "defease" the mortgage by substituting U.S. Treasury securities that generate the same cash flow as the remaining mortgage payments. The securities replace the property as collateral, freeing the property to be sold.
Related Terms
- Mortgage — The loan document containing the defeasance clause
- Lien — The encumbrance that the defeasance clause extinguishes
- Clerk of Court — Where the Satisfaction of Mortgage is recorded
Barnes Walker Mortgage Resolution
Barnes Walker's real estate attorneys enforce defeasance obligations against Florida lenders who fail to timely record Satisfactions of Mortgage, clearing our clients' titles and recovering statutory damages for lender non-compliance under Florida Statute 701.04. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC