Defeasance Clause

A defeasance clause means that when you finish paying your home loan, the bank’s rights end, and the house is fully yours. In other words you have defeated the loan. You won! When someone borrows money to buy a house, the bank needs protection. In title theory states the bank temporarily holds the legal title to the house. You still live in the house, when you make the last payment, the defeasance clause gives the title back to you. In lien theory states, you keep the title the whole time. The bank puts a lien on the house. After the loan is paid off, the defeasance clause removes the lien.