Texas Real Estate State Practice Exam

What is the purpose of the Defeasance Clause related to a Texas property transaction?

1. To increase property value

2. To release a lien when debt is repaid

3. To allow the lender to raise the interest rate

4. To waive prepayment penalties

The correct answer is: To release a lien when debt is repaid

The purpose of the Defeasance Clause in a Texas property transaction is to release a lien when the debt is fully repaid. In real estate financing, a defeasance clause ensures that once the borrower has paid off their mortgage or loan, the lender must provide documentation indicating that the lien on the property is removed. This is crucial for property owners as it helps clear the title of any claims from the lender after obligations have been fulfilled. This clause provides a measure of assurance for property owners, allowing them to gain full ownership free of encumbrances once they meet their financial commitments. The other options pertain to different aspects of real estate and financial agreements, but they do not accurately describe the primary function of the defeasance clause. For instance, while raising interest rates and waiving prepayment penalties may impact loan terms, they do not relate to the release of a lien upon repayment. Additionally, increasing property value is influenced by various market factors and is not the direct result of a defeasance clause.