Defeasance Law and Legal Definition

Defeasance is a provision in an instrument, such as leases and loans, that makes certain conditions void if specified actions are taken. For example, when a borrower sets aside enough cash to pay off a bond, the bond may be voided. In another example, a mortgage may be cancelled when the mortgage loan is repaid. Fannie Mae's defeasance option gives the borrower a choice in lieu of yield maintenance when a property is released from the mortgage lien prior to maturity. Defeasance may also refer to a substitution of collateral, giving the lender a similar or superior source of repayment.