CMIC [Internet]; Aug 9, 2016 [cited 2016 Aug 9]. Available from: http://www.allacronyms.com/CMIC. 'CMIC', All Acronyms, 9 August 2016, <http://www.allacronyms.com/CMIC> [accessed 9 August 2016] All Acronyms, CMIC (Aug. 9, 2016, 2:08 AM), available at http://www.allacronyms.com/CMIC.
Defeasance is a substitution of collateral. The borrower uses proceeds from a refinance or sale to purchase a portfolio of securities that is sufficient to make the remaining debt service payments required by the loan. The securities are pledged to the lender who releases the real estate from the lien of the mortgage.
If the mortgagor failed to pay the debt, even by only one day, the mortgagee's title became an estate in fee simple absolute, which gave the mortgagee absolute ownership of the property. A defeasance clause embodies these common-law principles that govern this type of mortgage agreement. Defeasance clauses are not found in mortgages based upon the lien theory, observed in most states. The mortgage creates a lien for the mortgagee on the mortgaged property, which gives the mortgagee the right to its possession only after the mortgage has been foreclosed.