What occurs when a defeasance clause is executed?

When a defeasance clause is executed, it signifies that the lender's interest in the property is effectively released after the borrower has made their final payment on the loan. This clause is an essential component in many mortgage and financing agreements, as it ensures that once the borrower has fulfilled their obligation by paying off the debt, they are no longer subject to the lender's claim or lien on the property.

The purpose of the defeasance clause is to provide a clear and definitive process for the extinguishment of the lender's rights to the property upon satisfaction of the loan. This not only provides peace of mind for the borrower but also confirms the transition of the property title solely to the borrower after the financial obligations have been met.

In contrast, the other options relate to scenarios that do not involve the execution of a defeasance clause. For instance, a default occurs when a borrower fails to meet their payment obligations, adjustments based on market rates or renegotiation for lower interest rates do not pertain to a defeasance clause's execution but rather deal with repayment terms or financial hardship solutions.