Real estate is all about sealing the deal. And when sealing a deal, you have to consider signing a lot of contracts.
And simply put, going into these deals without proper knowledge of their many clauses is simply one of the worst things you could do.
One such important clause to know about is the release clause.
Simply read through this guide to know more about arguably the most important clause in your real estate and mortgage contract right now!
Definition of a Release Clause
A release clause is a contract provision that frees the ownership of a property from a creditor.
This ownership allows for its freeing once you pay off a portion or the full amount of the mortgage specified within the contract.
The result of this payment shows that you, the borrower, have full rights to a specific property.
Release clauses may also sometimes be referred to as buyout clauses.
Release Clause in Real Estate
To make things clearer, we first have to understand that a release clause is often found in mortgage agreements.
What Is a Mortgage?
A mortgage is simply a loan used to purchase real estate. As the borrower, it is your duty to pay this back over time, whether in full or a series of regular payments.
This is what we would often refer to as collateral.
And in real estate, a blanket mortgage offers something fairer to all parties involved.
A blanket mortgage is used to buy multiple pieces of real estate property. As a result, a property can be divided into portions that will eventually be sold individually.
This means that a single loan is issued rather than having multiple mortgages processed.
What Happens When a Release Clause Is Issued Then?
In the eyes of the sellers, here is what happens.
They divide their land into portions. You, as the buyer, express interest in, say, five portions of their land.
Next, you sign a contract with a release clause. After that, you pay the minimum price for one portion of land.
The seller immediately transfers this portion under your name. Now, you only owe them for four portions of the land, all while already owning that one portion of land you’ve already paid for.
Through the release clause, freeing property from a claim after paying off the minimum amount for it is as good as a done deal can be. Full rights are already transferred to you, the buyer!
Highly efficient, right?
Without this clause, you’d have to wait five years in mortgage to maybe own all five of your wanted properties.
But since your contract has a release clause, you can expect to own one or two properties as early as the passing of one year!
Example of a Release Clause
Release clauses are also widely utilized in sports. More specifically, in FIFA.
In sports teams, a transfer fee is usually paid for a player under contract.
You see, the club that currently holds ownership over a player is not obligated to sell their player.
But should their contract have a release clause, then a buying club that is interested can instead resort to paying that specified fee.
In short, a release clause in a player’s contract allows another club to legally steal that specific player from their original team.
And in the case of sports, such an amount can go unusually high. Of course, this is because an offer from one team to another is simultaneously being made at all times.
Needless to say, this clause is freeing in the sense that players may move on after bigger teams place them their offer.
Sports is crazy, right? How can an industry play off the same concept and information as that of real estate?
An Example With FIFA Players
In FIFA 2018, an interesting contract signing was made within Real Madrid.
Showcasing the power of this said mortgage clause, the club made players Isco and Marco Asensio sign deals worth €700 million of release clauses.
This made news because transfer fees do not necessarily go that high for such an offer unless you are a star player of the big clubs.
But in FIFA, players simply play their part and do not question the nature of these deals.
For a player, it can be said that one simply becomes a property of the clubs willing to sign them under.
Nullification of a Release Clause
So can a release clause be nullified?
Simple answer: yes.
However, it’s a tricky situation to get yourself into because most of these situations should have ethical concerns as well.
As such, nullification of release clauses may only be valid if:
- There is evidence of coercion.
- The preceding incidents leading to the issuance of the clause have no relation to the mortgage or clubs.
- The language is unclear.
- There are any mistakes made during the issuance of the release clause.
The validity of these deals may be questioned information regarding the mortgage for a property was not properly disclosed to you. The same thing may be said for clubs in sports.
Who knew that getting a mortgage loan just to own property could bring about headaches upon headaches?
But despite that, knowing more about the existence of a release clause is certainly an edge in real estate (and sports, too!).
So remember, when applying for a mortgage, do your part by simply checking if you are signing a release clause, too.
And despite owning just a part of a property, you do get to do it at the earliest date and for the least amount possible. That’s already a huge start, right?