What does it mean if a lender must acknowledge performance by the borrower according to the defeasance clause?

The correct answer signifies that the borrower has met all the necessary obligations outlined in the mortgage agreement. A defeasance clause is a provision commonly found in certain types of loan agreements, particularly in commercial real estate loans. It states that once the borrower has completed all payments or fulfilled other conditions of the loan, the lender must acknowledge this performance. In essence, it allows the borrower to gain full title to the property, releasing them from additional obligations under the mortgage.

When the borrower fulfills their obligations, it serves as a confirmation that the loan has been repaid or otherwise satisfied as per the terms of the agreement. The lender’s acknowledgment is crucial because it formally recognizes that the borrower has adhered to the loan's terms and is no longer encumbered by the debt. This clause protects the borrower's rights and ensures they receive the benefits of completing their contractual obligations.