Release Clause
Categories: Company Management
If you catch a salmon and it's under 3 pounds, you must release it. At least in Oregon.
Ever since she was little, all Aurora has ever wanted to do is live in a castle and be rescued by a prince, just like the Disney princess she was named after. She’s not looking for much here, really. Just a castle and a prince...is that such a huge ask? Well, she’s not sure why the prince hasn’t showed up yet, but she did recently manage to get her hands on a mini-castle on the outskirts of town. It cost $500,000, and in order to secure the mortgage loan she needed, she had to put three things up as collateral: her art collection, her condo in Myrtle Beach, and the old spinning wheel her creepy aunt gave her as a kid that the Antiques Roadshow folks refused to touch, but assured her was worth a fortune.
Aurora could give two figs about the spinning wheel, but she’s pretty attached to her art collection and her condo, which is why she negotiated a release clause with her mortgage loan.
A “release clause” basically says that our lender gives up their right to seize things we’ve used as collateral as we pay off certain percentages of the loan amount.
For example, let’s say the Myrtle Beach condo is worth $200,000. Aurora’s release clause could state that, once she’s paid off 40% of her loan amount, her condo is no longer eligible for seizure should she suddenly default on the rest of the mortgage. There might be additional language stating that, once she pays off 75% of the mortgage amount, her art collection is off the asset seizure table as well.
Based on what we use as collateral for loans in our own lives, we can negotiate any desired release clauses accordingly.
