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Simple English definitions for legal terms
reverter guarantee
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A quick definition of reverter guarantee:
A reverter guarantee is a clause in a mortgage that protects the lender from losing money if a certain event happens that would cause the property to revert back to the original owner. This event is called a possibility of reverter, which is when the owner of the property has a future interest in the property that will automatically take effect if a specific condition is met. This interest is often called a reverter and is attached to a special limitation that benefits the original owner.
A more thorough explanation:
A reverter guarantee is a clause in a mortgage that protects the lender from losing money if a terminating event occurs under a possibility of reverter. A possibility of reverter is a reversionary interest that is subject to a condition precedent. This means that if a certain event happens, the property will automatically revert back to the original owner.
For example, if a property owner sells a piece of land to a developer with the condition that the land must be used for a specific purpose, such as building a park, and if the developer fails to use the land for that purpose, the property will revert back to the original owner. In this case, the original owner would have a possibility of reverter.
The reverter guarantee in a mortgage protects the lender from losing money if the property reverts back to the original owner. This is because the lender would no longer have a claim on the property and would not be able to recoup their investment.