Posted in Finance, Accounting and Economics Terms, Total Reads: 556
Definition: Free and Clear
Free and clear refers to the ownership of any asset without any legal impediments (for example, lien or mortgage). When any person says that his house is free and clear, it simply means that the person’s house is free of any unpaid debt i.e. the person has already paid off all the debts and no creditor has filed a lien against it. Basically free and clear describes the ownership of any asset such that no other entity has the right or claim on the asset.
The most common use though of the term free and clear is on the real estate industry. Any property that goes on sale in the open market should meet the criteria of free and clear, that is the property or the asset should not have any outstanding debt and no creditor should have a claim on the property. Only when the property or the asset is declared free and clear, it generates interest among the potential buyers and gives the positive image to the open market. The term Free and Clear is widely used in various property laws of different countries. An asset described as Free and Clear is considered to be a glitch free investment and in various property laws it’s illegal to sell an asset or a property which is not Free and Clear. This is because it means selling an asset or a property without actually owning the asset or the property.