What is an “Acceleration Clause”?
• No place in a mortgage deed or deed of trust will you find the word ‘foreclosure’. The acceleration clause is what addresses a foreclosure action. Mortgage loans have a note tied to them that outlines the payment schedule and other terms such as the rate, due date of each payment and the maturity date. The terms of repayment also have what is known as an amortization schedule, or how much of each payment goes to interest and how much to principal [assuming no pre-payments]. When this schedule is not adhered to by the mortgagor, or borrower, the note and mortgage are technically in default. Even a payment that is a day late creates a default. However, lenders typically will not push borrowers for payment until the loan is in arrears by 30 days. A late charge will be assessed sooner than that. When an account reaches 90 days in arrears [due for 4 payments], a demand letter for payments to date within 30 days is usually made and nothing less than bringing the loan current is accepted. I
An Acceleration Clause is the language in a mortgage or trust deed allowing the lender to immediately call the loan due and payable upon certain events such as selling the property to another person without paying off the lender or making major alterations to the property without notifying the lender.
When a mortgage is used to purchase a new home or a piece of property, there is a good chance that the mortgage agreement will include an acceleration clause. Essentially, the acceleration clause is a statement or series of statements within the mortgage contract that outlines a number of reasons that will allow the lender to demand payment of the outstanding balance of the loan. Here are some basics about the acceleration clause, and how the inclusion of the clause can help to protect the lender in the event of a number of scenarios. Acceleration clauses help to define the terms of the loan covenant. There are a number of terms that can be included in an acceleration clause. For example, the loan covenants may prohibit the buyer from reselling the property without the express permission of the lender. This ensures that the lender is able to secure payment of the outstanding balance in the event that the borrower wishes to end the business relationship. Another example of terms that ar
An acceleration clause in a mortgage contract allows the lender, in certain circumstances, to demand that the entire balance of the loan be repaid in a lump sum immediately. This clause may be triggered, for instance, if the borrower defaults on a regularly scheduled payment. Generally, the lender is required to give notice to the borrower before acceleration is invoked. Specifically, the buyer is notified of the default, the action required to cure the default, and the date by which the default must be cured. If the default is cured, the mortgage is reinstated. If it’s not cured, the lender may invoke a statutory power of sale and begin foreclosure proceedings. What is an assumption clause? With an assumable mortgage, the assumption clause allows a buyer to take over the home seller’s mortgage loan and monthly payment obligations, instead of obtaining a new mortgage. In many cases, the buyer may also be able to assume the seller’s interest rate. By assuming a mortgage, a buyer can avo
