Acceleration Clause
Definition of "Acceleration Clause"
Acceleration Clause is a contractual provision inserted in a mortgage, a bond, a deed of trust or other credit vehicles, that gives the lender the right to demand repayment of the entire loan balance. Usually, such a clause becomes operational when there has been a default in payments of interest or principal or both.
When the acceleration clause is activated, the entire principal sum is called in and becomes due and payable. This fact would precipitate a foreclosure in the case of real estate, or bankruptcy action if the monies were not paid at the time of the call.
Acceleration clauses are created to protect the lender from borrower default and other risks. It prevents/deals with payment delinquencies, but can, on rare occasions, be structured for other occurrences too.
Let's see an acceleration clause in effect scenario:
Home Seller Barbara makes a Land Contract with Home Buyer Paul. He started paying correctly and living in Barbara's former house. He has paid already $30,000 of its $100,000 contract. At the end of it, he'll be the owner of the house. BUT: he didn't pay for the last 3 months, so the acceleration clause kicked in, Barbara filed for a land contract forfeiture and now Paul has to pay the rest of the $70,000 with one swing if he wants to still be able to get the house. Or else, they're done.
Accelerate your home buying/home selling process: find a real estate agent
Popular Mortgage Terms
In general, a Down payment is a one-time payment a buyer makes to diminish the risks of the seller of expensive goods like a car, or a house. In Real Estate, the home buyer makes a down ...
One or more persons who hove signed the note and are equally responsible for repaying the loan. When One Co-Borrower Has Much Better Credit than the Other: A problem that arises frequently ...
Belief that there is a special way to pay down the balance of a home mortgage faster, if you know the secret. ...
A contract provision that adjusts the payment on an ARM periodically to make it fully amortizing. ...
The minimum allowable ratio of down payment to sale price on any loan program. If the minimum is 10%, for example, it means that you must make a down payment of at least $10,000 on a ...
The period over which the interest due the lender is calculated. The interest accrual period may or may not correspond to the payment period. On the annual accrual mortgages in the UK, ...
A lender that provides loans through mortgage brokers or correspondents. ...
The sum of all interest payments to date or over the life of the loan. This is not a good measure of the cost of credit to the borrower because it does not include upfront cash payments and ...
A government-owned or -affiliated lender that makes home loans directly to consumers. With minor exceptions, government in the U.S. has never loaned directly to consumers, but housing banks ...
Comments for Acceleration Clause
Selling a property on Land Contract and using an Acceleration Clause if the buyer doesn't keep the property in good condition. Is this possible?
Apr 08, 2018 12:56:56Gary,
Apr 13, 2018 11:21:59from our understanding, no.
Acceleration Clauses were created with a strictly financial goal in mind: to prevent payment delinquency. If you have already signed the Land Contract and there was this provision of using the acceleration clause if the property is not in good condition, a Judge could easily favor the buyer saying that the house will be his/hers once payments are completed, so it's not done in bad faith and it will be his/her problem if the house is in bad shape.
If you're haven't signed the land contract yet and is wondering if it's possible to put an acceleration clause if the buyer doesn't keep the property in good condition... we recommend you contact a Real Estate Lawyer and get his/her opinion on it to see if this would fly or if it's ilegal or just a waste of time. If the worrying is the buyer defaulting and leaving the house in bad shape undervaluing its market price, we recommend to have it in the contract a great homeowner's insurance policy instead.
Have a question or comment?
We're here to help.