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 Real Estate Terms
Failure or refusal to perform a specified action. The failure to fulfill contractually agreed upon terms or actions. Nonperformance creates a liability which can enable a judicial damage ...
Legal instrument permitting one to grant others general or specific powers for administering their finances. ...
The meaning of a development impact fee or impact fee defines a one-time cost the local government imposes on a brand new or planned development project (regularly on a property developer.) ...
Warm air heating system where ducts are located in the concrete slab of a building constructed without a basement. As the name implies, a perimeter heating system is located around the ...
Everyone is aware of the perplexing complexities of a real estate transaction. Enter Opendoor, a company that aims to simplify this experience. If you're a house hunter, seller, real estate ...
House that can be bought at a low price because it is in poor condition. A buyer who is handy may find it attractive because he can personally make the needed repairs without hiring others. ...
(1) Methods that involve discounting the future cash flows generated by an income property. These techniques are used primarily for valuation. (2) Methods of selecting and ranking ...
A method widely used for evaluating real estate projects. Under the net present value method, the present value (PV) of all cash inflows from the project is compared against the initial ...
Metal or wood channel attached immediately below or along the eaves of a building for the purpose of channeling rainwater away from the structure. The gutter prevents rain runoff from ...
Have a question or comment?
We're here to help.