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
Homes with division of ownership or use of a resort unit on the basis of time periods. For example, a resort home may be divided into 25 time shares of two weeks each, with two weeks left ...
Features a home buyer orders from a custom builder or developer when purchasing a home. For example, a customer may order a two-car garage when buying a home requiring an additional charge. ...
A clause in a document forbidding an individual from selling or transferring the subject property to another. Frequently, nonalienation clauses are used in a trust where the grantor of the ...
A heating system consisting of a heating unit forcing hot air through an interconnected network of air ducts with outlets throughout the structure. The advantages if a forced hot air system ...
Removal of land by the action of water. See also erosion. ...
Money earned or accrued during an accounting period that results in the increase in total assets. Items such as rental income. Revenues arising from the sales of real estate. The ...
Land zoned for industrial use including manufacturing, factory office and warehouse space, research and development. ...
Court order granted in favor of the landlord to remove a tenant from the property because of nonpayment of rent and/or damaging the property. The writ directs an officer of the law to ...
Costs taken over an above what one is entitled to. This can occur either by claiming depreciation costs exceeding actual depreciable value or by depreciating items that cannot be ...
Have a question or comment?
We're here to help.