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
Goods that are freely substitutable. It is goods of a given class or type, any unit of which is as acceptable as another, and capable of satisfying an obligation expressed in terms of the ...
Individual who gives false statements under oath, which is a criminal act punishable by imprisonment and fine. An example is signing a tax return that fraudently understates rental income, ...
Roof having four triangular sides forming a point at the top of a pyramid. A pyramid roof is primarily used for steeples on top of churches or certain public buildings. ...
Also called all inclusive trust deed (AITD). A mortgage (trust deed) that encompasses existing mortgages and is subordinate to them. The existing mortgages stay on the property and the new ...
The term statute is a written law that is adopted by a legislative body from the country, federal, state, county, or city level. The statute definition can be a legislative written decree ...
An accessory building is an outdoor structure used by the occupants of the main building or house. They have different functions and can be detached or attached to the main building on the ...
Laws enacted by every state governing the activities and requirements of real estate salespeople and brokers. Upon satisfying the necessary age and residency requirements and satisfactorily ...
An individual appointed by a court to manage the affairs and property of a legally incompetent party. The conservator has full decision-making authority over the affairs of the property in ...
Land that has poor income potential, usually used in an agricultural sense meaning that the land is untellable, has poor access, is extremely steep, has suffered serious erosion, is ...
Have a question or comment?
We're here to help.