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Acceleration Clause (Explained: All You Need To Know)

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What Is An Acceleration Clause

An acceleration clause is a contractual provision allowing a party to either demand the acceleration of the execution of the other party’s obligations or for a party to voluntarily perform its obligations faster than contractually intended.

For example, it’s common to see loan agreements, mortgages, or other types of financing agreements include an acceleration clause in favor of the lender.

When a borrower defaults on its contractual obligations, the lender will have the right to demand repayment of the loan’s principal and interest.

In other words, in the event the borrower fails to make loan or mortgage payments, the lender will simply ask that the borrower pay off the entire loan by triggering the acceleration clause.

In real estate, an acceleration clause can sometimes be found in lease agreements.

In most cases, when a lender triggers the acceleration clause due to a borrower defaulting on payment, the lender’s primary objective is to foreclose the borrower and take over the property given as security interest.

Borrowers who are asked to immediately pay off the full value of their loan must find the money to pay off the lender to avoid having their home foreclosed.

In some cases, borrowers can take the following measures to avoid a losing their homes:

  • Refinance the property with another lender (generally at much higher rates of interest)
  • See if you can negotiate a forbearance agreement allowing you to pause a few mortgage payments
  • If you cannot pay your mortgage, you may give your deed in lieu of foreclosure where you give your house to your lender so the lender writes off the debt but does not take any measures to damage your credit history
  • In extreme cases, you can also consider short selling your real estate property where you sell the property for less than you owe on it with the permission of your lender 

Acceleration Clause Definition

How do you define acceleration clause?

According to the Legal Information Institute, an acceleration clause is defined as follows:

An accelerated clause is a term in a loan agreement that requires the borrower to pay off the loan immediately under certain conditions

They define the acceleration clause in the context of a loan agreement.

However, an acceleration clause can be found in many different types of agreements as well to the extent a party can voluntarily accelerate or be forced to accelerate the performance of some or all of its contractual obligations.

How An Acceleration Clause Works

Let’s look at how acceleration clauses work in practice so we can better understand the concept.

Since acceleration provisions are very common in the context of loans and mortgages, let’s use the acceleration clause in a mortgage in our illustration.

Typically, mortgage agreements define different situations or events that will result in the borrowing being in default of its obligations.

One of the most important obligation of the borrower is to pay the mortgage payments as per the mortgage payment schedule.

If the borrower misses too many payments or fails to pay, the lender can trigger the acceleration clause to demand that the borrower immediately pay off the outstanding mortgage loan.

Acceleration Clause Triggers

A mortgage agreement or loan agreement can provide for different acceleration clause “triggers”.

Here are some of the most common reasons why a lender may demand that the borrower pay off its mortgage before the agreed mortgage term:

  • The borrower’s home insurance on the property is canceled for different reasons 
  • The borrower has failed to pay the property taxes and a lien is placed on the property
  • The borrower files for bankruptcy 
  • The borrower attempts to make an unauthorized property transfer 
  • Not maintaining the property in a livable condition 

There may be other obligations or covenants a borrower may need to respect to avoid the trigger of the acceleration clause but the above list is properly the more frequent ones.

Interest Obligations

When a borrower demands the acceleration in the pay off of a mortgage, the borrower will be required to pay all of the outstanding principal and interest up to the day of the termination of the agreement.

In other words, if the borrower had another 15 years to pay off the loan, and the lender requests the payoff as of today, the borrower will only have the obligation to pay for the interest up to today.

The interest that would have accrued on the loan over the next 15 years cannot be claimed.

Transfer or Sale of Property

Nearly all mortgage agreements have an acceleration clause that gets triggered when the borrower wishes to sell or transfer the property to someone else.

What this means is that on the day of the sale, the entire outstanding value of the mortgage along with accrued interest to that day becomes due and payable by the borrower.

Typically, the attorney or professional handling the sale of the property will ensure that the lender’s money is paid off using the proceeds of the sale deposited in escrow.

Any money left over after paying off the lender will be remitted to the borrower (or the seller).

The acceleration clause on the sale or transfer of a property is also called a “due-on-sale clause”.

Borrower Acceleration Clause

In the context of a mortgage, we’ve looked at how the acceleration clause can benefit and protect the lender.

A mortgage acceleration clause can also be found in a mortgage agreement in favor of the borrower.

If the borrower has the right to voluntarily accelerate his or her mortgage payments to pay off the debt before the intended term, that’s an acceleration clause benefiting the borrower.

When the borrower is able to pay more than the required mortgage payment, make more frequent mortgage payments, or pay lump sums, the buyer can not only pay off the mortgage faster but also save interest costs.

Acceleration Clause Example

Let’s look at a couple of examples of how acceleration clauses are used in practice.

Acceleration Clause Mortgage

The acceleration clause in a mortgage is a clause that generally allows a lender to ask the delinquent borrower to pay off the full value of the loan.

Imagine that John took a residential home mortgage for $300,000 over 30 years.

As of today, he has paid off $100,000 of the mortgage and still has to pay $200,000.

If John misses his mortgage payments, the lender can ask that he immediately pay the $200,000 in remaining principal balance along with all the accrued interest on this amount.

This means that John has to find $200,000 plus the accrued interest to pay off his lender by making a lump sum payment.

Unfortunately, in most cases, when lenders trigger the acceleration clause, their ultimate objective is to foreclose the property, take full ownership of it, and resell it so they can get their money.

Acceleration Clause Real Estate

The real estate acceleration clause is a contractual provision in real estate agreements, such as a real estate loan, protecting the lender from the risk of borrower default.

An acceleration clause can also be found in any type of real estate property financing, such as commercial and industrial real estate properties.

For example, if a company wishes to purchase a commercial office building, it may need to get financing from the bank.

In that case, the bank will include an acceleration clause giving it the right to demand the full payment of the real estate financing loan should the borrower breaches the terms of the loan or is in default.

Commercial contracts will generally impose strict obligations and covenants on companies.

For instance, a company may be required to disclose its financial statements to the lender every year and respect certain key performance indicators and financial ratios to be able to preserve the real estate loan on the same terms.

An Acceleration Clause Takeaways 

So there you have it folks!

What is an acceleration clause in simple terms?

What is an acceleration clause in real estate or even what is an acceleration clause in a mortgage?

An acceleration clause is a type of clause found in a contract that allows a contracting party to demand or voluntarily accelerate the execution of its obligations.

For example, in real estate, you may find acceleration provisions in commercial lease agreements where the landlord may force the tenant to pay the rent payable for the term in the event of the tenant’s material breach of the contract.

In the context of a loan agreement, the lender can demand that a borrower pay off the entire value of the loan along with accrued interest if the borrower is in contractual default.

Generally, the contract should outline how a party can trigger the acceleration clause and what type of obligation can be accelerated.

Although acceleration clauses tend to favor lenders, the borrower can also negotiate favorable acceleration provisions.

If a borrower has the right to pay the loan faster, make more loan payments, or fully pay off the loan before the loan term, that’s a type of acceleration clause will allow the borrower to save money and get rid of the debt faster.

I hope I was able to explain to you what an acceleration clause means, how it works, and why it’s important.

If you have legal issues relating to acceleration clauses, be sure to consult a qualified real estate lawyer.

You should also consult a financial advisor or mortgage broker to consider different options to refinance your property or find alternative financing options.

Good luck!

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Now, let’s look at a summary of our findings.

Understanding Acceleration Clause (Overview)

  • An “acceleration clause” is a contractual provision generally found in mortgage agreements, loan agreements, and other types of financing agreements where lenders can demand repayment of the full loan following the borrower’s default
  • You can also find the acceleration clauses in a deed of trust, commercial lease agreements, promissory notes, or other types of agreements as well 
  • The main purpose of this clause is to protect lenders from delinquent borrowers allowing them to demand repayment of a loan or mortgage to then proceed to realize their security interest and foreclose the underlying property 
  • Borrowers can also negotiate beneficial acceleration clauses in their contract giving them the right to voluntarily pay their loan before the agreed term thereby saving interest costs 
Default provision 
Delinquent payment 
Doctrine of reliance 
Due on sale clause 
Express contract 
Lease agreement 
Lien theory 
Loan principal 
Material breach 
Mortgage acceleration letter 
Mortgage agreement
Mortgagee definition
Mortgagor definition 
Promissory note 
Property title 
Property transfer 
Sale agreement 
Security interest 
Title theory 
Waiver meaning
What is foreclosure
Acceleration covenant 
Assignment agreement
Assumption clause 
Balloon payments 
Breach of contract
Collateral assignment 
Deed of trust 
Define due
Define sell 
Escrow agreement
FHA amendatory clause
FHA loans
Forbearance agreement
Foreclosure action
Loan agreement 
Mortgage clause
Power of sale clause
Quitclaim deed 
Real estate short sale 
Right of redemption 
Sale clause
Editorial Staff
Hello Nation! I'm a lawyer by trade and an entrepreneur by spirit. I specialize in law, business, marketing, and technology (and love it!). I'm an expert SEO and content marketer where I deeply enjoy writing content in highly competitive fields. On this blog, I share my experiences, knowledge, and provide you with golden nuggets of useful information. Enjoy!

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