An acceleration clause is a contract term that requires the borrower to pay off the entire remainder of the loan amount in the event that they default on one or some of the payments. The contract performance is “accelerated”, meaning that the entire amount becomes due when the agreed upon circumstances are triggered.

The exact details and requirements for an acceleration clause will depend on the terms that the parties agreed upon during negotiations. In some cases, the borrower might only be required to make good on any past missed payments. However, in most cases, they will be required to pay the entire remaining amounts, plus interest and other costs (usually only the interest at the current time, not interest on future payments).

In a real estate setting, an acceleration clause in a mortgage loan or other real estate contract can have major effects. In many cases, the borrower cannot afford to pay the entire remaining amount, and this will often lead to a foreclosure on the property.

When Is an Acceleration Clause Triggered?

As mentioned above, the exact terms for an acceleration clause will vary for each individual contract. It is generally up to the parties to agree upon when the clause is put into effect, and when the remaining loan amounts are due. Acceleration clauses usually are not automatically triggered. In other words, the lender usually must inform the borrower of their decision to claim their accelerated payment rights.

An acceleration clause may be triggered due to:

  • One missed payment
  • Several missed payments
  • Failure to obtain homeowner’s insurance, or a failure to keep such insurance payments current
  • Breach of any other contract terms
  • Property tax issues

Acceleration clauses are typically triggered by one missed payment. This is especially true in contracts where both parties are coming from a business background.

What Is Mortgage Reinstatement?

Normally, real estate lenders do not want to deal with property that has fallen into a state of foreclosure. Thus, they may allow a borrower to get out of an acceleration clause, thereby avoiding foreclosure, through a loan modification or an alternative repayment plan. These types of options are known as “mortgage reinstatement,” meaning that the lender reinstates the loan, but under different term agreements. This can help the lender and borrower to continue working together in owning or managing the property. On the other hand, the borrower might have to pay off any costs incurred by the lender in relation to the original acceleration clause issue.

Do I Need a Lawyer for Assistance with an Acceleration Clause?

As you can probably tell, acceleration clauses can have far-reaching effects for both the borrower and the lender. You may need to hire a mortgage lawyer in your area if you need assistance in negotiating or handling an acceleration clause. Your attorney can provide you with advice and legal research regarding the real estate laws in your area. This can help you avoid any legal disputes or issues, and can help prevent a misinformed signing of contract terms. Also, if you need to file a lawsuit due to a dispute, your lawyer can represent you in court during hearings.