An acceleration clause refers to a provision in debt instruments that stipulates the circumstances under which an installment payment may be accelerated. The most common circumstance is when the borrower defaults on any of the covenants contained within the instrument, such as paying back interest or principal payments on time.
Triggers for Acceleration Clause
An acceleration clause is a provision in a mortgage or loan contract that allows the lender to demand immediate repayment of the remaining balance on a loan in certain circumstances, also known as triggers.
Some triggers include a bankruptcy filing, unauthorized property transfer, canceled homeowners insurance, and not keeping the home in livable condition. Below, we highlight these triggers in more detail.
Bankruptcy Filing
A lender will consider enacting the acceleration clause when the borrower files for bankruptcy. When a borrower files for bankruptcy, it means they can no longer meet their financial obligations.
Therefore, a lender will enact the clause and demand payment of the remaining balance. They do so to protect themselves from accruing any losses due to unpaid balances.
Unauthorized Property Transfer
Another trigger for the clause is unauthorized property transfer (UPT). This means the lender may enact the acceleration clause if any person or entity transfers their property to someone else without authorization from the lender.
For example, transferring your property without authorization from your lender may constitute a default under your mortgage and force your lender to demand the full payment.
Canceled Homeowners Insurance
Homeowners insurance assures a lender that their collateral is protected. Canceling homeowners insurance can have a significant impact on your mortgage.
Once you cancel your homeowners insurance, the lender feels their protection is gone, and they might initiate the acceleration clause because they no longer feel safe about the collateral.
Not Keeping Home in Livable Condition
It’s essential to keep your home in livable condition, even if you don’t plan on living there for the long term. If it falls into disrepair, then you can get hit with the acceleration clause.
This clause allows lenders to demand payment of the entire balance due on a mortgage loan at once rather than gradually over time.
The acceleration clause may be invoked when borrowers have failed to pay their mortgage payments or maintain their property as the law or contract requires.
Is It Possible To Get Out of An Acceleration Clause?
It’s not always possible to get out of an acceleration clause. Sometimes, the contract will specify that if one party breaches a term in any way, then they are automatically entitled to accelerate everything by default.
The acceleration clause is a contract term that allows a lender to terminate the agreement and demand the total balance if certain events occur. If it becomes difficult to keep up with the mortgage, it’s crucial to speak to your lender to find out other available options. You can also enlist the help of a HUD-approved counselor. They offer their services for free and will inform you of different ways to avoid foreclosure. Do you want to get more information about mortgage options? Give us a call at 469-319-0660 today.
