The Acceleration Clause
An acceleration clause allows a lender to demand that a borrower pay back the entire loan at once, should certain conditions be met. This is typically included in the mortgage notes. This includes any interest that has accumulated since the clause was invoked. However, the borrower will not have to pay the interest that has accumulated over the life of the loan.
Invoking an acceleration clause
When a mortgage agreement is written, a client agrees to pay the loan off after a specified time period, most commonly 30 years. During those 30 years, the client pays off the loan in monthly increments. If the borrower misses a payment, they have broken the contract, and the lender can invoke the acceleration clause and begin the foreclosure process. Although unlikely, the lender can invoke the acceleration clause for other reasons. This includes not paying property taxes, not properly maintaining your property, or failing to pay or cancelling homeowner’s insurance.
However, acceleration clauses are not automatic. The lender must decide whether or not conditions have been met to begin the process. This is because foreclosure is a lengthy process and the lender loses money at the end of it.
Can you get out of an acceleration clause?
Typically, a borrower can avoid acceleration by working out a repayment plan with their lender to make up for the delinquent payments. This is called mortgage reinstatement. There are a variety of different options available for borrowers to get back to being current on their payments. A borrower may have to pay some or all of the costs back to the lender that were associated with invoking the acceleration clause.
However, mortgage acceleration and foreclosure guidelines and requirements differ from state to state and by lender. To know more about your specific situation, talk with your lender.