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Understanding acceleration clauses in real estate

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    An acceleration clause is found in almost every mortgage, making it an important element of a home mortgage that you should familiarize yourself with before you finance a home.

    What is an acceleration clause?

    An acceleration clause in real estate is a provision in the loan documents that allows the lender to demand full and immediate repayment of the outstanding mortgage balance (in addition to any accrued interest since the most recent payment) when a borrower breaches the loan agreement. If the borrower can’t repay the balance as requested, the home may go into foreclosure.

    What triggers an acceleration clause?

    An acceleration clause is typically triggered by missed payments, but it can also be triggered by breaching other requirements in the loan agreement. Here are a few examples:

    Missed mortgage payments

    Missing mortgage payments can trigger an acceleration clause and may cause your lender to demand repayment. The number of payments that can be missed before a lender demands repayment can vary based on a number of factors, such as the loan documents, laws and regulations, investor guidelines, and lender policies.

    Removal of homeowners insurance

    If, for whatever reason, a borrower’s homeowners insurance has been removed, this could then trigger an acceleration clause. Mortgage agreements typically require customers to maintain homeowners insurance to protect the property, so removing homeowners insurance may constitute a breach of those agreements.

    Unauthorized property transfers

    If not corrected or approved by your lender, an unauthorized transfer of property ownership can trigger an acceleration cause and cause a lender to demand full repayment.

    Failing to pay property taxes

    When property taxes aren’t paid, local or state governments could place a tax lien on your property — which could jeopardize the enforceability of the mortgage lien since tax liens typically are superior to, and may take priority over, mortgages. Non-payment of taxes can trigger an acceleration clause — though the lender might also advance the funds to pay the taxes (adding them to the total amount due under the loan) and require an escrow account for the payment of future taxes (as permitted by law and regulation), if escrow is not already set up on the mortgage.

    How can I help avoid an acceleration clause being used?

    There are several ways to avoid an acceleration clause from being used and potential foreclosure if you’re unable to make your mortgage payments in full. For example:

    • Ask for Mortgage Assistance. If you’re having difficulty making your mortgage payments, don’t wait – you can apply for mortgage assistance (sometimes called “loss mitigation”) and be considered for any options available.
    • Communication. Read communications from your lender carefully, because they could contain important information that requires your attention. For example, a lender may notify you that an unauthorized property transfer has occurred and give you the opportunity to correct it.

    In summary

    A mortgage acceleration clause is triggered when a borrower breaches the mortgage agreement, and it allows the lender to demand repayment in full. If the borrower can’t repay the loan, then the home may go into foreclosure. The good news is there are several options available to help avoid default, and mortgage assistance may be available if you’re having difficulty making your mortgage payments. Ensure to review your mortgage documents to see which acceleration clauses are applicable to your mortgage.

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