A mortgage acceleration clause is a common feature in most U.S. home loan agreements. It enables the lender to call the entire unpaid balance of your mortgage due immediately if you break certain terms of the loan, primarily by missing payments. This clause protects lenders by reducing their risk exposure but can become a serious financial burden for borrowers.
How Does It Work?
When a borrower falls behind on payments or violates other essential terms—such as not paying property taxes or maintaining homeowner’s insurance—the lender issues a formal notice called a “notice of intent to accelerate.” This notice typically gives the borrower a set period, often 30 days, to cure the default by paying what is owed.
If the borrower fails to remedy the situation within the deadline, the acceleration clause is invoked, making the full remaining mortgage balance due immediately. If the borrower cannot pay, the lender usually begins foreclosure proceedings to recover the loan amount. You can learn more about the foreclosure process on our detailed Foreclosure guide.
Common Triggers
- Missed Mortgage Payments: The most frequent cause.
- Failure to Pay Property Taxes: Nonpayment can lead to tax liens that affect the lender’s priority.
- Lapsed Homeowner’s Insurance: Without insurance, the lender’s collateral is at greater risk.
- Illegal Transfer of Title: Selling or transferring property without lender approval can trigger a similar but distinct clause called the “due-on-sale clause.” Learn more about this in our article on Loan Assumption.
- Property Neglect: Significant disrepair that diminishes property value.
Acceleration Clause vs. Due-on-Sale Clause
While both clauses may require full repayment, their triggers differ. The acceleration clause activates upon borrower default, whereas the due-on-sale clause applies when the property ownership changes. Understanding these distinctions can help homeowners navigate their mortgage terms effectively.
What To Do If Notified
If you receive a notice that your lender plans to invoke the acceleration clause, act quickly:
- Review the Notice Carefully to understand the cause and timeframe.
- Contact Your Lender Immediately to discuss your options.
- Consider a Repayment Plan or Loan Modification to bring the loan current.
- Reinstate the Loan by paying the past-due amount before the deadline.
- Seek Help from Professionals, such as HUD-approved housing counselors or foreclosure defense attorneys.
For comprehensive guidance, visit our Foreclosure article, which explains foreclosure timelines, rights, and options.
FAQs
Is a mortgage acceleration clause in every loan?
Yes, it is standard to protect lenders from borrower defaults.
Can it be negotiated?
Generally no, as it is standard in most mortgage contracts.
Does invocation mean immediate foreclosure?
No, it is a formal step before foreclosure proceedings begin, giving you time to respond.
References
- Investopedia: Acceleration Clause
- Consumer Financial Protection Bureau: Mortgage vs. Promissory Note
- Forbes Advisor: Acceleration Clause In Real Estate
For official IRS rules and tax implications related to foreclosure, visit IRS Foreclosure Tax Information.
