Acceleration Clause Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Acceleration Clause, written in plain English, along with examples of how it is used.
What is Acceleration Clause?
n. this is a term used in law of contracts (for mortgages and real estate) which stands for full maturing of the performance due from a party upon a breach of one of the contract terms or non payment of one of the installations. Say for example, if any one of the installments go unpaid on time the holder may demand entire amount being unpaid and demand it being paid immediately instead of further installments.
History and Meaning of Acceleration Clause
An acceleration clause is a provision included in a loan or mortgage agreement that allows the lender to demand immediate repayment of the entire loan amount if the borrower violates certain terms of the agreement. Typically, such terms include a missed payment, failure to maintain insurance coverage, or the sale of the property securing the loan. The acceleration clause shifts the balance of power in the lending relationship from the borrower to the lender, allowing the lender to take swift action in the event of default.
Acceleration clauses have been common in loan agreements throughout history, but they are especially prevalent in real estate transactions. Lenders often use acceleration clauses to minimize their risk and ensure that borrowers comply with the terms of the loan. For borrowers, acceleration clauses can be a double-edged sword. On the one hand, they provide a means of obtaining financing even if the borrower cannot repay the loan in full. On the other hand, they can result in substantial financial penalties if the borrower defaults.
Examples of Acceleration Clause
Maggie signed a mortgage agreement that included an acceleration clause. When she missed two payments in a row, the lender demanded immediate repayment of the entire loan balance. Unable to come up with the funds, Maggie lost her home to foreclosure.
When John sold the property securing his loan without first notifying the lender, he triggered the acceleration clause in his loan agreement. As a result, the lender demanded immediate repayment of the entire loan amount, including interest and fees.
Sheila's car loan included an acceleration clause that allowed the lender to demand immediate repayment of the loan in the event that Sheila failed to maintain comprehensive insurance coverage. When Sheila let her insurance lapse, the lender demanded that she repay the loan in full.
Legal Terms Similar to Acceleration Clause
Due on sale clause - A provision in a mortgage that requires the borrower to repay the entire loan balance if the property securing the loan is sold or transferred.
Default - Failure to meet one or more of the obligations set forth in a loan or mortgage agreement.
Foreclosure - A legal process in which a lender seizes and sells the property securing a loan in order to recover the unpaid balance of the loan.