If homeowners fail to make their scheduled mortgage payments, they may receive a Notice of Acceleration from the lender. This document is used to inform the borrower that the lender has triggered their acceleration clause, which allows them to demand immediate repayment of all amounts due on the loan.
The loan balance is due immediately instead of the remaining amount over the rest of the term.
The notice of acceleration will demand loan repayment and provide details on how much is owed when it is due, and any other applicable instructions for a refund.
Tip: Read the entire loan document before you sign them!
Including an acceleration clause in a mortgage contract is expected, which permits lenders to take action if borrowers fail to make payments. When purchasing a home, it is crucial to carefully read and comprehend all loan documents, particularly the fine print.
Step One: The Breach Letter
Acceleration clauses are not typically activated automatically.
Loan acceleration usually happens after the lender sends a breach letter, which is a notice to the borrower warning them about a possible default before the acceleration of the loan.
The courts have different opinions on whether the breach notice activates the acceleration or the end of the cure period stated in the notice if the lender issues the notice before acceleration.
In certain situations, if a borrower misses a payment, the acceleration of the loan may happen automatically. In addition, in some regions, filing a foreclosure complaint can accelerate the loan.
The timing and notice required for acceleration before a foreclosure are subject to state laws or governmental guidelines.
Parts of a Breach Letter
A breach letter must specify the default and the necessary action to cure the default.
A breach letter needs to include a specific date, typically at least 30 days from when it is given to the borrower, for them to cure the default. It should also indicate that if they fail to do so by the specified date, the debt may be accelerated and the property sold.
The servicer usually sends this letter when the borrower is roughly 90 days behind on payments.
Federal law typically prohibits starting foreclosure proceedings until the borrower is over 120 days delinquent on loan. If the default is not corrected, foreclosure proceedings will be initiated.
The notice often tells the borrower that they can reinstate the loan after it has been accelerated, as well as their right to contest a foreclosure by stating that no default occurred or raising a defense.
Get a Foreclosure Attorney on Your Side
If you have received a notice of acceleration without the previous breach letter most mortgages must send previously, your lender may have incurred a fault.
Quick action with the help of a real estate lawyer can assist you in navigating through financial hardship while preserving your legal rights.
Conditions That Cause The Acceleration To Occur
As the mortgage acceleration clause states, lenders may require faster repayment if certain conditions are fulfilled. The following are some of those conditions explained.
Lenders can enforce an acceleration clause if there is an unauthorized property transfer.
For example, if the borrower sells their property without first getting permission from their lender, they violate the loan agreement, and the lender can accelerate the loan.
Canceling homeowners insurance could also trigger the acceleration clause, as it is necessary to have insurance for the entire mortgage duration.
If the borrower fails to make the monthly mortgage payments, you may be subjected to an acceleration notice. Missed loan payments typically trigger this clause, although the specific number of delinquent payments required may differ.
Different acceleration clauses have varying requirements for payment delinquency. For example, some may require immediate payoff if one payment is missed, while others may allow for two or three missed payments before demanding full loan payment.
A bankruptcy filing may trigger the acceleration clause in your mortgage agreement because your lender can take action if your default may be impacted. The primary mortgage lender holds a higher priority position than other creditors in real estate.
Bankruptcy is a complicated process that can limit a lender’s ability to recover their money, so they may accelerate payments to safeguard themselves.
Homeowners pay property taxes to avoid a lien and acceleration of the mortgage. Additionally, it’s their responsibility to maintain their property to prevent creating unlivable conditions, which could lead to acceleration.
What Is An Acceleration Clause?
An acceleration clause in a contract allows a lender to ask a borrower to pay back all of their outstanding monthly payments if they fail to meet specific requirements.
The acceleration clause will specify why the lender can demand the outstanding loan repayment and the amount due.
What happens after the acceleration clause is called upon?
Activation of acceleration clauses in mortgages is not automatic. However, once triggered, the lender will issue a mortgage acceleration letter indicating the amount due.
The timeline for issuance of the letter varies among lenders, but usually, the letter is sent 90 days after the initial missed payment.
If you’re behind on your mortgage, you can create a plan to catch up with your lender and restore your mortgage.
What does a Mortgage Acceleration Letter mean?
You will receive a letter from your mortgage company if they activate the acceleration clause.
The letter will contain details such as the reason for your mortgage acceleration, the lender’s contact information, and the mortgage balance with any outstanding interest you need to pay by a specified due date.
What actions should you take if you receive a notice to accelerate?
It is advised to work immediately with a foreclosure lawyer to understand your rights and options. Then, if a foreclosure is inevitable, the attorney can help you decide on the best action.
If you received a notice by mistake, contact your mortgage lender or servicer immediately. Ask for a detailed record of your payments to verify their accuracy.
If you need to catch up on payments but can bring your account up to date, do it as soon as possible.
Request a written statement of the amount needed to reinstate your mortgage so you have proof of the arrangement.
Are acceleration clauses legal?
Acceleration clauses are enforceable under the law. However, they are only activated when a borrower still needs to fulfill their obligations and comply with the terms outlined in a previously signed agreement.
Are lenders required to inform about the acceleration clause?
Suppose you signed a mortgage contract with an acceleration clause. In that case, the lender may not have to explicitly inform you if they initiate a foreclosure process due to borrower default or if you fail to meet certain conditions. To be aware of the acceleration clause, you need to read the entire contract or have a lawyer help you understand what you are signing.
What steps can you take to prevent triggering an acceleration clause?
To prevent having to make accelerated payments, ensure that you keep up with all your mortgage payments, pay your homeownership expenses such as insurance and taxes on time, and maintain your property in good condition. Then, if there are no borrower defaults or missed mortgage payments to your mortgage servicer, you can avoid mortgage acceleration easily.