acceleration clause

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Acceleration clause

A contract stating that the unpaid balance becomes due and payable if specific actions transpire, such as failure to make interests payments on time.

Acceleration Clause

A clause in a contract, especially a loan or bond, allowing a creditor to call the debt if certain, stated events occur. For example, if a borrower defaults on two or more payments, an acceleration clause may allow a lender to force the borrower to repay the entire amount of the loan immediately. Failure to repay could absolve the lender of all obligations in the contract, including the requirement to refund any money the borrower had previously paid, and render it effectively null and void.

acceleration clause

A provision in a bond indenture that in the event of default allows the trustee or the holders of 25% of the principal amount of the outstanding issue to declare all of the principal and interest immediately. Calling for an acceleration is likely to cause the borrower to cure the default or seek bankruptcy protection.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

acceleration clause

The clause in a promissory note or lease that allows immediate demand,upon default,for all sums due over the entire term.

Acceleration Clause

A contractual provision that gives the lender the right to demand repayment of the entire loan balance in the event that the borrower violates one or more clauses in the note.

Such clauses may include sale of the property, failure to make timely payments, or provision of false information.

I have never seen a note that did not have such a clause. Borrowers need not concern themselves with it except where the lender has discretion to exercise it without conditions. This would be referred to as a “demand feature,” and it would be flagged on the Truth in Lending Disclosure Statement. If that statement shows “This loan has a Demand Feature…,” the note should be read with care. See Demand Clause.

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References in periodicals archive ?

(4.) This is the lender's only remedy in contracts without acceleration clauses. See Restatement (Third) of Prop.

(5.) Acceleration clauses are routine in mortgage notes.

Foreclosures begin with a mortgage note's "acceleration clause." Under a mortgage note, the homeowner is required to make a certain payment every month for a fixed period.

In defense of "free houses"

4th DCA 1999) (holding that when an installment contract contains an optional acceleration clause, the statute of limitations for recovering under the contract may commence running on payments not yet due if the holder exercises its right to accelerate the total debt because of a default).

Deceleration: restarting the expired statute of limitations in mortgage foreclosures

Under these circumstances, the owner still holds the lease term and any acceleration clause as a bargaining chip but can afford to be more accommodating in light of the common goal.

An owners perspective on lease breaks during downturn

79-3, Subjective Acceleration Clauses in Long-Term Debt Agreements.

79-3 are inconsistent in their treatment of subjective acceleration clauses in debt agreements.

However, according to the statement, that agreement shouldn't be cancelable by the lender because of a subjective acceleration clause.

Mortgage-backed securities

In Technical Bulletin 79-3 the FASB staff stated its view that subjective acceleration clauses in long-term debt agreements (as opposed to short-term debt being refinanced) would only cause such debt to be classified as a current liability in situations involving recurring losses or liquidity problems where it is considered probable that the clause will be invoked.

In issue 86-5, "Classification of Demand Debt with Long-Term Repayment Schedules," the Emerging Issues Task Force (EITF) addressed the question of whether clauses in loan agreements with scheduled payments which allow the creditor to demand payment at any time constitute subjective acceleration clauses. In its consensus, the EITF stated that such provisions are not subjective acceleration clauses and that the debt should be classified as a current liability.

Subjective acceleration and demand clauses in loan agreements

This clause reflects a view that acceleration clauses are of dubious enforceability.

Cases suggest, however, that an acceleration clause would be enforced if it provided for an offset for the reasonably anticipated revenues from re-letting.

What damages can an owner collect when a tenant vacates prior to lease expiration?