Demand Clause

Demand Clause

A clause in the note that allows the lender to demand repayment of the balance in full.

A demand clause is even better (for the lender) than an acceleration clause. An acceleration clause allows the lender to call the loan if the borrower violates some contractual provision, such as a requirement that the loan must be repaid upon sale of the property. A demand clause allows the lender to demand repayment for any reason. For example, the lender can force you to accept a higher rate by threatening that if you don't agree, the loan will be called.

The lender asking for a demand clause will no doubt disavow any intention of behaving in such a manner. But you don't put your head on a chopping block just because the executioner promises not to cut it off.

The Truth in Lending Disclosure has a statement that reads “This loan has a demand feature,” which is checked “yes” or “no.” Some lenders will check “yes,” even though the note has an acceleration rather than a demand feature (see Acceleration). Nonetheless, if it is checked “yes,” you want to examine the relevant sections of the note.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
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