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A Legal Contract Crossword

Acceleration Clause Meaning in Business Law

Acceleration clauses are usually triggered by a missed payment. This applies in particular to contracts in which both parties come from a commercial background. “Acceleration clause Legal Dictionary, Merriam-Webster, Retrieved 3 January 2022. In a real estate environment, an acceleration clause in a mortgage or other real estate contract can have a significant impact. In many cases, the borrower cannot afford to pay the full balance, which often leads to the seizure of the property. Acceleration clauses are complicated. Here are answers to frequently asked questions about acceleration clauses: Acceleration clauses are the most common in mortgages and help mitigate the risk of default for the lender. They are usually based on payment defaults, but can also be structured for other events. In most cases, an acceleration clause requires the borrower to immediately pay the full balance of the loan if the terms have been violated.

Upon full disbursement of the loan, the borrower is freed from additional interest payments and essentially repays the loan prematurely at the time of using the acceleration clause. Diana is a registered patent attorney and is admitted to practice in Florida and in the federal courts in Florida and Texas. For nearly a decade, Diana has been known as a brand designer, corporate protector and rights negotiator. Diana works with individual inventors, start-ups, and small and medium-sized enterprises to build, protect, and operate a strong intellectual property portfolio that includes patents, trademarks, copyrights, trade dress, and trade secrets. If a lender invokes an acceleration clause, the borrower must immediately pay the outstanding balance of the loan principal, as well as any interest accrued before the lender has invoked the acceleration clause. However, the borrower does not have to pay the full amount of interest that would have become due if the loan had been repaid normally. For example, most loans allow the borrower to accelerate the loan and repay the loan early in a single lump sum to avoid paying interest for the rest of the loan term. The parties may waive their right to invoke expediency clauses either by entering into an express agreement or by the contractual doctrine of trust.

The difference between a facility clause and a request clause lies in the triggering events. According to an acceleration clause, the debtor must commit a triggering event for it to take effect. A request clause allows the financial lender to demand repayment at any time for any reason. n. a provision in a contract or promissory note that, when an event (such as late payment) occurs, the full amount is due or other requirements are now due, pronto. This clause is most often found in promissory notes with instalment payments for the purchase of real estate and requires that in the event of sale of the property, the full amount of the obligation is due immediately (the “maturity clause”). Some states prohibit “bonds for sale” and still allow the new owner to assume the debt. (See: Acceleration, Acceptance) For more information about the purpose of an acceleration clause, see this article. As you can probably see, acceleration clauses can have far-reaching implications for both the borrower and the lender. You may need to hire a mortgage lawyer in your area if you need help negotiating or managing an acceleration clause.

Your lawyer can advise and research you regarding the real estate laws in your area. This can help you avoid litigation or legal problems, and can help prevent misinformed signing of contract terms. If you have to take legal action because of a legal dispute, your lawyer can represent you in court at hearings. The agreement may require acceleration if a significant obligation, such as non-payment of principal or interest, or non-payment of insurance premiums, is delayed. For more information on the relaxation clauses discussed, see this page. Acceleration events also include filing for bankruptcy or a transfer of ownership, whether involuntary or voluntary, securing the trust deed without the written consent of the lender. In Ford Motor Credit Company v. Milhollin, 444 U.S. 555 (1980), the Supreme Court ruled that the Truth in Lending Act does not require that an acceleration clause be disclosed at the beginning of a credit agreement.

In a mortgage contract, the activation of an acceleration clause can serve as a precursor to a foreclosure measure that allows a lender to legally force the sale of the property that the borrower has acquired through the use of the mortgage. [3] Proceeds from a subsequent sale of the property may be used by the lender to recover the amount that the borrower still owes under the loan. Acceleration clauses are contractual conditions that allow a financial lender to accelerate the repayment of your mortgage if you do not meet certain conditions. These are called triggers for real estate offers. A trigger event allows the lender to trigger an immediate payment. Usually, real estate lenders do not want to deal with real estate that has fallen into a state of foreclosure. Thus, they can allow a borrower to withdraw from an acceleration clause, thus avoiding foreclosure by a loan change or an alternative repayment plan. These types of options are called “mortgage forgiveness,” which means that the lender will reinstate the loan, but under agreements of different terms. This can help the lender and borrower continue to work together to own or manage the property.

On the other hand, the borrower may be required to repay the costs incurred by the lender under the initial acceleration clause. Mortgage acceleration clauses are designed to be triggered in situations where the mortgagee wants to seal the mortgage. This allows the mortgagee to try to recover all the outstanding value of the mortgage, not just the value of certain missed payments. An acceleration clause is usually based on late payment, but the number of late payments may vary. Some acceleration clauses can trigger an immediate payment after a payment has been missed, while others may allow two or three missed payments before requiring the loan to be paid in full. The sale or transfer of the property to another party may also be a factor associated with an acceleration clause. I am a single practitioner who has been practicing for over 25 years. I have represented many small businesses during this time.

Let me bring my expertise to your business. An acceleration clause may provide that in the event of a “default” or persistent default, the mortgage holder may require the total outstanding balance of the mortgage, as well as unpaid interest, before the mortgage maturity date. Few acceleration clauses are triggered automatically. Instead, once the terms of the clause are met, the lender can decide whether or not to invoke the clause. If a lender has the right to invoke an acceleration clause because of a borrower`s default, the lender may lose that right if the borrower corrects its default before the lender actually invokes the clause. However, if you transfer the stake in your property to one of your heirs, your lender will not be able to use the acceleration clause. Many mortgages include acceleration clauses to protect the lender`s interests in case you transfer the rights to the property and secure the mortgage. If you transfer shares of your property to another party without the prior written consent of your lender, your lender may exercise the acceleration clause. Here is another article on acceleration clauses. An acceleration clause is a contractual clause in which the borrower must repay the full balance of the loan amount in the event of default on one or part of the payments. The execution of the contract is “accelerated”, i.e.

the full amount is due when the agreed circumstances are triggered. An acceleration clause was introduced in 1971 in Scullian v. Petrucci[4], in which the clause stated: The exact details and requirements of an acceleration clause depend on the terms agreed upon by the parties during the negotiations. In some cases, the borrower may only have to make missed payments in the past. However, in most cases, they will have to pay all remaining amounts plus interest and other costs (usually only interest at the current time, no interest on future payments). Brandon is a Texas Super Lawyer®, which means he`s among the top 2.5 percent of attorneys in his state. He designed his practice to provide businesses and entrepreneurs with a unique ecosystem of legal services derived from his experience as a Federal District legal clerk, published biochemist, and industry speaker. .

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