Acceleration Clause

An acceleration clause is a provision clearly stated in a contract (mortgage) that grants a lender (mortgagee) the right to immediately recall a loan or demand full repayment of the outstanding loan balance amount owed.

It can be triggered upon an act that the lender deems as a breach of contract, like a default.

For example when a property is sold by the owner, defaults on installment repayments, fraudulent documentation, false credit declarations, property value depreciates to less than amount owing, etc

This makes it unnecessary for a lender to file separate lawsuits against a borrower (mortgager) for every act of delinquency (e.g. late payment).

Almost all leases and promissory notes contain acceleration clauses.

Such clauses are most prevalent in mortgages and other types of financing arrangements with regards to real estate transactions.

They also be present in other types of secured loans like equipment loans and maritime mortgages.

While an acceleration clause is not an implied term in a typical mortgage, lenders are known to expressly state it to prevent abuse should the condition be absent.

There will always be smart people out there who would game the system.

Unlike a demand clause, lenders do not have the sole discretion to exercise an acceleration clause without certain conditions being met.

The conditions that justify acceleration should be stated clearly in the contract.