Getting a mortgage on your new home can be exciting for many homeowners. Unfortunately, when financial hardships strike, making payments on your dream home can become difficult. To protect their investment, lenders include the acceleration clause in their mortgage documents. It can be invoked when a borrower gets behind on payments.
When you receive the letter notifying you of the triggered acceleration clause, it can be a frightening experience. Our experienced attorneys from O’Bryan Law Offices explain when a lender will invoke the acceleration clause. We’ll also explain how you can avoid this.
If you have any questions about an impending foreclosure or other mortgage questions, contact the O’Bryan Law Offices and call 502-339-0222 today. A Kentucky foreclosure defense lawyer with our firm will help you navigate the situation.
What Is an Acceleration Clause?
An acceleration clause in a mortgage is a provision that lenders use to demand full loan repayment for the mortgage.
When the mortgage acceleration clause is triggered, the payments must be made immediately. The mortgage payments will also include any accrued interest. This provision is usually triggered when the borrower defaults on their mortgage loan by failing to make mortgage payments.
What Is a Mortgage Acceleration Letter?
The mortgage acceleration letter is the document your lender will send notifying you that the clause has been triggered. The acceleration letter will include the amount of the entire loan due and when the payment must be made. Borrowers typically have 30 days to make the full payment.
Are Acceleration Clauses Legal in Kentucky?
Acceleration clauses can be found in all loan documents that involve repayment. Consider if lenders could not include this provision in their loan agreements. They would be forced to pursue legal action every time a borrower fails to make a payment.
While acceleration clauses are legal, the laws vary depending on where you live. It’s essential to read your mortgage agreement’s fine lines before signing to know what can happen when you miss a payment. To understand more about acceleration clauses in Kentucky, the attorneys at the O’Bryan Law Offices can answer any questions you may have.
What Triggers an Acceleration Clause?
A mortgage acceleration clause is usually invoked when there are missed payments on the loan. However, other situations can lead to a breached loan agreement and trigger the acceleration clause.
Missing Mortgage Payments
Missed mortgage payments are the most common reason lenders will exercise the loan’s acceleration clause. The number of delinquent payments that trigger the acceleration clause can vary, but lenders will usually not resort to this until there have been two to three missed mortgage payments. Sometimes, lenders can invoke the acceleration clause after one missed payment, but that depends on your mortgage terms.
Canceling Homeowners Insurance
Lenders require homeowners’ insurance to protect the property and ensure that it remains in good condition if you become delinquent on payments and they’re forced to sell the home. If you cancel your homeowners’ insurance, this can trigger an acceleration clause.
Lenders will often purchase homeowners insurance for their borrowers (force-placed insurance) and make them pay for it. This scenario only sometimes happens, so don’t cancel your homeowner’s insurance, hoping your lender will get it for you.
Failing to Pay Property Taxes
Failing to pay property taxes can result in a tax lien on your property by the local or state government. This lien has priority over the mortgage lien, which makes it difficult for your lender to enforce. Not paying property taxes can trigger an acceleration clause, but sometimes, the lender will pay the unpaid property taxes and add the amount to the mortgage agreement.
We often hear the question, “Can someone put a lien on my house without me knowing?” The answer may surprise you. Read our related blog post to learn more about this issue.
Transferring Property Without Authorization
An unauthorized property transfer to a person or LLC can trigger an acceleration clause. Your mortgage contract will include a due-on-sale clause, or alienation clause, which is violated by any unauthorized transfer of property. When this clause is violated, it triggers an acceleration clause.
When you enter into a loan agreement for a mortgage, your lender has approved you for the loan. Attempting an unauthorized property transfer negates the loan documents because your mortgage lender approved you for the loan, not the other person or business that you’re trying to transfer the property to. Your lender may demand repayment and invoke the acceleration clause when this happens.
Filing for Bankruptcy
Filing for bankruptcy can trigger a mortgage acceleration. When your mortgage lender is notified that you’ve filed for bankruptcy, they can invoke the acceleration clause and demand you pay the entire loan balance. Bankruptcy filings can make lenders nervous about a borrower’s ability to make monthly payments which is why they may trigger the acceleration clause.
If you’re considering bankruptcy, the KY bankruptcy attorneys at the O’Bryan Law Offices will assess your finances before you file and determine if bankruptcy could trigger an acceleration clause.
Can I Avoid a Mortgage Acceleration?
There are ways that you can avoid mortgage acceleration and the Kentucky foreclosure process. Lenders usually want to avoid the headache of owning real estate, so they would rather work out a repayment plan or other remedy for the missed payments.
If possible, you can refinance your home and borrow a new loan with different terms. This new loan can make your monthly payments more affordable and will be used to pay off your prior mortgage agreement.
Refinancing is only an option for some, especially if you’ve already gotten behind on mortgage payments. Missing payments can make it difficult to be approved for a refinanced loan since you need good credit to be approved.
When refinancing isn’t an option, you can look into a loan modification with your lender. If they agree to a repayment plan or loan modification, you can make up for missed loan payments. This process is also known as a mortgage reinstatement. In addition to paying the delinquent mortgage payments, the borrower will also have to pay for some of the costs that the lender incurred from the loan acceleration.
Note: The O’Bryan Law Offices are not a loan modification firm. Our attorneys will provide advice and guidance for those considering a loan modification.
When a homeowner is behind on mortgage payments, the lender may agree to a short sale of the property. A short sale differs from a typical real estate sale because the buyer pays less than the homeowner owes on their outstanding loan. To be approved for a short sale, the homeowner must prove to the mortgage servicer that they’re experiencing financial hardship and cannot pay the mortgage balance. It’s important to understand the relationship between short sales and bankruptcy before making a decision.
Maintaining an open and honest line of communication with your lender is important, especially when you need to catch up on mortgage payments. If you need help to make payments and think you’re going to get behind, reach out to your mortgage lender immediately. You may qualify for forbearance, which is when your lender temporarily pauses your loan payments.
Deed in Lieu of Foreclosure
If you’ve gotten so behind on payments and you don’t think you’ll ever be able to make them up, you may consider a deed in lieu of foreclosure. Your lender may suggest a deed in lieu of foreclosure, which will transfer the ownership of the property to them. When you’ve gotten so behind on payments, lenders may propose this option to avoid foreclosure.
Following a deed in lieu of foreclosure, if the money the lender makes from selling the property doesn’t cover your remaining balance, they may pursue legal action to recover the balance owed.
What Do Lenders Consider When Deciding Whether or Not to Accelerate a Loan?
Before the lender invokes the acceleration clause, they must consider several factors that will affect them and the borrower.
Your Level of Risk
Acceleration clauses allow lenders to mitigate the risks associated with loans. This provision gives lenders an option to demand repayment of a loan that is being defaulted on.
On the other hand, there is an additional risk for the lender when invoking the acceleration clause because, if the borrower doesn’t have the money to make their mortgage payments, they most likely won’t have it during the 30 days following the acceleration letter. Knowing this, the lender can assume that the next step will be a foreclosure on the property.
Lenders want to avoid a judicial foreclosure because they usually don’t get back full repayment of the loan. This is why they typically prefer working out a repayment plan to recoup missed payments on the home loan.
If an acceleration clause is triggered, the homeowner is responsible for any interest payments and the mortgage balance. However, when the loan acceleration is invoked, the borrower isn’t required to make any payments on the future interest that would be due had the loan lasted the entire term. When this happens, the homeowner makes a full repayment, and the lender gets their money back, but they don’t recoup any future interest payments.
If you have a lot of time left on your mortgage, your lender will be more willing to work with you on a repayment plan before triggering the acceleration clause that will cause them to lose out on years of future interest.
Contact O’Bryan Law Offices Today to Discuss Your Options
No one ever expects to get behind on their mortgage payments. But emergencies can happen that make it difficult to pay your bills on time. If you believe your lender is preparing to invoke the acceleration clause, you still have time to make up your delinquent payments.
The sooner you contact the foreclosure attorneys at the O’Bryan Law Offices, the better. Our team of experienced attorneys will evaluate your finances and determine the best course of action.
To learn more about your options, schedule a free consultation at the O’Bryan Law Offices by calling 502-339-0222. Our attorneys want to help you avoid foreclosure and will do everything possible to help you save your home.