What is an acceleration clause in real estate?

If you’ve unexpectedly lost income, you may have a hard time keeping up with your mortgage payments. If this is the case, you may receive a letter from your lender stating that you now owe the entire amount you borrowed. This is called mortgage acceleration. A mortgage acceleration clause is a standard provision of home loan agreements.

Should you receive notice of mortgage acceleration, take a deep breath. You’re not alone. And if you work with your lender, you may be able to restore your mortgage by developing a plan to catch up with your monthly payments. Here’s what you need to know about the mortgage acceleration clause.

What is an acceleration clause in real estate?

An acceleration clause is a provision in your mortgage agreement that defines when and how the lender can “accelerate,” or fast-forward, the full repayment of the loan, including the accrued interest. If you fail to fulfill the terms of your mortgage agreement, such as making on-time payments, you’ll receive a letter notifying you that the lender has triggered the acceleration clause.

What prompts use of an acceleration clause in a loan agreement?

There are several things that could activate an acceleration clause in your loan agreement. Let’s look at some of them so you can hopefully be aware if it’s happening to you.

Missed mortgage payments

Lenders exercise the clause when you become delinquent on your mortgage payments. The conditions under which your loan can be accelerated for nonpayment are in your contract and you have rights under federal law. For instance, the lender may be required to undo the acceleration clause if you pay all past-due payments and any associated fees. Plus, the lender can only ask you to pay the remaining principal balance and any interest that you’ve accumulated on the loan before the acceleration clause went into effect.

Lenders typically won’t foreclose for nonpayment until you’re at least 120 days late.

Moreover, if this is happening, your mortgage servicer will likely reach out to you to see if they can help. The goal is to keep you in your home while ensuring you’re making your monthly payments on time.

Canceled homeowners insurance

The acceleration clause can also be triggered if you cancel your homeowners insurance policy. Your lender will require you to maintain homeowners insurance so that the property can be restored to its market value if it is ever damaged. The lender also has to be sure the home is in salable condition in case you ever default on the mortgage.

In practice, lenders, including Rocket Mortgage^®, often buy insurance for you and make you pay for it (called “force-placed insurance”) if you cancel or lose your home insurance. But they also have the option to accelerate your mortgage.

Unpaid property taxes

Lenders will typically reserve the right to accelerate your mortgage if you miss a payment toward your property taxes. If you don’t pay property taxes, your local government can place a lien on your property and eventually seize it altogether.

In this situation, your mortgage lender will usually pay the taxes for you. They may reassess the amount you need to put into your escrow account to ensure that your property taxes and homeowners insurance are paid for. These payments will be rolled into your monthly mortgage payment. You’ll owe the back payments to your lender.

Property destruction

Your servicer can call your loan due if your property is damaged or destroyed because your home is collateral for your mortgage. This doesn’t mean they’re going to make you pay back your loan immediately following a major storm. It does mean you have to work with your lender and your insurance to have the damage fixed or rebuild parts or all of your home if it was destroyed.

Bankruptcy filing

Bankruptcy could also trigger the acceleration clause in your mortgage agreement because bankruptcy can affect your lender’s ability to exercise its rights if you default on the home loan.

The primary mortgage lender holds a superior position to all other creditors on the real estate purchased with the loan and secured with a mortgage. The bankruptcy court’s primacy in determining creditor payouts can put this agreement in jeopardy. That’s why a lender can call in your entire loan should you declare bankruptcy.

Lenders like Rocket Mortgage often only foreclose if you stop making your payments or fail to make the agreed-upon payments under a Chapter 12 or 13 reorganization bankruptcy. If you do miss your payments, your lender can initiate foreclosure proceedings upon approval by the courts.

Unauthorized property transfer

An acceleration clause in a mortgage may also be triggered if you attempt to transfer the property to another person or an LLC without your lender’s prior permission. Your mortgage contains a due-on-sale clause – also known as an alienation clause – which is violated by any transfer of property, in turn triggering a mortgage acceleration.

For example, you transfer ownership of your home from your personal ownership to your business. Your mortgage lender may immediately send you a mortgage acceleration notice since it vetted you, not your business, when it made the loan.

Exceptions for conventional loans

There may be an exception by Rocket Mortgage for conventional loans. The details vary based on whether the investor in your loan was Fannie Mae or Freddie Mac. If the investor was Fannie Mae, loans originated after June 1, 2016, may be transferred to an LLC if the client controls more than 50% of the LLC under a K-1 or Articles of Organization.

Transfers are also permitted if the investor is Freddie Mac as long as clients control more than 50% of the LLC. If there are multiple clients on the loan documents, they all have to be partners in the LLC and at least one of them must be a managing member or general partner. If you wish to refinance or modify a loan in the future, the loan has to be put back in the name of the original owner. Finally, the loan must be at least 12 months old.

Family transfers and successors in interest

During a client’s lifetime, certain family members may take over the property without assuming the loan. After a client passes, successors in interest may take over payments without triggering an acceleration, regardless of investor. However, if you wanted to refinance, the deed would have to be in your name.

Other considerations

Some exceptions may apply when a title transfer is permitted, such as when an elder relative becomes incapacitated. You will need to work with the lender and possibly an elder law attorney to be sure you’re following the law. Your servicer may require additional information from you and the other person or people involved in the transfer.

Are loan acceleration clauses legal?

Acceleration clauses are legal. When and how they can be enforced depends on your mortgage contract.

Additionally, mortgage acceleration and foreclosure laws vary greatly depending on the state you live in. Be sure to check your state’s laws regarding loan acceleration.

Speak to the attorney who handled your closing if you have any legal questions. They should have reviewed it at that time and will be able to explain what your legal options are based on where you live. If you didn’t have an attorney present, speak to your mortgage lender. You may also want to seek advice from an attorney who specializes in real estate law.

How to avoid mortgage acceleration

You may be able to avoid acceleration by working out a loan modification or repayment plan with their lender to make up the delinquent payments. The key is to work through your options with your servicer.

Bear in mind that you may sometimes have to pay some or all of the costs the lender incurred while dealing with the acceleration. For example, if you’re trying to qualify for mortgage forbearance, when the lender temporarily pauses or reduces your mortgage payments, you’re still responsible for any missed payments or late fees while the lender makes their decision.

Real estate acceleration clause FAQ

Do you have more questions about the acceleration clause in a mortgage contract? Take a look at the following FAQ.

What’s the difference between an alienation clause and an acceleration clause?

An alienation clause, also known as a due-on-sale clause, requires you to pay off your mortgage balance when you sell or transfer your home. An acceleration clause is activated when you fail to make your mortgage payments (or meet other terms of the loan) and are required to pay off the remaining loan balance.

How much time do I have to respond to the loan acceleration?

The amount of time you have to respond to a mortgage acceleration notice depends on the mortgage lender or loan servicer. The amount of time you have to deal with this may depend on where you live.

What’s the best way to avoid mortgage acceleration?

The best way to avoid loan acceleration is to make your monthly mortgage payments on time. If you find that you’re having trouble with this, speak with your mortgage lender to find a solution that works for you.

There are options to consider that can help lower your monthly payments, like refinancing to a loan with a lower interest rate.

The bottom line: Understand your options if your mortgage loan is accelerated

Although every mortgage lender or servicer has different policies, some may exercise the acceleration clause if you become delinquent on your mortgage payments, cancel your homeowners insurance policy or stop paying your property taxes. You’re not alone if you’re behind on your mortgage. According to the Mortgage Bankers Association’s (MBA) National Delinquency Survey, mortgage delinquencies increased in the fourth quarter of 2024, to 3.8% of all home loans.

Whether you’re among the increasing number of homeowners behind on their mortgage payments or are facing a unique situation, it’s important to communicate with your lender to figure out a plan to avoid or deal with the loan acceleration.

If you’re in danger of falling behind in your payments or defaulting on your mortgage for any reason, it’s important to communicate with your servicer so they can assess your situation and attempt to help you get back on track. We encourage Rocket Mortgage clients who may be struggling to fill out our Application for Success.