An "acceleration" clause in a mortgage or deed of trust allows the lender, or current loan holder, to demand repayment in full if the borrower defaults on the loan. If the borrower doesn't pay back the loan, the lender can start a foreclosure to recoup the entire amount owed. (To get tips on what to do—and what not do—in a foreclosure, see Foreclosure Do’s and Don’ts.)
The most common kind of default that leads to loan acceleration is when the borrower doesn’t make the required payments. But other kinds of contractual violations can also lead to acceleration. For instance, if the borrower sells the property to a new owner or transfers the home's title without getting the lender’s prior written consent, the lender can usually require immediate payment of the full loan amount.
Acceleration generally happens when the lender makes a clear demand for payment of the entire loan balance. Most mortgages and deeds of trust contain a clause that requires the lender to send a notice, commonly called a "breach letter," warning the borrower that the loan is in default before loan acceleration and foreclosure. (Sometimes, though, the loan contract might say that acceleration automatically occurs when the borrower fails to make a payment.)
A breach letter typically has to specify:
Generally, the servicer will send this letter when the borrower is around 90 days' delinquent on payments. That's because, under federal law, in most cases, a foreclosure can't start until the borrower is more than 120 days' delinquent on the loan. If you don't cure the default, the foreclosure will start.
The notice also frequently informs the borrower about the right to reinstate the loan after acceleration (see below) and the right to assert the non-existence of a default or raise a defense in a foreclosure proceeding.
In most cases, under state law or the terms of the loan contract, the borrower can reinstate the loan after acceleration to stop the foreclosure.
Some states, for example, have a law allowing a delinquent borrower to reinstate the loan by a specific deadline, like 5:00 p.m. on the last business day before the sale date or some other cutoff. If state law doesn't specifically provide a right to reinstate, many mortgages and deeds of trust contain written language giving borrowers a certain amount of time in which they can get current on the loan. Check your loan documents for a paragraph called "Borrower's Right to Reinstate After Acceleration" or something similar. Often, the contract allows the borrower to reinstate at any time prior to the earliest of:
Also, even if the loan contract doesn't mention anything about a reinstatement, the lender might, after considering the situation, let you reinstate.
But you might not get the right to complete a reinstatement if the lender accelerated the loan because you sold or transferred the property without permission. Check the mortgage or deed of trust that you signed when you took out the loan to get detailed information about your right, if any, to reinstate the loan.
To reinstate, you’ll have to pay the lender all of the overdue amounts as if no acceleration had occurred, cure any other kind of default, and pay all expenses that the lender incurred in enforcing the contract, like reasonable attorneys' fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting the lender’s interest in the property. The lender might require you to make a reinstatement payment with a money order, certified check, bank check, cashier's check, or electronic funds transfer.
After you reinstate, the mortgage or deed of trust, and your obligations under it, remain fully effective as if no acceleration had occurred.
Depending on state law and the circumstances, once the loan is accelerated and if you don't reinstate or take other steps to stop the process, the lender will either:
After the lender fulfills all of the legal requirements for foreclosure, the home is sold to a new owner at a public sale. With judicial foreclosures, a sheriff's sale is customarily used as this last step in the foreclosure process. In nonjudicial foreclosures, trustee's sales are common. The successful bidder at the auction becomes the new owner of the property and the proceeds go toward paying off the loan.
If you can't keep up with your mortgage payments, notify your loan servicer immediately to find out what kind of options are available to you. If your loan has been accelerated and you’re facing a foreclosure, consider talking to a foreclosure lawyer to learn whether you might have any available defenses and to learn about the different loss mitigation options that might be appropriate for your situation. If you can’t afford a lawyer, a HUD-approved housing counselor is an excellent resource, especially for information about different ways to avoid a foreclosure.