Notice of acceleration: A bank notice stating that the mortgage balance must be paid in full.
Notice of acceleration: A document issued by a bank that that advises the homeowner that all mortgage payments, including past missed payments, will be due within a specified period of time.
Notice of Acceleration: Steps to Take to Avoid Foreclosure
Mortgages containing an acceleration clause allow banks to demand full payment of the outstanding balance of a mortgage after several missed payments to avoid foreclosure.
The notice of acceleration is intended as a warning to homeowners who have defaulted on their mortgage loan. It usually allows homeowners a set time frame to cure the default and reinstate the loan by paying all outstanding payments and fees.
A standard notice if acceleration, such as the one below from Bank of America, usually states,
“The loan is in serious default because the required payments have not been made…You have the right to cure the default…If the default is not cured on or before Nov. 20, the mortgage payments will be accelerated with the full amount remaining accelerated and becoming due and payable in full, and foreclosure proceedings will be initiated at that time. As such, the failure to cure the default may result in the foreclosure of your property. If your property is foreclosed upon, the Noteholder may pursue a deficiency judgment against you to collect the balance of your loan.”
Since reinstatement is not an option for most homeowners, given that their failure to pay is usually the result of loss of income, illness or divorce, their only recourse tends to be loan modification, a reinstatement of the loan with new terms that allows them to resume payments. Modification can involve a reduction of interest rates, an extension of the loan term, or a deduction of the principal in order to lower payments. Another option is to request a deed in lieu of foreclosure or short sale, which means either transferring the deed to the property to the bank or executing a short sale.
“In a short sale, the borrower gets permission from the lender to sell the home to a third-party for less than the total amount due on the loan. The main benefit of the short sale is that it allows you to get out from under the mortgage without a foreclosure and potentially eliminates the risk of a deficiency,” says New Jersey real estate attorney Benjamin Dash. “Similarly, a deed in lieu of foreclosure involves a homeowner giving up their interest in the property in exchange for forgiveness of the loan. However, instead of selling the house to a third party, with a deed in lieu of foreclosure the homeowner gives the lender the home in exchange for canceling the loan. As with a short sale, it is imperative that the lender be made to agree, in writing, to forgive any deficiency.”
Requests for loan modifications can be complex and entail the completion of a Request for Mortgage Assistance (RMA) through the bank. Homeowners can also take legal action to delay or halt the foreclosure process by challenging the notice of acceleration.
According to Ohio attorney Larry T. Rothenberg, “Some states, such as Pennsylvania, have a statutory requirement for a special notice to be given to the borrower in advance of a foreclosure. Other states, such as Ohio, which do not have such a statutory requirement, nevertheless require the mortgage holder to fulfill any condition precedent contained in its note or mortgage.
“Many mortgage forms, such as the FNMA/FHLMC uniform instrument, contain a requirement that the mortgage holder give notice to the borrower prior to acceleration of the debt, specifying: (a) the default, (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to the borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by the mortgage, foreclosure by judicial proceeding and sale of the property. If the mortgage contains this condition precedent and the mortgage holder fails to fulfill it, the borrower may raise that failure as a defense and can prevail in the foreclosure case.”