Acceleration clause

Key Takeaways

• An acceleration clause turns a missed installment into a demand for the entire remaining balance, not just the late payment.
• Acceleration is a contract right, so it must be written into the promissory note or the security instrument before a lender can use it.
• Default triggers an acceleration clause, while a transfer of the property triggers a due-on-sale clause.
• In Washington, paying the arrears and costs before the eleventh day preceding a trustee's sale reinstates the deed of trust and the loan continues as though no acceleration had taken place (RCW 61.24.090).

What It Means

An acceleration clause is the language in a Promissory Note or security instrument that changes what a lender is allowed to collect once a borrower falls behind. Without it, a lender whose borrower missed one $2,000 payment could demand only that $2,000, then start over the following month. With it, the lender may declare the whole unpaid principal, plus accrued interest, due at once.

The clause does not fire on its own. It lists the events that let the lender accelerate, and default is the usual one: missed payments, unpaid property taxes, a lapsed hazard insurance policy, or damage to the collateral. Invoking it is the lender's choice, and many lenders wait, because acceleration ends the payment stream and starts an expensive process.

Acceleration matters in real estate because it is the step that makes foreclosure possible. A Deed Of Trust secures the note, and a trustee does not sell a house over one late payment. The trustee sells because the entire balance has been called due and has gone unpaid. Read the note and the security instrument together, since the clause may sit in either document.

How It Works in Washington

Washington is a deed of trust state, so acceleration usually leads to a nonjudicial trustee's sale rather than a court case. Before a notice of sale is recorded, transmitted, or served, written notice of default must go to the borrower and grantor at least 30 days ahead (RCW 61.24.030). That notice states the amount in arrears and what it takes to cure.

Washington then gives the borrower a de-acceleration right that surprises people. Under RCW 61.24.090, at any time before the eleventh day preceding the sale date, the grantor or another person entitled to cure may pay the past-due amounts plus the trustee's and attorney's fees and costs. On receipt, the statute says the proceedings shall be discontinued, the deed of trust shall be reinstated, and the obligation shall remain as though no acceleration had taken place.

The practical effect is large. The borrower does not need to produce the full accelerated balance to stop the sale, only the arrears and costs, and only if they act before that eleventh day. Miss the window and the accelerated balance is what has to be paid. That reinstatement right is why a Washington Default is often cured rather than foreclosed.

Example

Priya buys a house in Spokane with a $340,000 loan at 6.5 percent, principal and interest of $2,149 a month, secured by a deed of trust. She loses her job and misses the March, April, and May payments, leaving her $6,447 behind plus $260 in late charges. On June 10 the servicer transmits a notice of default listing $6,707 to cure. Priya does nothing. On July 15 the trustee records a notice of sale setting the auction for October 20, and the servicer accelerates, so the full $337,800 balance is now due instead of the $6,707.

Priya starts a new job in September. On October 5, fifteen days before the sale, she pays arrears that have grown to $11,005 plus $2,400 in trustee and attorney fees. Because she paid before the eleventh day preceding the sale date, the sale is called off, the deed of trust is reinstated, and her $2,149 monthly payment resumes as if the loan had never been accelerated.

Common Mistakes and Exam Traps

• Acceleration and due-on-sale have different triggers. Borrower default sets off an acceleration clause, while a sale or transfer of the property sets off a due-on-sale clause.
• Acceleration is not foreclosure. It makes the balance immediately due, and foreclosure is the separate process a lender uses to collect after the accelerated balance goes unpaid.
• A prepayment penalty charges the borrower for paying early by choice, while acceleration forces early payoff at the lender's demand. Questions that pair the two are testing that direction.
• Curing under RCW 61.24.090 takes the past-due amount plus fees and costs, not the whole accelerated balance, and the deadline is the eleventh day before the sale, not the day of the sale.