ACCELERATING THE LOAN

Most mortgages or deeds of trust give the lender the right to accelerate the note upon default. This means that, if the borrower misses one payment, the lender can declare the entire amount of the mortgage – not just the missed payments – to be due. These acceleration clauses in promissory notes ordinarily are enforceable under California law. In some non-real estate contexts, if one payment is missed on a debt, the lender can accelerate the loan, demand payment in full and the borrower can do nothing, except pay in full or suffer the consequences.

Although acceleration clauses ordinarily are enforceable, Civil Code Section 2945.5 sets forth a notice requirement for them. This statute applies only to deeds of trusts and mortgages against residential property, with one to four units. For acceleration clauses in such deeds of trusts or mortgages to be enforceable, the clause must be set forth in full in the body of the deed of trust or mortgage, and the promissory note or other document establishing the debt.

Lenders may not accelerate loans, against residential real property, due to certain routine transfers which occur upon death, marriage or divorce. Civil Code Section 2945.6 prohibits the acceleration of loans, secured by residential real property, because of the following:

(1) Transfer of property, upon the death of one spouse, to the surviving spouse, if the survivor is already liable on the loan;
(2) Transfer of the property into cownership with the owner’s spouse;
(3) Transfers resulting from divorce or separation;
(4) Transfers to inter vivos trusts in which the borrowers are the beneficiaries of the trust;
(5) A junior lien or encumbrance is put upon the property.

The protections of this statute may not be waived. The statute applies to residential real property, with one to four units.

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