Commercial Loans and the Acceleration Clause

If you are a lender wanting to protect your investment in a loan secured by commercial real estate, managing a delinquent borrower may often feel like an overwhelming task. Before turning to foreclosure, you may consider alternative resolution options. One such option is to accelerate the loan. Whether or not a lender should accelerate commercial loans before attempting to enact a foreclosure depends on the unique factors of the loan and the relationship with the borrower.

The team at Total Lender Solutions has been advocating for lenders for over 15 years. Our team of highly experienced real estate and legal professionals agree that lenders are best able to protect their assets when they consult a loan specialist to guide them toward recovery.

Reasons Lenders Accelerate Commercial Loans

The loan acceleration clause, present in many loans secured by commercial real estate, gives lenders the ability to demand immediate repayment of the entire loan amount in certain circumstances.

The most common reason lenders accelerate a loan is due to default, although you may also accelerate the loan if the borrower violates any part of the loan agreement, or violates the terms of another loan agreement held by the same borrower.

The lender may also accelerate the loan if the borrower sells or transfers the property without the lender’s permission, changes ownership or control of the property, or makes a misrepresentation on the loan agreement.

Should I Accelerate a Loan Before Enacting a Foreclosure?

There are benefits and disadvantages whether you decide to accelerate the loan before you enact a foreclosure, or whether you decide to begin the foreclosure process soon after default. Accelerating the loan, in some cases, allows the lender to foreclose the property more quickly. This is a good option for you if you wish to preserve the value of the property and you believe the property will plummet quickly.

However, accelerating the loan often makes alternative resolution options more difficult to obtain because it rushes the borrower. In most cases, it is financially more difficult for the lender to foreclose than to find a workable solution that benefits both the borrower and the lender.

If you have accelerated your commercial loan and are still struggling with a delinquent borrower, it may be time to begin the foreclosure process. Because nonjudicial foreclosures are complex and there are steep consequences for failing to follow compliance guidelines, lenders must seek out a foreclosure partner before beginning the process.

Related Blog: Helpful Hints: When to Start a Commercial Foreclosure 

Total Lender Solutions works as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. If you are considering foreclosure to protect your assets and get a maximum return on your investment, contact us today