Clauses In Loans and Mortgages

Alienation Clause – also called a due on sale clause, which causes the unpaid mortgage balance to be due when the property is sold.

Acceleration Clause – another clause requiring that the unpaid balance be paid off, it differs from the alienation clause in that the acceleration clause goes into effect when any of the terms (convenants) of the deed of trust are broken by the borrower. The most common cause is selling behind on the payments.

Defeasance Clause – the cancellation of an agreement upon the occurrence of a certain event. Example: A deed of Trust have defeasance clause that cancels the obligation once the last payment is made.

Environmental Clause – Newer deeds of trust have clauses prohibiting the borrower from causing any environmental damage to the property. Motor oil pesticides, and other toxic substance can cause environmental hazard and problems if not carefully controlled

Escalation clause – a clause that allows the interest rate to be increase upon assumption of the not, or the rent to be adjusted in accordance with predetermined event.

Repayment Penalty – a penalty that is charge when a loan is paid off early, possible discouraging during periods of declining interest rates. Prepayment penalty may be legal, it depends on the jurisdiction.

Prepayment privilege – The ability to pay a portion or the entire principal balance without penalty

Release or partial release – usually applies to blanket mortgages when a builder or developer purchases several lots or a large parce of land, improves the land, then sell it in smaller portions. A release is usually obtained when a payment representing the appropriate portion of the entire loan is paid.

Subordination clause – an agreement whereby a superior lienholder agrees to take a lower lien position in favor of a lien that is recorded of a later date, e.g. a first lien becomes a seecond lien by permitting lien to be placed in front of the original first lien.