Mortgage clauses: acceleration, due-on-sale, prepayment, defeasance, and subordination

Match the clause to its job

Mortgage clauses address early maturity, early payment, termination of security, and lien priority. Read the loan terms and applicable law because enforceability and exceptions depend on the transaction.

Acceleration permits the lender to declare the remaining debt due before scheduled maturity after a specified trigger, commonly payment default. It makes the full balance due rather than just overdue installments. It does not itself transfer ownership or complete foreclosure.

Due-on-sale, or alienation, permits acceleration when a covered transfer of the property or an interest in it occurs. Payments can be current and this clause can still matter. It does not authorize a buyer to assume the loan. Some transfers are protected by law.

Prepayment addresses voluntary payment of principal ahead of schedule, partly or in full, and any permitted charge or restriction. Distinguish the borrower's early-payment choice from the lender's acceleration demand. Do not infer a penalty simply because payment is early.

Defeasance, in the basic residential mortgage sense, connects full performance of the secured obligation to termination of the mortgage security. Satisfaction of the debt and documenting release of the lien are distinct. In Florida, section 701.04(2)(a) requires the mortgagee or servicer, within 60 days after full payment or payment pursuant to an estoppel letter, whichever is earlier, to execute and acknowledge or prove a release, send it for recording, and send the recorded release to the mortgagor or record title owner. Under section 701.04(2)(b), recording a release does not itself eliminate remaining personal liability on the loan.

Subordination changes lien priority by agreement. An existing lender may agree to rank behind a new refinancing mortgage. The subordinating creditor gives up priority, not the debt or the lien itself. This differs from assigning the mortgage to a new holder.

Match the event to the effect: default and early maturity; covered transfer and possible acceleration; voluntary early payment and prepayment terms; full performance and termination of security; agreement and changed lien rank.