An acceleration clause, often found in both the security instrument and in any promissory note evidencing the obligation, provides that upon default the secured party may elect to declare the entire amount of the debt (not just overdue installments) immediately due and payable in full. The most common default triggering an election to accelerate is failure to pay an installment when due. But default in performance of any other obligation, such as failure to pay property taxes or insurance premiums, or commission of waste on real property, will qualify. An acceleration clause may provide for acceleration "at will" or when the creditor "deems itself insecure." In any transaction involving a promissory note (governed by Article 3 of the Commercial Code) or any transaction involving a security interest in personal property (governed by Article 9 of the Commercial Code), an "at will" acceleration power may be exercised only if the creditor in good faith believes that the prospect of payment or performance is impaired. UCC 1-208. Common law is likely to similarly constrain "at will" acceleration in any real property secured transaction which does not involve a promissory note.
Affirmative defense aspect (of the security first rule)
California common law rule, grounded in Cal. Code Civ. Pro. 726 (the security first rule), which permits a debtor who is sued for a money judgment on an obligation secured by real property to plead and prevail on the affirmative defense that the creditor must first look to the collateral for a remedy. Compare Sanction effect (of the security first rule).
Property, acquired by the debtor after the debtor has executed a security agreement, which becomes collateral for a debt by virtue of a clause in the security agreement granting the secured party a security interest in such property if and when acquired by the debtor. With certain restrictions in the case of collateral consisting of consumer goods, the Commercial Code sanctions the use of after-acquired collateral to secure a debt, but the security agreement must so provide. See UCC 9-204.
In bankruptcy, a creditor with an unavoided lien has an allowed secured claim to the extent of the lesser of: the value of the creditor's interest in the debtor's interest in the collateral or the amount of the debt secured by the collateral. The value of the creditor's interest, if any, depends on the valuation of the property stipulated by interested parties or determined by the court and the amount of any claim held by a creditor with a superior lien on the same property. If the amount of the debt exceeds the value of the creditor's interest, the balance of the creditor's claim is an allowed unsecured claim. See Bankruptcy Code 506(a).
In bankruptcy, the claim of a creditor who is unsecured or who has an allowed secured claim which is less than the amount of the debt.
A schedule of debt repayment through periodic installment payments of interest and principal. If a debt is fully amortized, all payments of interest and principal will be made through the sum of all periodic installment payments over the term of the debt. If a debt is partially amortized, some portion of the principal will remain due and payable, as a balloon payment, on the date final payment of the debt is due notwithstanding prior periodic installment payments. If a debt is negatively amortized, the entire amount of principal and accumulated interest will remain due and payable, as a balloon payment, on the date final payment of the debt is due because prior periodic installment payments, if any, would each have been in an amount less than the amount of interest accruing during each period.
To take over the obligation of another, generally used to refer to the assumption by one person or entity of the obligation of another under a note secured by a deed of trust or mortgage on real property.
Procedure through which an unsecured or undersecured creditor who has filed a lawsuit may obtain a judicial lien on property of the debtor prior to judgment (i.e. a pre-judgment remedy). The circumstances under which a creditor may use this procedure, specified by statute, vary among states. In most states, the creditor must demonstrate some threat that property of the debtor will be unavailable to satisfy a judgment if and when a judgment is obtained. In California, only a creditor holding a contract claim in excess of $500 (exclusive of interest and attorney's fees) is entitled to an attachment but such a creditor need not demonstrate a threat that property of the debtor will be unavailable to satisfy a judgment. A creditor obtaining a lien through attachment qualifies as a "lien creditor" under UCC 9-301(3) (important for determining priority between a lien creditor and an Article 9 secured party), and the obtaining of a lien qualifies as a "transfer" under Bankr. Code 101(54) (important because of the possibility that a transfer can be avoided as a preference in the event a bankruptcy petition is filed).
Under the "American rule", a successful litigant is not entitled to reimbursement for attorney's fees from an unsuccessful litigant, absent a statutory provision or consensual agreement to the contrary. Accordingly, a consensual creditor often includes in the debt instrument a clause entitling it to recover reasonable attorney's fees incurred in the collection of a debt. In the real property setting, one typically finds the attorney's fees clause both in the promissory note and in the deed of trust. The clause in the note authorizes collecton of attorney's fees in the event a judgment is obtained on the note. The clause in the deed of trust authorizes fees incurred in the protection or foreclosure of the security. Statutes may limit the amount of attorney's fees recoverable under a consensual agreement. For example, in California, a statutory minimum amount of attorney's fees is conclusively presumed to be reasonable in connection with a nonjudicial foreclosure. Additional fees may be recovered if demonstrated to be reasonable. See, e.g., Cal. Civ. Code 2924d(a).
A lump sum payment of a substantial part or all of the remaining balance due on a debt at the expiration of a defined period. For example, if a note is payable interest only for a period of one year, with the entire principal due at the end of that year, the payment of the principal at the end of the year is a balloon payment. For some transactions, the use of a balloon payment may be regulated. For example, Cal. Civ. Code 2924i specifies that if the balloon payment is in a loan secured by a deed of trust on an owner-occupied one-to-four unit residence, the holder of the loan must send the trustor a specified notice not less than 90 and not more than 150 days prior to the due date of the final payment.
See Bankr. Code 101(5). In a bankruptcy proceeding, a creditor submits its claim by filing a Proof of Claim, unless the filing of a Proof of Claim is futile or unnecessary. The filing of a Proof of Claim is futile in most Chapter 7 bankruptcy proceedings because most such cases are "no asset" consumer bankruptcies in which the debtor holds only exempt property and the bankruptcy trustee therefore will have no property to distribute to creditors. In Chapter 11 bankruptcy proceedings, a creditor need not submit a Proof of Claim if its claim is accurately listed in the schedules filed by the debtor with the bankruptcy court (unless the claim is scheduled as disputed, contingent, or unliquidated). Claims are deemed allowed (i.e. liability and the amount of the claim is conceded) unless a party in interest objects. An allowed claim may either be an allowed secured claim, an allowed unsecured claim, or may be bifurcated such that part of the claim is an allowed secured claim and the remaining portion is an allowed unsecured claim.
The period during which a loan approval is valid.
Mutually agreed.
A lien on property of the debtor granted by a debtor to a creditor by mutual agreement. If the collateral is real property, the lien is typically created by the debtor's execution of a mortgage or deed of trust. If the collateral is personal property, the lien is typically created by the debtor's execution of a security agreement. If the collateral is fixtures, the lien may be created either by the debtor's execution of a mortgage, deed of trust, or security agreement.
Collateral securing a previous debt taken also as security for a new debt, or collateral securing a new debt taken as security for a previous debt. For example: (1) consumer purchases a refrigerator from Sears on secured credit; consumer later purchases a dishwasher from Sears on credit and grants Sears a security interest not only in the dishwasher but also in the refrigerator; (2) consumer purchases a refrigerator from Sears on unsecured credit; consumer later purchases a dishwasher from Sears on secured credit and also grants Sears a security interest in the dishwasher to secure the previously unsecured debt for the refrigerator.
One form of instrument used to create a consensual lien on real property (and fixtures). By executing a deed of trust, the debtor (trustor) conveys title to real property to the trustee for the benefit of the creditor (beneficiary) who has either sold the real property to the debtor on credit or has loaned money to the debtor against the security of the real property. The debtor makes payments to the creditor. The trustee is authorized to foreclose on behalf of the beneficiary in the event of the debtor's default. Compare Mortgage.
A deed to real property given by the debtor to a creditor upon the debtor's default on an obligation secured by real property. For reasons considered in the materials, the debtor and creditor may prefer the deed in lieu of foreclosure on the real property by the creditor.
Any of a number of events triggering a creditor's right to accelerate, to sue the debtor, or to proceed against collateral securing the debt. The events constituting default will generally be identified in the promissory note or other evidence of obligation, in the security instrument executed by the debtor, or in both. Failure to make timely payments is the most common event of default. Other events typically constituting default are: failure to adequately insure the collateral; failure to maintain the collateral in good condition; disposing of or encumbering the collateral without consent of the creditor; breach of representations made by the debtor to the creditor in connection with the consummation of the credit transaction.
The amount of the debtor's monetary obligation remaining unsatisfied after application of the proceeds of the sale of collateral to the amount of the debt. The materials consider a variety of situations in which collection of a deficiency from the debtor is prohibited.
The label often perjoratively used to describe clauses in security intruments which purport to secure with collateral not only a debt created contemporaneously with execution of the security agreement but also any and all other debts, past, present, or future, of whatever nature (e.g. tort as well as contract) which may become owing from debtor to creditor. In the materials we explore the extent to which courts will refuse to enforce dragnet clauses. See Commentary.Future Advances.1.
A form of acceleration clause which provides that the entire amount of a debt is due and payable upon sale of the property which secures the debt. One most often finds such a clause in promissory notes secured by real property, protecting the lender against assumption of the note by the buyer of the real property during periods of rising market rates of interest on real property secured loans. In addition, because a lender wants potential purchasers to know of the existence of a due on sale clause, one typically finds such a clause in the deed of trust or mortgage, documents which are recorded in the public record.