California Real Estate Practice Exam

Under what circumstances can a lender usually invoke an acceleration clause?

1. If the borrower changes the house color

2. If the borrower misses a certain number of payments, tears down the house, or fails to pay property taxes

3. If the borrower decides to sell the house

4. If the borrower refinances the house with another lender

The correct answer is: If the borrower misses a certain number of payments, tears down the house, or fails to pay property taxes

A lender can invoke an acceleration clause primarily when the borrower fails to meet the obligations outlined in the loan agreement. This typically includes missing a certain number of payments, which directly breaches the agreement's terms, leading the lender to demand full repayment of the remaining loan balance. Additionally, actions such as tearing down the house or failing to pay property taxes can also trigger this clause, as they may affect the lender's security interest in the property. The lender needs to protect their investment, and significant issues like these can lead to a concern over the property's value and the borrower's ability to repay the loan. On the other hand, merely changing the color of the house is generally not a significant concern for lenders and would not invoke acceleration. Selling the house or refinancing with another lender typically does not trigger an acceleration clause either, provided these actions are consistent with the loan agreement. In many cases, those actions may require the lender's approval, but they don’t inherently constitute a breach of the loan unless specified otherwise in the terms.