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Demand Clause: A Comprehensive Guide to Its Legal Definition
Definition & Meaning
A demand clause is a provision in a loan agreement that permits the lender to require full repayment of the outstanding balance at any time. This clause is often invoked if the borrower fails to make scheduled payments or violates other terms of the agreement. A closely related provision is the acceleration clause, which allows lenders to demand full repayment if any obligation in the contract is breached. Demand clauses serve to protect lenders, especially in situations where interest rates rise or if the borrower faces financial difficulties, such as bankruptcy or failure to pay property taxes.
Table of content
Legal Use & context
Demand clauses are commonly used in various legal contexts, particularly in lending agreements, mortgages, and promissory notes. They are important in civil law, especially in financial transactions, where they help lenders manage risks associated with borrower defaults. Users can manage these agreements themselves using legal templates from US Legal Forms, which are drafted by qualified attorneys to ensure compliance with applicable laws.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A lender includes a demand clause in a mortgage agreement. If the borrower misses two consecutive payments, the lender can demand the full loan amount immediately.
Example 2: A business loan agreement has a demand clause. If the business fails to meet certain financial covenants, the lender can call the loan and require immediate repayment (hypothetical example).
State-by-state differences
Examples of state differences (not exhaustive):
State
Demand Clause Variation
California
Demand clauses are commonly included in most mortgage agreements.
Texas
Demand clauses are enforceable but must be clearly stated in the contract.
New York
Demand clauses are often subject to specific regulations regarding borrower notification.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Demand Clause
Allows lenders to demand full repayment at any time.
Can be invoked for various reasons, including default.
Acceleration Clause
Requires full repayment if any obligation is breached.
Triggered by specific events of default, not just any demand.
Common misunderstandings
What to do if this term applies to you
If you find yourself in a situation where a demand clause may be invoked, consider the following steps:
Review your loan agreement to understand the specific terms of the demand clause.
Communicate with your lender to discuss your options and any potential solutions.
Explore US Legal Forms for legal templates that can help you draft responses or negotiate terms.
If the situation is complex, seek professional legal advice to ensure your rights are protected.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.
Common triggers: Missed payments, breach of contract
Legal implications: May lead to full repayment demands
Key takeaways
Frequently asked questions
A demand clause is a provision that allows a lender to demand full repayment of a loan at any time, typically if the borrower defaults on payments.
A demand clause can be invoked for various reasons, while an acceleration clause specifically requires full repayment if any contractual obligation is breached.
While lenders can invoke demand clauses, they must follow the terms outlined in the loan agreement, which may include notifying the borrower.