A covered loan note of $268,000 lets the lender declare the whole balance due at any time in its sole discretion. May the note allow acceleration solely at the lender’s discretion, without a specified default or other permitted basis?
Correct Answer
D) Prohibited: a covered loan may not contain that kind of call provision
A covered loan may not contain a call provision permitting the lender in its sole discretion to accelerate the debt. Other choices: ordinary acceleration on default is different from acceleration at will; notice does not cure a discretionary call; and the term is prohibited whether or not it is used. Source: Cal. Fin. Code § 4973(l)
Why This Is the Correct Answer
A covered loan may not contain a call provision permitting the lender in its sole discretion to accelerate the debt. Other choices: ordinary acceleration on default is different from acceleration at will; notice does not cure a discretionary call; and the term is prohibited whether or not it is used. Source: Cal. Fin. Code § 4973(l)
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