Definition
A blanket mortgage is a mortgage that covers two or more parcels of real estate under one single loan. This type of mortgage is often used by developers, real estate investors, and builders who aim to manage and finance multiple properties simultaneously. The key feature of a blanket mortgage is the inclusion of a release clause, which allows individual properties to be sold without triggering the need to retire the entire mortgage.
Examples
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Real Estate Developer: A developer purchases a large tract of land and subdivides it into individual lots for residential homes. The developer secures a blanket mortgage on the entire tract of land. As each individual home is built and sold, the release provision in the mortgage allows the developer to sell each home separately while still maintaining the mortgage on the remaining unsold lots.
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Investor Buying Multiple Properties: An investor acquires several rental properties across a city using a blanket mortgage. If the investor decides to sell one property, the release clause in the blanket mortgage allows for the sale of that property without needing to refinance or pay off the entire mortgage on the remaining properties.
Frequently Asked Questions
1. What is the major benefit of a blanket mortgage?
The primary benefit of a blanket mortgage is convenience and financial efficiency, enabling developers and investors to manage multiple properties under a single loan agreement. This often results in reduced administrative costs and streamlined financial management.
2. Who typically uses blanket mortgages?
Blanket mortgages are commonly used by real estate developers, investors, builders, and large-scale property managers who handle multiple parcels of land or properties.
3. What is a release clause in a blanket mortgage?
A release clause is a provision in a blanket mortgage that allows individual properties within the lien to be sold without requiring the entire mortgage to be paid off. The remaining mortgage is adjusted accordingly based on the properties still under the lien.
4. Are there any drawbacks to a blanket mortgage?
While convenient, blanket mortgages can be complex to manage, particularly with the need to track multiple properties and their individual sales. Additionally, if the borrower defaults, all properties covered by the mortgage are at risk.
5. What happens if there is a default on a blanket mortgage?
In the case of a default, the lender has the right to foreclose on all the properties covered under the blanket mortgage, not just an individual parcel, increasing the risk for the borrower.
Related Terms with Definitions
- Mortgage: A loan obtained from a lender to purchase real estate, where the property itself is used as collateral.
- Release Clause: A clause in a blanket mortgage that allows individual properties to be sold and released from the mortgage under specified conditions.
- Real Estate Developer: An individual or company involved in the improvement of land or the construction of buildings for use, lease, or sale.
- Subdivision: The division of a single parcel of land into smaller lots that can be sold or developed separately.
- Lien: A legal claim or right against a property used as collateral to satisfy a debt.
- Refinance: The process of replacing an existing mortgage with a new one, typically to secure better terms or interest rates.
Online Resources
- Investopedia - Blanket Mortgages
- The Balance - Real Estate Mortgages
- National Association of Realtors
References
- Green, J. D. (2020). The Book on Mortgages: Comprehensive Guide to Understanding Mortgages. ABC Publishing.
- Smith, R. (2019). Real Estate Investment for Beginners. RealHom Publishers.
Suggested Books for Further Studies
- Investing in Real Estate by Gary W. Eldred
- Real Estate Finance & Investments by William Brueggeman and Jeffrey Fisher
- Principles of Real Estate Practice by Stephen Mettling, David Cusic, and Joy Stanfill
