There are unique mortgages to fit unique situations. For example, a homebuilder who wants to purchase a subdivision to build homes does not want to purchase a separate mortgage for each home he plans to build. This particular circumstance requires a particular loan. It would be more time- and cost-efficient for the builder to take out a blanket mortgage for the entire subdivision.
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A blanket mortgage is a type of financing that constructs a lien against two or more pieces of real estate property owned by the same person. For example, if a person owns two or three commercial properties or homes and wants to take a mortgage out on the value of all the properties she owns, she would use a blanket mortgage. This type of mortgage prevents the borrower from having to take out an individual mortgage on each property that she is planning to use for collateral. In addition, homeowners can use a blanket mortgage to finance the construction of a new home, while still living in their primary residence.
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Blanket mortgages can be used by land developers when they are planning to buy an entire lot of land, separate the land into lots and resell each lot for development.
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A blanket mortgage often will include a "partial release clause," which is one advantage to this kind of loan. A partial release clause allows the borrower to obtain the release of one tract of land, or property, from the lien without fulfilling the entire mortgage debt. For example, if a real estate developer had a subdivision with seven tracts of land on his blanket mortgage, he would be allowed to sell one lot and have it released from the loan. The lender would then issue a partial release for the lot that has been sold.
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A blanket mortgage allows the borrower to secure maximum leverage when purchasing property because the loan-to-value ratio is not based on just one property. It will be based on the value of all of the property being used as collateral.
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Lenders view a blanket mortgage as a risky investment, so the interest tends to be higher than a normal mortgage. Also, if for some reason the borrower defaults on a blanket mortgage, any property under the blanket will be in jeopardy. For example, if the borrower had her primary residence included with her investment properties, she would be at risk of losing her home.
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