Blanket mortgage/ or loan - Posted by AnnNC

Posted by AnnNC on March 12, 2001 at 18:58:12:

Thank you Eric.

I am the (potential) buyer here, of properties discussed, when seller calls me periodically, which are ALREADY under seller’s blanket mortgage, news to me after many months up til now, of discussing them as being “free and clear” (hence my interest) .
Your scenario of Sudden Changes may well
apply to my erstwhile seller, as the properties are vacant many months now.

Don’t know how many properties are under the blanket, if there are more than the ones for sale, which I think there are. I know seller has many properties; the ones in question are not cash flowing.

Your comments have given me more insight into the seller’s situation.

Next step then, to look at the “blanket” document and
determine the conditions of release, after getting
permission from seller. Not a problem.

This has been most helpful of you.

Are there ANY conditions
under which you would see,or could structure, pro’s to this (blanket) arrangement(besides for the bank)

For example, not as a new buyer, but as one acquiring
a limited amount of additional properties.

This is turning out to be a great learning experience.

Blanket mortgage/ or loan - Posted by AnnNC

Posted by AnnNC on March 10, 2001 at 18:54:38:

I did not find an explanation in the archives.
I have a seller who says they have a blanket loan, one on several properties, but that there is no mortgage on each of the individual
properties. How does that work? Thanks.

Re: Blanket mortgage/ or loan - Posted by TJ

Posted by TJ on March 11, 2001 at 17:47:10:

The answers below are correct, but thought I’d add something. A blanket mortgage is one covering multiple properties which may or may not be the property actually being purchased with the mortgage loan. It often works like this: I own, say, three apartment buildings, one free and clear and two with first TDs. I want to buy a fourth one that is quite sizeable. I have very little cash but considerable equity in the three I already own. So I go to a lender, perhaps a private one, and say I’ll put 15% down on the new building (whereas 25% to 35% is standard) and you lend the rest. As security you will not only hold a mortgage on the one I am buying, but will use the other three for security as well, placing first or second trust deeds on them. That way, the lender covers his risk and I get into a property I could not otherwise afford by utilizing my equity.

Blanketing is common in commercial real estate. It is an aspect of “pyramiding” i.e using existing property assets to contnually leverage one’s portfolio outward and upward. Thus, while creative financing and zero down purchases are harder to come by in commercial, blanketing provideds a way to get into a large property for little or even no out-of-pocket funds.

As noted in a post below it is also commonly used in subdivision developments where one huge parcel is purchased for development using one loan, then once completed the individual home sites are sold one by one. As this occurs, they can, with the lenders approval, be released from the “blanket” one by one.

Re: Blanket mortgage/ or loan - Posted by phil fernandez

Posted by phil fernandez on March 10, 2001 at 19:17:41:


My guess is that with a blanket mortgage more than one property is encumbered with the mortgage. You will have to get individual releases of each property.

Re: Blanket mortgage/ or loan - Posted by Nate

Posted by Nate on March 10, 2001 at 19:17:02:


A typical mortgage is a loan secured by one piece of property.

A “blanket” mortgage is a loan secured by several pieces of property together. There is no mortgage on each one, individually; rather, there is a mortgage on all of them, as a group.

Does that answer your question?

Re: Blanket mortgage- VERY HELPFUL! - Posted by AnnNC

Posted by AnnNC on March 12, 2001 at 14:26:23:

Thanks (and to all). I was just on the phone to the seller’s
bank, (not asking for private info) and they didn’t come close to explaining it as well as you did (but that was not the commercial loan dept, just regular loan dept).
Tey said there would be a lein on eac property,and it would be proportional to its value
So, there is a lein of each property until it is released.
So, seller did not have to qualify for each property. The seller owns maybe 10 properties, and
possibly bought additional ones by putting up the
ones that were free and clear. Now wants to sell several, to pay down the loan, pay for repair expenses on other properties, living expenses, etc.
Seller had originally said the ones up for sale were all “free and clear”,
then said there was a blanket loan, but no mortgage
on the individual properties,so I was somewhat confused by the apparent change in status.

So, then the difference would be, if you didn’t get a blanket loan, you’d have to qualify for a first to pull the equity out of a free and clear property.
Does this work because there is one loan and one set of points, and one rate, and they are equity loans without the hard money rate?

When you say, getting into properties that you could not afford by utilizing your equity, I’m thinking you mean that instead of pulling out the equity for a loan, the equity stays put, but is used as collateral, not cash. Is that it? (Because you are still “utilizing” the equity, as I interpret it.)
Also, the buyer then isn’t assuming a loan, just getting the individual property release. Wouldn’t that
make an easier sale, I’m thinking.

(Just digesting this).
Thanks. This was very, very helpful!

Re: Blanket mortgage- VERY HELPFUL! - Posted by Eric C

Posted by Eric C on March 12, 2001 at 15:12:08:

Hi -

Whether or not “blanket mortgages” are commonplace in the commercial arena does not necessarily mean they would be the best course of action for you or for this deal.

What you are being asked to do is simply this: use whatever equity that might exist in one (or more) properties as a down payment and additional collateral for any other properties you wish to acquire. Great deal for the bank.

Like all real estate “techniques” this one has it’s dark side too. Used improperly, you can now lose everything (covered by this blanket)since you were kind enough to offer those “other” properties to the bank as additional security for your loan.

Here’s a tip: negotiate the conditions under which the bank will release those properties BEFORE you sign the mortgage. No lender likes giving up collateral when the balance of the obligation is still unpaid.

You should work out the terms and conditions that will allow you release individual properties from the mortgage. Whether that occurs through a substitution of collateral, a refinance, or other means.

It would also be an excellent idea to negotiate with the bank (in advance, of course) as to the terms (and conditions) under which they will finance the sale of any individual properties should you wish to sell them (thereby making them more marketable and profitable for you). And a sale is probably your most likely exit strategy.

Most people ignore these two important points as well as several others.

My advice to you is - don’t.

If a sudden change in your finances, the economy, or the cash flow of these properties will unravel the deal, then I’d try to negotiate a better deal now.

Like an old sweater, properties tied together through a blanket mortgage can come apart unexpectedly and with disasterous consequences just by simply tugging (putting financial pressure) on the right spot.

So, before you rush right in, please look for the exits first.

After all, the game plan is to maximize your leverage and profits, not hand those properties back to the bank at fire sale prices when the first sign of trouble appears.


Eric C