Blanket mortgages enable homeowners to obtain financing to purchase two or more pieces of real estate with only one loan. Blanket mortgages are also geared for investors or developers who only have to take out one mortgage to finance numerous real-estate parcels. This increases profits for the lender by offering essentially a package deal that results in multiple property sales instead of a single property sale. Borrowers also realize a savings by consolidating fees and costs for multiple properties under one cozy blanket.
TL;DR (Too Long; Didn't Read)
A blanket mortgage is a single mortgage that includes two or more properties. The resulting aggregate mortgage is collateralized by all the properties, but an individual property may be sold without collapsing the mortgage, depending on the terms of the blanket agreement.
Blanket Loan Definition
A blanket mortgage is used to finance the purchase of multiple parcels of real estate simultaneously under the umbrella of a single mortgage. All real properties being financed are held as collateral by the creditor. If there is a release clause, the integrity of the mortgage can remain intact if one or more parcels of real estate within the blanket mortgage are sold. For instance, if an investor obtained a blanket mortgage to purchase five office buildings and sold two of them, she would still maintain her blanket mortgage for the remaining three properties.
Real estate developers use the blanket mortgage to finance the purchase and development of land, which is later subdivided into individual lots and sold off individually.
Advantages of Blanket Mortgages for Businesses
Blanket mortgages provide a more efficient, cost-effective way for real estate developers to obtain financing. The alternative to a blanket mortgage for a real estate developer would be to take out a separate mortgage for each property he was planning to build and sell. Therefore, without the blanket mortgage, if a company were planning to build a subdivision with 20 houses, it would need to take out 20 separate mortgages to finance the land purchase and construction of the 20 homes.
Advantages of Blanket Mortgages for Individuals
An individual homeowner can benefit from blanket mortgages, too. Blanket mortgages create a lien on two or more pieces of real estate simultaneously. A current homeowner wishing to purchase a new home before she sells her existing home can use a blanket mortgage to continue making payments on the existing home and acquire the new home simultaneously.
This allows the homeowner to use the equity from the old home to help finance the purchase of the new home. Once the old home is sold and its mortgage repaid, the mortgage for the new home remains.
Disadvantages of Blanket Mortgages
Having one blanket mortgage rather than several mortgages can cause flexibility issues for the individual lender. When a blanket mortgagor wishes to sell one of the collateral properties, she needs to either refinance the remaining real property or obtain a release (unless a release clause exists in the mortgage agreement) from the mortgagee. This is because the sale of one parcel of mortgages property means less collateral.
The disadvantages of blanket mortgages for businesses is that, should the business default on any of the real property covered by the blanket mortgage, the mortgagee can take control over all the real estate tied to the loan – which can be an entire subdivision.
Charles Infosino is an authority on regional entertainment and author of "The Unofficial Guidebook to Paramount's Kings Island." Infosino earned his Bachelor of Arts in international relations from SUNY New Paltz and his Master of Business Administration from Northern Kentucky University. He is a bankruptcy specialist III for one of the largest banks in the world.