A blanket mortgage, also known as a wrap-around mortgage, is a type of loan that covers multiple properties under a single loan. This type of mortgage is often used by developers and investors who own multiple properties, as it allows them to secure financing for all of their properties at once, instead of obtaining separate loans for each one.
When obtaining a blanket mortgage, the lender will require collateral to secure the loan. Collateral is an asset that the lender can seize if the borrower defaults on the loan. In the case of a blanket mortgage, the collateral is typically the properties themselves. However, there are different types of collateral that can be used to secure a blanket mortgage, and it is important to understand what they are before seeking this type of loan.
Real Estate Collateral
The most common type of collateral used in a blanket mortgage is real estate. Since a blanket mortgage covers multiple properties, the lender will require that all of the properties be used as collateral to secure the loan. This means that if the borrower defaults on the loan, the lender can seize all of the properties covered by the mortgage.
When using real estate as collateral, the lender will typically require an appraisal to determine the value of each property. This will be used to determine the maximum loan amount that the borrower can receive. The lender will also require a lien on each property to ensure that they have the right to seize the property if the borrower defaults on the loan.
Personal Guarantees
In some cases, lenders may require personal guarantees in addition to real estate collateral. A personal guarantee is a promise from the borrower to pay back the loan if they default. This means that if the borrower is unable to pay back the loan, the lender can go after their personal assets to recover the debt.
Personal guarantees are often required when the properties being used as collateral are not worth enough to cover the full loan amount. In this case, the lender will require the borrower to provide additional security in the form of a personal guarantee.
Equipment Collateral
In some cases, lenders may allow borrowers to use equipment as collateral to secure a blanket mortgage. This is typically only allowed if the equipment is worth a significant amount and can be easily sold if the borrower defaults on the loan.
Equipment collateral is less common in blanket mortgages than real estate collateral, as it can be difficult to determine the value of the equipment and find a buyer if the borrower defaults on the loan.
Stock Collateral
Some lenders may allow borrowers to use stocks or other investments as collateral to secure a blanket mortgage. This is typically only allowed if the stocks are worth a significant amount and can be easily sold if the borrower defaults on the loan.
Stock collateral is less common in blanket mortgages than real estate collateral, as it can be difficult to determine the value of the stocks and find a buyer if the borrower defaults on the loan.
In Conclusion
The collateral in a blanket mortgage can vary depending on the lender and the borrower's individual circumstances. Real estate collateral is the most common type of collateral used in a blanket mortgage, but personal guarantees, equipment collateral, and stock collateral may also be used in some cases. It is important to understand what type of collateral is required before seeking a blanket mortgage, as this will affect the maximum loan amount and the risk involved in the loan.