A lender provides a mortgage to a borrower with a clause permitting additional loans to be secured under the same agreement without new documentation. If the borrower defaults, which loans will be secured by the mortgage?
The original loan is secured, while subsequent debts require a new mortgage even when a future advance clause exists.
Future advances supersede the original loan under the mortgage, making it inapplicable to earlier debts.
The original loan is secured, and subsequent loans require new documentation to be enforceable under the mortgage.
The initial loan and later advances under the same agreement are secured as long as the future advance clause is in effect.
A future advance mortgage allows multiple loans (the original loan and subsequent advances made under the same agreement) to be secured by the same mortgage, provided the future advance clause explicitly permits this and the terms comply with relevant recording statutes. This approach eliminates the need for new documentation for each loan. Incorrect answers either disregard the enforceability of the future advance clause or misrepresent how subsequent loans operate under such an arrangement.
Ask Bash
Bash is our AI bot, trained to help you pass your exam. AI Generated Content may display inaccurate information, always double-check anything important.
What is a future advance mortgage?
Open an interactive chat with Bash
What are recording statutes, and how do they affect a future advance mortgage?
Open an interactive chat with Bash
Can the terms of the future advance clause vary, and what should borrowers look out for?