National Real Estate Exam (PSI)FinancingHard
A land developer obtains a blanket mortgage covering five newly platted lots to finance subdivision development. The mortgage includes a partial release clause. Why is this clause essential to the developer's business plan?
- AIt converts the blanket mortgage into five separate mortgages automatically
- BIt allows individual lots to be released from the lien and sold free and clear after a specified payment
- CIt eliminates the need to record separate deeds for each lot sold
- DIt prevents the lender from enforcing a due-on-sale clause
Show answer & explanationAnswer & explanation
Correct answer: B. It allows individual lots to be released from the lien and sold free and clear after a specified payment
A blanket mortgage covers multiple parcels under one loan; a partial release clause lets the developer sell individual lots free of the blanket lien as each is paid off, typically for a set amount per lot. Without this clause, the entire subdivision would remain encumbered until the whole loan is paid, making individual sales impractical.
Why the other options are wrong
- A. The mortgage remains blanket in structure; release clauses simply free specific parcels, not convert the loan.
- C. Deeds must still be recorded for each lot conveyed; the release clause addresses the lien, not deed recording.
- D. Due-on-sale clauses are a separate contractual issue, unrelated to blanket mortgage releases.
Blanket Mortgage & Partial Release Clause
A blanket mortgage covers multiple parcels of real estate under a single loan; a partial release clause allows individual parcels to be released from the lien as agreed payments are made.
- Common in subdivision development financing
- Release amount per lot is specified in the mortgage
- Without release clause, buyers could not get clear title to individual lots
Memory trick: Blanket covers all, release peels off one at a time.