California Real Estate Broker ExaminationContractsMedium
A developer plans to build a new subdivision and needs to secure financing for the entire project, including the land acquisition and construction of multiple homes. The lender requires a single loan secured by all parcels within the subdivision, with a provision for individual lots to be released from the lien as they are sold. What type of security instrument would be most appropriate for this scenario?
- AOpen-end loan
- BDeed of trust
- CBlanket encumbrance
- DPackage loan
Show answer & explanationAnswer & explanation
Correct answer: C. Blanket encumbrance
A blanket encumbrance (or blanket loan/trust deed) covers more than one parcel of real estate and typically includes a 'release clause' allowing individual parcels to be sold free of the lien upon partial repayment.
Why the other options are wrong
- A. An open-end loan allows the borrower to re-borrow up to a certain amount, which is not the main feature needed for this development.
- B. A deed of trust is a general type of security instrument, but 'blanket encumbrance' specifies its application to multiple parcels with release clauses.
- D. A package loan includes both real and personal property, which is not the primary characteristic described here.
Blanket Encumbrance
A single loan or deed of trust that covers more than one parcel of real estate, often used in subdivision financing.
- Secures multiple properties
- Typically includes a 'release clause'
- Allows individual properties to be sold free of lien
Memory trick: Blanket loan: 'It covers ALL the lots, like a big blanket!'