California Real Estate Broker ExaminationContractsHard
A developer needs to finance the purchase of multiple parcels of land for a new subdivision. The lender agrees to provide a loan secured by a single promissory note and trust deed that covers all the parcels, but allows for the release of individual parcels from the lien as they are sold. What type of financing instrument is being described?
- ABlanket Trust Deed
- BOpen-End Trust Deed
- CPackage Trust Deed
- DWraparound Trust Deed
Show answer & explanationAnswer & explanation
Correct answer: A. Blanket Trust Deed
A Blanket Trust Deed (or mortgage) covers more than one parcel of real estate and typically includes a 'release clause' that allows individual parcels to be released from the lien as they are sold off, upon payment of a specified amount.
Why the other options are wrong
- B. An Open-End Trust Deed allows the borrower to increase the principal balance of the loan at a later time.
- C. A Package Trust Deed includes both real and personal property as security.
- D. A Wraparound Trust Deed involves a new loan that includes the unpaid balance of an existing loan, often at a higher interest rate.
Blanket Trust Deed
A single trust deed that covers multiple parcels of real estate, often including a release clause for individual parcels.
- Commonly used by developers for subdivisions.
- Includes a 'release clause' to free individual lots from the lien.
- Secures a single promissory note across several properties.
Memory trick: Remember, a 'Blanket' covers 'many' parcels, like a blanket covers many things.