Also known as: future advance clause · future advances clauses · future advance clauses · dragnet clause · future advance provision
Written by attorneys — see sources below.
A contractual provision in a mortgage or security agreement by which the collateral secures not only the initial loan but also additional advances that the lender may make to the borrower in the future. Validity and priority of the secured advances depend on the governing statute and the specific terms of the recorded instrument, including any stated maximum amount. Some jurisdictions limit priority to advances made before the lender receives notice of intervening liens.
Fidelity Trust recorded a mortgage on Fernando Farrell's factory that secured a $400,000 term loan and all future advances up to a $500,000 maximum. Two years later Valley Finance recorded a second mortgage. Fidelity Trust then disbursed an additional $200,000 inventory loan under the same mortgage. When Farrell defaulted, Valley Finance's lien took priority over the final $100,000 of the bank's advance because that portion exceeded the recorded cap.
Ag Services held a perfected security interest in the McAllisters' equipment under an agreement containing a future advances clause. The lender later extended a crop production loan to the same debtors. Because the clause was present in the original security agreement, the later loan attached to the equipment without any new filing or amendment.
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View caseNo. A single properly recorded mortgage or financing statement that contains the clause secures later advances without additional recordings, provided the advances fall within the clause's terms and any statutory maximum.
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In jurisdictions that follow a notice-cutoff rule, the post-notice advance loses the original recording date and becomes subordinate to the intervening lien. The original loan and any pre-notice advances retain their priority.
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Many courts construe broad dragnet language to cover unrelated loans between the same parties, but some require the later advance to be similar in character to the original transaction or to be specifically identified when made.
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No. Discharge eliminates only the debtor's personal liability. The mortgage or security interest remains enforceable in rem against the collateral for any unpaid advances that were validly secured before the discharge.
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…n. 15. : One approach afforded priority to liens intervening between execution of a security agreement covering future advances and extension of those advances. Another gave priority only to future advances made before the advancing creditor received actual notice of an intervening lien, while a third rule afforded…