Chapter 9 HOW TO GET THE MOST BENEFIT FROM BLANKET MORTGAGES

Question 1

What is the goal of using blanket mortgages?

Answer 1

To adjust financing and shift equities by spreading the lender’s risk over more than one property.

Question 2

Define a blanket mortgage.

Answer 2

A mortgage that has more than one property as security to the debt.

Question 3

What is another term for a blanket mortgage?

Answer 3

Congruent loan.

Question 4

True or False: A blanket mortgage is the same as a wraparound mortgage.

Answer 4

False.

Question 5

What is the primary advantage of a blanket mortgage?

Answer 5

To provide maximum financing.

Question 6

What is necessary to utilize a blanket mortgage?

Answer 6

At least two parcels of property.

Question 7

List some combinations of properties that can be included in a blanket mortgage.

Answer 7

• Home and a lot
• Apartment building and a warehouse
• Vacant land and a duplex.

Question 8

How can blanket mortgages benefit investors?

Answer 8

They can obtain the highest yield on their invested capital.

Question 9

What can blanket mortgages allow mortgagors to obtain?

Answer 9

Better terms and conditions on the loan.

Question 10

How can blanket mortgages consolidate properties?

Answer 10

By adding several properties to a refinancing package to provide a larger base.

Question 11

What can be locked in with a blanket mortgage?

Answer 11

The property and other assets.

Question 12

What types of assets can be included in a blanket mortgage besides real estate?

Answer 12

• Liquor licenses
• Stocks
• Other collateral.

Question 13

Where can blanket mortgages typically be obtained?

Answer 13

• Insurance companies
• REITs
• Commercial banks
• Mortgage bankers.

Question 14

What are the five things a blanket mortgage can do?

Answer 14

• Provide maximum financing
• Provide a stronger position for negotiating terms
• Consolidate properties
• Lock in the property
• Lock in other assets.

Question 15

What is a disadvantage of blanket mortgages for buyers?

Answer 15

They place a burden on other properties.

Question 16

What can make separation difficult when using a blanket mortgage?

Answer 16

The terms of the blanket mortgage.

Question 17

What is the main disadvantage of combining properties under a blanket mortgage?

Answer 17

Inability to separate them when needed.

Question 18

What criteria must buyers meet to use blanket mortgages?

Answer 18

• Other properties exist with sufficient equity
• Total income from all properties is sufficient to meet payout requirements.

Question 19

What is a blanket mortgage?

Answer 19

A blanket mortgage is a financing tool that combines multiple properties into one mortgage, allowing the borrower to use the equity of those properties as security.

Question 20

What are the buyer’s criteria for using blanket mortgages?

Answer 20

The buyer must meet the following criteria:
* Other properties with sufficient equity accepted as additional security
* Total income from all properties must meet debt service requirements
* Projection of not needing to separate properties in the near future
* Effort to find other solutions to avoid additional debt has failed.

Question 21

True or False: A buyer can enter into a blanket mortgage if they anticipate needing to separate the properties soon.

Answer 21

False.

Question 22

What can cause overextension of debt in a blanket mortgage scenario?

Answer 22

Overextension of debt can occur when high loan-to-value ratios lead to an inability to meet debt service.

Question 23

What is the risk associated with little or no cash at closing in blanket mortgages?

Answer 23

It can reduce the cash received at closing, impacting the seller’s immediate financial position.

Question 24

What should sellers holding blanket mortgages ensure about the security?

Answer 24

The combined equity securing the blanket mortgage should be well over the principal amount of the mortgage.

Question 25

What is an important consideration for sellers when accepting a blanket mortgage?

Answer 25

Sellers should seek independent appraisals and not rely solely on the buyer's stated values.

Question 26

What is the advantage of using blanket mortgages as a sales tool?

Answer 26

They increase sales potential by allowing packages of lots or parcels to be offered to investors.

Question 27

What example illustrates the use of blanket mortgages in selling lots?

Answer 27

McMoore's strategy of selling lots in packages of five with a blanket mortgage allowed for lot releases as payments were made.

Question 28

What is cross-collateralization in the context of leases?

Answer 28

Cross-collateralization is a concept where multiple assets are used to secure a lease, similar to a blanket mortgage.

Question 29

What is the primary motivation for lenders in a blanket mortgage?

Answer 29

The primary motivation is security for the seller, as the blanket mortgage covers all unreleased lots.

Question 30

Fill in the blank: Blanket mortgages can take different positions on the scale of ______.

Answer 30

[superior or junior liens].

Question 31

Why might buyers prefer blanket mortgages?

Answer 31

Buyers may prefer blanket mortgages for easier negotiation and to cover down payments with combined equity.

Question 32

What happens if a buyer offers secondary paper on existing property instead of a blanket mortgage?

Answer 32

It can complicate the transaction and may not provide the same security and flexibility as a blanket mortgage.