Mortgages sometimes secure accounts owing or to become owing to a lender where there will be frequent monetary advances and frequent repayments. The credit card account is typical. Other formats include the writing of checks and accounts for merchandise delivered into small business inventory. Sometimes the revolving credit feature is in addition to basic real estate financing secured by the mortgage. Sometimes the mortgage is for the revolving credit only.

The important feature is that the mortgage secures frequent and routine future advances to be added to the loan balance. There should always be a limit to the amount outstanding and secured by the mortgage at any one time. There may or may not be a limit to the aggregate amount that may be advanced.

These are the transactions for which the Revolving Credit and Future Advance Endorsements are designed.

Open End Mortgages are mortgages that secure normal real estate financing and contain additional provisions to provide security for remote future advancements. Instead of expecting more or less frequent and routine advances to the loan, these mortgages contemplate more uncertain, infrequent and usually larger future additional loans. Sometimes these mortgages provide only for optional readvance of principal amounts which have been repaid. Sometimes they provide for future advances in addition to the amount of the original loan. Usually the future advances are "non-obligatory"; they contemplate future "approval" of the advance by the lender.

Open End Mortgages typically provide, at the lender's option, future financing for remodeling improvements, or for educational expenses, or for buying a new car. The particular purpose is often unspecified.

The best procedure for an Open End Mortgage is to issue a Loan Policy for the amount of the original loan without a Revolving Credit or Future Advance Endorsement. When a future advance is made, check the title to date and consider the effect of intervening matters. Endorse the change of date and the additional amount and add any necessary exceptions.

If you are asked to issue a revolving credit endorsement on an open mortgage not securing a specific promissory note or loan agreement, secure underwriting approval.

The mortgage itself must clearly state the maximum principal amount.

If you issue a revolving credit endorsement to insure an open end mortgage, be sure the face amount of the policy is not less than the aggregate amount of the present loan plus all possible future advances.

We use greater caution on the Open End Mortgage. The Open End Mortgage is more like a trap to subsequent purchasers and encumbrances because of the time lapse and probable size of the new financing. There is greater chance of litigation. Consequently, there is greater opportunity and justification for insisting on a title run down.

Some other mortgages could be defined as Revolving Credit and Open End Mortgages. Construction Loan Mortgages and mortgages to secure specific increments, such as to fund successive acquisitions of parcels of land, are examples. However, the programs for providing title insurance protection in these cases have long existed, and should continue to be used without using Revolving Credit Endorsements. Do not issue Revolving Credit or Future Advance Endorsements on construction loans unless you secure underwriting personnel approval or unless (1) you include an appropriate mechanic's lien exception in Schedule B of the Loan Policy and (2) you issue the version of the ALTA Endorsement (ALTA 14, 14.1 or 14.2) that includes a mechanic's lien exception (W/MML).

Actually, there are no sharp boundaries between Revolving Credit Mortgages, Open End Mortgages, Construction Loan Mortgages and other mortgages to secure future advances. Recognition of the suitability of the transaction for one or another method of insuring the mortgage lien is largely a matter of judgment. As always, you are urged to discuss unusual situations with your underwriting personnel.

Some mortgages contain dragnet clauses, which state that the mortgage is to secure not only the described loan but also all amounts for which the mortgagor may be or become indebted to the mortgagee. Many courts resist enforcement of these provisions. Do not rely upon a dragnet clause to issue a Revolving Credit/Future Advance Endorsement.

After a mortgage is paid in full, it is generally accepted that it will not secure subsequent advances under a future advance clause unless a statute provides otherwise. The payment of all debt extinguishes the mortgage. See conflicting views, Kratovil and Werner, Modern Mortgage Law and Practice, (1981 Second Edition, Prentice-Hall, Inc.) §11.07. This rule should not apply if the line of credit agreement remains in effect by its terms.

Cases, however, are not entirely favorable on this point.  For example, First Union Nat'l Bank v. Nelkin, 808 A.2d 856 (N.J.Super.A.D. 2002), the new lender was held to be subordinate a prior open end mortgage because the new lender failed to secure authorization from the borrowers to close the existing account.  The lender's payoff also was allegedly short of a complete payoff of the existing open end mortgage debt by $714.98.  Similarly, in Bank of N.Y. v. First Third Bank of Central Ohio, 2002 WL 121925 (Oh. App. Jan. 30, 2002, 2002-Ohio-352), the new lender completely paid off the amount owing on the existing line of credit but failed to send a written request from the borrowers to cancel the line of credit.  Subsequently, advances were made under the prior line of credit and were deemed to retain priority.  Equitable principles may require the prior lender to release its lien or to return of the payoff check.  See First Am. Title Ins. Co. v. TCF Bank , 676 N.E.2d 1003 (Ill. App. 1997).

A condition in some revolving credit/future advance endorsements, which is not in the ALTA Endorsements, is the requirement that the loan balance must be maintained above zero at all times. Revolving loan balances often are reduced to zero and thereafter new advances are made under the loan agreement and mortgage. Many lenders object to the "no zero balance" condition in revolving credit endorsements. The ALTA Endorsements do not contain a "no zero balance" condition. This is one reason why many lenders should prefer the ALTA Endorsements.

There appears to be little justification for the view that optional advances made after a conveyance by the mortgagor are unsecured.

This perspective has found some support, however, when construing dragnet clauses. Nelson and Whitman, Real Estate Finance Law, Third Edition (1993 West Publishing Co.) §12.8, Footnote 18 (some cited cases involved the issue of actual notice; another factor appears to be a policy of construction of the intended effect of a dragnet clause - it does not apply to post-transfer debt). See also 3 ALR 4th, 690 §19.

The leading case of Atkinson v. Foote, 186 P. 831 (Cal. App. 3rd Dist. 1919) supports priority of future advances over intervening recorded mortgages if the lender does not have actual knowledge of them but does not support priority over a conveyance recorded before the future advance.

Most Revolving Credit Endorsements contain a condition that the mortgagor who was vested with title to the land at Date of Policy must still be vested with the title at the time of every insured future advance. With this condition in an endorsement, a revolving credit lender needs to bring the title to date before each advance to be fully protected. The Stewart Revolving Credit Endorsements Revolv1 and Revolv2 do not contain this condition.

The Revolv1 and Revolv2 also do not except liens, encumbrances, conveyances and other matters recorded in the public records prior to any advance.

The Stewart Revolv1 and Revolv2 form insure a revolving credit lender against intervening mortgages, liens, and conveyances which are recorded prior to an insured future advance, unless the Insured has actual knowledge of them before making the advance.

Therefore, Revolving Credit Lenders should prefer Revolv1 and Revolv2 to many endorsements of other companies and should also prefer Revolv1 and Revolv2 to Stewart's Revolv3.

However, the great expansion of protection under Revolv1 and Revolv2 mandates a substantial additional premium when possible. Ascertain from your District or Regional Manager the additional charge in your area and collect it.

The ALTA Future Advance Endorsements (14, 14.1 and 14.2) contain optional mechanic's lien exceptions.  You may secure alternate versions of the endorsements, with (W/MML) and without the mechanic's lien exception (WO/MML).  You must issue the Future Advance Endorsement with the mechanic's lien exception (W/MML) unless you secure underwriting personnel approval if:

• The loan is made, in whole or part, for construction, improvements , renovation or repairs; or
  
• The land is located in Alaska, Colorado, Illinois, Indiana, Maine, Missouri, Montana, Virginia or Wyoming, unless the land is an existing one-to-four family residence or residential condominium. 

The ALTA Endorsements 14 and 14.1 insure against (1) invalidity or unenforceability of the insured mortgage as security for Advances; (2) lack of priority of the lien of the insured mortgage as security for Advances; and (3) invalidity or unenforceability of the mortgage because of Re-Advances and repayments, lack of outstanding debt before an Advance, and failure to comply with legal requirements for Advances; (4) invalidity or unenforceability of the insured mortgage because of adjustment of interest or addition of interest to principal, and (5) loss of priority of the insured mortgage caused by adjustment of interest rates and addition of interest to principal.  The ALTA Endorsement 14.2 is designed for insurance of a mortgage securing a letter of credit or other surety or reimbursement agreement.  The ALTA 14.2 Endorsement does not insure with respect to interest rate adjustments.  The ALTA Endorsement 14 and 14.1 may be issued on residential or commercial transactions.  The ALTA Endorsement 14.2 is designed for issuance only on commercial transactions.

Certain states have statutory procedures to terminate or limit the future advance privileges. The Insured Mortgage should contain these provisions. Any mortgage could be modified whether or not it or a statute specifically so provided. If any termination, limitation or modification occurred, whether or not that action were recorded, any advancement thereafter made which exceeded the new limitation or did not satisfy the new requirement would not be in accordance with the terms of the Insured Mortgage. Therefore, there is no express disclaimer relating to such terminations, limitations or modifications, but there is no insurance against the effect of those events.

Each Endorsement contains exclusions from coverage.  ALTA Endorsements 14 and 14.1 contain similar exclusions: advances after a bankruptcy, real estate taxes and assessments, federal tax liens filed more than 45 days before the advance, federal or state environmental protection liens, and usury or consumer credit protection or truth in lending law.  Each has an optional exclusion for mechanic's or materialmen's liens, and we have printed two versions of each endorsement -- one which contains the mechanic's lien exception (W/MML) and the other which does not contain the mechanic's lien exception (WO/MML).  The ALTA Endorsement 14 is designed for insurance of priority of Advances, regardless of whether the lender knows of the intervening liens and other matters.  The ALTA Endorsement 14.1 is designed for insurance of priority of Advances, unless the lender knows of the intervening liens and other matters.  ALTA Endorsement 14.2, designed for insurance of a mortgage securing a reimbursement agreement, provides more coverage, based upon the favorable treatment of law.  The exclusions of the ALTA 14.2 Endorsement does not except to bankruptcies or intervening liens known by the insured or federal tax liens, but does except to real estate taxes and assessments, federal and state environmental protection liens and usury.  It also contains an optional exception to mechanic's liens.

We issue the ALTA Endorsement 14 if we are satisfied that (1) state law grants priority of future advances, regardless of knowledge by the lender of intervening liens, or (2) the mortgage secures obligatory advances.  If state law does not grant priority of future optional advances if the lenders knows of intervening liens, and the advances are not obligatory, we issue the ALTA Endorsement 14.1.  We issue the ALTA Endorsement if the mortgage secures a reimbursement agreement in connection with an existing letter of credit or bond.

Alternative versions of the ALTA Endorsements 14, 14.1, and 14.2 (W/MML) contain mechanic's and materialmen's liens exceptions because of their peculiar priority and the great danger that post Date of Policy equities could affect the Insured Mortgage.  Separate versions of each endorsement (WO/MML) do not contain this exception.  Issue the ALTA Endorsement versions that contain mechanic's liens (W/MML) if the mortgage secures a loan for construction, repair, renovation or improvements unless you secure underwriting personnel approval.  If the land is located in Alaska, Colorado, Illinois, Indiana, Maine, Missouri, Montana, Virginia, or Wyoming, issue the ALTA Future Advance Endorsement that contains the mechanic's lien exception (W/MML) unless the land is an existing one-to-four family residence and the loan is not made for construction, repair, renovation or improvements unless you secure underwriting personnel approval.

The ALTA Junior Loan Policy (and similar limited coverage policies available in some states) is issued on junior residential loans, such as home equity loans.  The ALTA Junior Loan Policy Revolving Credit/Variable Rate Endorsement JR2 insures priority of subsequent advances, subject to ad valorem taxes and assessments, federal tax liens, environmental protection liens, matters actually known by the insured at the time of advance, and mechanic's and materialmen's liens.  This endorsement is similar to ALTA Endorsement 14.1 (with mechanic's lien exception) and may be issued upon request.

Line of Credit Agreement

To issue the Future Advance Endorsement, verify that the mortgage secures a line of credit or loan agreement contemplating future advances. Do not rely on a general future debt, anaconda, Mother Hubbard, Gorilla, or dragnet clause. The mortgage must clearly reflect that it secures future advances under the credit or loan agreement.

Maximum Principal Debt

Verify that the mortgage identifies the maximum principal debt, exclusive of advances to protect the security of the mortgage.

State Requirements

Verify that any additional specific terms required by state law for revolving credit, future advance, or open-end mortgages (such as titles, disclosures, or reference to statutes) are met. If state law imposes a maximum time limit on future advances, verify that the credit agreement or mortgage imposes the same or shorter time. Review and verify compliance with the requirements for each state in Columns 7 and 8 of the state revolving credit laws (Revolv Credit - 29 to 79).

Deletion of Revolving Credit Endorsement Exceptions

Do not delete any of the standard exceptions to the revolving credit endorsement.

Pending Disbursement Clause

If Schedule B of the Policy contains a pending disbursement clause, the ALTA Future Advance Endorsements incorporate it by reference to the terms of the policy in the boilerplate clause.

Protection of the Security of the Mortgage

Many state statutes provide that advances to protect the security of the mortgage have the same priority as advances made at the time of recordation of the mortgage, even if the total advances, including other principal, exceed the stated principal debt of the mortgage.  The ALTA Future Advance Endorsements define "Advance" as including principal debt, expenses of foreclosure, amounts advanced to pay taxes and insurance, assure compliance with laws or to protect the lien of the insured mortgage, and reasonable amounts to prevent deterioration of improvements, together with interest. 

Obligatory Advances

Obligatory advances generally relate back to the date of recordation of the mortgage and are prior to all intervening liens or rights even though the mortgagee has actual notice of the intervening liens or rights. Infrequently, state statutes define obligatory advances.

There is disagreement about whether advances after breach by the mortgagor of a particular condition will be obligatory. For example, the failure of the owner to expend moneys called for in the agreement may render advances optional so that priority is lost. Numerous cases have indicated that advances are optional if the advances are to be made only when certain conditions are met and the conditions are not in fact met. For example, if the lender reserved the right not to fund during construction until construction progressed to a satisfactory or specified point, advances before that time would be optional. If the filing of a mechanic's lien that is not successfully subordinated is a breach, subsequent advances could be optional. Advances to complete after abandonment of the project by the mortgagor would be optional. If the lender waived a condition that it receive receipts evidencing payment of bills before it disburses, the advances are optional, even though the Loan Agreement may authorize waiver of the condition. Retention of broad discretion in advances will render advances optional: retention of lender discretion as to which subcontractors could be paid; or advances to be made at times and amounts determined by the lender. The existence of discretion by the mortgagee as to amounts to be disbursed under particular circumstances is inconsistent with obligatory advances. See 80 ALR 2d 179-260 §4. Similar limitations on the effectiveness of a subordination have sometimes been applied where the mortgagee subsequently made optional advances after default or made advances it was not obligated to make (e.g., in its sole discretion). An action to enforce conditions of a loan agreement does not make subsequent advances voluntary. 13 ALR 5th 684, et seq.

Principles involved in analysis of obligatory advances include: (1) There must be limits in discretion. If there are conditions, they should be defined objectively. (2) Advances after occurrence of any defined default allowing the lender to cease advances will be optional. (3) The lender must enforce controls and conditions in the agreement. (4) Bootstrap provisions, such as clauses stating that no default is deemed to exist until declared or notified by the lender or that all advances to complete improvements or protect security are deemed obligatory will be doubtful. (5) Similarly, placing the entire proceeds in an escrow account where the lender has effective control of the escrowee will be doubtful. (6) Economic necessity justifying advances will not assure they are obligatory. Nelson and Whitman, Real Estate Finance Law, Second Edition (1985 West Publishing Co.) §12.7. However, if the lender has lost the power to withhold payments, this is a present loan for the full amount. Kratovil and Werner, Modern Mortgage Law and Practice (1981 Prentice-Hall, Inc., Second Edition) §11.10.

Optional Advances

There is a general majority rule that optional future advances are subordinate to subsequent liens or rights of which the lender has actual notice at the time of the advance.

A second  view is that optional advances retain priority, regardless of whether the lender has actual or constructive notice at the time of the advance. Although only a few states recognized this principle purely by case law, more have adopted this rule, with some variation, by statute.

Advances After Bankruptcy of Mortgagor

The validity of advances after a bankruptcy does not appear to rest on whether a notice of bankruptcy petition is filed under §549 (c). Advances after the bankruptcy appear to violate §362 (stay), §364 (postpetition financing), and §549 (postpetition transactions). The protection afforded under §549 to postpetition transactions applies only to good faith purchasers if no notice of bankruptcy has been filed. However, advances made to a third party after the filing of a bankruptcy case by the debtor and pursuant to a mortgage executed by the debtor to guarantee such debt will not violate the automatic stay or Section 364.

Governmental Charges

Numerous governmental statutory liens, such as real estate taxes or assessments, attain special priority over subsequent advances, regardless of whether the advances are obligatory.

Federal Tax Liens - A security interest recorded before the federal tax lien has priority as to subsequent:

• Loan disbursements for construction on the land;
• Obligatory disbursements by reason of the intervention of rights of a third person (e.g., pursuant to a bond or letter of credit); or
• Advances within 45 days after the filing of the tax lien notice or before the lender had actual notice or knowledge of the filing, whichever is earlier. 26 U.S.C. §6323(c), (d).

Environmental Protection Liens - All costs and damage for removal or remedial action by the United States constitute a lien upon all real property belonging to that person and subject to or affected by the action. 42 U.S.C. §9607(I)(1).

The lien arises at the later of the time costs are first incurred by the United States for the response and the time that the person is provided written notice by certified or registered mail of potential liability. 42 U.S.C. §9607(I)(2).

An initial action to recover the costs for removal action must generally be commenced within three (3) years after completion of the removal action, and an initial action to recover costs for remedial action must generally be commenced within six (6) years after initiation of physical on-site construction of the remedial action. 42 U.S.C. §9613(g)(2).

The lien is subject to the rights of a "purchaser," "holder of a security interest," or judgment lien creditor whose interest is perfected before notice of the lien is recorded in the recorder's or county clerk's office. 42 U.S.C. §9607(I)(3) (where State Law allows recording).  If there are unrecovered response costs incurred by the U.S. at a facility for which the owner is not liable, because the owner is a bona fide prospective purchaser, the United States has a lien on the facility for unrecovered response costs provided (1) the response costs increase the fair market value of the facility, (2) the lien shall not exceed the increase in the fair market value of the site attributable to the response action at time of sale or other disposition, (30 the lien shall arise when costs are first incurred by the U.S., and (4) notwithstanding any statute of limitations, the lien shall continue until satisfaction of the lien by sale or recovery of costs.  The lien is subject to the protections of 42 U.S.C. §9607(1)(3) afforded to innocent purchasers and lenders if the notice is not recorded. 

A purchaser, as defined in 26 U.S.C. §6323(h)(6), is a person who for adequate and full consideration in money or money's worth acquires an interest in the land that is valid under state law against subsequent purchasers without notice (and includes a lease, written executory contract to purchase or lease, option to purchase or lease, and option to renew or extend a lease).

A "security interest" as defined in 26 U.S.C. §6323(h)(1) is an interest in property acquired by contract to secure payment or performance of an obligation or indemnity against loss or liability. It exists to the extent protected under state law against a subsequent judgment lien and to the extent that, at the time, the holder has parted with money or money's worth. Subsequent disbursements after recordation of the EPA lien are not protected.

The Loan Policy (Exclusion 1(a)(iv)) excludes liability by reason of environmental violation except to the extent a notice of defect, lien or encumbrance has been recorded in the public records at Date of Policy.

United States Judgment Liens

A judgment in favor of the United States in a civil action creates a lien on all real property of a judgment debtor upon filing a certified copy of the abstract of judgment in the manner in which a notice of tax lien would be filed. The lien has priority over any other lien or encumbrance which is perfected later in time. The lien is effective, unless satisfied, for a period of 20 years.

The lien may be renewed for one additional period of 20 years upon filing a notice of renewal in the same manner as the judgment is filed and shall relate back to the date the judgment is filed if:

• The notice of renewal is filed before the expiration of the 20-year period to prevent the expiration of the lien; and
• The court approves the renewal of the lien. 28 U.S.C. §3201.

A filed notice of levy creates a lien in favor of the United States. Upon issuance of a judgment in the action, the judgment lien relates back to the time of levy. 28 U.S.C. §3102.

"Debt" means:

• An amount that is owing to the United States on account of a direct loan, or loan insured or guaranteed, by the United States; or
• An amount that is owing to the United States on account of a fee, duty, lease, rent, service, sale of real or personal property, overpayment, fine, assessment, penalty, restitution, damages, interest, tax, bail bond forfeiture, reimbursement, recovery of a cost incurred by the United States, or other source of indebtedness to the United States, but that is not owing under the terms of a contract originally entered into by only persons other than the United States. 28 U.S.C. §3002(3).

Amounts owed to failed institutions appear not to generally lie within the scope of this law.

"Judgment" means a judgment, order, or decree entered in favor of the United States in a court and arising from a civil or criminal proceeding regarding a debt. 28 U.S.C. §3002(8). Federal tax liens are not within the scope of this law.

"United States" means:

• A Federal corporation;
• An agency, department, commission, board, or other entity of the United States; or
• An instrumentality of the United States. 28 U.S.C. §3002(15).

This law does not apply to a judgment entered more than 10 years before the effective date of the law. 28 U.S.C. §3005. The law was effective 180 days after November 29, 1990 (May 29, 1991).

There is some dispute as to the priority of the United States judgment lien. Some comparison is made to the federal tax lien, which is acknowledged as generally subordinate to a purchase money mortgage by the taxpayer and as subordinate to limited future advances.

The language of 26 U.S.C. §6323 expressly addresses future advances and choateness. Section 6323 also states that the federal tax lien is not effective against a holder of a security interest until filed. A security interest exists if the interest is protected under local law against a subsequent judgment lien arising out of an unsecured obligation, and to the extent the holder has parted with money or money's worth. 26 U.S.C. §6323(h)(i). This language can be construed to incorporate state law priority accorded purchase money liens in many jurisdictions. It also appears that the tax lien attaches only to the purchaser's equity in the land when it attaches to the taxpayer's property under 26 U.S.C. §6321. Likewise, it is possible to assert under 28 U.S.C. §3201(a) that when the lien attaches to "real property of a judgment debtor" it attaches to the purchaser's equity, and, arguably, not the simultaneously-created mortgage interest. See Minix v. Maggard, 652 S.W.2d 93 (Ct. App. Ky. 1983). In addition, 28 U.S.C. §3201 (b) provides that the judgment lien has priority over any other lien or encumbrance that is perfected later in time. By analogy, "perfection" is defined in 11 U.S.C. §547(e) as occurring when a bona fide purchaser from the debtor cannot acquire an interest that is superior to the interest of the lienholder. Under that definition, an express vendor's lien (in those states where customary) retained in the deed to the debtor would be perfected at the time of the delivery, as opposed to recordation, of the deed.

Federal Criminal Fines

Criminal fines are secured by a lien in favor of the United States on all property belonging to the person fined from the entry of the judgment. The Attorney General may execute Certificates of Release or Discharge in accordance with 26 U.S.C. §6325 (Federal Tax Liens). The provisions for perfection of Federal tax liens, notice and redemption apply to the lien. References to the Secretary shall mean the Attorney General. 18 U.S.C. §3613.

Black Lung Disabilities Trust Fund

Payments by the United States out of the Black Lung Disability Trust Fund for which an operator is liable shall be a lien upon the property of the operator. The lien arises on the date disability is finally determined. Priority is determined in accordance with 26 U.S.C. §6323 (Tax Liens). The Secretary shall mean the Secretary of Labor. Notice of the lien shall be filed in accordance with 26 U.S.C. §6323(f) and (g). 30 U.S.C. §934.

Employee Retirement Income Security Act

Payments made by the Pension Benefit Guaranty Corporation to administer the retirement plan after termination or withdrawal from the plan are secured by a lien upon all property of the liable employer, sponsor, or member of controlled group. The lien arises upon termination of the plan. The priority of the lien is determined under 26 U.S.C. §6323 (Tax Liens). Where the Secretary is stated, the Pension Benefit Guaranty Corporation shall apply. Notice of lien shall be filed in same manner as under 26 U.S.C. §6323(f) and (g) (place and refiling). 29 U.S.C. §1368.

Distress Warrants

If an official receiving public money before paid to the Treasury does not pay the money, the Secretary of Treasury may issue a distress warrant for the amount. 31 U.S.C. §3541. The amount due is a lien on the real property of the official from the date the distress warrant is issued. The lien shall be recorded in the clerk's office in the appropriate district court. The marshall may sell real estate after advertising for three (3) weeks in at least three (3) public places. 31 U.S.C. §3542.

UCCs

A purchase money security interest in fixtures that is properly perfected within 20 days after the goods become fixtures will have priority over a preexisting mortgage (unless the mortgage is a construction mortgage [or refinance] and the fixture is added during construction). §9-334, U.C.C. Since the purchase money UCC will have priority over prior advances, and the definition of land should not include later improvements, it is not essential to except to UCCs in the endorsement.

Mechanic's Liens

Even though a future advance may have priority over other liens, special rules often apply to mechanic's liens: for example, in some states, the advances (and mortgage) never achieve priority; in some, the advances may retain priority only if advances are obligatory; in others, advances may reach priority only if made before the recording or notice of claim; in some, the lien claimant retains priority as to improvements added.

In the absence of an endorsement, the 1992 Loan Policy does not insure against matters attaching or creating subsequent to Date of Policy except to the extent coverage is provided as to mechanic's liens (see Exclusion 3(d)). The Expanded Coverage Residential Loan Policy (2001) contains broader insurance as to mechanic's liens: it insures against "any statutory lien for services, labor or material, arising before, or or after Date of Policy, from an improvement or work related to the land which was contracted for or commenced before, on or after Date of Policy."  The 1992 Loan Policy coverage also does not extend to debt created subsequent to Date of Policy except advances to protect the lien and secured thereby, reasonable amounts expended to prevent deterioration of improvements, construction loan advances that the insured continued to be obligated to advance after Date of Policy (Conditions and Stipulations §8(d) of 1992 Loan Policy), interest, expenses of foreclosure, and amounts advanced to assure compliance with laws (Conditions and Stipulations 2(c)(ii) of 1992 Loan Policy).  The Expanded Coverage Residential Loan Policy (2001) contains insurance as to priority of future advances that the insured is obligated to make pursuant to Covered Risk 8 and as to advances made after a modification pursuant to Covered Risk 23.  Exclusion 6 excludes liability for subsequent governmental taxes and assessments, Exclusion 7 (which does not limit Covered Risk 8) excludes liability as to advances made after knowledge of a conveyance, and Exclusion 8 (which does not limit covered Risk 8) excludes liability for advances made after knowledge of an intervening lien, encumbrance or other matter.  Thus, the expanded Coverage Loan Policy (2001) incorporates the common provisions of revolving credit endorsements, with expanded coverage of modifications.

 

Alabama

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - Mortgage has priority under future advance clause prior to actual notice. Mobley v. Brundidge Banking Co., 347 So. 2d 1347 (Ala. 1977) (where second lien made subject to lien); Hampton v. Gulf Fed. S & L, 249 So. 2d 829 (Ala. 1971); City National Bank v. First National Bank of Dothan, 232 So. 2d 342 ( Ala. 1970).

Time Limit on Advance - Mortgage is conclusively presumed paid 20 years past due as to third parties without notice. If the final maturity date is not shown by the mortgage or by calculation from recitals in the mortgage, the time runs from the date of the mortgage. §35-10-20. This section does not apply to mortgages by corporations or political subdivisions securing bonds.

Comments (If Statutory Terms Met) - Mechanic's lien claimant has priority as to servable improvements. §35-11-211.

Alaska

Issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception) if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Written Notice By Claimant - Alaska would probably follow the majority rule that optional advances under a future advance clause after actual notice of a subsequent encumbrance are subordinate to the subsequent encumbrance.

Time Limit on Advance - The date of maturity of a lien is considered to be 10 years from date of the instrument unless the period is disclosed in the instrument. §34.20.150.

Comments (If Statutory Terms Met) - A prior recorded mortgage or deed of trust has priority over a mechanic's lien unless a claim of lien or notice to right of lien is recorded before the mortgage. The preference applies regardless of when sums are disbursed or whether disbursements are obligatory. A lien in favor of an individual for labor on a building or improvement on original construction is preferred. §34.35.060.

Arizona

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - Optional advance under future advance or dragnet clause has priority unless lender has actual notice of subsequent lien. La Cholla Group, Inc. v. Timm, 173 Ariz. 490, 844 A.2d 657 (Ct. App. 1992).

Arkansas

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - Future advance mortgage has priority for optional advances before actual notice of subsequent lien. Union National Bank of Little Rock v. First State Bank & Trust Co. of Conway, 16 Ark. App. 116, 697 S.W.2d 940 (1985); Alston v. Bitely, 477 S.W.2d 446 ( Ark. 1972).

California

If no construction is contemplated, you may issue CLTA 111.10, CLTA 111.11, ALTA Endorsement 14 WO/MML (without mechanic's lien exception) if Advances are obligatory or ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception) if Advances are not obligatory.  If construction is contemplated, issue  CLTA 111.10, CLTA 111.11, ALTA Endorsement 14 W/MML (with mechanic's lien exception) if Advances are obligatory, or ALTA Endorsement 14.1 W/MML (with mechanic's lien exception) if Advances are not obligatory or add the following exception as paragraph 2.e of the CLTA 111.10 or 111.11: "mechanic's and materialmen's liens," unless you secure underwriting personnel approval.

Actual Notice - Future advance mortgage has priority for optional advances before actual notice of later lien. Fuller v. McClure, 48 Cal. App. 185, 191 P.1027; Community Lumber Co. of Baldwin Park v. California Publishing Co., 215 Cal. 274, 10 P.2d 60 (1932); Pike v. Tuttle, 96 Cal. Rptr. 403, 19 Cal. App. 3d 746 (1971).   Rule applies to subsequent restrictions. Sain v. Silvestre, 78 Cal. App. 3d 461, 144 Cal. Rptr. 478 (1978). Rule was applied to mechanic's liens. Imhoff v. Title Ins. and Trust Co., 113 Cal. App. 2d 139, 247 P.2d 851 (1952).

Time Limit on Advance - Unless the mortgage or deed of trust has earlier expired, it expires 10 years after the final maturity of payment if ascertainable from the record or 60 years from date of instrument if not ascertainable of record. Civil Code §882.020.

Zero Balance Does Not Terminate Lien - If mortgage contemplates future advances, a zero balance does not extinguish lien. Frank H. Buck Co. v. Buck, 162 Cal. 300, 122 P.466 (1912).

Comments (If Statutory Terms Met) - A mortgage prior to mechanic's liens for obligatory advances also is prior to such liens for advances used to pay lien claims recorded or costs of work of improvement, to extent of original obligatory commitment. C.C.§3136.

The CLTA has filed the following endorsements:

111.11 (obligatory) and 111.10 (optional). Do not issue the CLTA 111.11 unless you secure underwriting personnel approval. Do not issue the CLTA 111.10 if construction contemplated unless you secure underwriting personnel approval.

Colorado

Issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception) if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).  You may also issue CLTA 111.7, and if construction is contemplated, add the following exception as paragraph d: "mechanic's and materialmen's liens."

Absolute Priority - Any mortgage may, by its terms, secure future advances up to a total maximum principal amount expressly set forth in such mortgage.  Such mortgage shall be effective to secure payment of all advances, both obligatory and optional, up to the stated maximum principal amount to the same extent and with the same effect and priority as if such total maximum principal amount had been fully disbursed on or before the date such mortgage was recorded.  Such mortgage shall secure, to the same extent and with the same effect and priority, the following additional amounts regardless of whether such additional amounts, when added to the principal amount of the indebtedness, exceed the maximum principal amount stated in the mortgage: (a) all increases in the principal amount that result from negative amortization or the addition of deferred interest; (b) All disbursements made for the payment of taxes, levies, or insurance with respect to the property subject to the mortgage or made to protect such property from waste, damage, or abuse; (c) If the mortgage or evidence of debt secured by the mortgage so provides, all reasonable expenses associated with collection of the indebtedness or foreclosure of the mortgage; and (d) Interest on any of the items specified in paragraphs (a) to (c) of this subsection (2) in accordance with the terms of the mortgage or the evidence of debt secured by the mortgage.  Co. Code Section 38-39-106.

Statutory Terms for Mortgage - Priority shall not apply to any subsequent advance against a mortgage instrument after a mortgagee has initially advanced principal up to the maximum amount stated in the mortgage, unless the mortgage instrument clearly states that it was made pursuant to a revolving credit arrangement.

Mechanic's Liens - A future advance mortgage does not attain priority over mechanic's liens.  Co. Code Section 38-39-106.

Comments (If Statutory Terms Met) -The CLTA endorsement is CLTA 111.7

Connecticut

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Absolute Priority - A reverse annuity mortgage has priority from closing. §49-2.  Premiums of insurance, taxes and assessments paid by the mortgagee and payments of interest or installments of principal due on any prior mortgage or lien by any subsequent mortgagee or lienor of any property to protect his interest therein, are a part of the debt due to the mortgagee or lienor.  Advancements may be made by a mortgagee for repairs, alterations or improvements and are a part of the debt due the mortgagee, provided (1) advancements for those repairs, alterations or improvements shall not be made if the indebtedness at the time of the advancement exceeds the amount of the original mortgage debt; (2) the advancements shall not exceed the difference between the indebtedness at the time of the advancement and the original mortgage debt, if the original mortgage debt is greater than the then indebtedness; (3) the total amount of all of the advancements for repairs, alterations and improvements outstanding at any time shall not exceed one thousand dollars; (4) the original mortgage shall be executed and recorded after October 1, 1947; and (5) the terms of repayment of the advancements shall not increase the time of repayment of the original mortgage debt.  Advanced under an open-end mortgage have priority from date of recording of the mortgage. §49-2. A construction mortgage with statutory provisions has priority as of mortgage delivery. §49-3. An open-end mortgage for a guaranty has priority for commercial revolving loan or letter of credit from recording. §49-4b. A mortgage securing obligations under an electricity purchase agreement in compliance with §49-4c has priority over all later acquired rights. §49-4b.

Written Notice By Claimant - Advances after written notice of a mortgage, lien, lis pendens or proceeding other than pursuant to a commercial revolving loan agreement or letter of credit do not have priority. §49-2.

Written Notice By Owner - Mortgagor may record a written notice terminating future optional advances provided a copy is sent by registered or certified mail to mortgagee, or is delivered to the mortgagee. §49-2.

Time Limit on Advance - Consumer revolving loan shall not exceed 10 years or include advances pursuant to credit cards. §49-2.

Statutory Terms for Mortgage - Must have heading "open-end mortgage;" must describe specific provisions permitting advancements; must state if applicable that advances are pursuant to a commercial revolving loan agreement or letter of credit; and must state the full amount of loan §49-2. A reverse annuity mortgage must so state and contain a reference to §36-9g(a)(5), the full amount of the loan, the dates of advances and events causing maturity. §49-2. Construction mortgage must contain separate statutory language. §49-3. An open-end mortgage for a guaranty must state name and address of primary underlying obligor, that underlying obligation permits advances, the full amount of the loan, and term of repayment. Secondary liability must also be described. The heading must be "open-end mortgage." §49-4b. A mortgage as security for obligations under an electricity purchase agreement must comply with §49-4c including stating "open-end mortgage" and "electricity purchase agreement", a maximum amount, and availability of the electricity purchase agreement. §49-4c.

Delaware

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - Priority of optional and obligatory future advances is as of date of mortgage recording. 25§2118.  In addition to the stated indebtedness, a mortgage or other instrument given for the purpose of creating a lien on real property may secure disbursements and other advances thereunder for the payment of taxes, assessments, maintenance charges, insurance premiums or costs relating to the property encumbered by such mortgage or other instrument, for the curing of waste of the property that is the subject of the lien, for the indemnification obligations regarding environmental liabilities of the property that is the subject of the lien, and for the payment of service charges and expenses incurred by reason of default, and including late charges, attorneys' fees and court costs, if such mortgage or other such instrument states that it shall secure any such advances and disbursements, together with all interest thereon. 25§2118.

Zero Balance Does Not Terminate Lien - Zero balance does not affect validity or priority of future advance mortgage. The mortgage may secure such future advances although there may be no advance made at the time of the execution of such mortgage or other instrument and although there may be no indebtedness outstanding at the time any advance is made. 25§2118.

Statutory Terms for Mortgage - Future advance mortgage cannot exceed maximum principal amount specified plus interest and related costs. Mortgage must state that it secures future advances. 25§2118.

District of Columbia

If no construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Absolute Priority - A credit line deed of trust has priority over deeds, conveyances, or other instruments unrecorded at date of credit line deed of trust, unless the mortgagee has knowledge or notice of such unrecorded matter, and except as to judgment creditors which provide notice to the noteholder if the noteholder was not irrevocably committed to make the advance at the time of the notice.  Mechanic's liens have priority over advances made after recordation of the mechanic's lien. §42-2303. A credit line deed of trust covers a single family residence or other real property, but the disclosure requirements apply to a single family residence.

Written Notice By Claimant - A credit line deed of trust does not have priority over a later recorded judgment lien after noteholder's receipt of notice from the judgment creditor at the address on the deed of trust if the advances were not irrevocably committed. §42-2303.

Constructive Notice Priority Unless Obligatory - A credit line deed of trust does not have priority over mechanic's liens as to advances made after the filing of the notice of mechanic's liens. §42-2303.

Priority Unless Conveyance - No. A credit line deed of trust has priority over deeds and conveyances unrecorded at date of credit line deed of trust. §42-2303.

Statutory Terms for Mortgage - On front page, in capital letters or underscored, for a credit line deed of trust on a single family residence, "THIS IS A HOME EQUITY CREDIT LINE DEED OF TRUST.  DEFAULT OF PAYMENTS MAY RESULT IN LOSS OF YOUR HOME." The deed of trust on a single family residence must disclose there is an agreement to make advances from time to time, and the maximum aggregate of principal at one time, and rights and obligations of the borrower and consequences of default. §42-2303.

Florida

In Florida, the following ALTA future advance endorsements are issued:

14-06 with Florida modifications-Future Advance-Priority

14.2-06 Future Advance-Line of Credit

14.3-06 Future Advance-Reverse Mortgage

Absolute Priority - Except as limited by notice from mortgagor, priority of mortgage exists over subsequent conveyances and encumbrances, including statutory liens, except landlords liens, regardless of whether obligatory or optional. Future advances made pursuant to the terms of a reverse mortgage loan (as defined in s. 103(bb) of the federal Truth in Lending Act, 15 U.S.C. Sections 1601 et seq.) shall be secured to the same extent as if such future advances were made on the date of execution of the mortgage, irrespective of the date of any such advance. §697.04. Such loans to cooperative associations advanced within 10 years of the date of the mortgage have similar priority. §697.03.

Written Notice By Owner - The mortgagor or successor in title may file a notice limiting the maximum principal amount to be secured or amount advanced, if a copy is sent by certified mail to the mortgagee and in case of open-end or revolving credit agreement, the mortgagor surrenders all credit cards, checks or devices for advances. Increases in debt by negative amortization shall be secured by the mortgage and advances for taxes, levies, insurance on construction loan are secured. Notwithstanding the foregoing, any increase in the principal balance as a result of negative amortization or deferred interest shall be secured by the mortgage; and any disbursements made for the payment of taxes, levies, or insurance on the property covered by the lien, and any advances or disbursements made under a construction loan agreement referred to in a mortgage. §697.04.

Time Limit on Advance - Twenty years. §697.04.

Priority Unless Conveyance - Priority of mortgage extends to subsequent conveyances. §697.04

Zero Balance Does Not Terminate Lien -Zero balance does not affect priority or validity of lien; advances will have priority, although there may be no advance made at the time of the execution of such mortgage or other instrument and although there may be no indebtedness outstanding at the time any advance is made. §697.04.

Statutory Terms for Mortgage - The future advance mortgage must sate the maximum principal amount.

Georgia

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - An open-end mortgage secures debt ex contracto between original parties with priority over a subsequent transfer of the property or valuable interest (such as a lien) unless the subsequent instrument is filed and actual notice is given to the mortgagee such as by mail to holder's principal office return receipt acknowledged. §44-14-2; Attorney General Opinion 81-98 (1981).

Time Limit on Advance Title to secure a debt reverts to the grantor 20 years from maturity of the debt stated of record, or if not stated of record, 20 years from date of conveyance (or date recorded), or seven years if the instrument does not purport to effect a perpetual or indefinite security interest. . §44-14-80.

Priority Unless Conveyance - Priority over subsequent conveyance unless actual notice. §44-14-2.

Zero Balance Does not Terminate Lien - Revolving loan account does not end until lender or debtor also notifies the other party to terminate the terms. §44-14-3. A dragnet clause is exception to general rule regarding instantaneous extinction of deed upon payment. Tedesco v. CDC Federal Credit Union, 167 Ga. App. 337, 306 S.E.2d 397 (1983). By securing a line of credit, the mortgagor has waived instantaneous extinction of the lien.

Statutory Terms for Mortgage - The mortgage open-end clause must state the mortgage secures future obligations of mortgagor. §44-14-1. A revolving loan account mortgage states the maximum amount. §44-14-3.

Comments (If Statutory Terms Met) - Advances under open-end clauses are limited to (1) debts or obligations arising ex contracto as opposed to ex delicto, and (2) the debt must be between the original parties to the transaction, not their transferees. §44-14-1.  Whether or not it contains clauses providing therefor, a real estate mortgage or deed conveying realty as security for a debt shall secure advances made: (1) To pay taxes; (2) To pay premiums on insurance on the property; (3) To pay sums due to the holder of a deed to secure debt or lien on the property without which payment the secured position of the holder of the mortgage or deed to secure debt advancing such payment would be jeopardized; (4) To repair, maintain, or preserve the property; and (5) To complete improvements on the property, whether such advances were made by the original owner or by any subsequent owner of the mortgage or deed to secure debt and whether the property is still owned by the original mortgagor or grantor or is owned by a subsequent purchaser of such property.  Such mortgage or deed to secure debt shall secure all expenses incident to the collection of the debt thereby secured and the foreclosure thereof by an action in any court or by the exercise of the power of sale therein contained. §44-14-2.

Hawaii

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - A mortgage securing future advances (including non-obligatory advances) not exceeding the maximum amount stated is superior to subsequently recorded mortgages, liens, encumbrances or conveyances, other than UCC fixture filings (as provided in 9.334, UCC), real property taxes and assessments for improvements, even though the matter is recorded before the advance. §506-1.

Priority Unless Conveyance - Mortgage will have priority for future advances over subsequent conveyances. §506-1.

Statutory Terms for Mortgage - The mortgage must state the maximum amount of future advances. §506-1.

Idaho

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - A mortgage securing future obligations is superior to subsequent rights, liens or claims unless the mortgagee had actual notice of the interest at the time of the advance. The mortgagee is superior to such rights if the mortgagee has actual notice and was legally bound to make the advance or give the consideration resulting in such obligation, or where the consideration for such obligation was necessarily and actually applied to the maintenance and/or preservation of the property subject to the lien. §45-108.

Time Limit on Advance - Mortgage is enforceable for 5 years from stated maturity. If records do not disclose maturity date, the date of execution is the date of maturity of the debt. §5-214A.

Priority Unless Conveyance - The mortgagee has priority for subsequent optional advance over subsequent rights unless the mortgagee has actual notice of the right. §45-108.

Illinois

Issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception) if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - A bank mortgage securing a revolving credit mortgage has priority for optional or obligatory advances for 20 years over all subsequent liens and encumbrances except taxes and assessments levied on the land. 205 ILCS §5/5d (Revolving credit defined: 815 ILCS 205/4.1) Savings and loan revolving credit mortgage has same priority. 205 ILCS 105/1-6b. Same is true of credit union revolving credit mortgage. 205 ILCS 305/46. A reverse mortgage is a lien from time recorded as to all advances by bank, savings and loan or credit union (on homestead). 735 ILCS 5/15-1302 (in nature of RAM: see 205 ILCS 5/5a, 5/6.1, 105/1-6a, 105/1-6c, 305/46, 305/46.1.

Constructive Notice Priority Obligatory - Except as to revolving credit or reverse mortgages by banks, savings and loans or credit unions, all advances more than 18 months after the mortgage is recorded are liens as to subsequent purchasers and judgment creditors from advance unless pursuant to obligatory commitments, accrued interest or preservation of the land or lien. 735 ILCS 5/15-1302. All monies advanced by the mortgagee in accordance with the terms of a mortgage to (i) preserve or restore the mortgaged real estate, (ii) preserve the lien of the mortgage or the priority thereof, or (iii) enforce the mortgage, shall be a lien from the time the mortgage is recorded.  735 ILCS 5/15-1302.

Time Limit on Advance - Time limit on bank revolving credit mortgage is 20 years. 205 ILCS §5/5d. Time limit of savings and loan revolving credit mortgage is 20 years. 205 ILCS 105/1-6b. Same 20 year time limit on credit union revolving credit. 205 ILCS 305/46.

Statutory Terms for Mortgage - Bank revolving credit must state maximum principal amount of advances. 205 ILCS §5/5d. Same is true of savings and loan revolving credit mortgage. 205 ILCS 105/1-6b. Same true of credit union revolving credit. 205 ILCS 305/46.

Indiana

Issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception) if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - Future advances, whether optional or obligatory have priority from date of execution of the mortgage. §32-29-1-10. The mortgage also may secure future modifications, extensions, and renewals of any indebtedness or obligations secured by the mortgage if and to the extent that the mortgage states that the mortgage secures those future advances, modifications, extensions, and renewals. §32-29-1-10.

Zero Balance Does not Terminate Lien - Future advances have priority as of date of execution of mortgage even if made after a reduction to zero or other balance. §32-29-1-10.

Iowa

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Written Notice by Claimant - Mortgage has priority for future advances over subsequently recorded mortgages and liens (except mechanic's liens) even though the mortgagee has actual notice if the mortgage complies with statutory requirements but does not have priority as to advances after receipts of notice of foreclosure or action to enforce a subsequently recorded mortgage or lien. So long as credit is available to the borrower, payment of the outstanding mortgage balance to zero shall not extinguish the prior recorded mortgage if it contains the notice prescribed. §654.12A.

Statutory Terms for Mortgage - Mortgage must state maximum amount of credit and must state: "NOTICE: This mortgage secures credit in the amount of __________. Loans and advances up to this amount, together with interest, are senior to indebtedness to other creditors under subsequently recorded or filed mortgages and liens." §654.12A.

Kansas

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - A mortgage securing future advances has priority as to the advances from recording. §58-2336. A bank future advance mortgage has priority from recording §9-1101. Priority exists whether advances are optional or obligatory. Fidelity Savings v. Witt, 665 P.2d 1108 (Ct. App.--Kan. 1983) (no merger when deed to subsidiary of mortgage); First National Bank of Wichita v. Fink, 736 P.2d 909 ( Kan. 1987).

Statutory Terms for Mortgage - The future advance mortgage lien shall not exceed at any one time the maximum amount stated in the mortgage. §58-2336.

Kentucky

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Written Notice By Owner - Future advance mortgage secures additional advances up to maximum stipulated debt with priority over subsequent recorded liens or encumbrances until written request by mortgagor to place a subsequent lien. If lender does not release mortgage as to additional debt in 10 days, borrower may record copy of written notice and later advances are subordinate to subsequent lien. §382.520. In all cases where a loan is secured by a real estate mortgage, the mortgage originally executed and delivered by the borrower to the lender shall secure payment of all renewals and extensions of the loan and the note evidencing it, whether so provided in the mortgage or not. §382.520.  A line of credit or revolving credit plan mortgage has priority over subsequent liens or encumbrances even with actual or constructive notice, except real estate taxes and public improvement assessments, mechanic's liens on owner occupied single or double family dwelling after notice of claimant statement, or advances after debtor gives notice of limit on advances. If lender does not then amend mortgage in 10 days, borrower may record notice to limit the credit line. §382.385.

Zero Balance Does Not Terminate - Zero balance does not terminate line of credit on revolving credit plan mortgage; the validity, continued effectiveness, and priority of the mortgage shall not be affected or impaired by the fact that no loan, advance, or extension of credit is made at the time of the execution or recordation of the mortgage, or that the outstanding balance due under the line of credit or revolving credit plan secured by the mortgage is zero at any time or times. §382.385.

Statutory Terms for Mortgage - A line of credit or revolving credit plan mortgage must state, in substance or effect, that the parties intend that the mortgage secures the line of credit or revolving credit plan. §382.385. A future advance mortgage must state maximum additional debt. §382.520. 

Louisiana

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Written Notice By Owner - A mortgage securing future obligations has effect as to third parties from time the mortgage is filed for registry. The mortgagor or successor may terminate the mortgage upon reasonable notice when no obligation exists and the mortgagee is not bound to permit an obligation to be incurred. Parties may contract as to reasonable notice. Art. 3298.

Statutory Terms for Mortgage - Mortgage must state maximum amount of obligations that may be outstanding from time to time. Article 3288. The note or other debt need not recite it is secured by the mortgage. Art. 3298. The effectiveness, validity, enforceability, and priority of a conventional mortgage, conventional chattel mortgage, or security agreement are not adversely affected by a change in the terms of the note or notes secured thereby, including but not limited to, such changes as an extension of the maturity of the note or notes, an increase or decrease of the interest rate stipulated in the note or notes, or the agreement that the unpaid accrued interest of the note or notes would be converted to principal and thereafter bear interest. 9:5390.

Comments (If Statutory Terms Met) - Article 3288 is consistent with use of collateral mortgage, in which the amount of the mortgage note fixes the maximum amount of obligations the mortgage secures, but permits pledge of the note to secure fluctuating and indefinite obligations of debtor. Another mortgagee may be a successor who can require a release. Use a LA 100 endorsement with a Louisiana collateral mortgage.

Maine

Issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception) if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Written Notice by Claimant - A mortgage for future advances has priority over rights of persons who acquire rights or liens subsequent to recording of the mortgages, up to the total amount stated in the mortgage and protective advances. The mortgagor or successor may file and send to the mortgagee by registered mail a notice limiting future advances to amount advanced as of third business day following delivery of notice. A person later acquiring rights in the land may send a notice by registered mail stating that advances after the third business day after receipt of notice are junior to the subsequent lien. This notice does not affect priority of construction advances. Title 33 §505.

Written Notice By Owner - A mortgage for future advances has priority over rights of persons who acquire rights or liens subsequent to recording of the mortgages, up to the total amount stated in the mortgage and protective advances. The mortgagor or successor may file and send to the mortgagee by registered mail a notice limiting future advances to amount advanced as of third business day following delivery of notice. A person later acquiring rights in the land may send a notice by registered mail stating that advances after the third business day after receipt of notice are junior to the subsequent lien. This notice does not affect priority of construction advances. Title 33 §505.

Zero Balance Does Not Terminate Lien - A mortgage securing future advances remains valid and retains its priority even if no funds have been advanced or all future advances have been repaid as long as an agreement regarding future advances remains in effect. Title 33 §505 (effective 1-1-94).

Statutory Terms for Mortgage - A future advance mortgage must state the total maximum amount to be outstanding and that it secures future advances. "Protective advances" means advances made by a mortgagee that are necessary to protect the mortgagee's security interest, to collect amounts due to the mortgagee or represent interest earned on an obligation secured by the mortgage.  Protective advances have priority from the date of recording of a mortgage. Title 33 §505 (effective 1-1-94).

Comments (If Statutory Terms Met) - A tax lien filed by the state tax assessor is junior to advances made under a future advance mortgage made within 45 days after filing of the notice of tax lien or made without knowledge of the lien or pursuant to a commitment entered without knowledge of the tax lien. Title 36 §175-A, §175.

Maryland

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - Priority of future debt or advances dates from date of the mortgage or deed of trust against intervening purchasers, mortgagees, trustees under deeds of trusts or lien creditors regardless of whether advance or debt was obligatory or voluntary. Md. R.P. §7-102.

Priority Unless Conveyance - Future advance mortgage has priority from date of mortgage on deed of trust against intervening purchasers. Md. R.P. §7-102.

Statutory Terms for Mortgage - Mortgage for future advance must state the aggregate principal sum on the face of the mortgage unless securing a guarantee or indemnity. Md. R.P. §7-102.

Massachusetts

If no construction is contemplated, issue ALTA Endorsement 14[1] WO/MML (without mechanic's lien exception). If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority: An open-end mortgage for open-end credit plan advances for consumer credit has priority as of the time of mortgage recording as to principal advanced from time to time up to the maximum amount specified in the mortgage, interest on such amount, and charges and fees. M.G.L. c. 183, §28B.

Written Notice: After termination of authority to borrow on an open-end credit plan, the holder, within 10 business days after request of any person with an interest in the land, shall furnish a written statement of the termination and amount secured at that date. The notice may be recorded. M.G.L. c. 183 §28B.

Statutory Terms for Mortgage - The open-end mortgage must state the maximum principal sum secured thereby. M.G.L. c. 183 §28B.

[1] Reference to ALTA 14 herein Includes ALTA 14, 14.1, 14.2, 14.3, 14-06, 14.1-06, 14.2-06, 14.3-06

Michigan

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - A future advance mortgage has priority for advances as if made at the time the mortgage was recorded or amendment to provide such advances is recorded. §§565.902, 565.903.

Time Limit on Advance - A mortgage is deemed discharged 30 years after due date, or 30 years after recording if no due date set forth. §565.382...

Statutory Terms for Mortgage - A residential future advance mortgage must state on the first page of the mortgage "This is a future advance mortgage," and the maximum principal amount excluding protective advances. These must be conspicuous by larger or contrasting type. §565.903a. A residential future advance mortgage covers one-to-four family structures not exceeding 25 acres. "Protective advance" (which have priority under a future advance mortgage) means a future advance that arises because the mortgagee makes an expenditure or expenditures for one or more of the following: (i) To fulfill or perform an obligation of the mortgagor under the mortgage, with respect to the mortgaged property, that the mortgagor has failed to fulfill or perform; (ii) To preserve the priority of the mortgage or the value of the mortgaged property; (iii) For attorneys' fees or other expenses that are incurred in exercising a right or remedy under the mortgage or that the mortgagor has agreed in the mortgage to reimburse to the mortgagee. §565.901.

Comments (If Statutory Terms Met) - The future advance act does not apply to the extent the construction lien act provides otherwise as to priority. §565.905.

Minnesota

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - A mortgage securing a revolving line of credit that states the maximum amount of the line which may be secured at any one time is effective as notice from time the mortgage is recorded as to all advances or readvances, regardless of the time or amount of advances and whether or not the advances are obligatory. §507.325.

Written Notice By Owner - A (banking) licensee may make an open-end loan other than under credit card or overdraft checking plan for advances from time to time. A licensee may take a real estate lien at the time the balance first exceeds $6,480. A subsequent reduction does not affect the lien. If there is no outstanding balance in the account or commitment to a line of credit over $6,480, the licensee shall, within 20 days after written demand of the borrower, deliver a release. §56.125. Dollar amounts can be adjusted by the Department of Commerce.

Time Limit on Advance - No action to foreclose a mortgage may be maintained more than 15 years after the maturity of the mortgage debt. If the maturity is not clearly stated, this time commences from date of mortgage. §541.03.

Statutory Terms for Mortgage - The revolving line of credit must state the maximum amount of the line of credit which may be secured at any one time. §507.325. An open-end loan mortgage to a (Banking) licensee cannot be granted until the outstanding balance first exceeds $6,480. Adjacent to the listing of homestead property granted in a mortgage, the borrower must sign a statement that the borrower voluntarily gives up homestead protection. §56.125.

Mississippi

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - All future advances under a future advance or dragnet clause in a mortgage take the priority of the original mortgage from recording over subsequent creditors or purchasers, whether obligatory or optional and whether the mortgagee had actual knowledge of intervening rights. Shutze v. Credit Thrift of America, Inc., 607 So. 2d 55 ( Miss. 1992).

Time Limit on Advance - If the date of final maturity of a mortgage is not on the face of record, it is deemed due one year after date of the instrument. If barred or record, the lien ceases within six months. §89-5-19.

Priority Unless Conveyance - Future advance mortgages have priority over rights of intervening purchaser. Shutze v. Credit Thrift of America, Inc., 607 So. 2d 55 ( Miss. 1992).

Comments (If Statutory Terms Met) - Under Mississippi's construction lien law, a "Construction Deed of Trust" and any advance made thereunder maintain priority over all construction liens filed after the filing of the Construction Deed of Trust, regardless of notice to the Lender and/or Owner. This is a departure from previous case law, which required that the Lender use "due diligence" in disbursing the construction loan proceeds in order to maintain priority. Since this change to the construction lien statutes is relatively recent, we still recommend, at this time, that title updates and Owner/Contractor affidavits be obtained for each draw.

Missouri

Issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception) if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Written Notice By Owner - Future advance mortgage has priority as to later advances from date of filing of mortgage over subsequent rights and liens on the land whether advances are optional or obligatory. The owner may send a notice by certified mail or delivery to the lender or authorized agent electing to terminate future advances. In 15 days after receipt, the lender must file for record a statement stating the current debt and no later advances will be secured. If the lender fails to file the statement, it is bound by the owner's statement. Termination shall not apply to collateral for irrevocable letter of credit or business or agricultural guarantee. §443.055.

Time Limit on Advance - If the date of the last debt to be foreclosed cannot be determined of record, the 20 year period of 516.150 runs from date of execution (or acknowledgment or recording). §516.155.

Maturity of future advance mortgage for 20 year limitation period begins to run on 20th anniversary of execution. §516.155.

Zero Balance Does not Terminate Lien - Reduction of balance to zero or lack of balance does not affect validity or priority of future advance mortgage. Neither the existence nor priority of a security instrument otherwise complying with the provisions of this section shall be adversely affected if at any time on or after the date of such security instrument there are no obligations then secured by the security instrument or the obligations secured by the security instrument are reduced to zero. §443.055.

Statutory Terms for Mortgage - The mortgage must clearly state it secures future advances and the total amount of obligation. The mortgage will be limited to contractual debt of party. Future advances made by a lender or future obligations incurred by a borrower for the reasonable protection of the lender's security interest are secured by the security instrument and shall have the priority specified event though the security instrument does not provide for such future advances or such future obligations, or even though such future advances or such future obligations cause the total indebtedness to exceed the face amount stated in the security instrument, or even though a notice of termination has been issued.  Such advances or obligations may include, but shall not be limited to, real property taxes, hazard insurance premiums, assessments or maintenance charges imposed under a condominium declaration or restrictive covenant, subdivision assessments, reasonable repairs and maintenance, amounts due under prior mortgages or deeds of trust, leases or other encumbrances, and reasonable costs and attorneys' fees incurred in enforcing the security instrument or the indebtedness which it secures. §443.055.

Montana

Issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception) if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Written Notice By Owner - A future advance mortgage secures optional advances up to the face amount stated in the mortgage even though the principal amount may decrease or increase from time to time and has priority as if the amount had been advanced at time of execution of the mortgage. The mortgagee on demand of the mortgagor or a creditor shall furnish a statement of advances made and amounts paid. Upon receipt of the statement or at any time the mortgagor may deliver written notice to the mortgagee plainly stating that the mortgagor does not desire future advances, and clearly identify the mortgage and debt. Upon recording the notice, the mortgage shall not have priority as to any subsequent advances. §71-1-206.

Zero Balance Does not Terminate Lien - The lien for the stated amount of future advances or total indebtedness shall, notwithstanding the fact that from time to time during the term of the mortgage no indebtedness is due from the mortgagor to the mortgagee, have priority to the same extent as if the amount thereof had been actually advanced by the mortgagee to the mortgagor at the time of the execution of the mortgage. §71-1-206.

Statutory Terms for Mortgage - The future advance mortgage must state the total principal amount of debt that may be outstanding and secured by the mortgage at any given time. §71-1-206.

Nebraska

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Written Notice by Claimant - Optional future advances under a mortgage for future advances have priority over subsequent rights or liens from the time the mortgage is filed for record. Any optional future advance to the mortgagor or his successor in title after written notice of a mortgage, lien, or claim against the land or after written notice of labor commenced or material furnished or contracted shall be junior to the mortgage, claim, or lien. §76-238.01

Written Notice By Owner - Optional future advances under future advance mortgage have priority over subsequent rights or liens from the time the mortgage is filed for record. The mortgagor or his or her successor in title may file for record a notice limiting the amount of optional future advances to not less than the amount then advanced and a copy of the filing shall be filed with the mortgagee. §76-238.01.

Time Limit on Advance - If the maturity of the debt of the mortgage is not ascertainable of record, the mortgage ceases as notice 30 years after date of the mortgage. §76-239.

Notice Limiting the Amount of Future Advances - Nebraska Sec. 76-238.01 has been changed to eliminate the requirement of statement of a specific amount of indebtedness in the deed of trust or mortgage, but still makesit permissible for the mortgagor to file a notice limiting the amount of future advances.

Zero Balance Does not Terminate Lien - The reduction to zero or elimination of the debt evidenced by the instruments authorized in this section shall not invalidate the operation of this section as to any future advances unless a notice or release to the contrary is filed for record as provided by law. §76-238.01.

Statutory Terms for Mortgage - The secured principal future advances, not including advances to protect the security, shall not exceed the total amount or percentage of total amount stated in the mortgage. §76-238.01.

Nevada

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Written Notice By Owner - Future advance mortgage has priority for future advances from the time the mortgage is recorded, whether or not the lender makes optional or obligatory advances, or whether the lender has notice of intervening liens. The borrower may deliver or send by certified mail a notice to the lender to terminate the mortgage as to future advances. The lender must record a statement stating the balance and limiting the principal within 4 working days, or the borrower then can record such a statement. §§106.370-106.400.

Statutory Terms for Mortgage - By implication, the mortgage must state the maximum principal, since an amendment can do so and be effective from recording. §106.370.

New Hampshire

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - Recorded mortgage for future advance takes priority from recording as to future advances not exceeding the maximum stated amount. §479:3.

Statutory Terms for Mortgage - The future advance mortgage must state the maximum amount that may be secured. §479:3.

Comments (If Statutory Terms Met) - The priority provisions are subject to Section 447:12-a regarding mechanic's liens. Mechanic's liens have priority over construction mortgages except to the extent advances are made towards payments of invoices or based upon an affidavit of payment of all bills. §447.12-a.

New Jersey

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - Notwithstanding any other law to the contrary, the priority of the lien of a mortgage loan which has undergone a modification, as defined by this act, shall relate back to and remain as it was at the time of recording of the original mortgage as if the modification was included in the original mortgage or as if the modification occurred at the time of recording of the original mortgage.  The priority granted by this section shall not apply to any balance due in excess of the maximum specified principal amount  which is secured by the mortgage, plus accrued interest, payments for taxes and insurance, and other payments made by the mortgagee pursuant to the terms of the mortgage. §46:9-8.2. Priority of a line of credit mortgage relates back to time of recording of mortgage. §46:9-8.2.  Payments for taxes, assessments and insurance and other payments made by the mortgagee pursuant to the terms of the mortgage or line of credit are included with the amounts which have priority.  "Modification" means: (1) With respect to a mortgage loan other than a line of credit, a change in the interest rate, due date or other terms and conditions of a mortgage loan except an advance of principal; or (2) With respect to a line of credit, a change in the interest rate, due date or other terms and conditions and an advance of principal made pursuant to the line of credit but only to the extent that the advance does not cause the principal balance due to exceed the principal amount stated in the line of credit plus accrued interest. §46:9-8.1

Zero Balance Does not Terminate Lien - The priority of the lien of a mortgage loan shall not be affected by the fact that there may not have been any outstanding indebtedness at some time or times during the term specified in the mortgage. §46:9-8.3.

Statutory Terms for Mortgage - Line of credit mortgage loan must state maximum principal amount, interest, taxes and insurance and other payments pursuant to the mortgage. §46:9-8.2.

Comments (If Statutory Terms Met) - A mortgage loan includes a line of credit loan. A line of credit is an agreement wherein lender is obligated to advance to a borrower. The conditions of advances may be an expiration date, option by lender to cancel agreement on notice, limitation on financial condition of any borrower, compliance with terms of agreement and mortgage, absence of adverse change in value or condition of collateral, requirement of procedures to secure advances, decision of lender not to continue business of lines of credit. §46:9-8.1. If the statute is not complied with, optional advances may be subordinate after constructive notice of intervening liens. Lincoln Fed. S & L v. Platt Homes, Inc., 185 N.J. Super. 457, 449 A.2d 553 (1982).

Note: A purchase money mortgage has priority over a judgment lien against the purchaser. §46:9-8.

New Mexico

If the loan is a revolving loan, i.e., one where the loan agreement allows for the loan amount to be drawn, repaid and redrawn in any manner and any number of times subject to a maximum loan amount, such as a Home Equity Line of Credit (HELOC), issue the promulgated New Mexico Revolving Credit Endorsement, NM Form 17. This endorsement is unique to New Mexico and does not correspond directly to any ALTA 14 endorsement form. This endorsement is designed for issuance simultaneously with the loan policy.

If the loan is an open-end mortgage loan, not a revolving loan such as a HELOC, or a traditional closed end loan with a future advance clause, and if the customer requests coverage for a specific advance, issue the promulgated New Mexico Additional Advance Endorsement, NM Form 25.

Any questions as to the sufficiency of a future advance clause should be directed to your underwriter.

Absolute Priority - A mortgage securing future advances has priority from time of recording as to all advances, whether obligatory or discretionary, until the mortgage is released of record, but the lien of the mortgage shall not exceed the maximum amount stated in the mortgage. §48-7-9 NMSA 1978. Most New Mexico mortgages will state the maximum amount secured as a multiple of the principal loan amount (e.g., 150% or 200%). This absolute priority includes intervening liens and mechanic’s liens, except in cases of broken priority. Pioneer Sav. & Trust, F.A. v. Rue, 784 P.2d 415, 109 N.M. 228 (N. M. 1989).

New York

Issue New York revolving credit endorsement.

Absolute Priority - A credit line mortgage for future advances secures debt created by future advances within 20 years from mortgage recording as if made at the time recorded. The amount so secured at any one time shall not exceed the maximum amount specified in such credit line mortgage, plus interest thereon at the rate provided therein, and plus any disbursements made to protect the security of such credit line mortgage, with interest on such disbursements at the rate provided therein. N.Y. Real Property Law §281.

Time Limit on Advance - The credit line mortgage secures debt created by future advances within 20 years from recording of the credit line mortgage. N.Y. Real Property Law §281.

Zero Balance Does not Terminate Lien - The credit line mortgage has priority as to future advances from date of recording, although there may have been no advances made at the time of the execution and acknowledgment of such credit line mortgage, and although there may be no indebtedness outstanding at the time any advance is made. N.Y. Real Property Law §281.

Statutory Terms for Mortgage - The credit line mortgage must state it secures debt under a note, credit agreement or other financing agreement reasonably contemplating a series of advances and readvances and must limit the aggregate debt (including interest) to a maximum amount stated in the mortgage or deed of trust. N.Y. Real Property Law §281. "Credit line mortgage" shall also include a reverse mortgage in its definition." Effective 12-3-93. §281.

Comments (If Statutory Terms Met) - Nothing in the credit line mortgage law affects priority of a mechanic's lien made before the future advance. N.Y. Real Property Law §281.

There are four revolving credit endorsements in New York State:

TIRSA RCE-1 Residential Revolving Credit Endorsement (Owner Occupied 1-6 Family)

This endorsement insures against loss by reason of loss of priority of the lien of the insured mortgage as to each and every advance made pursuant to the provisions of the mortgage, except that no coverage is given for any  advances made after the insured  has actual knowledge of any sale or transfer of the insured premises or during any period in which the insured has actual knowledge of an event of default under the terms of the mortgage.

The endorsement does not insure against loss or damage based upon:

1.       Federal Tax Liens or Bankruptcies appearing in the public records prior to the advance and affecting the estate of the mortgagor; and

2.       Real estate taxes, assessments, water and sewer rent charges.

The premium is 10% of the full applicable loan rate.

TIRSA RCE-2  TIRSA Commercial  Revolving Credit Endorsement  

This endorsement is available for Commercial Credit Line Mortgages, which secure a maximum principal indebtedness of less than $3,000,000.00.  This endorsement insures against loss by reason of loss of priority of the lien of the insured mortgage as to each and every advance made pursuant to the provisions of the mortgage, except that no coverage is given for any advances made after the insured  has actual knowledge of any sale or transfer of the insured premises or during any period in which the insured has actual knowledge of an event of default under the terms of the mortgage.

The endorsement does not insure against loss or damage based upon:

1.       Federal Tax Liens or Bankruptcies appearing in the public records prior to the advance and affecting the estate of the mortgagor;

2.       Real estate taxes, assessments, water and sewer rent charges;

3.       Mechanic’s liens; and

4.       Statutory liens arising after the date of the Policy which by virtue of federal, state or local laws are entitled to priority over the insured mortgage.

The premium is 10% of the full applicable loan rate.

TIRSA RCE-3 Commercial  Revolving Credit Endorsement (Limited Special Term Coverage)

This endorsement is available for Commercial Credit Line Mortgages, which secure a maximum principal indebtedness of less than $3,000,000.00, and if the mortgage being insured has a term of three years or less and is not a building loan mortgage as that term is defined pursuant to Section 2 of the Lien Law of New York State. 

This endorsement Insures against loss by reason of loss of priority of the lien of the insured mortgage as to each and every advance made pursuant to the provisions of the mortgage, except that no coverage is given for any advances made after the insured  has actual knowledge of any sale or transfer of the insured premises or during any period in which the insured has actual knowledge of an event of default under the terms of the mortgage.

The endorsement does not insure against loss or damage based upon:

1.       Federal Tax Liens or Bankruptcies appearing in the public records prior to the advance and affecting the estate of the mortgagor;

2.       Real estate taxes, assessments, water and sewer rent charges; and

3.       Statutory liens arising after the date of the Policy which by virtue of federal, state or local laws are entitled to priority over the insured mortgage.

The premium is 20% of the full applicable loan rate.

TIRSA RCE-4 Commercial Revolving Credit Endorsement

This endorsement is available for Commercial Credit Line Mortgages, which secure a maximum principal indebtedness greater $3,000,000.00 or more. 

This endorsement Insures against loss by reason of loss of priority of the lien of the insured mortgage as to each and every advance made pursuant to the provisions of the mortgage, except that no coverage is given for any advances made after the insured  has actual knowledge of any sale or transfer of the insured premises or during any period in which the insured has actual knowledge of an event of default under the terms of the mortgage.

1.       Federal Tax Liens or Bankruptcies appearing in the public records prior to the advance and affecting the estate of the mortgagor;

2.       Real estate taxes, assessments, water and sewer rent charges;

3.       Mortgage tax on advances made after the aggregate amount of advances exceeds the face amount of the mortgage;

4.       Mechanic’s liens; and

5.       Statutory liens arising after the date of the Policy which by virtue of federal, state or local laws are entitled to priority over the insured mortgage.

The premium is 10% of the full applicable loan rate.

North Carolina

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Written Notice By Owner - Future advances under a future advance mortgage shall be secured to the same extent as original obligations and the debt may fluctuate from time to time, not to exceed the maximum stated principal. §45-69. Priority shall exist for future advances from the time of registration of the mortgage. Payments made by the secured creditor for fire and extended coverage insurance, taxes, assessments, or other necessary expenditures for the preservation of the security shall be secured by the security instrument and shall have the same priority as if such payments had been made at the time of the execution of the instrument.  The amount so secured at any one time shall not exceed the maximum amount specified in such credit line mortgage, plus interest thereon at the rate provided therein, and plus any disbursements made to protect the security of such credit line mortgage, with interest on such disbursements at the rate provided therein. §45-70.

At request of the maker, the mortgagee shall certify the balance and agree not to make future advances. Upon filing, the statement is effective from execution. §45-72. An equity line of credit deed of trust has priority from registration. §45-82.

Time Limit on Advance - Future advance mortgage may secure advances not to exceed 15 years from the date of the mortgage. §45-68. An equity line of credit mortgage of trust must be limited to 15 years. §45-81.

Statutory Terms for Mortgage - Mortgage for future advances must show it is given for future obligations, the amount of present obligations and the maximum principal amount of future debt, and the period of time future obligations may be incurred not to exceed 15 years from the date of the mortgage. If the parties contract that the future debt must be evidenced by a written instrument or notification, they must do so for each advance. §45-68. An equity line of credit deed of trust must be limited to 30 years, must show the maximum amount of debt, and the lender must be obligated to make advances based on negotiable instruments of the borrower. §45-81. Notwithstanding any other provision of law, a deed of trust or mortgage which secures a loan that complies with subsection (b) below shall have priority and continue to have priority from the time and date of registration thereof to the extent of all principal and interest secured by said deed of trust or mortgage notwithstanding that the loan may be renewed or extended one or more times and notwithstanding that the interest rate may be increased or decreased from time to time.  Interest which accrues pursuant to changes in the interest rate made pursuant to a method agreed to as provided in subsection (b) below (whenever such changes are made) shall be secured and have priority from the registration of the deed of trust or mortgage and not from the time changes are made. (b) With respect to a loan referred to in subsection (a) above: (1) The parties must provide in a written instrument agreed to by the borrower at or before registration of the deed of trust or mortgage that the loan may be renewed or extended in accordance with stated terms and that the interest rate may be increased or decreased according to a stated method; and (2) The loan must be a loan described in G.S. 24-1A(a)(1) or (2). §45-80.

North Dakota

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - Lien containing a written provision securing repayment of future advances has priority over all subsequent encumbrances with same effect as if entire sum had been advanced at time of creation of lien whether or not the advances are obligatory. §35-01-05.2

Time Limit on Advance - If the final maturity date is not ascertainable of record, the mortgage expires 10 years after filed. §35-03-14.

Statutory Terms for Mortgage - Mortgage must contain a written provision securing repayment of future advances. §35-01-05.2

Ohio

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Written Notice by Claimant - The open-end mortgage is a lien from the time delivered to the records. If an advance is made after written notice of a lien or encumbrance and the lender is not obligated to advance, the mortgage is subordinate to the lien or encumbrance. If made after written notice of work done or to be done, and the lender is not obligated to advance, the lien is subordinate to mechanic's liens. Notice may be personally delivered or mailed by registered or certified mail or to principal place of business if no address. §5301.232.

Written Notice By Owner - The open-end mortgage is a lien from the time delivered to the records. The mortgagor may limit the debt of the mortgage by written notice to the recorder if a copy is served on the mortgagee before recording. §5301.232.

Time Limit on Advance - A mortgage expires 21 years after date of mortgage or after stated maturity in the mortgage. §5301.30.

Statutory Terms for Mortgage - An open-end mortgage must state the maximum amount of the loan. "Loan indebtedness" (subject to the maximum limit) does not include unpaid balances of advances made for the payment of taxes, assessments, insurance premiums, and costs incurred for the protection of the mortgaged premises.  At the beginning the open-end mortgage must state, "OPEN-END MORTGAGE" and state that the mortgage will secure future advances. §5301.232.

Comments (If Statutory Terms Met) In addition to any other debt or obligation, a mortgage may secure unpaid balances of advances made, with respect to the mortgaged premises, for the payment of taxes, assessments, insurance premiums, or costs incurred for the protection of the mortgaged premises, if such mortgage states that it shall secure such unpaid balances.  A mortgage complying with this section is a lien on the premises described therein from the time such mortgage is delivered to the recorder for record for the full amount of the unpaid balances of such advances that are made under such mortgage, plus interest thereon, regardless of the time when such advances are made. §5301.233.

Oklahoma

All versions of the ALTA 14 series of endorsement are available for issuance in Oklahoma, and the form most appropriate to the particular transaction should be issued.  Unless otherwise noted, these endorsements may be issued on residential or commercial policies.  Please refer to the Guidelines for the ALTA endorsement forms for more specific underwriting guidance.

All of the forms may be issued with and exception for mechanics’ liens or without exception for mechanics’ liens.   The abbreviation “W/MML” means that there is an exception for mechanics’ liens in the endorsement form.  The abbreviation “WO/MML” means that there is no exception for mechanics’ liens in the endorsement form.  If no construction is contemplated, an endorsement without exception for mechanics’ liens may be issued.  If construction is contemplated, an endorsement with exception with for mechanics’ lien must be issued, unless otherwise approved by an underwriter

ALTA 14-06 series, Priority.  Any of these endorsements should be issued only where an advance is obligatory under the mortgage and where the insured does not have actual knowledge of any other liens or encumbrances at the time an advance is made.

            ALTA Endorsement 14-06 (Future Advance - Priority) Revised 02-03-11

            ALTA Endorsement 14-06 (Future Advance-Priority) (WO/MML) 02-03-11

 ALTA 14.1-06 series, Knowledge.  These endorsement forms contain an exclusion for lack of priority of an advance made after the insured lender has knowledge of any other liens or encumbrances.  This must be issued if the lender has or had actual knowledge of the other encumbrance.  Do not issue this endorsement without underwriter approval.

            ALTA Endorsement 14.1-06 (Future Advance - Knowledge) Revised 2-3-11

            ALTA Endorsement 14.1-06 (Future Advance-Knowledge) (W/MML)

            ALTA Endorsement 14.1-06 (Future Advance-Knowledge) (WO/MML) 02-03-11

            ALTA Endorsement 14.1-06 (Future Advance-Knowledge) Revised 10/22/09

ALTA 14.2-06 series, Letters of Credit.  Issue only if the mortgage secures a letter of credit or a letter of credit reimbursement agreement.  Issue only on commercial transactions. 

            ALTA Endorsement 14.2-06 (Future Advance - Letter of Credit) Revised 02-03-11.  

            ALTA Endorsement 14.2-06 (Future Advance-Letter of Credit) (W/MML).

            ALTA Endorsement 14.2-06 (Future Advance-Letter of Credit) (W/MML) (02/28/09).

            ALTA Endorsement 14.2-06 (Future Advance-Letter of Credit) (WO/MML) 02-03-11 .

ALTA 14.3 series, Reverse Mortgage.  Use these forms only in connection with reverse mortgage transactions.

            ALTA Endorsement 14.3-06 (Future Advance-Reverse Mortgage) (W/MML). 

            ALTA Endorsement 14.3-06 (Future Advance-Reverse Mortgage) (WO/MML) 02-03-11. 

Obligation to Make Advances - A mortgage securing future advances has priority over an intervening lien only the mortgagee is obligated under the original agreement to make future advances, such as a mortgage securing a line of credit, open account, or construction loan.  Quail Creek Bank, N.A. v. Americrest Bank, 135 P.3d 822 (Okla. Ct. App. 2005). 

Actual Notice - Advances made after actual notice of subsequent interest do not have priority over the interests, if the advances are optional. Leche v. Ponca City Production Credit Assoc., 478 P.2d 347 (S. Ct. Okla. 1970).

Future Obligations - A mortgage may be created to take immediate effect as security for obligations not then in existence. 42 Okla. Stat.  §42-9 (2014).

Time Limit on Advance – All advances should be made prior to maturity of the note and mortgage.  If the mortgage does not recite a maturity date, no action to foreclose a mortgage may be maintained after 30 years from date of recording, if the maturity cannot be ascertained from the written terms of the mortgage. 46 Okla. Stat. § 46-301(C) (2014).

Any questions as to the sufficiency of a future advance clause should be directed to your underwriter.

Oregon

Issue the OTIRO 214-06 (2006 policies) / OTIRO 214 (2021 policies) without the mechanic’s lien exception if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases issue with the mechanic’s lien exception, i.e., do not delete paragraph 4.f. (2006) or 5.f (2021).

Priority

ORS 86.095 Acts not affecting priority of lien of credit instrument.

(1) Actions that do not affect the priority granted to the lien of a credit instrument at the time it is first received for recordation shall include but shall not be limited to:

      (a) Renegotiation or adjustment of the initial interest rate provided in the note or the credit instrument, upward or downward, which may increase or decrease the amount of periodic payments or may extend or shorten the term of the credit instrument, or both;

      (b) An increase in the underlying obligation secured by the credit instrument during any part of the term of the credit instrument as a result of deferment of all or a portion of the interest payments and the addition of such payments to the outstanding balance of the obligation;

      (c) Execution of new notes at designated intervals during the term of the credit instrument that reflect changes made pursuant to paragraph (a) or (b) of this subsection;

      (d) Extension of the term of the credit instrument;

      (e) Substitution of a note if there is no increase in the principal amount to be paid under the note;

      (f) Modification of periodic payments required under the note if there is no increase in the principal amount due under the note; or

      (g) Advances made under ORS 86.155.

(2) As used in this section, the addition of accrued interest to the principal amount of the underlying obligation is not an increase in the principal amount.

(3) As used in this section, “credit instrument” includes a mortgage, a line of credit instrument, a deed of trust and a contract for sale of real property.

ORS 86.155 Priority of line of credit instrument as to certain advances; procedure to limit indebtedness in residential line of credit instrument.

(1) As used in this section:

      (a) “Credit agreement” means any promissory note, loan agreement or other agreement that provides for advances subsequent to the date of recording of the line of credit instrument that secures the note or agreement.

      (b) “Line of credit instrument” means a mortgage or trust deed that secures a consumer or commercial credit agreement and creates a lien on specified real property up to a stated amount, provided that the front page of the mortgage or trust deed, or a memorandum thereof:

            (A) Contains the legend “line of credit mortgage,” “line of credit trust deed” or “line of credit instrument” either in capital letters or underscored above the body of the mortgage or trust deed;

            (B) States the maximum principal amount to be advanced pursuant to the credit agreement; and

            (C) States the term or maturity date, if any, of the credit agreement exclusive of any option to renew or extend the term or maturity date.

      (c) “Residential line of credit instrument” means any line of credit instrument creating a lien on real property upon which are situated or will be constructed four or fewer residential units, one of which, at the time the credit agreement is entered into, is the borrower’s residence or is intended, following construction, to be a residence of the borrower.

(2) A line of credit instrument shall have priority, regardless of the knowledge of the lienholder of any intervening lien, as of its date of recording as to the following advances whether the advances are optional or obligatory advances:

      (a) Principal advances made any time pursuant to the credit agreement, to the extent the total outstanding advances do not exceed the maximum principal amount stated in the line of credit instrument under subsection (1)(b)(B) of this section;

      (b) Interest, lawful charges and advances made any time pursuant to the credit agreement for the reasonable protection of the real property including, but not limited to, advances to pay real property taxes, hazard insurance premiums, maintenance charges imposed under a declaration or restrictive covenant and reasonable attorney fees, whether or not the interest, lawful charges or advances exceed the maximum principal amount stated in the line of credit instrument under subsection (1)(b)(B) of this section; and

      (c) Advances made any time after the date of recording and pursuant to a credit agreement that is not secured by a residential line of credit instrument to complete construction of previously agreed-upon improvements on the real property, whether or not the advances exceed the maximum principal amount stated in the line of credit instrument under subsection (1)(b)(B) of this section provided, however, that the front page of the instrument states that the maximum principal amount to be advanced pursuant to the credit agreement may be exceeded by advances to complete construction pursuant to this subsection.

(3) Actions that do not affect the priority granted to the advances set forth in subsection (2) of this section shall include, but not be limited to, those actions set forth in ORS 86.095 (1). If any modification to a credit agreement increases the maximum principal amount to be advanced pursuant to the credit agreement, then principal advances that are made that exceed the original maximum principal amount stated in the line of credit instrument shall have priority as of the date of recording an amendment to the line of credit instrument that states the increased maximum principal amount.

Pennsylvania

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Written Notice by Claimant - An open-end mortgage is a lien from the time of record for the full debt (42 §8143 (a) ), but an advance after the lender receives written notice of a lien or encumbrance and is not obligated to advance is subordinate to the lien or encumbrance unless the advance so made is in order to pay toward, or to provide funds to the mortgagor to pay toward, all or part of the cost of completing any erection, construction, alteration or repair of any part of the mortgaged premises, the financing of which, in whole or in part, the mortgage was given to secure. An advance after written notice of labor or materials to be furnished if not obligated to advance is subordinate to the lien claim unless the advance so made is in order to pay toward, or to provide funds to the mortgagor to pay toward, all or part of the cost of completing any erection, construction, alteration or repair of any part of the mortgaged premises, the financing of which, in whole or in part, the mortgage was given to secure. The notice must generally describe the land, mortgage, and be delivered or sent by certified or registered mail. 42 §8143 (b).

Written Notice By Owner - An open-end mortgage is a lien from the time of record for the debt, but the mortgagor may limit the debt by a written notice filed for record if a copy is served on the mortgagee more than 3 days before delivery, referring to the mortgage. 42 §8143 (c).

Zero Balance Does not Terminate Lien - Open-end mortgage secures future advances even though the first advance is made after recording of the mortgage or even though there is no outstanding balance for a period after any advances have been paid or repaid. The validity and enforceability of the lien of an open-end mortgage shall not be affected by the fact that the first advance is made after the date of recording of the mortgage or that there may be no outstanding indebtedness for a period of time after an advance or advances may have been made and repaid. 42 §8143 (a).

Statutory Terms for Mortgage - The open-end mortgage must state the maximum amount of debt, plus interest. It must at the beginning of the mortgage state "OPEN-END MORTGAGE" and clearly state it secures future advances. 42 §8143 (f).

Rhode Island

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Priority - §34-25-8 specifically authorizes open-end mortgages that secure future advances.  Such a mortgage has priority from time of recording as to principal advanced from time to time (including readvances of principal sums repaid) which does not exceed the stated amount of the mortgage.  The mortgage shall also be security for interest, taxes, insurance premiums and other obligations as set forth in the mortgage or in the note or agreement secured by the mortgage, notwithstanding that the interest, taxes, insurance premiums and other obligations, when added to the total principal amount of such loan outstanding at any time may cause the amount secured by the mortgage deed to exceed the stated maximum amount. §34-25-8.   Written Notice by Claimant - If advances are not obligatory, they will not have priority after receipt of written notice of attachment, execution, lis pendens, or subsequent mortgage or lien. §34-25-10. Same limits of priority exist for reverse mortgages. §34-25.1-3.

Written Notice By Owner - The mortgagor can give written notice by certified mail of desire to terminate future advances. Mortgagee must specify the balance and relinquish the mortgage for future advances. The mortgagor may record the stipulation. §34-25-11. Same limits exist on reverse mortgages. §34-25.1-4.

Zero Balance Does not Terminate Lien - A lack of balance does not extinguish lien, the mortgage must be discharged. If there is no balance for two years, the mortgagee may record a discharge of the open-end mortgage. §34-25-12. Same provisions exist for reverse mortgages. §34-25.1-5.

Statutory Terms for Mortgage - §34-25-8 provides that open-end mortgage must be clearly entitled “Open-end mortgage to secure present and future loans under Chapter 25 of title 34.” Such mortgages must also meet certain requirements specified in §34-25-9 in order to obtain lien priority.  Advances may not exceed stated amount in mortgage and future advances must be advanced by notes or an agreement secured by the mortgage. The mortgage must contain an address at which the mortgagee will accept written notices under §34-25-10 or 34-25-11, §34-25-9. Reverse mortgage must have specific provisions for future advances, limit the stated principal balance, all advances must be evidenced by a note, and mortgage must contain an address where the mortgagee will accept written notices. §34-25.1-1, 34-25.1-2. 

South Carolina

If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14 W/MML (with mechanic's lien exception).

Absolute Priority - Future advance mortgage has priority over subsequent lien creditors, contract creditors and purchasers for value to the same extent as if advances were made at recording, even if advances are optional, except mechanic's liens to extent of advances after recording of the notice of lien and service on the mortgagee. §29-3-50.

Actual Notice - The future advance mortgage does not have priority over any advances made after recording of the notice of lien and service of notice on the mortgagee (no distinction of optional or obligatory). §29-3-50.

Time Limit on Advance - A mortgage shall not constitute a lien after 20 years after the date of execution if no maturity date is stated in the mortgage. §29-1-10.

Priority Unless Conveyance - Future advance mortgage has priority over subsequent purchasers. §29-3-50.

Statutory Terms for Mortgage - The future advance mortgage cannot exceed the maximum principal amount stated. §29-3-50.

Comments (If Statutory Terms Met) - The holder of any mortgage of real property, when the mortgage contains provisions authorizing advancements thereunder for taxes, insurance premiums, public assessments and repairs, may make such advancements and, when made, they shall be secured by the mortgage and have the same rank and priority as the principal debt thereby secured and bear interest from the date of such advancements, as provided in the mortgage. §29-3-40.

Future advance mortgage does not have priority over mechanic's liens as to disbursements made after filing of the lien and service of notice on priority recorded mortgage holders. §29-3-50.

The 14.1 is recommended, as a mechanic's lien could gain priority over a future advance if it is filed and the lender receives notice.

South Dakota

General –If no construction is contemplated, issue ALTA Endorsement 14 WO/MML (without mechanic’s lien exception).  If construction is contemplated, issue ALTA Endorsement 14.W/MML (with mechanic’s lien exception). A lien document securing future advances (whether optional or obligatory) takes priority over subsequent encumbrances to extent of all advances and interest thereon, as if advanced at the time of creation of the lien. §44-1-13. Collateral Real Estate Mortgages -Priority – Collateral real estate mortgages may secure commercial, agricultural, or consumer loans or lines of credit; including revolving notes or credits or overdraft checking.  They have priority as of date the mortgage is filed.  §44-8-26.Time Limit on Advance – The collateral real estate mortgage is effective for five (5) years from filing plus 60 days.  It may be extended by the mortgagee for additional five (5) year periods by filing subsequent addendums.  §44-8-26.Zero Balance Does NOT Terminate Lien – Zero balance does not terminate collateral mortgage but mortgagor may then demand a release.  §44-8-26.Statutory Terms for Mortgage – A collateral real estate mortgage must state in all capital letters:  “THE PARTIES AGREE THAT THIS MORTGAGE CONSTITUTES A COLLATERAL REAL ESTATE MORTGAGE PURSUANT TO SDCL 44-8-26.”  The mortgage must be entitled in all capital letters “MORTGAGE-COLLATERAL REAL ESTATE MORTGAGE”.   The advances under the mortgage may not exceed the face amount.  §44-8-26.

Tennessee

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - A mortgage for future advances that are optional (other than open-end mortgage) has priority over intervening conveyance or encumbrances until mortgagee has actual notice of the intervening conveyance or encumbrance. §47-28-103. Obligatory advances have priority over later conveyances or encumbrances. §47-28-103. A reverse mortgage may provide that it secures future advances whether optional or obligatory, even though no advance is made at time of execution. The advances are superior to subsequent encumbrances and conveyances if made in accordance with §§47-30-101, et seq. §47-30-114.

Written Notice By Owner - All advances whether optional or obligatory under an open-end mortgage (not commercial) have priority over subsequent conveyances or encumbrances. §47-28-103. The borrower may reduce the credit limit of an open-end mortgage to amount of principal or most recent account plus subsequent advances by notice of limitation to creditor and by filing a copy in the register's office. §47-28-105. Notice is served when received by the creditor at the address in the mortgage or where payments made. §47-28-107.

Time Limit on Advance - Open-end mortgage credit term (plus extensions) cannot exceed 20 years. §47-28-104.

Priority Unless Conveyance - Open-end mortgage has priority over subsequent conveyance. A future advance mortgage for obligatory advances has priority over subsequent conveyance. A future advance mortgage for optional advances has priority over a subsequent conveyance until actual notice of conveyance. §47-28-103.

Zero Balance Does not Terminate Lien - Mortgage for subsequent advances may exist though no advance is made at the time of the execution of the mortgage and even though no indebtedness is outstanding at the time any advance is made. §47-28-102.

Statutory Terms for Mortgage - The open-end mortgage must conspicuously identify as an open-end mortgage, must fix a time for credit not to exceed 20 years, maximum principal debt, a conspicuous notice to borrower in mortgage credit agreement of right to reduce maximum limit of debt, and duty in mortgage or credit agreement of borrower to return checks and credit cards. Mortgages for future, advance must identify as for commercial purpose and as obligatory where the case. §47-28-104.

Comments (If Statutory Terms Met) - An advance is obligatory under a credit agreement though the creditor may withhold advances on occurrence of default until cured, stated or ascertainable date to make advances, procedures to activate advances, in open-end mortgage a right upon notice to reduce the credit or withhold advances because of decrease in value of collateral or adverse change in credit worthiness, in open-end mortgage right of creditor on notice to cancel further advances on stated grounds in credit agreement or mortgage. The open-end mortgage is a mortgage securing an open-end credit agreement (not for commercial purposes). §47-28-101.

Texas

Issue T-35 on commercial non-homestead loans.  Issue the mandatory T-42 (which insures home equity lines of credit) on home equity loans.

Absolute Priority - Priority of the advances relates back to creation of the lien. Inwood North Homeowner's Assoc. v. Harris, 736 S.W.2d 632 (Tex. 1987). This is true whether the advance is optional or obligatory. Freiberg v. Magale, 70 Tex. 116, 7 S.W. 684 (1888); Wood v. Parker Square State Bank, 400 S.W.2d 898 ( Tex. 1966).

Priority Unless Conveyance - Mortgage for future advances (under dragnet clause) is effective as to purchasers. Wood v. Parker Square State Bank, 400 S.W.2d 898 ( Tex. 1966).

Utah

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - A mortgage with a future advance (dragnet) provision has priority as to optional advances over intervening encumbrances if the advance is made without actual notice or knowledge of the encumbrance. Recording alone is not sufficient notice of the later encumbrance. Actual notice or knowledge is required before the advance will be subordinate to the intervening lien. Bank of Ephraim v. Davis, 559 P.2d 538 (S. Ct. Utah 1977).

Vermont

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Written Notice by Claimant - Mortgages for future advances are liens for full amount of debt between mortgagor and mortgagee and assignee. Except as expressly set forth in Title 9, chapter 51, subchapter 1, a future advance made under a recorded mortgage takes priority as of the date of the recording: (A) if made pursuant to commitment, to the extent of the outstanding future advances that do not exceed the maximum amount stated in the mortgage; (B) if not made pursuant to commitment, to the extent of future advances that are outstanding before the mortgagee receives written notice of the intervening interest.  A future advance made to protect collateral is secured by a mortgage even though the mortgage does not provide for future advances.  "Future advances made to protect collateral" means future advances made or incurred: (A) for the reasonable protection of the mortgagee's interest in the collateral, such as payment of real property taxes, hazard insurance premiums, or maintenance charges imposed under a common interest community declaration or other restrictive covenant; or (B) under a mortgage, created to enable completion of a contemplated improvement, that secures an obligation which the debtor incurred at the time of execution of the mortgage for the purpose of making an improvement of the real estate in which the mortgage interest is given. 27 V.S.A. §410.

Virginia

In all cases, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Written Notice by Claimant - A credit line deed of trust (one for future advances) has priority from recording as to all deeds, conveyances, or other instruments not recorded at recording of deed of trust and of which lender has no knowledge or notice and later judgment liens. The judgment creditor can give notice to lienholder at address in deed of trust and then later advances have no priority over the judgment unless obligatory. §55-58.2.

Written Notice By Owner - The grantor under a credit line deed of trust may at any time require a modification of deed of trust where priority over subsequently recorded deeds of trust is surrendered as to future advances made in the discretion of the lender. §55-58.2.

Statutory Terms for Mortgage - The credit line deed of trust on the first page must capitalize or underscore "THIS IS A CREDIT LINE DEED OF TRUST." The deed of trust must state the maximum aggregate of principal to be secured at one time. Deed of trust must state name and address of noteholder. §55-58.2.

Comments (If Statutory Terms Met) - Mechanic's liens have priority as provided in Title 43.

Washington

If no construction is contemplated, you may issue CLTA 111.10 or ALTA Endorsement 14 W/O MML (without mechanic's lien exception). If construction is contemplated, issue CLTA 111.10 or ALTA Endorsement 14 W/MML (with mechanic's lien exception) and add the following exception as paragraph 2.e of the CLTA 111.10: "mechanic's and materialmen's liens," unless you secure underwriting personnel approval.

Absolute Priority - Except as provided at 60.04.061 (mechanic's liens) and 60.04.221 (notice to lender by mechanic's lien claimant and withholding of funds) a mortgage or deed of trust is prior to all liens, mortgages, deeds of trust and other encumbrances not recorded prior to the mortgage, or deed of trust to extent of all sums secured, regardless of when advanced or whether obligatory. §60.04.226.  In the case of In re Stanton, 303 F.3d 939 (9^th Cir. 2002), the court held that a mortgage by a guarantor would secure advances made after the filing of the bankruptcy by the mortgagor, and that such advances would not violate the automatic stay or Section 364 (relating to post-petition) financing.  The court also stated that prior case law had held that optional advances were subordinate to intervening liens, regardless of whether the lender knew of such liens at the time of the advance.  The court left unresolved the question of whether Section 60.04.221 changed the law as to all intervening liens and provided for priority of the mortgage over all subsequent liens, or simply amended the law as to intervening mechanic's liens, without changing prior case law as to other intervening liens.

West Virginia

Issue the 14.1 W/MML (with mechanic's lien exception) for all policies. 

Written Notice by Claimant - A credit line deed of trust does not have priority as to nonobligatory advances made after receipt of written notice by the secured party of a mechanic's lien, abstract of judgment, notice of lis pendens, other deed of trust, lien or encumbrance at address for notice in deed of trust.  Obligatory advances and advances to protect security have continued priority.  "Credit line deed of trust" is a deed of trust securing any obligation arising out of a loan agreement, a promissory note, a sales contract, a performance contract, or any other agreement or writing, under the terms of which the indebtedness or other obligation created may increase and/or decrease from time to time.  "Future advance" means any form of increase in the indebtedness or obligation owed to the secured party under the terms of the credit line deed of trust, including, but not limited to, an increase arising from, but not limited to, an application for the same by the obligor; the advancement of loan proceeds pursuant to the terms of the credit line deed of trust or other agreement; the payment of any taxes, insurance premiums, interest, or other obligations pursuant to the terms of the credit line deed of trust or other agreement; or the occurrence of any condition, event or circumstances set forth in the credit line deed of trust. §38-1-14.

Zero Balance Does Not Terminate Lien - A credit line deed of trust shall be, from the time it is duly recorded as required by law, security for all indebtedness or other obligations secured thereby at the time of recording and for all future advances secured thereby in an aggregate principal amount outstanding at any time not to exceed the maximum amount stated in the credit line deed of trust, without regard to whether the future advances are contracted for at the time of recordation of the credit line deed of trust or whether the secured party under the credit line deed of trust readvances principal sums repaid. §38-1-14.

Statutory Terms for Mortgage - A credit line deed of trust must have capitalized or underscored at the beginning, "A CREDIT LINE DEED OF TRUST" or state conspicuously above or below the first page caption "This instrument secures an obligation that may increase and decrease from time to time." The deed of trust must state a maximum amount. The deed of trust must contain specific provision for future advances and state whether obligatory or nonobligatory. The balance may never exceed the stated maximum (except to protect security). The credit line deed of trust shall also be security for interest on the principal sums and for taxes, insurance premiums and other obligations, including interest thereon, undertaken by the secured party in the credit line deed of trust or in the related loan agreement, note, contract, or other agreement or evidences of indebtedness or obligations secured thereby.  The interest, taxes, insurance premiums and other obligations when added to the total principal amount of the obligations outstanding at any time may increase the amount secured by the credit line deed of trust above the stated maximum amount. §38-1-14.

Comments (If Statutory Terms Met) - A credit line deed of trust is a deed of trust securing obligations of a loan agreement note or other agreement for debt that may increase or decrease from time to time. §38-1-14. The mortgagee has duty to release deed of trust when released of further duty to advance and all debt is paid. §38-1-14.

Wisconsin

If no construction is contemplated, issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception).  If construction is contemplated, issue ALTA Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - Advances under a future advance mortgage (including a dragnet clause) have priority over intervening liens even though the advances are optional if the first mortgagee does not have actual knowledge of the second lien (or the later note is simply a renewal of prior debt). Colonial Bank v. Marine Bank, 152 Wis. 2d 444, 448 N.W.2d 659 (Wis. 1989) Bank of Barron v. Gieseke, 169 Wis. 2d 437, 485 N.W.2d 426 (Ct. App. 1992); First Interstate Bank of Wisconsin-Southeast v. Heritage Bank & Trust, 166 Wis.2d 948, 480 N.W.2d 555 (Ct. App. 1992).  Section 706.11(1) Wisconsin Code, provides that a mortgage in favor of a savings and loan association or state or federal savings bank has priority from recordation, but the Colonial Bank case established the applicability of the optional advance rule.  Likewise, Section 215.21 provides for the priority of a mortgage in favor of a savings and loan association, but the Colonial Bank case established the applicability of the optional advance rule.  Section 214.495 provides for similar priority for savings bank mortgages.

Wyoming

Issue ALTA Endorsement 14.1 WO/MML (without mechanic's lien exception) if the land is an existing one-to-four family residence or residential condominium and if no construction is contemplated.  In all other cases, issue Endorsement 14.1 W/MML (with mechanic's lien exception).

Actual Notice - Wyoming would apparently follow the majority rule that optional advances under a future advance clause after actual notice of a subsequent encumbrance are subordinate to the subsequent encumbrance.  Poulos Investments, Inc. v. Mountain West Savings and Loan Assoc., 680 P.2d 1073 ( S. Ct. Wy. 1984).

 

Updated 08/16/17