Legal Definitions - after-acquired-property clause

After-Acquired-Property Clause

An after-acquired-property clause is a specific provision included in a mortgage agreement. This clause stipulates that any real estate (such as land or buildings) that the borrower acquires after the original mortgage has been signed will automatically become additional collateral for that existing mortgage. In simpler terms, if you obtain new property, it immediately becomes subject to the lien of your current mortgage, even if it was not part of the original security used to obtain the loan.

Here are some examples to illustrate this concept:

• Example 1: Expanding a Residential Property

  Imagine a homeowner, Sarah, takes out a mortgage to purchase her house and the land it sits on. Her mortgage agreement includes an after-acquired-property clause. A few years later, an undeveloped plot of land directly adjacent to Sarah's backyard becomes available for sale. Sarah decides to purchase this additional plot to expand her garden and outdoor living space. Because of the after-acquired-property clause in her original mortgage, this newly acquired adjacent plot automatically becomes part of the collateral securing her existing home mortgage, even though it was purchased separately and later.

• Example 2: Business Expansion

  A small manufacturing company, "Innovate Tech," secures a mortgage on its primary factory building to fund operations. This mortgage contains an after-acquired-property clause. Six months later, as the company grows, Innovate Tech purchases a separate, smaller warehouse across town to store raw materials and finished products. Due to the clause in the original factory mortgage, this new warehouse automatically becomes additional security for the initial loan taken out for the factory. If Innovate Tech were to default on the factory mortgage, the lender could potentially claim both the factory and the warehouse.

• Example 3: Real Estate Development

  A real estate developer, "Urban Sprawl Inc.," obtains a large construction loan, secured by a mortgage on a 50-acre parcel of land where they plan to build a new housing community. The mortgage agreement includes an after-acquired-property clause. During the development process, Urban Sprawl Inc. realizes they need more space for a community park and purchases an additional 5-acre adjacent parcel from a different owner. Under the terms of the after-acquired-property clause, this newly acquired 5-acre parcel immediately falls under the lien of the original construction loan mortgage, increasing the total collateral for that loan.