Let’s say a developer buys some acreage and develops it into 50 lots. Mr. Developer has a mortgage for the entire property. You come along and buy lot 36. You are making your mortgage payments to your bank. But unfortunately, Mr. Developer can’t afford his mortgage. His bank forecloses on the entire acreage because that what was put up as collateral. That mortgage blankets the entire development. You’re out – now the bank owns your property. Wow – that would be a bad day.
Once that happened a few times, buyers started to say, “Wait a minute. This isn’t fair. I don’t want your mortgage to cover my property.” So we came up with a new system. Now, when the buyer buys lot 36, Mr. Developer takes that money and uses it to payoff enough of the mortgage so that lot 36 can be released from the mortgage. The buyer of lot 36 might have his own mortgage but lot 36 is no longer encumbered by the larger mortgage. The clause that allows that to happen is called the partial release clause.
When Mr. Developer gets his mortgage, there is a partial release clause in the mortgage that says when he sells the lots, those lots will be released from the mortgage.
There are a few questions about blanket mortgage and partial release clause on the Florida real estate state exam. Be sure you understand these concepts. If you need more help preparing for the Florida real estate exam, join me for a class.