Blanket mortgage

Key Takeaways

• A blanket mortgage is one loan secured by two or more separate parcels of real estate.
• A partial release clause lets the borrower pay an agreed release price and free one parcel from the lien while the loan stays in place on the rest.
• Every parcel stands behind the whole debt, so a single default puts all of the secured parcels at risk.
• In a Washington nonjudicial foreclosure, RCW 61.24.040(8) lets the trustee sell the property in gross or in parcels, whichever the trustee finds most advantageous.

What It Means

A blanket mortgage is one loan secured by two or more separate parcels of real estate. Instead of a separate loan and a separate lien on each lot, the lender writes a single note and takes one security instrument whose legal description covers every parcel. In Washington that instrument is almost always a Deed Of Trust rather than a true mortgage.

The tool exists because some borrowers own inventory instead of a home. A builder who buys every lot in a new Subdivision needs financing on the whole plat, not on one house at a time, and one loan means one application, one closing, and one payment. The trade-off is real: every parcel stands behind the entire debt, so trouble on the single loan reaches all of the land at once. That is why blanket loans normally carry a partial release clause. The clause sets a release price per parcel, and paying it frees that parcel from the lien while the loan continues on what is left. Without such a clause, a developer cannot deliver clear title to the first buyer without paying off the whole balance.

How It Works in Washington

Washington borrowers rarely sign a true mortgage, so a blanket loan here is usually a deed of trust and RCW 61.24.040 controls how it is foreclosed. Two pieces of that statute matter when one lien covers several parcels. First, the trustee must record the notice of sale in the office of the auditor in each county in which the deed of trust is recorded, so a blanket loan that crosses a county line means filings in both counties. Second, RCW 61.24.040(8) provides that the trustee may sell the property in gross or in parcels as the trustee shall deem most advantageous, so the parcels do not have to be auctioned as one block.

If the security is a true mortgage and goes through judicial Foreclosure instead, RCW 61.12.140 lets the court reach only part of the land when installments are past due. The court first decides whether the property can be sold in parcels without injury to the interests of the parties, then directs only so much of the premises to be sold as will pay the amount then due, and the judgment stays alive for any later default. On either path, releasing individual lots before default is a contract question answered by the partial release clause, not by statute. Our rundown of the loan types every broker should know puts blanket financing next to the other tools on that list.

Example

Cascade Ridge Homes borrows $2,400,000 to buy a 12-lot plat in Pierce County and signs one note secured by a blanket deed of trust that legally describes all 12 lots. The partial release clause sets a release price of $240,000 per lot. When the builder sells Lot 3 for $319,000, escrow wires $240,000 to the lender, the lender signs a partial reconveyance releasing Lot 3, and the buyer takes title free of that lien. The loan balance drops to $2,160,000 and the remaining 11 lots keep securing it. Two years later the builder misses payments with four lots unsold. The trustee records the notice of sale in Pierce County and, under RCW 61.24.040(8), decides to auction the four remaining lots as separate parcels because four smaller bids are likely to raise more than one bid on the group.

Common Mistakes and Exam Traps

• A blanket mortgage covers two or more parcels of real estate. A package mortgage covers one parcel plus the personal property that goes with it, such as the range and refrigerator.
• A partial release clause does not reduce the debt by itself. It removes one parcel from the lien once the agreed release payment is made.
• A wraparound mortgage is not a blanket mortgage. A wraparound wraps an existing loan on one property inside a new, larger loan.
• The number of parcels is what makes a loan a blanket loan, not the number of borrowers or the number of buildings on one lot.