A provision in a mortgage agreement stating that any property acquired by the borrower after the signing of the mortgage will serve as additional security for the obligation.
An after-acquired clause is a provision within a mortgage agreement that stipulates that any additional property obtained by the borrower after the mortgage has been signed will automatically become additional security (collateral) for the mortgage obligation. This clause aims to provide lenders with additional assurance that the borrower’s obligations will be met, potentially reducing the risk associated with lending.
An inclusive after-acquired clause covers all types of property obtained by the borrower, irrespective of how and when it is acquired.
A selective after-acquired clause specifies certain types of property or conditions under which the acquired property will be included as additional security.
The enforceability of after-acquired clauses varies by jurisdiction. Courts may scrutinize these clauses to ensure they do not unfairly prejudice other creditors or unduly burden the borrower.
In certain jurisdictions, lenders may be required to file financing statements or amend existing ones to perfect their interest in the after-acquired property.
The inclusion of after-acquired property might affect the priority of claims in the event of borrower bankruptcy, potentially leading to legal disputes.
A borrower takes out a mortgage to purchase a house. The mortgage agreement contains an after-acquired clause. If the borrower subsequently inherits another property, this new property may automatically become additional collateral under the terms of the clause.
In commercial lending, a business may take out a loan secured by its inventory. An after-acquired clause in the security agreement might state that any new inventory acquired by the business will also serve as collateral for the loan.
Dragnet Clause: Unlike an after-acquired clause, a dragnet clause aims to secure all debts owed by the borrower to the lender, not just those tied to newly acquired property.
Cross-Collateralization Clause: This clause allows one piece of collateral to secure multiple loans, differing from the after-acquired clause, which focuses on newly acquired property as additional security.
Collateral: Assets pledged as security for a loan.
Secured Transaction: A transaction that involves a security interest in personal property.
Mortgage: A loan agreement secured by real property.