Corss-Collateralization and Blanket Mortgages

[Account Closed]

Does anybody know of a good read to better understand cross-collateralization and blanket mortgages?

I get the basic idea of offering more than one property as collateral for a loan, and have actually done a loan with one note and two deeds of trust as collateral, but the more I think about it the more complicated it gets.

Some example questions: Can you have one note and one deed of trust with two legal descriptions, or do you need two DOT's each with its own legal. Do you need two title insurance policies or can it be done on one. Does each dot secure the entire amount of the note or only part, when does each dot get released. You could, theoretically, have one note secured by one dot, one note secured by multiple dots, multiple notes secured by one dot, multiple notes secured by multiple dots. You could have one note secured by multiple dots, each dot given by a different entity. The list goes on.

[Dion DePaoli]

1. Can you have one note and one deed of trust with two legal descriptions, or do you need two DOT's each with its own legal.

Both can be done. You can have multiple properties identified in the same security instrument and recorded against each property or you can have more than security instrument. In a situation where the terms of the security instrument might be different, say in a silent second lien on a home might have different language and thus be a different document. When the security language is the same it tends to be the same document which lists all of the properties that are secured via the legal description. Every property will its own recording of the instrument even if the instrument is identical among the population.

2. Do you need two title insurance policies or can it be done on one.

If the property is not adjacent the title insurer would issue two separate policy jackets as the terms of the insurance might be different from property A and B. In a contiguous set of property they can list the entire set in one policy. You would see different policy terms referencing lien positions. Whether the lender obtains a lenders policy for junior lien potions is up to their desire. If what is being insured is different between property A and B you will typically see two policies.

3. Does each dot secure the entire amount of the note or only part, when does each dot get released.

DOT/Mortgages are not partial security so the collective set of property is pledged for the full obligation of the note. If a lender put a lien on a investment property and a primary residence as a cross, both properties are offered as collateral for the entire note amount and its full payment.

4. You could, theoretically, have one note secured by one dot, one note secured by multiple dots, multiple notes secured by one dot, multiple notes secured by multiple dots.

Yes, Yes, Sort of - multiple notes only tends to show up with participation loans where multiple investors come together as a mortgagee. Typically you do not really go out and have a "new" note attach to an existing DOT/Mortgage. The language of most security instruments is unique to the specific note structure at origination.

5. You could have one note secured by multiple dots, each dot given by a different entity.

Not really. Multiple lenders would not really come together like that. Any investor who puts money into the funding of the loan will want their interests protected in some manner. This happens with a participated funding. In those deals you might have a "A, B and C Note" which aggregate into the entire loan balance under one DOT/Mortgage. Typically these are only for large loans. The security instrument in that type of deal will list one mortgagee as the primary or lead lender. Usually the A note position. The investors can agree to participate in the "front" of the deal or in the "back" of the deal which sort of dictates this structure.

If you wanted to read up on the matter, I think you might want to look at structured finance. I do not think you will get to far seeking a book under cross collateral or blanket mortgages.

Hope that helps.