Also known as: future advances · future advance clause
Written by attorneys · grounded in primary & secondary sources — see below
A mortgage or security agreement provision that secures not only an initial loan but also subsequent advances made by the same lender to the borrower. Validity and priority of the future advances turn on the mortgage or security agreement terms together with applicable state statutes or the Uniform Commercial Code.
Orion AeroParts borrowed five million dollars from Falcon Capital under a recorded mortgage on its hangar that expressly covered future advances up to a five-million-dollar maximum. After SkyLease Equipment recorded a lien on the same property, Falcon advanced an additional one million dollars. In foreclosure, only the original five million dollars retained priority over SkyLease because the later advance exceeded the recorded cap.
James borrowed from a bank under a security agreement containing a dragnet clause. After the initial loan, the bank made further advances that the debtor claimed fell outside the clause. The court examined the agreement language to determine whether the later advances were within the parties' original contemplation and therefore secured by the same collateral.
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No. Priority depends on whether the mortgage states a maximum amount and whether the jurisdiction requires that later advances be made before the lender receives notice of an intervening lien. Advances exceeding a recorded cap or made after notice typically lose priority to intervening lienors.
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Many jurisdictions enforce a stated maximum principal amount in the recorded mortgage. Any advance beyond that cap does not enjoy the original priority and is treated as junior to intervening liens.
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Courts look to the language of the agreement to determine whether the future transaction was within the contemplation of the parties. Broad language may reach unrelated debts, but some authorities require a demonstrable connection to the original transaction.
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