Also known as: future advance · future advances clause · future advance clause
Written by attorneys · grounded in primary & secondary sources — see below
Additional loans or value extended by a secured party after the initial transaction and secured by the same collateral under a mortgage or security agreement. Priority of such advances is determined by the recording date of the original instrument together with any statutory or contractual restrictions on amount and timing. The clause may be limited by a stated maximum principal amount or by rules that subordinate advances made after the secured party receives notice of an intervening lien.
Felicia Fuentes borrowed five million dollars from Frontier Capital and granted a recorded mortgage on her industrial property that expressly secured future advances up to a six-million-dollar maximum. After a contractor recorded a mechanic's lien, Frontier Capital advanced an additional two million dollars. The court held that only the first six million dollars retained the mortgage's original priority. The excess advance was junior to the intervening lien.
Bollinger Corporation granted a security interest in its equipment to one lender under an agreement containing a future-advances clause. After the lender assigned the agreement, a second lender extended new funds to Bollinger. The court examined whether the new funds qualified as future advances secured by the original collateral under the assigned agreement.
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No. Priority depends on whether the jurisdiction requires the advance to be made before notice of an intervening lien and whether the advance stays within any stated maximum amount in the mortgage or security agreement.
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The excess is typically treated as unsecured or junior to intervening liens because later creditors are entitled to rely on the recorded cap as the outer limit of the senior interest.
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Yes. UCC section 9-204(c) expressly permits a security agreement to provide that collateral secures future advances whether or not the advances are given pursuant to commitment.
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In notice-cutoff jurisdictions the intervening lienholder prevails over any advance made after the mortgagee receives actual notice of the lien, unless the mortgagee was contractually obligated to make the advance.
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