California Real Estate Practice Exam

What is the result of having more paid off (than proportionate) to release each lot sold in a blanket loan?

1. The entire loan being cleared before all the property is reconveyed

2. Decreased loan terms for remaining lots

3. Increased interest rates on the remaining lots

4. Higher value assessment of the property

The correct answer is: The entire loan being cleared before all the property is reconveyed

In the context of a blanket loan, which is a single loan that covers multiple properties, when a borrower pays off more of the loan than proportionally necessary for each lot sold, the outcome can lead to the entire loan being cleared before all of the properties are reconveyed. This situation arises because blanket loans often include a release clause that allows for individual lots to be released from the collateral of the loan as they are sold. When more of the loan has been paid off than what corresponds to the lots sold, it allows for the possibility that all the collateral (i.e., the properties covered by the blanket loan) could be freed from the lien associated with the loan. Consequently, if the borrower continues to pay off the loan in excess of what is due on each sold lot, eventually, there may be enough equity built up to pay off the entire loan, thus clearing the remaining properties from the loan obligation. This result is advantageous for the borrower, as it can simplify their financial management and provide greater flexibility with their remaining properties. The other options don't directly relate to the mechanics of a blanket loan release or the implications of the related transactions. Thus, the primary takeaway here is that properly managing loan payoffs can lead to significant outcomes regarding property recon