FUTURE ACQUIRED PROPERTY
Property that is received or obtained by a borrower subsequent to the date that he or she executes a loan agreement which offers property currently owned as collateral.
Future acquired property, which is also
known as after-acquired property, encompasses
both PERSONAL PROPERTY and real property
and provides additional collateral to ensure that
a loan will be satisfied. There must, however, be
a provision in the loan agreement between the
borrower and the lender that gives the lender a
right to the specific property of the borrower
that he or she acquires subsequent to the execu-
tion of the agreement.
SECURED TRANSACTIONS frequently involve
the treatment of personal property as future
acquired property. For example, a debtor who
owns a retail store might accept a future
acquired property provision in a security agree-
ment with a creditor in order to obtain funds to
buy additional inventory. The purchase of new
inventory constitutes additional collateral that
ensures the satisfaction of the loan. Language
commonly used to phrase a future acquired
property term in a contract is “any or all obliga-
tions covered by the security agreement are to be
secured by all inventory now or hereafter
acquired by the debtor.”
Mortgages, particularly those affecting
commercial properties, involve the treatment of
real property as future acquired property. The
mortgagee (who is the lender) will include in
the mortgage an after-acquired property clause
which provides that the mortgagee will have an
equitable lien, which is a right to have property
used to repay a debt, in all the real property that
the mortgagor (who is the borrower) obtains
after the mortgage is executed. For example,
ABC Co. owns Blackacre and borrows funds
from XYZ Bank.ABC executes a note and mort-
gage on Blackacre to XYZ, which XYZ records.
The mortgage also contains an after-acquired
property clause. When ABC subsequently pur-
chases Whiteacre to serve as its warehouse, XYZ
automatically obtains an equitable lien in
Whiteacre. Since a mortgage with an after-
acquired property clause cannot be traced
through an examination of the chain of title of
the after-acquired property, anyone who subse-
quently buys or has a lien against the mort-
gagor’s property has no notice of the equitable
lien of the mortgagee. Such purchasers or
lienors might, therefore, have greater rights to
the property than the mortgagee if they took
the property in GOOD FAITH and without
notice. The mortgagee must take additional
steps to protect the priority of his or her lien in
future acquired property. It is a common prac-
tice for mortgage lenders to require that the
mortgagor execute a recordable amendment to
his or her mortgage describing in detail the
future acquired property immediately after its
acquisition.
The treatment of future acquired property
