California Real Estate Practice Exam

In order to maintain a "release schedule," the beneficiary of a blanket loan usually charges a higher proportionate payment amount to release each lot for what reason?

1. To have better security on remaining lots

2. To protect against the better lots selling first

3. To protect the investment as individual lots are sold

4. All of the above

The correct answer is: To have better security on remaining lots

The correct choice is that the beneficiary of a blanket loan charges a higher proportionate payment amount to release each lot to protect against the better lots selling first. This means that when certain lots are released from the blanket mortgage, there is an additional cost reflected in the payments to ensure that the lender retains a strong security interest in the remaining properties. As more desirable lots might sell first, the lender has a vested interest in securing adequate compensation from the sale of each individual lot within the blanket loan framework. This ensures that as the most marketable parcels are sold off, the remaining lots still provide ample collateral for the remaining loan balance. This approach not only secures the lender's position but also mitigates risk by ensuring that each release of the lot corresponds with a fair payment that balances the perceived value of the collateral as it changes with the sale of lots. This strategy ultimately provides a safeguard against diminishing collateral strength as more lots are sold, maintaining the lender's security throughout the duration of the loans.