Future Advances Under The Ulta And The Uslta: The Construction Lender Receives A New Status

Washington and Lee Law Review, Dec 1977

Published on 06/01/77

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Future Advances Under The Ulta And The Uslta: The Construction Lender Receives A New Status

Future Advances Under The Ult a And The U slta: hTe C onstruction Lender Receives A New Status Future Advances Under Th 0 e Ulta And Th 0 0 Thi s Note is brought to you for free and open access by the Washington and Lee Law Review at Washington & Lee University School of Law Scholarly Commons. It has been accepted for inclusion in Washington and Lee Law Review by an authorized editor of Washington & Lee University School of Law Scholarly Commons. For more information , please contact , USA Wash. & Lee L. Rev. 1027 (1977), https://scholarlycommons.law.wlu.edu/wlulr/vol34/iss3/12 - e Uslta: Th e Construction Lender Receives A New Status, 34 The prevalence of future advance clauses, in construction mortgageS2 and the dearth of well-defined laws concerning the security and priority status of such advances 3 have combined to produce much uncertainty among real property lienholders as to the priority of their claims in foreclosure proceedings.' The law of future advances has evolved primarily in case law,5 and thus disparity exists from state to state.' Even when specific guidelines have been enunciated by the courts,' the interpretation and application of those guidelines have not been uniform.' Perceiving a need for statutory reform, several states have passed legislation concerning future advances Nevertheless, the current lack of uniform authority, either statutory or nonstatutory, presents continuing priority problems, particularly for the construction lender.'0 Two proposed uniform statutes, the Uniform Land Transactions Act (ULTA)" and the Uniform Simplification of Land Transfers Act The typical future advance clause provides that the debt which the mortgage secures represents in whole or in part advances to be made or obligations to be incurred by the lender subsequent to the time when the security agreement is executed. See 2 G. GILMORE, SECURITY INTERESTS IN PERSONAL PROPERTY § 35.1, at 916 (1965) [hereinafter cited as GILMORE]; G. OSBORNE, HANDBOOK ON THE LAw OF MORTGAGES § 113, at 178 (2d ed. 1970) [hereinafter cited as OSBORNE]. 2 See 2 GILMORE, supra note 1, § 35.3, at 922; OSBORNE, supra note 1, § 113, at 178-79. See 2 GILMORE, supra note 1, § 35.4, at 930; see also notes 6 and 9 infra. " The Uniform Land Transactions Act [hereinafter cited as ULTA] was approved by the National Conference of Commissioners on Uniform State Laws in Au(USLTA),' 2 which have been approved and recommended for enactment in the states by the National Conference of Commissioners on Uniform State Laws, deal with the security and priority status of real property future advances.' 3 Arguably, the peculiarly local character often attributed to realty in the United States" represents a formidable barrier to any widespread enactment of the complete texts of both acts or of any uniform act concerning real estate law. 15 The recognized need for uniformity in the area of mortgage foreclosures,'" however, considered the Act. 13 ULTA §§ 1-201( 5 ), 3-205(c)-(f), 3-301(b); USLTA §§ 1-201(14), 3-202(a)( 8 ), 3209, 5-209(b),(c). " The reasons commonly given for the contention that real property, unlike personalty, possesses a "unique" character are that realty is permanent, immovable and durable, and has deep-rooted local significance. '1 See note 14 supra. Whether or not it is valid to assume that because land is "unique" uniformity cannot be achieved among the states in the area of modern real estate law, the mere fact that the assumption is often made creates an obstacle to adoption of a uniform act concerning land transactions. Bruce, Mortgage Law Reform Under the Uniform Land TransactionsAct, 64 GEO. L. REv. 1245, 1246 (1976). ,1 ULTA art. 3, Introductory Comment, at 9. See 5 PROB. & PROP., supranote 11, at 8; H.R. 10688, 93d Cong., 1st Sess. § 402 (1973). In § 402, which concerns a proposal to establish a uniform foreclosure system for mortgages insured, guaranteed or owned AND should prompt state legislatures to give careful consideration to the specific sections in each proposed act that deal with real estate financing.'" The provisions relating to the security and priority of future advances thus deserve scrutiny to determine the changes that the two statutory schemes would make in the existing law, individually as well as collectively,' 8 and the objectives the drafters sought to by federal agencies, Congress found that "the availability of a uniform, less expensive and more expeditious foreclosure procedure" is required to ameliorate high costs and risks imposed on homeowners, to facilitate the sale and resale in nationwide secondary mortgage markets of secured real estate loans and to reduce unnecessary litigation in the courts. Id. ,1 Article 3 of the ULTA is devoted exclusively to consensual security interests in real estate. Part 1 defines the scope of the article and contains definitions applicable throughout the article; Part 2 concerns the validity of security agreements and the rights of parties th (...truncated)


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Future Advances Under The Ulta And The Uslta: The Construction Lender Receives A New Status, Washington and Lee Law Review, 1977, pp. 1027, Volume 34, Issue 3,