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
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Wash. & Lee L. Rev. 1027 (1977), https://scholarlycommons.law.wlu.edu/wlulr/vol34/iss3/12
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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)