Future Acquired Property

• Author: Jeffrey Lehman, Shirelle Phelps

Page 20

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 execution 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 agreement 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 obligations 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...