Disclosing Mortgage Spreader Clauses

Answered by:

Question:

We have a future advance clause in our first mortgage for x amount of dollars. We then use this to secure personal notes. Should these personal notes have a mortgage servicing disclosure, RESPA, flood determination form?

Answer:

If the spreader clause perfects your security interest on the personal loan, then your loan is secured by residential real estate and, in my opinion, applicable residential real estate requirements will apply. However, read your spreader clause carefully. Every one I have seen voids the clause if the right of rescission is not given for each subsequent loan. Your mortgage may be filed for $200,000, but if the balance is paid down to $100,000 and you advance an additional $50,000, you have increased your security interest and advanced new funds, thus the right of rescission arises. Also refer to your state law to see if it has any prohibitions or specific disclosure requirements pertaining to spreader clauses.