Future Acquired Property

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 funds from XYZ Bank. ABC executes a note and mortgage on Blackacre to XYZ, which XYZ records. The mortgage also contains an after-acquired property clause. When ABC subsequently purchases Whiteacre to serve as its warehouse, XYZ automatically obtains an equitable lien in Whiteacre. Since a mortgage with an after-acquired property clause cannot be traced through an examination of the chain of title of the after-acquired property, anyone who subsequently buys or has a lien against the mortgagor's property has no notice of the equitable lien of the mortgagee. Such purchasers or lienors might, therefore, have greater rights to the property than the mortgagee if they took the property in GOOD FAITH and without notice. The mortgagee must take additional steps to protect the priority of his or her lien in future acquired property. It is a common practice for mortgage lenders to require that the mortgagor execute a recordable amendment to his or her mortgage describing in detail the future acquired property immediately after its acquisition.

The treatment of future acquired property varies, however, from jurisdiction to jurisdiction.