What Is a Blanket Mortgage?

QUESTION: I own several low-income apartment buildings that I want to refinance. A local S&L; will lend me 50% of the market value, but it wants a “blanket mortgage” on all six properties. I have never heard of such an arrangement before. Is this good or bad for me?

ANSWER: A blanket mortgage on all your properties allows the lender to foreclose on all six properties if you default on the mortgage. Because of the marginal locations, the lender wants plenty of security for the loan.

From your viewpoint, it’s a good idea to agree in advance with the lender the amount by which the mortgage must be paid down if you wish to sell one property and have it released from the blanket mortgage.

‘Boot’ Is Used With Exchange

Q: I have been talking with a realtor about exchanging my apartment building for a property that would be easier to manage. Since this building is worth about $2 million, she says I may have to take some “boot” in trade. What does this mean?

A: Boot in an IRS 1031 tax-deferred exchange is “unlike kind” property, such as cash or net mortgage relief, which you receive. Boot is taxable to you.

To illustrate, if you trade your $2-million apartment building for a $1.9-million parking lot, to balance the equities you will receive $100,000 in cash, which will be taxable boot. Your tax adviser can give you further details.