How blanket mortgages work with partial release clauses provides flexibility for developers and investors. A blanket mortgage covers multiple properties under one loan. The partial release clause allows individual properties to be sold, with a portion of the sale proceeds paying down the mortgage, releasing that specific property from the lien without requiring the entire loan to be paid off. This streamlines sales, improves cash flow, and reduces risk for multi-property ventures.
What Is a Blanket Mortgage?
Before diving into the partial release clause, it’s important to understand the concept of a blanket mortgage.
A blanket mortgage is a single loan that covers multiple properties. Rather than applying for individual loans on each property, a borrower consolidates them into one large mortgage. This approach is particularly useful for:
- Real estate developers buying and developing multiple lots.
- Builders constructing several homes in a subdivision.
- Investors acquiring or refinancing a portfolio of rental properties.
This type of mortgage streamlines financing, reduces paperwork, and may offer better interest rates due to the larger loan amount.
What Is a Partial Release Clause?
A partial release clause is a provision within a blanket mortgage that allows a borrower to sell one or more individual properties under the loan without having to pay off the entire mortgage.
When a property is sold, the borrower makes a partial payment toward the mortgage, and in return, the lender releases that property from the mortgage lien.
Definition:
A partial release clause allows one property in a multi-property mortgage to be sold independently by releasing it from the mortgage lien after a specific payment is made.
Why Is It Important?
Without a partial release clause, you’d be stuck: selling one property would require paying off the entire mortgage, or refinancing. That’s neither practical nor efficient—especially in phased developments.
With this clause:
- You can sell a portion of your property (a lot, a condo unit, etc.)
- Use proceeds from the sale to repay part of the mortgage
- Retain ownership and control over the remaining properties
Real-Life Example of a Partial Release Clause
Let’s say a developer takes out a $1,000,000 blanket mortgage on five residential lots, each worth $250,000.
- Total loan: $1,000,000
- Properties covered: 5 lots
- Value per lot: $250,000
- Partial release price per lot: $220,000
The developer builds and sells Lot A for $260,000. As per the clause, they pay $220,000 to the lender. The lender releases Lot A from the mortgage lien. The remaining 4 lots are still covered under the same mortgage.
This enables the developer to:
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- Reduce the loan balance
- Retain financing on unsold lots
- Keep working capital from the sale ($40,000 profit)
Benefits of a Partial Release Clause
1. Flexibility in Sales
Sell individual units without repaying the entire mortgage. This is particularly useful for phased developments or when market conditions favor selling certain parcels first.
2. Improved Cash Flow
Sales proceeds are partially used to pay down the loan, while the rest can fund construction, marketing, or other investments.
3. Lower Transaction Costs
One blanket mortgage is often more affordable than taking multiple smaller loans—less in origination fees, title work, and closing costs.
4. Reduced Risk
Investors are not locked into holding all properties until the entire mortgage is repaid. They can offload specific assets to de-risk their portfolio.
Things to Watch Out For
While partial release clauses offer benefits, they also come with important considerations:
1. Release Price Might Be Higher Than Market Proportion
Lenders often set the release price at more than the loan-per-property average to ensure the mortgage remains adequately secured.
2. Requires Negotiation
These clauses are not standard in all blanket mortgages. You’ll need to negotiate terms with the lender in advance and ensure they’re included in the contract.
3. May Involve Penalties
Some lenders impose prepayment penalties or administrative fees for each property release.
4. Lender Approval Needed for Each Release
The release isn’t automatic—each transaction requires the lender’s review and sign-off, which can cause delays if not well-planned.
How to Structure a Partial Release Clause
Here are key elements you or your real estate attorney should ensure are included in the clause:
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- Exact method of calculating release prices (fixed, percentage-based, or appraised value)
- Conditions for release (e.g., sale price threshold, loan balance criteria)
- Timing and notice requirement before requesting release
- Any administrative fees or prepayment penalties
- Documentation needed to initiate the release
Who Should Use a Partial Release Clause?
This clause is especially beneficial for:
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- Developers building multiple units (e.g., townhomes or condos)
- Landowners subdividing a large parcel for resale
- Real estate investors managing a rental property portfolio
- Builders operating in phases across multiple lots
- REITs or housing non-profits offering affordable housing units
Comparing Scenarios With and Without the Clause
| Scenario | With Partial Release Clause | Without Clause |
| Selling one unit | Pay partial loan + release | Must refinance or pay off full loan |
| Cash flow | Retain profit after partial payment | Tied up in entire loan balance |
| Flexibility | High | Low |
| Risk | Spread across properties | Concentrated and less controllable |
Tips for Negotiating the Clause
- Shop Multiple Lenders: Not all lenders offer this clause. Some may be more flexible, especially with investor-friendly loan products.
- Get Legal Advice: Real estate attorneys can help ensure the clause is enforceable and aligns with your business plan.
- Plan Your Exit Strategy Early: Structure your release prices to reflect your sales strategy and timeline.
- Include It in the Initial Agreement: Trying to add the clause later can be costly or even impossible once the mortgage is signed.
Frequently Asked Questions
Is the partial release clause available in residential home loans?
Typically no. It is common in commercial, investor, or development-related mortgages.
Does it impact my credit?
As long as you continue to meet mortgage obligations, it won’t negatively affect your credit.
Can I set different release prices for different properties?
Yes. Some developers negotiate a pricing schedule based on lot location, size, or potential resale value.
Final Thoughts
In real estate, the ability to adapt and respond to changing conditions is everything. The partial release clause provides exactly that—control, liquidity, and scalability for property developers and investors using blanket mortgages.
This clause transforms what could be a rigid loan into a dynamic financial tool. It enables sellers to release and monetize individual assets, repay debt in manageable increments, and keep projects moving forward—without the roadblock of refinancing an entire mortgage every time a sale happens.
Whether you’re building homes, flipping properties, or managing rental units, a well-crafted partial release clause could be the key to unlocking sustainable growth and long-term success.