Understanding the After-Acquired Clause in Legal Agreements
Definition & meaning
An after-acquired clause is a provision commonly found in mortgage and asset-based lending agreements. This clause stipulates that any accounts receivable, inventory, or property acquired by the borrower after the loan agreement is signed will automatically serve as additional collateral for the loan. This means that if the borrower obtains new assets, those assets can be used to secure the loan without needing to amend the original agreement.
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After-acquired clauses are primarily used in the context of secured transactions and lending agreements. They are relevant in various legal areas, including:
Commercial law
Bankruptcy law
Real estate law
These clauses help lenders mitigate risk by ensuring that they have access to additional collateral as the borrower's situation changes. Users can manage related forms and agreements through tools like US Legal Forms, which provide templates drafted by legal professionals.
Key Legal Elements
Real-World Examples
Here are a couple of examples of abatement:
Example 1: A business takes out a loan to purchase equipment. The loan agreement includes an after-acquired clause. Later, the business acquires additional inventory. This inventory is automatically considered collateral for the loan.
Example 2: A company secures a line of credit with an after-acquired clause. When the company receives new accounts receivable from a large client, those accounts are automatically included as collateral for the credit line. (hypothetical example)
State-by-State Differences
Examples of state differences (not exhaustive):
State
Variation
California
Allows after-acquired clauses in most commercial loans.
New York
Requires specific language to enforce after-acquired clauses.
Texas
Recognizes after-acquired clauses but has specific filing requirements.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with Related Terms
Term
Definition
Differences
After-acquired clause
Provision that includes assets acquired after the loan agreement as collateral.
Automatically applies to new assets without requiring additional documentation.
Future advances clause
Allows lenders to secure future loans with existing collateral.
Focuses on future loans rather than newly acquired assets.
Common Misunderstandings
What to Do If This Term Applies to You
If you are entering into a loan agreement that includes an after-acquired clause, consider the following steps:
Review the loan agreement carefully to understand the implications of the clause.
Consult with a legal professional if you have questions or concerns about how it affects your assets.
Explore US Legal Forms for templates that can help you draft or review loan agreements.
In complex situations, seeking professional legal assistance may be necessary.
Quick Facts
Typical use: Secured loans and asset-based lending.
Common assets included: Accounts receivable, inventory, equipment.
Legal areas: Commercial law, bankruptcy law, real estate law.
Key Takeaways
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FAQs
It is a provision in a loan agreement that allows new assets acquired by the borrower to be included as collateral for the loan.
No, the inclusion of such clauses depends on the specific terms agreed upon in the loan contract.
Yes, they can apply to various types of assets, including personal property, inventory, and accounts receivable.
