What Is a Dragnet Clause?
Most borrowers believe their mortgage only secures the specific home loan described in the document. A dragnet clause (also called a "cross-collateralization clause" or "future advance clause") dramatically expands the mortgage's reach.
A dragnet clause states that the mortgage secures not just the current loan, but also any and all other debts the borrower owes (or will owe in the future) to the same lender. This includes credit cards, car loans, business lines of credit, and any other obligation.
How It Traps Borrowers
Consider this scenario: A Florida business owner takes out a $500,000 mortgage with Bank A to buy a commercial property. The mortgage contains a dragnet clause. Years later, the business owner opens a $100,000 business line of credit with the same bank. The business fails, and the owner defaults on the line of credit.
Under the dragnet clause, the bank can foreclose on the commercial property not just for the mortgage default, but also for the unpaid $100,000 business line of credit, even though the two loans have nothing to do with each other. The property secures everything the borrower owes the bank.
Florida's Approach
Florida courts enforce dragnet clauses but interpret them narrowly. Under the "relatedness" test, Florida courts will generally only allow the dragnet clause to sweep in additional debts that are of the same kind and character as the original loan. A mortgage for a real estate loan will likely dragnet another real estate loan with the same bank, but may not dragnet an unrelated credit card balance.
Related Terms
- Mortgage — The security instrument containing the dragnet clause
- Foreclosure — The enforcement mechanism triggered by the expanded collateral
- Due-on-Sale Clause — Another powerful mortgage provision that expands lender rights
Barnes Walker Lending & Finance
Barnes Walker's real estate attorneys identify and negotiate dragnet clauses on behalf of Florida borrowers, limiting cross-collateralization exposure and protecting our clients' properties from being swept into unrelated debt obligations with the same lender. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC