Florida Dragnet Lending Clauses

Due to the commercial real estate market in Florida, we have seen an increase in loan workouts/modifications and foreclosures involving commercial real estate in recent years. One clause that all Florida lenders and/or Florida commercial real estate land owners should be aware of is the dragnet clause (also known as the anaconda clause). Dragnet clauses are of great importance because they give the lender the ability to encumber the mortgaged property with other debts that are both (i) prior owned debt and/or (ii) subsequent debts, in addition to the specific debt secured by the mortgage. Thus, when faced with the inability to refinance their commercial loans, many Florida commercial real estate property owners learn that their lenders have the right to foreclose against other properties whose loans were in good standing and mortgaged by the same lender.

It is significant to note that Florida’s common law history reflects that the dragnet clause has been interpreted in favor of the lender only once since 1927. When Florida lenders or borrowers are negotiating a dragnet clause, the parties should look out for a few key points in order to increase the likelihood of enforceability. First, the clause should be included in the recorded mortgage and it should specifically identify the prior indebtedness. Also, each promissory note that is executed after the original mortgage should specifically identify the mortgage containing the dragnet clause which will secure the new note. Lastly, if the borrowers of the subsequent indebtedness do not include all of the record owners who executed the mortgage containing the dragnet clause, special precautions are needed such as having the record borrowers/guarantors execute a document acknowledging the future advance and expressly approving its inclusion within the dragnet provision of the mortgage.

The attorneys at Bales & Bales, P.A. have extensive experience in successfully representing numerous Florida banks and commercial property owners and assist their clients in their objectives of lending and borrowing money secured by properties such as shopping centers, office buildings, warehouses and other structures either secured or owned and operated by clients of Bales & Bales, P.A.