After Acquired Property Clause

Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)

A protective provision in a mortgage whereby the lien of the mortgage will attach to any additional property acquired by the mortgagor subsequent to the date of the mortgage.

Although this provision nominally appears to be a severe restriction upon additional borrowing power of mortgages, it may be bypassed by various methods:

1.   Redemption (through exercise of call provision if any) by proceeds of new refunding issue without such clause.

2.   Exchange offer sufficiently attractive of new bonds without the clause.

3.   Modification offer, to induce bondholders’ consent to removal of the clause.

4.   Use of purchase money mortgage in acquisition of new assets.

5.   Financing future acquisitions through subsidiaries.

6.   Consolidation (new consolidated company not being subject to such clause).

7.   Arrangements such as lease or conditional bill of sale, utilized in railroad equipment trust financing, that avoid taking title to new assets until the new financing has been fully paid for.

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