OLR Bill Analysis

HB 6233

AN ACT CONCERNING SAFE HARBOR PROVISIONS FOR REVOLVING LOANS.

SUMMARY:

By law, a “commercial revolving loan,” for purposes of the open-end mortgage law, involves advances of all or part of the loan proceeds and repayments of all or part of the outstanding balance of the loan from time to time. As long as the mortgage and underlying note comply with certain statutory requirements, the mortgage and the advances made under it have priority over other claims recorded after the mortgage was recorded (including advances made after the other claims).

The law also permits a person who guarantees an open-end loan for someone else, including a commercial revolving loan, to secure that guarantee with a mortgage on his or her real estate under the same conditions as apply to the borrower if certain statutory conditions are met.

Instead of limiting these protections to “commercial revolving loans,” the bill expands them to all “commercial future advance loans,” which specifically includes (1) a commercial revolving loan wherein all or part of the loan proceeds that have been repaid may be readvanced and (2) a commercial nonrevolving loan wherein previously advanced loan proceeds, once repaid, cannot be readvanced.

EFFECTIVE DATE: October 1, 2009

COMMITTEE ACTION

Banks Committee

Joint Favorable