- May 31, 2011
- Posted by: Christopher Hanson
- Category: Real Estate
Deeds of Trust on commercial real estate are often accompanied by personal guaranties – agreements between borrowers, or more likely the principals of the borrower-entity, and the lenders.
Much like the debt collectors seeking redress of sold out seconds in residential real estate, banks are going after guarantors. Aggressively. Frequently even before the banks go after the property itself! Yup, you read that right… BEFORE the banks go after the property.
Can they do that? You betcha.
The law that governs the relationships between banks, borrowers and guarantors is as complex as the bones in a human hand. And much of the time, hurts as much when smashed against aggressive debt collection efforts.
Borrowers who set up “single asset holding companies” to try to avoid personal recourse liability often give up that very protection when they sign guaranties. “Often” being the key word.
In a recent 2010 case, Bak of America v. Stonehaven Manor (( http://www.courtinfo.ca.gov/opinions/archive/C060089.PDF )), the 3rd District Court of Appeal noted that guarantors DO have the right to force banks to go after the real property first, then come after the guarantors for any deficiency – BUT that court also noted that guarantors can also waive that protection, as did the guarantors in the Stonehaven Manor case.
Can a guarantor insist upon the right to force the banks to seek the real property security first – sure they can. But they might not get the money In the first place if they do.
Remember, the Golden Rule is in play – always. He with the Gold, Makes the Rules.