Most commercial mortgage loans made to LLCs or corporations require a separate personal guarantee by the individual principals of the corporate or LLC borrower. If the investment fails economically the lender can and usually does foreclose its mortgage on the property
Most people believe that the lender will not sue on the personal guarantee until it exhausts its mortgage foreclosure remedies. Borrowers assume that the bank first would have to foreclose and determine an amount of deficiency liability before it can seek a judgment against the individual principals for the deficiency amount under the guarantees. The assumption is incorrect.
A mortgage lender can seek a personal money judgment against a guarantor prior to a foreclosure sale. Moreover, the bank can file a single complaint wherein the bank seeks a foreclosure of the mortgage against the property and also a money judgment against the guarantors for the full amount of the mortgage note. Of course, the individual guarantors can show after the foreclosure sale that the value of the property take back by the bank should offset the amount due under the guarantee judgment. See Case No. 5D11-535, Fort Plantation v. Ironstone
About the Author
Jon Alper is an expert in asset protection planning for individuals and small businesses.
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