Anti-deficiency statutes do not protect a guarantor on a mortgage debt

A borrower obtained a mortgage from a lender.  Another person guaranteed payment by signing the loan documents as “Guarantor,” including a declaration that his obligation as guarantor was to pay off the loan should the borrower default. The borrower defaulted on the loan and the lender pursued the guarantor to pay the borrower’s debt. The guarantor sought to be released from any obligation to pay the borrower’s debt, claiming the agreement was not worded to constitute a guarantee, but that of a demand note since the language was consistent with a demand note. A California appeals court held the guarantor was responsible for the borrower’s debt since the contract was agreed upon by both parties to be a guarantee, not a demand note, at the time of its formation. [Gray1 CPB, LLC v. Sotiris Kolokotronis(2011) 202 CA4th 480]

Editor’s note — The guarantor expected to be released from some measure of responsibility for the trust deed debt, as the borrower was, but anti-deficiency statutes which protect the borrower in default do not provide the same protection to the guarantor on a mortgage debt. A guarantors is held to more stringent requirements to make good on debts, otherwise his signing as a secondary source of payment would be no inducement to lenders to make an otherwise higher risk loan.

Credit given to the first tuesday Journal Online — P.O. Box 5707, Riverside, CA 92517.

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