Have You Personally Guaranteed a Commercial Loan? If so, You Need to Know About Changes in Washington Law
Jan 12, 2016
The law changed in 2015 regarding the personal guarantee of commercial loans, and we want to ensure that you are made aware of the change. In the past, many people assumed that deficiency amounts on debts people assumed were extinguished after a non-judicial foreclosure. In the case of Washington Federal v. Harvey, 340 P.3d 846, 2015 WL 114165 (2015), the Washington Supreme Court ruled that guarantors of secured, commercial loans remain liable for deficiency judgments even after a non-judicial foreclosure.
Because of Harvey, lenders may demand deficiency amounts on debts guarantors may have assumed were extinguished after a non-judicial foreclosure of property. Needless to say, this can be a very unwelcome surprise to people unaware of this ruling. It may be especially unwelcomed if a parent guaranteed the start-up obligation of one of their children, a friend did so for another friend, or a bought-out owner was not released from a general bank guaranty at the time of redemption or buy-out.
If a person is facing overwhelming debt because of the non-extinguished debt after a non-judicial foreclosure (due to the Harvey decision) or because of other debts, they may, of course, qualify to file a bankruptcy; however, just raising the specter of bankruptcy may be enough to force the creditor to the bargaining table to negotiate the a settlement of the debt without the need to file for bankruptcy.
Sometimes it is necessary to begin bankruptcy proceedings as if you are going to file for bankruptcy, even if your hope is still that you can avoid actually filing. If the creditor then demands financial disclosure, the client has provided signed and ready-to-file bankruptcy schedules – an effective way to bolster the bankruptcy threat.
At times it is in a client’s best interest to calculate and draft a liquidation/bankruptcy analysis to demonstrate to the creditor that there is more to recover, and sooner, by settlement than through a bankruptcy. In some cases we can provide the written bankruptcy analysis to the client’s litigator to use, or sometimes we do the negotiations ourselves.
If you have personally guaranteed a commercial loan, or if you are considering giving your personal guarantee to a commercial loan, and you would like to discuss your options and potential risks, please contact Pacific NorthWest Law Group.