Personal Guarantee on Seller Finance Note - Advice needed!!

[Rosemary Montgomery]

I am under contract to purchase a RV park on seller finance with closing set for tomorrow. This started out as a cash deal but after numerous conversations with the seller, we came to seller finance terms with 55% down and interest only payments for 2 years, balloon on month 25. In our many conversations about seller finance terms, the seller never expressed that she would want a personal guarantee on the loan. She is real estate savvy so I'm certain that if a personal guarantee was something she wanted, she would have expressed it early on. Additionally we went back and forth on edits to the PSA and we did not agree to a personal guarantee in our signed purchase agreement. Suddenly, ONE day before closing, the title company which is also an attorneys office (the seller is not represented) tells me that their attorney recommends a personal guarantee from ALL investors on our LLC. The paralegal stated, "this is just how we typically do these transactions, and the seller won't close without a personal guarantee." Now the seller won't even call me back. Just a few days ago I was on site with the seller and we spent hours walking the property. We have always had a good rapport, no issues whatsoever until this point. We've been under contract for 6 weeks and this is a huge thing to spring on us one day before close considering it was never talked about, never agreed upon, not in our PSA, and the attorney at the title office is not even representing the seller. I had to raise money for this deal due to high down payment and there is no way my investors will agree to a personal guarantee, especially the day we are supposed to be wiring our money to title.

We are putting 55% down. Seller is obviously first position and is going to have lien on all of the park owned cottages and RV's. Is this not security enough?

I'd love any insight from this community. It is a really good deal and I've already spent thousands on due diligence and have a property manager hired and everything set to hit the ground running after closing tomorrow...

Just feeling very frustrated because this is the second big MHP/RV transaction in which a title company and attorney interfered in a way where things became contentious with the seller for no good reason (in my opinion). 

[Doug Smith]

Hi @Rosemary Montgomery, I've been a lender for over 30 years...much of that as a commercial lender with community and commercial banks. Unless a loan is to a non-profit, a publicly-traded company, or is an extremely large "MBS" deal (mortgage backed security-backed), then they will require a personal guaranty. It's pretty normal. It's a bit disturbing that the "impartial" closing agent is providing legal advice to the seller (I assume the seller chose the closing agent?). That being said, ask yourself "is it really that big of a deal"? I would sometimes get push-back from guarantors, but I would always ask them "You do plan on paying this loan back, don't you?" If you're going to pay the loan back, then this is all a mute point. I often tell our employees "You can be right, or you can be dead right". Sometimes the battle you choose to fight might be inconsequential, but it might blow a deal up. If I were the seller and this was brought up to me, I might start thinking that you have an intention to skip out on the payments if you're fighting hard to avoid a Personal Guaranty. I think it's a question of "am I going to pay the loan?" and "is the fight worth blowing up the deal?" If you have questions and want to schedule a quick call to chat about it, PM me and let me know. I'm happy to help.