Foreclosure questions regarding LLC & Personal Guarantee

[Daniel Humphries]

I am looking for some advice for a close friend and client. He got into a deal with a hard money lender and was able to complete the house build and is waiting for the house to sell. The hard money lender is threatening to foreclose due to the length of time the project has taken. I know what everyone is going to say, just drop the price of the house and pay the lender back. He understands that, his question is, if the lender does foreclose, and the house is able to sell for enough to cover the debt plus some, will the foreclosure still show on his personal record because of the personal guarantee he signed or will it just be a foreclosure on the LLC's record? He's trying to save his credit at this point just in case.

[Tom Gimer]

@Daniel Humphries It depends on the lawsuit... and local law. Research the concept of deficiency judgments in the jurisdiction of your friend’s property.

In a simple foreclosure, the sole defendant would be the LLC owner. If the foreclosure were to result in a deficiency (the lender is not made whole), then a suit (or additional claim) against the guarantor might follow... if permitted and worth the effort.

If your friend is never a named defendant it should not affect credit. Further, if named but no judgment is entered, or the balance is $0 or negligible, same difference.