Default on hard money loan

[Brian G.]

Hi guys. My partner and I have a hard money loan on a property we are flipping. We are both 50/50 owners of the llc the property was purchased under. We both personally guaranteed the loan. Loan was for 90% percent of purchase and 100% construction.  I have a few questions. Can someone help me out? 

If the current market tanks and we cant sell it to cover the loan amount we owe, how does the hard money lender recoup the money owed on the loan. 

For example: 

We sell the property for 350k and the loan amount was for 400k? 

Does the lender sue the llc for the 50k? Us individually? Am I responsible for only 25k since we are 50/50 owners of the property? 

I know we will loose the cash we put into the deal.

Can someone tell me how this works please?

[Harry Gamble]

@Brian G. The loan documents will govern. I would read your loan documents and get a feel for your legal position in the matter, then communicate with the lender. If the property is the security for the loan and there is a shortage, the LLC may very well be liable, and well as you two personally up to the full amount of the shortage for either of you, assuming liability is joint and several. But then again the loan documents govern. That being said there may be some practical reasons the lender would not pursue the difference.

Disclaimer: While I’m an attorney licensed to practice in AL, I’m not your attorney. This reply does not create an attorney/client relationship between us. My post was written for informational purposes only. Do not rely on it as legal advice. Always consult with an attorney in your state involving any matter appearing in this forum relating to legal issues