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TheBadger: "I don't know were else to post this question even though it is not a tax question, so here goes.

A, B & C start a business XYZ and borrow money from the bank to do so. XYZ is the borrower. In addition A & B grant security interests (mortgages in this case) in other valuable property that they own personally. Lastly, A, B & C also sign as joint & several co-guarantors on the loan.

XYZ goes belly-up & defaults the loan. Needless-to-say, the bank is going to get paid; but in what sequence? Is the bank required to execute, e.g. foreclose on the security interests first in order to satisfy the loan balance or may the bank skip past the loan security and go directly at the co-guarantors first for payment; in this case C because he is the deep pocket; therefore leaving C paying the whole loan but with a contributory claim against A & B?"


You need to look at the loan documents, but any decent set of loan papers (absent some very peculiar state law issue) will allow the lender to proceed pretty much in any fashion it wishes.

C may be able to get subrogated to the lien positions to try and collect on his contribution claim. In fact, C may wish to consider buying all the loan paper.

I just hope that you are not C.

Regards, JAFO

Disclaimer:

Yes, I am a lawyer, BUT THIS IS NOT LEGAL ADVICE; it is only general information. NO CLIENT RELATIONSHIP IS INTENDED TO BE CREATED, NOR IS ANY SUCH RELATIONSHIP SO CREATED. FOR SPECIFIC LEGAL ADVICE YOU SHOULD TALK TO A LAWYER IN YOUR AREA.
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