Understanding Guarantor Defenses in Commercial Foreclosures

Insights into Legal Considerations and Case Studies

Understanding the potential defenses that guarantors might raise is crucial for navigating commercial foreclosures.  There are various types of guaranties, including absolute, collateral, conditional, continuing, and special guaranties. Each type comes with its own language and the parties’ intent in the transaction, which can limit the scope of liability.

Common Defenses Raised by Guarantors

Defenses typically associated with general contracts are available to personal guarantors, often delaying the foreclosure process. For instance, duress is a valid defense if the party receiving the benefit of the guaranty is aware of the duress’s existence. Similarly, mitigation of damages or avoidable consequences can be proper defenses to an action on a guaranty.

Guarantors can also be released from liability if there is a material alteration of the principal debtor’s obligation to their detriment, without their consent. This principle is established in several cases in Florida. Courts have consistently upheld that alterations made without the guarantor’s consent, prior to the finalization of liability, can release the guarantor from their obligations.

Lack of Standing and Fraudulent Conduct

Lack of standing to pursue action may be raised when the guarantor fails to plead or establish ownership or possession of the note and mortgage, especially relevant due to securitization and subsequent assignments of mortgages. 

Guarantors may also assert defenses or counterclaims involving fraudulent conduct, such as fraud or fraudulent misrepresentation. 

Promissory Estoppel and Statutory Defenses

Promissory estoppel, usury, or failure to comply with loan documents can also be raised by guarantors. Statutory defenses may also apply.

Specific Defenses and Case Studies

Partial failure of consideration, payment, or setoff are valid defenses for all guarantors.

Here are some case studies illustrating these defenses:

• Goldome Savings Bank v. Bartholomew: Rejects the argument that a guarantor has satisfied its obligation if liable for a percentage of the total debt and the property’s value equaled or surpassed that percentage.
• Schaufelberger v. Mister Softee, Inc.: Establishes partial failure of consideration as a valid defense.
• Kim v. Peoples Federal Savings & Loan Ass’n of Tarentum: Discusses the guarantor’s liability concerning the unsatisfied portion of the total debt.

Each defense could present factual issues that raise serious questions over a lender’s ability to foreclose.  In conclusion, understanding and anticipating guarantor defenses can significantly influence the approach to commercial foreclosures. 

Ormond Beach Foreclosure Defense Lawyer

When it comes to foreclosure defense and personal guarantees, hiring an experienced attorney is a big decision. Andrew J. Pascale, a foreclosure defense lawyer in Volusia County, Florida, can give you valuable insights and advice. Give Andrew a call at 877-667-1211 to chat about your case. Just remember, this blog isn’t legal advice, and it’s just here to show you what’s possible.