Expert: Phil Nicols - 7/7/2010

Question
I purchased a property in Baltimore to be used as a rental through an LLC. The bank required me as guarantor and the said property as security. This loan does not show up on my credit reports. If the property goes into foreclosure can the bank come after my personal home or assets for the balance? Will this then appear on my credit history?

Answer
YES!

put yourself in the bank's shoes. If you were lending money to someone and they said they only want it in a numbered company name, a "shell company" you too would want additional security, especially in the wake of the recent bank problems.

Banks, especially here in Canada are far more cautious than they used to be.

An associate of mine just sold a 6plex for 550,000.00. All the buyer required was 50,000.00 from the bank. The rest they had in cash. The bank still wanted a 3000.00 appraisal! The buyer backed out of the deal out of principal! The agent ended up giving the buyer a first mortgage for the balance, which is about as secure as you can get.

As a guarantor, you might as well be the buyer. If they let you off the hook as guarantor, you have some leeway but this is doubtful.

yes it will show up on your credit if you let the property go back to the bank.

I would try to sell it, or rent it in the meantime.

you can also negotiate with banks. I don't think they are interested in asking over your property cause they have lots already. You can ask for time, reduced payments, whatever you need, you might not get it but you can certainly ask.

your other option is, a good lawyer may be able to tell a good story as to why you shouldn't be personally liable but I doubt it. Banks have lots of money to hire the best lawyers. its a fight I wouldn't want to take on.

good luck

best, Phil