GUARANTOR LIABILITY

A peculiarity of California Anti-Deficiency Law is that guarantors of secured debts are often in a worse legal position than are the primary debtors. As discussed in other sections, most of the protections of the California Anti-Deficiency Laws cannot be waived. Thus, lenders cannot get around the Anti-Deficiency Laws, by putting waivers of their protections into the fine print; such waivers generally are not enforceable.

That is true, however, primarily for primary borrowers. In many areas, it is not true for guarantors. Guarantors are able to waive the protections of the Anti-Deficiency Laws. Civil Code Section 2856(a). Thus, if the lender’s guarantee is drafted properly – meaning that it waives every right given to the guarantor or the borrower under each of the Anti-Deficiency Laws, and all other laws benefiting guarantors — the guarantor can often be in a far weaker position than the primary borrower.

The position of guarantors is so bad, under the law, that there is a fair amount of case law on the often-litigated question of whether a person is a “true guarantor” or simply the primary borrower in another form. Torrey Pines v. Hoffman (1991) 231 Cal. App. 3rd 308, involved the situation where the borrower was a revocable living trust, and the guarantor was the person who the trustee and beneficiary under that trust. Unable to pursue the borrower, due to the Anti-Deficiency Laws, the lender pursued the guarantor. The Court of Appeal, however, found that the trustee-beneficiary of a revocable living trust is already liable for the debts of that trust. Since this person was already liable to the lender, the guarantee added nothing and had no meaning. Thus, the purported guarantor was just the borrower in disguise, and the Anti-Deficiency Laws thus protected him.

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