Don’t Assume Your House Is Safe Because The SBA Does Not Have A Mortgage Or Lien On It

Think your house is safe because the SBA doesn’t have a mortgage or lien on it? If only it was that easy. Unfortunately, they are smarter than that and have laid a trap that many fall into. The personal guaranty is a path straight to everything you and your spouse own.

Keep in mind that almost every SBA loan we see, and certainly many non-SBA guaranteed, secured bank loans also, require spousal guaranties on the notes. This may appear harmless in the beginning when all is well but in the end, when default is looming and you review your exposure, please count your home as being “in jeopardy”. It will be additional collateral to the loan.

At some point in the default process, the bank will seek and get a lien on your home. That is as good as a mortgage as it attaches the note to the collateral home. They get there by following the two guaranties provided from the principal borrower and his/her spouse. When push comes to shove, your home is in jeopardy and becomes a target for either liquidation or simply pressuring you, the borrower, into compliance on some level more than one would provide if the home was not at risk. That is the reality. One way or another the SBA will get to your home and every other asset you own.

The answer, of course, is to work out the debt and settle it for affordable losses and not risk losing the house altogether. (This is discussed elsewhere in this blog.) The important point to understand is that once the spouse signs the guaranty, everything the family owns is then collateral for the note and can be liquidated by foreclosure and auction upon default.