Do Guarantees Really Work?

By: Tom Muller

Guarantee agreements are an important component of many real estate transactions, ranging from loans to partnership agreements to post-closing obligations under purchase agreements. But do they really work?

Both the common law (law derived from court cases) and legislation provide many outs for guarantors. For instance, the lender must first pursue the borrower before going after the guarantor, or the guarantor may be released from the guaranty. If the borrower and lender modify the guaranteed loan in a way that the guarantor can argue will increase the likelihood of a call on the guarantee, then the guarantor may be released from the guaranty.

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