Q: Please let me know if requesting personal guarantees for the purchase of fix and flip investment properties is legal.
Please let me know if personal guarantees requested by hard money lenders, for the purchase of fix and flip investment properties, purchased in the name of an LLC, are legally enforceable. Thank you
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A:
In California, it is generally legal for hard money lenders to request personal guarantees for the purchase of fix and flip investment properties. This is a common practice to mitigate the lender's risk, especially when the property is purchased in the name of an LLC. The personal guarantee holds the individual personally responsible for the loan, even if the LLC defaults.
Personal guarantees requested by hard money lenders are usually enforceable under California law. However, the enforceability depends on the specific terms and conditions outlined in the loan agreement. It's essential that the agreement is clear, legally compliant, and that the guarantor fully understands the obligations they are taking on.
If you are asked to sign a personal guarantee, it's advisable to review the terms carefully. Consider seeking legal counsel to ensure that you understand your responsibilities and the potential risks involved. This way, you can make an informed decision before committing to the guarantee.
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