A personal guarantor who has no interest in the property secured by the debt does not have standing to assert an unwarranted foreclosure. | Balch & Bingham srl


In In Re: Properties of Bay Circle, LLC., n ° 1812536, 2020 WL 1696303 (Ala. April 8, 2020), the eleventh circuit rejected the appeal of a guarantor alleging an abusive seizure, because the guarantor was not the owner of the seized property and therefore did not have standing under Article III. Here are the facts: Debtor owes two loans, both secured by real estate. The debtor then declared bankruptcy. The guarantor (a subsidiary of the debtor) had also guaranteed the two loans. The creditor then seized both properties, although the debtor and the surety allegedly expressed their desire to pay the amount owed before the sale.

The surety then sued the creditor (and added the debtor as a plaintiff in an amended claim), alleging that the creditor had no right to seize both properties because the value exceeded the outstanding debt and because that the creditor had wrongly rejected the alleged “offer” before the sale. The bankruptcy court ruled on the pleadings in favor of the creditor and the debtor and surety appealed. The debtor eventually settled with the creditor and was unsuccessful in the case. The guarantor remained the sole appellant.

The Eleventh Circuit dismissed the appeal, finding that the guarantor had not alleged the “actual bodily harm to him” required for the quality of Article III. Specifically, the Court noted that the debtor – not the guarantor – was the owner of the asset, so any loss alleged by the debtor arising from the sale of the asset was purely speculative. The surety argued that he had suffered prejudice because he had personally guaranteed the loans in question and the property could have satisfied or reduced his personal liability to the creditors. The court ruled that the personal guarantee was irrelevant, since the foreclosures paid off the debt. Even if this was not the case, the Court noted that even if recovery of the value of the lost property was appropriate, the property belonged to the debtor and, therefore, it was not clear how such recovery would reimburse the debt. alleged personal liability of the guarantor towards judgments against him individually. The court also ruled that the surety had failed to meet the higher standard of “aggrieved party doctrine” to appeal a bankruptcy court order.

This holding should serve as a warning to any personal guarantor of the debt who does not also have an interest in the asset securing the debt. Personal guarantors should consider obtaining an interest in the property or, at the very least, ensuring that they are satisfied with the terms of any loan or repayment agreement upfront, as they will have little legal recourse if they are. they have subsequent grievances regarding creditors’ rights and resources in the event of default.


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