Posted by Frank Chin on May 03, 2001 at 08:54:12:
Hi Eric:
You raised a few good points.
When the subject of “Personal Guaranties” can up on this board several weeks ago, my wife and I reminiced about the time she did RE financing, and when I was in Project financing field. She indicated that while they obtained these guaranties in both places she worked, she couldn’t recall one time it was invoked.
In the case of the smaller developers and small businesses in general, the business is all the business onwer has. So if the lender forecloses on the ABC company, and try to get more from Mr. Owner by calling the Personal Guranty, usually, the only thing Mr. Owner has is the ownership of ABC company.
It his case, it makes more sense to work with Mr. Owner to minimize losses at ABC company, or even settle with him.
Then what if the lender decides to play hardball? I tried that in one case.
Our company had a client in Irving, Texas, who owed close to 150K on receivable financing. We had credit insurance, and the insurer required a Personal Guaranty. This guy was real slick.
A little background. This guy owned a number of businesses, and a beautiful house. While we had the his Personal Guaranty on the ABC company, paperwork sent to him under ABC was signed by him and accepted by the XYZ company.
Now he claims we don’t have a guaranty on the XYZ company. When I called my local rep about this, the conversation somehow got to this guy’s home, that everyone is Irving is talking about it. Why ??
He said it was featured in Architectural Digest - and according to the article, millions were spent on Italian Marble.
So I decided to sue ABC, XYZ, and call the personal guaranty. I called around and finally found a large law firm in Dallas, Texas to handle the case.
First thing the lawyer said - not so fast. We have to first subpeona all his books and records for XYZ, ABC, and perhaps other entities to analyze where the money went for the last several years. Then we go to court??
“Not yet” says the lawyer. We have to take depositions from him asking him about different transactions which may be construed as fraudulent. Then we’ll see if we have a court case.
Then NINE months went by. I have two drawers full of papers from our attornies and bills were coming in at a rate of $2000 a month. When the tab passed $15,000 my boss wanted to know whats going on.
I then spoke to my rep who also advised me that when his personal guaranty was called once before, he filed personal bankruptcy to thwart it. In our case, we haven’t even gone to court to sue ABC and XYZ yet.
So my boss asked me to come up with a plan before we go broke suing this guy.
I called my local rep again to find out the name of the attorney who sued him previously. I got this gentlemen’s name, called him, and found him to be a folksy “Matlock” type attorney. He enjoyed giving me all the gory details of that previous court case.
His bottom line - he can make these guys squeal and squrim in court and look like the sleazebags that they are. The defendent decided to settle and pay after the judge and jury laughed at the answers he gave.
So I called the client - and explained we got all the paperwork and we’re ready to go to trial. He said “I’ll see you in court and hung up.”
I called back and said “I was going to tell you my attorney’s name” He said “those guys in Dallas ??”. I said “NO NO, your old friend (attorney’s name). He’s looking forward to seeing you again”.
“I enjoyed the story where YOU got the judge and jury laughing” I told him. He answer was “OK - what do you want ??”
To make a long story short, I made a deal with him, and we took 50 cents on the dollar. Because me had inurance, we took a 25% loss and the insurer took a 25% loss.
Needless to say, my boss was pleased that we’re not going broke suing this guy.
Frank