Personal Guaranty Review Checklist: A Practical Checklist

Summary. A personal guaranty is usually presented at a closing table with the loan proceeds waiting, and it is signed without negotiation because the alternative appears to be no loan. That is frequently wrong: several terms are negotiable, a few are not, and one federal rule can void the document entirely. This checklist gives an owner and their counsel a structured review — what the guaranty covers, whether it is capped, what defenses have been waived and which survive waiver, whether the spousal signature was lawfully required, and how a guarantor exits. It also includes the lender's drafting checklist.

What this checklist is for. Reviewing or drafting a personal guaranty. For the doctrine, see Personal Guaranties and Suretyship Defenses.

Phase 1 — What does it cover

Identify the obligations guaranteed: this note only, this facility, or all present and future obligations of the borrower to the lender.
Determine whether it is a guaranty of payment (the lender may sue you immediately on the borrower's default) or a guaranty of collection (the lender must first pursue the borrower to judgment). Nearly all commercial guaranties are the former, and the distinguishing sentence is short.
Determine whether it is absolute or conditional, and note that most forms waive presentment, demand, protest, notice of acceptance, notice of default, and notice of nonpayment in one sentence.
Determine whether it is continuing, covering obligations incurred after signing.
Determine whether it covers interest, default interest, costs, and attorneys' fees, and whether those are inside or outside any cap.
Determine whether it covers swap or hedging obligations, and whether that is intended.
Confirm the consideration. A guaranty given contemporaneously with the loan is supported by the consideration to the borrower; one given later needs separate consideration — forbearance, an extension, or new credit.
Confirm the guaranty is in writing and signed, as the statute of frauds requires.

Phase 2 — Limits worth negotiating

A dollar cap, stated as inclusive of interest, costs, and fees.
A percentage cap tied to ownership, particularly where owners hold unequal stakes.
Several rather than joint and several liability. Lenders resist strongly; ask anyway.
A time limit, or automatic termination on a defined event — a sale, a refinancing, a coverage ratio maintained for a defined period.
A burn-off reducing the guaranty as the loan amortizes or as performance targets are met.
Exclusion of future facilities not yet contemplated.
Notice of default and a right to cure before the guaranty is called.
Notice before any collateral disposition, and a right to bid or to purchase the loan at par.
Release of the guaranty on a defined transfer of the guarantor's ownership interest.
For springing recourse in real estate: carve-outs from the full-recourse triggers for involuntary bankruptcy filings not consented to and dismissed within a stated period, for filings after the lender commences foreclosure, and a definition of "misapplication" that excludes good-faith operating decisions.

Phase 3 — Waivers, and what survives them

Read the waiver paragraph and identify what it gives up: defenses of the principal; release of the principal; material modification of the underlying obligation; impairment of collateral; failure to perfect; and conditions such as notice and demand.
Understand that these waivers are generally enforceable between sophisticated parties.
Identify what does not survive waiver:
- Commercial reasonableness of a disposition of collateral, which UCC § 9-602 makes non-waivable in advance and which runs to secondary obligors as well as debtors, with the rebuttable presumption in § 9-626.
- The obligation of good faith in performance and enforcement under UCC § 1-304.
- Statutory protections that are non-waivable by their terms.
In real-estate-secured transactions, identify any anti-deficiency, one-action, or fair value statute, and whether the guaranty contains the specific statutory waivers that state requires. In California these are the CCP §§ 580a, 580b, 580d, and 726 waivers and the Gradsky waiver of subrogation and reimbursement defenses — and general language does not suffice.
Consider whether the arrangement is a sham guaranty — where the "guarantor" is in substance the borrower, such as the sole member of a single-purpose borrowing entity — which in several states restores the borrower's anti-deficiency protections.

Phase 4 — The spousal signature question

Determine whether the lender required a spouse to sign.
Determine whether the applicant qualified individually under the lender's own standards. If so, requiring the spouse's signature violates Regulation B, implementing the Equal Credit Opportunity Act.
Note that a lender may require guaranties from all owners of a closely held business applied uniformly without regard to marital status; what it may not do is single out a spouse.
Note the circuit split on whether a guarantor may assert an ECOA violation defensively, left unresolved by Hawkins v. Community Bank of Raymore, 577 U.S. 113 (2016), and resolved in favor of guarantors in RL BB Acquisition, LLC v. Bridgemill Commons Development Group, 754 F.3d 380 (6th Cir. 2014).
This is not waivable, and it is one of very few arguments that can void a guaranty outright. Investigate it in every case where a non-owner spouse signed.

Phase 5 — Rights the guarantor should preserve

Subrogation — confirm it is subordinated only until payment in full, not waived permanently.
Reimbursement and indemnity from the principal.
Contribution among co-guarantors, and sign a separate contribution agreement at closing specifying shares, the treatment of an insolvent co-guarantor, and rights if one settles separately with the lender.
Exoneration, the equitable right to compel the principal to pay.
Information rights — copies of notices of default sent to the borrower, and annual financial information about the borrower.
Reinstatement provisions, which revive the guaranty if a payment is later avoided as a preference; understand that this is standard and is enforceable.

Phase 6 — Exiting

Revoke a continuing guaranty in writing the day you leave the business, delivered as the guaranty specifies, with proof retained.
Understand that revocation is prospective only: it does not release you from obligations already outstanding, nor from future advances the lender is committed to make.
Obtain a written confirmation from the lender of what remains outstanding as of the revocation date.
Where selling the business, make release of the guaranty a closing condition — obtained from the lender, the landlord, and every other beneficiary — or obtain an indemnity secured by something real.
In a divorce, remember that a marital settlement allocating a guaranteed debt does not bind the lender. Require refinancing, a lender release, or security for the indemnity.
On death, understand the guaranty generally continues as to outstanding obligations, becomes a claim against the estate, and must be presented within the state's short non-claim period.

Phase 7 — Lender's drafting checklist

Guaranty of payment and not of collection, absolute and unconditional.
Continuing, covering all present and future obligations, with defined revocation mechanics.
Joint and several where multiple guarantors.
Comprehensive waivers, including the specific statutory waivers each relevant state requires.
Reservation of rights against guarantors in any release of the principal.
Subordination of subrogation, reimbursement, and contribution until payment in full in cash.
Reinstatement on avoidance of any payment.
Financial reporting covenants — annual personal financial statements and tax returns — and a negative covenant against transferring material assets.
Attorneys' fees and enforcement costs.
Governing law, venue, jury waiver, and service of process.
Separate consideration recited where the guaranty is given after closing.
A file memorandum documenting the credit analysis showing whether the applicant qualified individually — the best defense to an ECOA claim.
No spousal signature requirement, ever, as policy.

Common mistakes

Signing at the closing table without reading, because the loan will not fund otherwise.
Not knowing the aggregate personal exposure across all outstanding guaranties.
Failing to revoke in writing on leaving a business.
A marital settlement that allocates the debt without a lender release.
General anti-deficiency waivers in a state that requires specific ones.
Permanent waiver of subrogation, converting payment into a gift.
No contribution agreement among co-guarantors, producing bitter litigation later.
A spousal guaranty obtained where the applicant qualified individually.
An uncapped guaranty where a cap was negotiable and never requested.
Post-signature asset transfers that are avoidable and that become evidence.

Primary authority

Restatement (Third) of Suretyship and Guaranty.
UCC § 3-605 (discharge of secondary obligors); § 9-602, § 9-610, and § 9-626; § 1-304.
15 U.S.C. § 1691 and 12 C.F.R. § 1002.7(d).
State anti-deficiency and one-action statutes; state confession-of-judgment restrictions; the FTC Credit Practices Rule, 16 C.F.R. Part 444, for consumer credit.

This checklist is educational and not legal advice. Suretyship law, anti-deficiency statutes, one-action rules, and exemption law vary substantially by state, and courts are divided on the availability of an ECOA defense to guarantors. Consult qualified counsel before signing, drafting, or enforcing a guaranty.