Lenders should consult legal counsel when determining whether or not spouses should sign lien instruments on separately owned property.Īlthough the collateral may be owned individually by the principal guarantor or jointly by the principal guarantor and his or her spouse, it is important for lenders to require the appropriate spousal guarantees to properly perfect their security interest in the collateral. In certain states, spouses must sign a deed of trust or mortgage, even if they have no ownership interest in the property in order to waive certain statutory or common law rights in the property, but in other states, spouses do not have to sign the lien instrument if the property is clearly separate property. In this situation, lenders must also consider whether or not to obtain the spouse's signature on any lien instruments for separately owned collateral. In these situations, the Community Property/Spousal Interest Limitation option applies because the lender needs the spouse to waive his or her community property or spousal interest in the collateral owned by their spouse. What if the collateral is held solely in the name of the principal guarantor? If the collateral is located in a community property state and the guarantor is married, lenders will need the spouse's limited guarantee in order to properly perfect their lien on the collateral. Accordingly, if the collateral is held in the name of both spouses, the Collateral/Recourse Limitation applies, despite the collateral being located in a community property state. Because the Community Property/Spousal Interest limitation only serves to waive the spouse's inchoate community property interest, this may not be sufficient to properly perfect a lien on jointly owned collateral. If the collateral is owned by both spouses, but is located in a community property state (California, Arizona, New Mexico, Texas, Washington, Idaho, Louisiana, Nevada and Wisconsin), lenders may be tempted to use the Community Property limitation in the SBA Form 148L, but this would not be correct because the goal is to perfect the lender's lien on the jointly owned collateral. This means that the spouse's guarantee is limited to the amount the lender obtains from the jointly owned collateral which is referenced in the guarantee. If collateral is held in the name of both spouses, the Collateral/Recourse Limitation applies, and the SBA Authorization and guarantee should list all collateral securing the loan which is owned jointly by the spouse/limited guarantor. If a lender's goal is to limit a spouse's guarantee to their interest in specific collateral securing the loan, the lender will have to choose between two applicable limitations in the SBA Form 148L, Unconditional Limited Guarantee: (1) the Collateral/Recourse Limitation or (2) the Community Property/Spousal Interest limitation. If a spouse has no ownership interest in the borrowing entity, or owns less than 5%, a lender must still consider whether a limited personal guarantee of the spouse is necessary to perfect its lien on collateral. ![]() ![]() But if that individual's spouse owns 5% or more of the borrowing entity and the combined ownership interest of both spouses is 20% or more, then the spouse must also provide a full personal guarantee (SOP 50 10 5(B), page 182). Most lenders are familiar with SBA's requirement that an individual who owns 20% or more of the borrowing entity must provide an unlimited full personal guarantee of the loan (13 CFR 120.160(a)). This requirement often leads to questions about whether a principal's spouse must guarantee the loan, and if so, whether the guarantee must be full or limited. When an individual alone or an individual and his or her spouse together own 20% or more of the borrowing entity, a lender must consider taking assets that are owned individually by either spouse, as well as assets owned jointly, as collateral to secure the loan, unless there is a legal impediment (such as an irrevocable trust with an independent trustee) to taking the spouse's individually-owned property as collateral (SOP 50 10 5(B), page 182). Because the SBA requires lenders to collateralize a loan to the maximum extent possible up to the loan amount (SOP 50 10 5(B), page 181), lenders often face situations in which they must require individuals to pledge available personal assets as collateral in an attempt to fully collateralize the loan.
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