Archive for March 18th, 2012

Silent Spouse as Guarantor – a Neat Defense

In addition to representing hundreds of residential homeowners facing foreclosure, Stopa Law Firm also represents Floridians with commercial foreclosure disputes.  In that context, I’m regularly confronted with clients who procured a loan for a business venture and who were made to sign a personal guaranty.  Often, that client’s spouse (usually a woman) was also made to sign a (separate) personal guaranty even though that spouse had nothing to do with the business or the loan – she just happened to be married to the borrower.

This fact-pattern happens so regularly that many consumers and even attorneys might not think much of it.  According to conventional thinking, “the spouse is liable under the guaranty, despite her lack of involvement; after all, she signed the guaranty.”

Not so fast.

I recently came across a case, published by Florida’s First District Court of Appeal in July, 2011, which strongly indicates the ”silent spouse” in this type of situation may be able to avoid liability under the guaranty.  In a case of first impression in Florida, Chen v. Whitney Nat’l Bank, 65 So. 3d 1170 (Fla. 1st DCA 2011), ruled the Equal Credit Opportunity Act, 15 U.S.C. Section 1691, is recognized in Florida as a valid defense for consumers in this type of situation.  In fact, the Chen court reversed a summary judgment against the spouse under her guaranty because she had a viable defense under the ECOA.  In the court’s words:

Here, [the husband] asserted in his affidavit that he was independently creditworthy and that his spouse, Stephanie Lin, was required to personally guarantee the loan simply because she was married to him.  This affidavit raises genuine issues of material fact as to the legality of the guaranty executed by Stephanie Lin under [Equal Credit Opportunity Act], which, as discussed above, is a legally sufficient affirmative defense.

As I interpret Chen, any time a spouse is required to sign a personal guaranty on a commercial transaction even where his/her spouse was independently creditworthy, this spouse has a complete defense to the enforcement of that guaranty under ECOA.  As the Chen decision explains, not all courts in the United States agree, but Florida does.

What I find so neat about this defense is that it doesn’t matter if the guaranty (or the underlying loan) is in default or if the guarantor has any other defenses.  Under this defense, the guarantor is saying the guaranty shouldn’t have been entered in the first place, so there is no liability under the guaranty.

All commercial guarantors should be aware of this defense.  It’s very common in commercial cases for banks to require both spouses to sign a guaranty, even though the spouse conducting the transaction is independently creditorworthy.  Of course, this is yet another example of a defense that experienced foreclosure defense attorneys can find to assist consumers in defense of their foreclosure cases.

Mark Stopa

Posted in Main | 2 Comments »