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How does former chair shed loan guarantee?

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How does former chair shed loan guarantee?

After being chairman of a nonprofit for 12 years, I resigned and left the board because of things going on that I didn't approve of. In 2007, I co-signed and guaranteed a loan on the building for $132,000. Approximately $63,000 is still owed on it. I want my name off the loan. What can I do?

If the loan agreement didn’t have some provision to release you before the loan is fully paid, you are going to have to do some really sweet talking.  If the lender is a bank or other commercial institution, it has no incentive to give up any of its security.  If you can convince the lender that there is enough equity in the property so that it no longer needs your personal guarantee, it may be willing to let you go.  It will be helpful if you personally are an important customer of the lender, or if the organization is an important customer and the new board supports your request.  You could have some leverage with the prospect of other business, but I wouldn’t count on it.  You may just have to live with the obligation and hope that the organization has a sufficient interest in protecting its building that it won’t default on the loan.

Your situation presents a good example of the need to think ahead to obtain protection, if possible, on any personal guarantee.  The guarantor may be able to negotiate a release when a certain amount of the loan is paid, and to get an indemnification from the organization so that it has to reimburse the guarantor from other funds if the guarantor has to make payments on the guarantee.  In general, officers and directors should be very leery of making a commitment that they couldn’t handle as an outright contribution.  It may become one involuntarily.

Tuesday, March 11, 2014

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