Answer by Mary Beth Guard As they say on the Sopranos, "Fuggedaboudit." While we can certainly understand the desire to make the loan as solid as possible, there are some lines you can't cross. Does the corporation qualify for the credit? If so, you can't require a cosignor or guarantor. Even if the corporation doesn't independently qualify, there are limits on who you may require to serve as the cosignor or guarantor, as noted below.
You must base your determination on the form of ownership prior to or at consummation, and not on the possibility of a subsequent change. You cannot take into consideration the fact the parties may divorce or that an applicant’s separate party may be conveyed into tenancy by the entirety between the two parties after consummation of the loan transaction. Look only at what the ownership is prior to consummation or at consummation.
In its recent guidance on spousal signatures, here's what the FDIC had to say:
"Although a creditor may require that all partners, directors, officers or shareholders of a closely held corporation personally guarantee a loan, it cannot automatically require their spouses to also sign the guarantee, even if the guarantee is supported or secured by jointly owned property. Obtaining the signature of a guarantor's spouse is subject to the same restrictions as obtaining the signature of an applicant's spouse."
"In cases where an individual has applied for a business loan, a creditor may require the guarantee of another partner, director, officer or shareholder, but this requirement must be based on the guarantor's relationship with the business. For example, a creditor may require all partners, directors, officers or shareholders of a closely held corporation to guarantee a loan, or an additional partner, director, officer or shareholder to provide a guarantee, but it cannot single out a partner, director, officer or shareholder because he or she is the spouse of the applicant."
The same principles apply regardless of the form of business (sole proprietorship v. corporation, for example.)
Answer by Lucy Griffin Signatures -- extras and spousal -- are the leading cause of substantive violations of Regulation B. We can also expect to see enforcement cases coming from the bank regulatory agencies and from the U.S. Department of Justice. They are looking for a fact situation that is what you describe.
In case Mary Beth Guard's explanation was too elegant for your lender to understand, the bottom line is that requiring a spousal signature to guarantee the note doesn't get the lender anything except grounds for a discrimination lawsuit. It doesn't even get at the property the lender is eyeing. To get the property, you need a security instrument (where the spouse's signature may legally go as a co-owner) and not on the note.
First published on BankersOnline.com 3/4/02