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Spousal guaranty

During the underwriting process, what if the bank determines that a guarantee will be necessary on the loan, are we permitted to require the spouse to guarantee? For example, in evaluating the application, the bank discovers that most personal assets are jointly owned, or the spouse contributes significantly to the income stream, and therefore the applicant would not be individually creditworthy.

The only time you can require a spouse to assume liability (guarantee the loan) would involve a commercial loan where that spouse is a director, officer, shareholder, etc., of the business. Otherwise, you can require the spouse to sign a security document to pledge the collateral, but you cannot require them specifically to assume liability for the loan. It doesn’t matter if they provide additional cash flow or the assets are owned jointly. The fact that the spouses could get divorced or the collateral value could deteriorate is a credit risk issue, not a regulatory compliance issue. If the applicant doesn’t qualify, you can request a qualified guarantor, but you can’t specify who the guarantor will be.
Learn more about Andy Zavoina’s webinar
Joint Intent, Dot the “I” and Cross the “t”

First published on 09/23/2018

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