When an assignee (buyer) of a mortgage loan needs to enforce that loan in court, the assignee must establish that it is in fact the lender/mortgagee or, in other words, the current owner of the loan. See my standing-related posts from 10-25-13 and 12-19-14 for more on this idea. Today I specifically address the assignment of a guaranty.
No assignment. As the buyer of a loan, or counsel for the purchaser of a loan, one of the closing documents probably should include a separate and distinct assignment of any guaranties. With that in hand, there will be zero doubt about your ability to enforce the guaranty. I have been involved in cases, however, where no such assignment exists. Instead, there only is a broad assignment of all loan documents or perhaps only assignments of the promissory note and mortgage. This was the backdrop in Riviera Plaza v. Wells Fargo, 2014 Ind. App. LEXIS 208 (Ind. Ct. App. 2014), a case in which the guarantor of a commercial mortgage loan appealed the trial court’s judgment against him on the basis that the plaintiff assignee, Wells Fargo, did not produce an assignment of the guaranty. The guarantor asserted that the record was devoid of evidence showing that there had been a valid assignment of the guaranty to Wells Fargo.
Evidence. In Riviera, there existed an assignment of mortgage, an allonge to the promissory note and a bill of sale of the loan documents from the original lender to Wells Fargo. The bill of sale mentioned guaranties. Wells Fargo also had a general assignment of loan documents that referenced the note and mortgage and “all claims secured thereby.” Finally, the language in the guaranty in Riviera, which language is fairly common, indicated that the guaranty “shall follow the note and security instrument . . .”. (Read the opinion for a more expansive quote from the guaranty.)
Chain of title established. The Indiana Court of Appeals found in favor of Wells Fargo with respect to the chain of title defense asserted by the guarantor:
In light of the language in the assignment referring to all “claims secured thereby,” . . . the language of the Guaranty indicating that the Guaranty “shall follow the Note and Security Instrument,” and [the guarantor’s] failure to object to the substitution of Wells Fargo as the real party in interest and plaintiff on the amended complaint, we conclude that the trial court did not err in determining the Wells Fargo held a valid assignment of the Guaranty.
Not required. The Court’s holding in Riviera generally is consistent with my understanding of the law, which is that guaranties follow the note and mortgage and that a separate and distinct assignment of guaranties is not required. Again, if you are involved on the front end, a separate assignment is preferable. But if you’re litigating with loan documents that lack such an assignment, usually you can find supporting language in the guaranty itself, coupled with language like “and all claims secured thereby” in some other assignment document, which will be sufficient to demonstrate that the assignee holds the guaranty. Plus, barring a prior release of the guarantor, why wouldn’t the guaranty automatically follow the note and mortgage?