In one sentence
A guaranty allowing the lender to demand payment from the guarantor as soon as the borrower defaults, without first pursuing the borrower or the collateral.
The longer version
This is the form lenders want, because it makes the guarantor a primary obligor in practical terms. On default the lender can proceed straight against the guarantor, which matters when the collateral is illiquid or the foreclosure timeline is long.
Guarantors push back toward a guaranty of collection, which requires the lender to exhaust remedies against the borrower first. The distinction is short in drafting and large in effect, and it belongs on the closing checklist as a document to confirm rather than assume.
Common questions
- How does it differ from a guaranty of collection?
- A guaranty of payment can be enforced immediately on default. A guaranty of collection requires the lender to pursue the borrower and the collateral first and to show a remaining deficiency.
- Can a guarantor be released?
- Only where the documents provide for it, typically on a burn-down tied to performance metrics, a permitted transfer with a replacement guarantor, or repayment in full.
- Does the lender have to notify the guarantor of a default?
- That depends on the drafting. Many guaranties waive notice and presentment expressly, which is one of the provisions guarantors' counsel examines closely.
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