Sham guaranties" in California

California courts have consistently held that a guarantor who, by virtue of its corporate position (such as general partner of a partnership borrower), is already fully liable for an entity’s secured CRE debt is entitled to the non-waivable antideficiency and one-action protections of the borrower entity.  (By contrast, in one case, a guaranty from a corporation of an individual’s debts was held not to be a sham, as the guarantor was a genuine entity with its own assets, not merely a shell.) Unlike most independent guarantors, such “sham guarantors” are deemed to be equivalent to the borrower and therefore may not waive their protections under the one-action and antideficiency rules.   Note that a finding that a guarantor is actually a principal obligor in guarantor’s guise does not necessarily invalidate a guaranty, but instead only subjects it to the antideficiency and one-action defenses. However, any attempt by a lender to allow or insist that the intended borrower finds someone else to take title to the property so that the intended borrower can instead become the guarantor invites trouble, as it may tempt a court to view that guarantor as the “real” borrower and thus able to enjoy the nonwaivable protections discussed elsewhere in this blog.