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LR2A-JV Limited Partnership v. Bent

A-3244-01T2 (N.J. Super. App. Div. 2003) (Unpublished)

GUARANTIES—Unless a guaranty agreement promises that a lender will expedite a property sale upon default, a guarantor cannot claim that the lender’s delay in foreclosing allowed the property’s value to drop and the guaranteed deficiency to climb.

After a bank loan went into default and the related mortgage was foreclosed, the guarantors claimed that the bank impaired the collateral. They claimed that, by waiting and not pursuing its legal remedies against the borrower or the property, the bank allowed the property’s value to diminish below the amount of the debt to the detriment of the guarantors. They argued that had the bank been diligent in either pursuing the debtor for the money or foreclosing earlier, the value of the property might have exceeded the amount due obviating the need to pursue the guarantors. The lower court rejected this claim and the Appellate Division affirmed. An impairment of collateral claim is asserted when the creditor releases the collateral or takes improper action or inaction that causes a decline in the value of the collateral. Here, there was no evidence that the value of the property itself decreased. Rather, the guarantors argued that the value of the property would have been sufficient to pay the debt if the bank foreclosed earlier. The Court found that it was not a proper impairment of collateral claim. The Court also rejected the guarantor’s claim of laches, an unreasonable and unexplained delay that prejudices the guarantors. It noted that, in the guarantee, the guarantors waived notice, demand of payment or notice of sale. Further, the guarantee did not require the bank to expedite any foreclosure or collection proceeding.

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