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  • Writer's pictureJerry Ipsen, CFE, MBA

Fraud and the Bad Boy Guaranty

Updated: Sep 9, 2020

It’s important to understand how lenders are protected against fraud perpetrated by dishonest borrowers and how these acts can trigger "Bad Boy Guarantees." I believe Timothy Dietrich and Troy Rider from Barley Snyder had it right by separating "Bad Boy Guarantees" into two groups.

They do this by describing the events or coinciding triggers as either “Above the Line” or “Below the Line” acts.

· Type 1 or “above the line” acts, usually fraudulent in nature, causing lenders to suffer losses or incur expenses due to borrower’s misconduct.

· Type 2 or “below the line” acts, usually result from the borrower’s inability to maintain payment of taxes, renew insurance, compliance with loan terms, etc. The borrower or guarantor is still liable for the full debt or deficiency usually following foreclosure.

Examples of Type 1 (above the line) triggers but not limited to are:

· Fraud or intentional misrepresentation by borrower or any of certain related parties in connection with the loan;

· The gross negligence or willful misconduct of borrower;

· The removal or disposal of any portion of the collateral after an event of default;

· Borrower’s misapplication, misappropriation or conversion of rents received by borrower after the occurrence and continuance of an event of default;

· Borrower’s misapplication, misappropriation or conversion of tenant security deposits or rents collected in advance;

· The misapplication, misappropriation or conversion of insurance proceeds or condemnation awards;

· Any act of arson by borrower or any of certain related parties;


Inspiration for this article came from "Bad Boy Guarantys" written by Timothy Dietrich and Troy Rider of the law firm, Barley Snyder. www.Barley.com


Inquiries should be addressed to jerry@ipsenduediligence.com




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