When it goes wrong
What actually happens if you default
The sequence, the timeline, what the personal guarantee means in practice, and the point at which you need a lawyer rather than a plan.
Short answer
Default is a process with stages, not a single event — and there is usually more time and more room to negotiate in the early stages than people assume. The mistake that costs the most is going quiet.
The sequence
Event of default
Missed payment, failure to pay at maturity, or a covenant breach - lapsed insurance, unpaid taxes, unpermitted work, transferring title. Most defaults are not missed payments.
Cure period, if you have one
Commonly ten days for monetary and thirty for non-monetary. Some notes have none at all. This is the single most valuable clause in your document and most people have never read it.
Default interest and acceleration
18-29% typically, often from the date of default. Acceleration means the entire balance is due now rather than this month's payment.
Notice and enforcement
In non-judicial states, a notice of default followed by a notice of sale. In judicial states, a lawsuit. The difference in timeline is months versus a year or more.
Sale, and then the deficiency
If the sale does not cover the balance, the personal guarantee is how they pursue the rest - and rules on deficiency judgments vary enormously by state.
What the personal guarantee actually means
Your LLC is the borrower. You are almost certainly the guarantor, which means the lender's remedy is not limited to taking the property. If the sale leaves a shortfall, they can pursue you for it, subject to your state's rules.
Check whether the guarantee is full or limited, whether a spouse signed, and whether there are bad-boy carve-outs. See personal guarantees.
Why the lender is not in a hurry, and why that helps you
Securitized loan pools show roughly 5.9% of these loans seriously delinquent at 22 months and about 3.0% reaching foreclosure, REO or bankruptcy — against cumulative lender losses below 0.1%. Your equity absorbs the loss before theirs does. That is why the person on the other end of the phone sounds so calm, and it is the single most useful thing to understand before you call them. Source.
The practical consequence is counter-intuitive: because they are well protected, they are usually willing to work something out, since foreclosing costs money and produces a property they do not want. Borrowers who engage early get workouts. Borrowers who disappear get enforcement.
Get an attorney at this point
- Before signing any forbearance, modification, deed in lieu or settlement.
- As soon as you receive a notice of default or a lawsuit.
- Before transferring title anywhere, including to another entity you own.
- If bankruptcy is being discussed by anyone, including you.