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The Second of the Twin Dangers | By: Fellow GDREIA Members

The Second of the Twin Dangers
By Jeffery S. Watson, Esq.

In a previous email, I gave some cautionary advice and questions relative to a borrower signing a personal guaranty. These personal guaranties are frequently required in commercial lending environments wherein the main borrower is an entity such as a corporation or an LLC.

The second of the twin dangers is a cognovit promissory note. I realize that not all states recognize and permit cognovit promissory notes. Those states that do only allow them to be used in a business context; however, I have often seen real estate investors who are borrowing money for their business, or for a rehab or flip, willingly sign a cognovit promissory note without fully understanding what can occur. A properly formatted cognovit promissory note includes the warning language and agreement that the borrower will...

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