Updated September 28, 2026
Paying off the loan at closing is not the same as being released from a personal guarantee on it, and sellers who assume the two happen automatically together are the ones who occasionally discover, months later, that they're still exposed to a loan on a building they no longer own. A personal guarantee is a separate contract between you and the lender. Payoff of the underlying loan satisfies the debt itself, but the guarantee needs its own release, and that release should be confirmed in writing before you sign off on the closing.
Commercial multifamily loans are frequently structured as non-recourse to the entity that borrowed the money, with a personal guarantee from the principals covering specific "bad boy" carve-out events — fraud, misrepresentation, unauthorized transfers, environmental issues, and similar bad acts. The guarantee exists to give the lender recourse against you personally in those specific circumstances, separate from their claim against the property itself.
When you sell and the loan is paid off in full, the debt the guarantee was backing no longer exists — but the guarantee agreement itself is a document, and documents don't self-terminate just because the thing they were guaranteeing has been satisfied. Until the lender formally releases you, the guarantee can remain on paper, tied to a loan that has technically been paid off, creating ambiguity that is entirely avoidable with the right closing paperwork.
A dispute arises about the payoff itself. If the lender later claims the payoff was deficient in some way — a miscalculated per diem, an unpaid fee — an unreleased guarantee is a live document the lender can point to.
A carve-out event is alleged to have occurred before the sale. If the lender believes something happened during your ownership that triggers the guarantee — even after the loan is paid off — an unreleased guarantee leaves that claim easier to pursue.
The paperwork simply gets lost in the shuffle. Closings involve dozens of documents, and a guarantee release is easy to overlook amid payoff statements, reconveyances, and closing statements. "Easy to overlook" is exactly why it needs to be on your closing checklist by name, not assumed to be bundled in with everything else.
This closing-mechanics discipline is part of the same preparation that makes any LA multifamily sale close cleanly rather than generating loose ends after the fact.
A written release of the personal guarantee, signed by the lender, not just a payoff statement showing the loan balance at zero. These are two different documents that accomplish two different things.
Confirmation of what the guarantee actually covered. Some guarantees are limited to specific carve-out events; others are broader. Understanding exactly what you were on the hook for makes it easier to confirm the release actually covers it.
Timing that aligns with the loan payoff, not a vague promise to "handle it later." The release should be part of the closing package, requested and confirmed before funds disburse, not chased down afterward when the lender's servicing department has moved on to other files.
If you assumed a guarantee from a prior owner, or if a co-guarantor is involved, confirm that every guarantor on the original loan gets released, not just you individually. A partial release that misses a co-signer can leave that person exposed even after your own name is clear.
This is one piece of a larger closing-mechanics conversation that also includes payoff of the loan balance itself and, if your buyer is taking over the existing financing rather than paying it off, an assumption rather than a payoff — which raises its own guarantee questions, since an assuming buyer typically has to qualify with the lender and provide their own guarantee before you're released from yours. If you're underwater and negotiating a short sale, the guarantee question intersects directly with the lender's approval of that shortfall — a short-sale approval letter should address the guarantee explicitly, because a lender who agrees to accept less than full payoff does not automatically agree to release your personal liability for the difference.
Whatever the specific structure, this is a document to have your real estate attorney review as part of the closing package — the exact language of a release, and what it does or doesn't cover, is not something to sign without a second set of eyes.
A loan payoff closes the account. A guarantee release closes your personal exposure. Sellers who treat them as the same event are the ones who occasionally get a call from a lender's counsel a year later about a building they haven't owned in twelve months. Ask for the release by name, in writing, before you sign anything at closing — it's one of the simplest protections in the entire transaction, and one of the most commonly skipped.
Is every commercial multifamily loan personally guaranteed?
No. Many are structured as fully non-recourse with no personal guarantee at all, while others carry a guarantee limited to specific bad-acts carve-outs. Check your original loan documents to know which situation applies to you.
What if my lender won't provide a written release?
Push for it before closing, with your attorney's involvement if needed. A lender who has been paid in full generally has no reason to withhold a release — resistance here is worth understanding before you close, not after.
Does this apply if my buyer is assuming the existing loan instead of paying it off?
Yes, and it's more complicated in that scenario. Your release typically depends on the buyer qualifying with the lender and providing their own guarantee, so confirm the timing and conditions of your release specifically before agreeing to an assumption structure.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
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