A solicitor’s guarantee advice is a method of demonstrating to the lender that the potential guarantor does indeed know and understand what they are guaranteeing, that they have the capacity to guarantee the loan and that the potential guarantor understands the legal consequences of agreeing to guarantee the loan.
Put simply, a solicitor’s certificate of guarantee advice reflects that the lender understands their responsibility to guarantee the loan.
History of Guarantee Advice
While a “solicitor certificate” or “guarantee advice” may seem like a simple exercise of witnessing a signature, it is not. Indeed, the rationale behind solicitor’s guarantee certificates finds itself in High Court judgments dating back to the 1980’s.
The requirement for guarantee advice/solicitor certificates came about after the High Court case of Commercial Bank of Australia Ltd v Amadio. In Amadio the High Court concerned itself with a situation where the parents (Mr and Mrs Amadio) were the guarantors for their son’s loan. The son defaulted on the loan and the parents, as guarantors, were required to secure the loan. Mr and Mrs Amadio argued that they did not understand the nature of the guarantee when they agreed to be guarantors and as a result were not liable to secure the loan. The High Court was sympathetic to this argument and found it in Mr and Mrs Amadio’s favour. In principle, the guarantors were absolved of their liability to guarantee the loan.
Why do I need it?
It may be that a young person is seeking to enter the housing market and takes out a loan, but is unable to guarantee the loan (i.e. is unable to provide the required security for the loan). In such circumstances, the potential borrower will either need to take out Lenders Mortgage Insurance (which can be an expensive exercise), or the potential borrower may ask someone – like a parent – to guarantee the home loan. Where a guarantee is being given, that guarantor will require a solicitor’s certificate.
A solicitor’s guarantee certificate will commonly be required where:
- Parents are providing a guarantee for a child’s home loan;
- A borrower is seeking a home loan, but contributing less than 20 per cent of the property value;
- A husband, wife or de-facto spouse are guaranteeing a debt for their spouse or partner; or
- There are loans made to a family trust.
What is the process of providing guarantee advice?
The granting of a solicitor’s guarantee certificate is not just a simple exercise of witnessing a guarantor’s signature. It requires us to ensure that a potential guarantor has read all the documents pertaining to his/her guarantee and understands the legal consequences of agreeing to be a guarantor.
Oftentimes, the consequences of guaranteeing a loan can be serious. It is our job to ensure that any potential guarantor understands those consequences and that the guarantor will be protected should something bad happen. To that end, our solicitors will provide you with independent legal guarantee advice at our offices in Adelaide, with an appointment generally lasting about 45 minutes.
How much does it cost?
Solicitor’s Certificates of Guarantee Advice is a niche service that few Adelaide law firms provide. Most firms will charge a fixed fee, but some may provide the service at an hourly rate.
Wadlow Solicitors provide affordable rates for the provisioning of guarantee advice which is well below the alternative option: taking out Lenders Mortgage Insurance. Call our offices on (08) 8212 2955 to arrange an appointment with a solicitor.