Guarantee Advice Information & FAQs
What is a Third-Party Guarantee?
Providing a third-party guarantee means that should the person you are guaranteeing (the borrower) not be able to honour their financial obligations regarding the loan, you (the guarantor) would ultimately be responsible for covering the repayments up to either a fixed or the total amount of the debt (where the guarantee is unlimited).
What is Guarantee Advice?
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.
A solicitor's certificate of guarantee advice will reflect that the lender understands their responsibilities in guaranteeing a loan.
Why do I require it?
Many people enter into guarantee agreements to secure a home loan for their child, or as part of various business transactions. It is important to seek independent legal advice and obtain a solicitor's certificate when providing a guarantee for any third party, even if you are certain that the person or entity you are guaranteeing will fulfil their repayment obligations.
In fact, most banks now require a solicitor's certificate to ensure that you are only entering into the agreement after seeking independent legal advice, to protect the interests of all parties involved. This has been a common requirement since the controversial Amadio case.
It may be that a young person is seeking to enter the housing market and takes out a loan, but has an insufficient deposit.
In such circumstances, the potential borrower will either need to take out Lenders Mortgage Insurance (which can be an expensive exercise), or the borrower may ask someone - like a parent - to guarantee the loan. Where a guarantee is being given, that guarantor will require a solicitor's certificate.
A solicitor's certificate of guarantee advice 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 percent of the property value;
- a husband, wife, or de-facto spouse is guaranteeing a debt for their partner;
- a family trust is the borrower; or
- a director of a company is required to guarantee that company's loan.
Who can receive it?
We provide independent legal advice to third-party guarantors (mortgagors), trustees of Self Managed Superannuation Funds (SMSFs), Family Pledges, Beneficiaries of Family Trusts, Unit Holders of Discretionary Trusts, Directors of Companies, and situations where lenders require parties to seek legal advice prior to executing loan, mortgage, security, or indemnity documents.
What is the process?
The granting of a solicitor's certificate of guarantee advice 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 their 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.
Our solicitors can provide you with independent legal advice at our offices in Adelaide, with an appointment generally lasting around 60 minutes.
Prior to interview, ensure that all documentation is obtained from the lender and read. You will need to bring in 100 points of identification. Generally a passport and driver's license will suffice.
Having provided the requisite advice, we will then provide a solicitor's certificate sought by the lender, confirming that you understand the nature and purport of the documents being executed and that you have done so without any undue influence.
How much does it cost?
A solicitor's certificate of guarantee advice is a niche service which 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 Lender's Mortgage Insurance.