We regularly advise parents and individuals who intend to provide a Guarantee for another person’s loan. Other names include third party guarantor loan, family pledge loan and security support loan.
Young people are often unable to provide all of the required security support in order to obtain home loans without also taking out expensive Lenders Mortgage Insurance.
Responsible lenders following ASIC responsible lending guidelines will require that a solicitor provide a Solicitor Guarantee Certificate of independent legal advice to confirm that the Guarantor fully understands the legal consequences of giving such a Guarantee.
Solicitor Guarantee Certificates of independent legal advice are provided for a fixed price – call us on 08 8278 1779 for details. Advice can be given in person at Blackwood or via Skype or Zoom video.
Some common situations where a Solicitor Guarantee Certificate / independent legal advice is needed are:
- Parents providing a Guarantee for a child’s home loan
- Home Loan Guarantee – where the borrower is contributing less than 20% of property value
- Husband/Wife or de -facto guaranteeing the debt of their partner
- Loans to Family Trusts
This is not a simple “witness your signature” exercise, but requires that the Guarantor or Guarantors have read all of the provided information prior to the interview. The interviews generally take around 45 minutes stepping through our standardised process to ensure that all Guarantors enter into the Guarantee with open eyes and fully informed – unlike Mr and Mrs Amadio
Many Guarantors will already have a very good understanding, but the lenders will still require the Solicitor Guarantee Certificate before advancing monies. Please see Loans involving Family and Friends at ASIC’s MoneySmart site.
Why has the bank made me do this?
After the Amadio case in 1983, the major banks became nervous that Guarantor parents could get out of the Guarantee by saying that they didn’t understand.
Similar cases occurred when wives signed Guarantees for their husbands benefit without properly understanding the implications. See Garcia v National Australia Bank in 1998 where again, the bank was unable to enforce the Guarantee given by the wife.
The banks response to the Amadio and Garcia cases was to require Guarantors obtain a Certificate of independent legal advice so that the banks were protected.
Why is this not a simple “witnessing your signature exercise”?
Because we are certifying for the benefit of the bank that you understand the true nature and implications of giving the Guarantee.
How long will this take me?
Usually around 45 mins, although we are happy to spend as much time as required to ensure you fully understand.
What information does my bank / broker need to provide?
We need all the documents 2 business days prior, not just the ones you will be asked to sign. It is cheaper and faster if your bank or broker emails them to us. You can retain your set. The full list will usually include:
- the loan offer and its terms and condition;
- the Mortgage and its terms and conditions;
- the Guarantee;
- the “Things to know about Guarantees” plain English FAQ document which is part of the National Credit Code;
- disclosure documents, including the loan application, other credit applications, and credit records such as overdrawns and dishonours.
Why do I need to have received the documents at least 2 busines days prior?
Because we will not give legal advice to you unless you have been given the opportunity to read them first.
That said, we strongly recommend that prior to coming in that you read at least:
- the “Things to know about Guarantees” plain English FAQ document;
- the Amadio case Wikipedia page;
- the MoneySmart fact sheet “Love and Loans”;
- the banks loan offer.
We will ensure that you have copies of these documents prior to our meeting as well as a copy of our checklist we will work through at the meeting.
Why does Kruse Legal need the documents at least 2 busines days prior?
Because we want to properly understand the nature of the agreement so that we can prepare ahead of the meeting with us. That allows us to spend our time with you giving advice and not reading the documents. While we are very familiar with most of the lenders standard set of documents, from time to time there are changes and mistakes made.
Also, if we have the documents we know that you have received them. The Amadio parents received no documents, so by asking for them we can ensure that you have received them.
In the case of complex loans for SMSF and Trusts we always draw a mud map of the structure of the loan prior to ensure everyone understands. This requires we have the documents prior.
How much will this cost me?
A fixed fee that varies depending on whether it is a simple or a complex Guarantee. We class parents going Guarantor as simple and all Guarantees of a commercial nature as complex. Please call us to discuss on 08 8278 1779.
Our costs are insignificant compared to the costs of Lenders Mortgage Insurance or the costs of paying higher interest rates for low-security loans with second tier lenders.
Do I have to come to Blackwood?
No. We can give the advice by Skype or Zoom video. You will then sign the documents “in front of us” by Skype or Zoom and then post them to us for our witnessing.
How can I protect my home if I give a guarantee?
We always provide a written plan for Guarantors to follow before they go ahead. You will leave our office with all the documents signed and a checklist of all things that you and the borrower should do – a plan to follow.
Many parents will then talk over the plan with the borrowers before returning the documents to the bank.
Can I get this advice even if the bank doesn’t require it ?
Yes. It is always a good idea to get independent legal advice before taking on liability for anther persons loan, a third party guarantor loans, a family pledge loan or a security support loan.