If your lender has required that your loan documents be witnessed or signed in front of a solicitor, more often than not they actually require the solicitor to provide a certificate of independent legal advice. These are also known as solicitors certificates or guarantors certificates.
Many lenders will make it a condition of their loan that a borrower can only be advanced the loan if a guarantee is provided by a guarantor. This is particularly the case with commercial loans where often directors guarantees are required of company or trust borrowers. It can also be required when family members are guaranteeing loans on behalf of each other. It is the lender's way of ensuring that if the borrower cannot meet the repayments of the loan and defaults on its obligations, that it can enforce its rights against the guarantor. Given the high risk involved with providing a guarantee, most lenders require a guarantor to obtain independent legal advice prior to signing their loan documents.
By requiring the guarantor to obtain independent legal advice, the lender ensures that the risks of providing a guarantee have been properly explained to the guarantor, that the guarantor has understood those risks and signed the guarantee documents freely and voluntarily. It therefore “locks in” a guarantors liability.
A guarantor of a loan makes a promise/undertaking to the lender that it will meet the payments under a loan if the borrower defaults under the loan agreement. Often, if there are multiple guarantors they will all be jointly and severally liable for the whole amount guaranteed. A guarantor will often be liable for the whole debt in addition to any penalty interest and legal costs incurred by the lender in enforcing the guarantee.
Depending on the loan and lender's requirements, guarantees can be limited to a certain dollar amount. If you are providing a guarantee, it is a good idea to request a limited guarantee from your lender. Of course, you should negotiate this when making your loan application and not after the loan documents have been drawn up.
If a loan is secured against a property, generally a lender will enforce the loan against the secured property first through a mortgagee sale. However, if there is a shortfall between the sale price of the property and the loan amount (including any penalty interest and legal costs), the shortfall will be payable by the guarantor. So it is important to consider the amount of the loan and security provided by the borrower before signing a guarantee. If you cannot afford to meet the obligations of the borrower under the loan, then you should not sign a guarantee.
You will need to provide a copy of the loan and guarantee documents to your solicitor. It is easiest if you can provide these in electronic format prior to your meeting. After reviewing the documents, your lawyer will be able to provide you legal advice about the guarantee and answer any questions you may have. However, lawyers are not able to provide you with financial advice about the loan or transaction. You will be required to produce 100 points of identification. Once satisfied that you have understood the nature and effect of the guarantee, a solicitor will witness you signing the guarantee and then provide you with a certificate that you can provide your lender. The lawyer will also require you to sign an acknowledgement that you have received the legal advice.
Our office has assisted many borrowers, including our conveyancing clients, with obtaining independent legal advice about their loan and guarantee documents. Contact us to see how we can help you.
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