If you are planning on assisting a family member or friend to obtain a loan by offering your own property as security for the loan – also known as being a guarantor – the bank/lender will usually require you to obtain independent legal advice first, so that the Bank can be assured you are fully aware of your rights and obligations.
Being guarantor for someone else’s loan can open you up to significant risk. Even if you trust that your friend or family member will honor their loan repayments, the future is uncertain and if they default on the loan at some time in the future you stand to lose the property you have provided as security, as well as possibly being liable for additional costs and penalties. Unfortunately, such situations are becoming more common and it is therefore very important that you obtain advice from an independent lawyer, ( ie not the lenders lawyer) as regards your rights and obligations as a Guarantor, so you can make a considered and informed decision as to whether to proceed with providing such guarantee or not.
As lawyers, we are also bound by various sets of rules that govern how we practice law and the things we are required to do. One such set of rules, the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 (the Rules) sets out specific steps that we are required to follow when giving advice to people or a company who intend to be a guarantor for another person or a company’s loan. Therefore, the lawyer you choose will be bound by the Rules and is required to carry out the specific steps before they can witness your signature on the lender’s documents.
Once you have chosen your lawyer you will need to provide them with the full set of documents that the lender has provided to you so that the lawyer can review them and provide the advice to you. This may not be able to be completed at an initial appointment, and a further appointment may need to be made. You should therefore advise your friend or family member taking out the loan that you will need time to obtain the guarantee advice, and also note that most law firms will also charge a fee for providing such advice, considering the work involved.
At your appointment the lawyer is also required to:
- a) verify your identity in a very specific way – this will include seeing originals of your driver licence, passport or birth certificate – if you do not have any of these documents there are other documents that you will need to provide.
- b) require you to sign an Acknowledgment of the Legal Advice which you receive as a Guarantor;
- c) retain copies of your identity documents, the loan documents and the Acknowledgement of Legal Advice;
- d) witness you signing the guarantee documents required by the lender.
The legal advice will also outline the terms of the loan and the terms of your role as guarantor. In most cases your lawyer (and also the Bank/lender) may also advise you to obtain independent financial advice as well before signing the documents.
If you are planning to be a guarantor for someone else’s loan do not hesitate to contact one of our lawyers on 9525 8688 or wmd@wmdlaw.com.au.
