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Hi everybody - George Sourris, Empire Legal.

Today's topic: Guarantor Advice QLD - everything you need to know! 

Today's topic is one of those things that you don't really ever think about until you have to. Guarantor advice. Let's jump straight in.  

So, you've been asked to be a guarantor on a mortgage for a property purchase. Maybe it's for a family member or a close friend. It's a big decision and it's important to understand what you're getting yourself into. 

What is a guarantor?

In simple terms, a guarantor is someone who agrees to take the responsibility of a loan if the primary borrower can't make the repayments.  Think of it as a safety net for the lender. If the borrower defaults, the lender can come to you for the money.

Being a guarantor does carry risk for you and your assets, so it's important to know what these risks are.  When you become a guarantor, you're essentially putting your own financial stability on the line. After all, you often have no control over whether the borrower is compliant with their loan repayments.

If the borrower can't make their mortgage payments, then you'll be expected to cover them. This could mean dipping into your savings or even taking out a loan yourself. 

Obviously, this can be catastrophic in the event that the borrower cannot make the payments and could even result in bankruptcy.

Common examples for guarantor situations.

One common example is the classic - parents agreeing to be guarantor on a mortgage for their child's first property purchase. In the event their child cannot make the mortgage repayments, the parents guarantee they will come good and pay the debt.

Similarly, a company when obtaining a loan will usually have to be guaranteed by its Directors, in their personal capacity. So, for example, let's say Empire Legal Pty Ltd was to buy a property and cannot make the repayments, then myself and my business partner Abi will be liable to pay the debt, because we guaranteed it from our personal funds or asset pool. 

As a guarantor, will this affect my borrowing capacity? 

Almost certainly. The bank will want security that you can pay - which may involve taking a mortgage or a second mortgage over a property that you own.  Even if everything goes smoothly, being a guarantor can affect your ability to borrow money in the future.

Lenders will see you as having a potential liability, which could make them hesitant to give you a loan. Your credit score could take a hit if the borrower defaults and you can't cover the payments. This is why it's soo important that guarantors get independent legal advice BEFORE signing these onerous documents. 

Legal advice. 

By signing a guarantee, you'll be signing a legal document that binds you to the terms of the mortgage. This isn't something to take lightly. Make sure you read and understand all the fine print before putting pen to paper. Due in part to the high liability attached, many lenders now make it mandatory as part of the loan that has a guarantee involvement for an independent solicitor's guarantor advice certificate to be obtained. That's where we come in!

What do you mean independent solicitor's guarantor advice? 

Almost every bank will make sure the guarantor is receiving the appropriate advice from a solicitor that is INDEPENDANT of the transaction. This means a solicitor who is NOT from the same law firm that is acting on behalf of the borrower. To obtain the independent solicitor's guarantor advice certificate, the guarantor would be required to attend a face-to-face meeting with that independent solicitor to run through the risks associated with being a guarantor, and ensure they understand before they sign on the dotted line. 

Often we see this towards the tail end of a purchase transaction. The lender issues the mortgage documents, and the guarantor advice documents are required to be signed, so the bank is in a position to settle. If we're acting for the purchaser themselves in the conveyance, then we have a conflict of interest and CANNOT give that legal advice to the guarantors. 

Instead, the guarantors have to go to another lawyer from another law firm that is arm's length removed from the conveyance. Despite what a mortgage broker or sometimes even a lending institution may tell you, if the documents say "independent", then it means exactly that. No prudent solicitor who is acting for a purchaser in a conveyancing transaction would ever sign an independent guarantor solicitor advice document. 

Being a guarantor on a mortgage is a generous and supportive gesture, but it's not without its risks. Make sure you fully understand what entails and take the necessary precautions to protect yourself. 

If we are NOT acting in the conveyance, we can help with an independent solicitor's guarantor advice.  If we are acting in the conveyance, we have several local solicitors that we can introduce you to, so the guarantor can get their document signed and returned back to the lender fast, and you can get ready to settle your property ASAP.

Okay guys, that's everything you need to know about guarantor advice in Queensland. 

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George Sourris. Empire Legal.

If you have any questions, you can email me: george@empirelegal.com.au. 

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Thanks for reading everybody. See you on the next one.

Ladies and gentlemen, please keep in mind that all advice is general in nature and does not constitute legal advice. This is authorised by George Sourris, Empire Legal, Brisbane, Queensland, Australia.

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Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.