We are often requested by clients to sign off on a guarantee or sign a solicitors certificate for a bank or lender in relation to a loan or mortgage.

Unfortunately it is not as simple as just witnessing the client’s signature.

Previously the bank or lender would simply request the client to sign a contract relating to the guarantee and by doing this you were making a promise to repay the money and you would put up your assets to provide security to the bank or lender if you defaulted on your loan.

As a result of a possible conflict of interest from the banker or lender together with the fact they did not have the expertise to properly advise clients of the risks it became a requirement that a guarantee could only be provided if the guarantor obtained independent legal advice from a solicitor.

Signing a guarantee is a very serious undertaking by anyone and the documents can often be lengthy and legally complex. 

It puts your assets at risk and there was a lack of understanding that the bank will usually not hesitate to sell those assets you have offered as security, such as your house, if you default.

A guarantee is a secondary obligation to repay a debt or to do something in the event of a default. 

There are a number of instances when a guarantee is required to be signed and a solicitors certificate required such as:

• A mortgage for a home loan
• Refinancing of a current loan
• A business loan where you as a director or shareholder are required to guarantee the business or the company’s loan
• Where you are the trustee of a trust seeking funding
• Purchase of property through a self-managed superannuation fund
• Reverse mortgages
• Guaranteeing someone else’s loan
• Where you enter into a bank guarantee to secure repayments pursuant to a lease

Often client’s say to us the bank or lender just needs you to sign off and witness their signature. 

This is not the case because when you enter into a guarantee or provide a solicitors certificate it is effectively the bank or lender shifting responsibility from themselves to the solicitor.

What does the solicitor have to do when advising a client in relation to a guarantee or providing a solicitors certificate?

Your solicitor will:

1. Certify that the borrower/guarantor understands the documents and agrees with the terms and conditions of the loan
2. Explain and make sure you understand what your obligations to repay the loan are  
3. Explain the consequences of defaulting on the loan and what is the extent of your liability
4. Consider seeking independent accounting and financial advice if you have any doubts about your capacity to repay the loan
5. Explain that if there is a default under the loan, any property provided by way of security may be sold to recover the amount owing together with legal fees and other outlays associated with the sale.

How can FC Lawyers help?

At FC Lawyers, we have helped clients with all their guarantee requirements and advised them on their obligations including providing solicitors certificates.

Contact our team today to see how we can assist you with your bank guarantees and solicitor certificates.