CPC Lawyers regularly provides advice to individuals who choose to become a Guarantor for another individual, company, trust or self-managed superannuation fund.
This guarantee is a promise to the Lender that they will meet the obligation of loan repayments if the borrower fails to live up to their financial lenders' requirements.
As the individual giving the guarantee, known as the Guarantor, in most instances receives little and/or nothing out this arrangement, whilst exposing themselves to high financial risk, financial institutions require the Guarantor to obtain independent legal advice before signing any guarantee documents.
Common situations where independent legal advice for guarantee documents is required include:
Parents acting as Guarantor's for their child's home loan;
Loans to Family Trusts;
Loans to Companies; and
Loans to Self-Managed Superannuation Funds.
If you are asked to sign a Guarantee for a bank, it is important that you always:
Receive independent legal and accounting advice about the documents you are required to sign;
Consider all your options to ensure that you are making the best financial decision for you; and
Ask all the relevant questions so that you completely understand the documents you are signing.
By obtaining independent legal advice, you are provided with an understanding of the nature and effect of the loan documents you are required to sign.
This includes understanding the risks involved, such as what happens when the borrower defaults on the loan, and the possibility of losing your personal real estate and any other valuable personal assets.
This independent legal advice also provides the financial institution distributing the loan, with the assurance that you have made a free and informed decision to act as Guarantor for the borrower.