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Understanding your Obligations as Guarantor all of the debts of the borrower with that lender. Providing a guarantee may be standalone (i.e. the promise to pay) but can include taking security over your home. If you decide to sell your home but still have a guarantee in place for someone else, the Bank may require you to repay their borrowings as you are taking away the security on which the Bank is relying. This is often a fact that guarantors do not realise and can come as a real surprise on settlement day! How to limit risk Mostly, it’s common sense. If you are asked to act as guarantor, make yourself aware of the borrower’s financial circumstances. Consider the purpose of the borrowings; is it a high-risk transaction? Consider whether you are comfortable putting your assets on the line and negotiate a limited guarantee. So: you know someone who is about to take out a loan and you have been asked to act as guarantor. Whichever the case, it is important that you understand your obligations, the risks involved and the steps you can take to minimise your risk.
We are always happy to assist with an objective assessment and quality advice in this area, just call on 09 486 3058. Melanie Baker-Jones Solicitor SIMPSON WESTERN
What is a guarantee? A guarantee is a formal promise to repay the debts of another. Generally, a bank seeks a guarantee from a party related to the borrower, a party with access to assets or an ability to pay in the event of default. Guarantor’s obligations As a guarantor you need to be aware that, if the borrower does default on repayment of their loan, the bank does not have to exhaust all avenues against the borrower to recover their money. The bank can come after you first. The amount you will be required to repay will depend on the circumstances. In many cases a guarantor’s obligation will be unlimited; this means you will be liable for the full amount of the loan. If the guarantee is an ‘all obligations’ guarantee, which is quite typical, you can be liable for not only the initial loan, but for
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