Increasingly banks and other credit providers are insisting on people and business entities that borrow funds to obtain a solicitor’s certificate in relation to their loan documents and particularly if there is a deed of guarantee required. If you have been asked to guarantee a mortgage, the bank may ask you to get a solicitors certificate.
What is a solicitors certificate? What is a mortgage guarantee?
A solicitors certificate is a document signed by a solicitor verifying that the solicitor has provided the requisite advice to the guarantor about the loan and loan documents, and the ramifications of guaranteeing the loan.
Why do I have to pay a solicitor to sign a guarantee?
Despite the fact that the certificate is signed by a solicitor, the process of obtaining a solicitors certificate is not just a simple signature witnessing exercise. The guarantor, or guarantors must have read all of loan documents prior to the conference, and the conference will generally take at least one hour.
Each lender has their own specific requirements, but overall each lender wants to be ensured that the guarantor or guarantors are fully aware of the risks to the security that is being offered for the loan and understand all of the potential risks and consequences to entering into the transaction.
During the conference the solicitor should answer all of the guarantor or guarantors questions, and translate the complex loan documents and all of the terms and conditions and hidden small print, into easy to understand language.
The guarantor or guarantor should walk away being fully aware of the repayments they are guaranteeing, that the borrowers have the income to service these repayments, and that if they also require it, they have obtained appropriate advice from their accountant and/or financial advisors.
Why does the bank want me to sign a guarantee?
By obtaining the solicitors certificate, banks and lenders attempt to shift the risk of the loan and/or the guarantee involved over to the borrower and the guarantor or guarantors.
The potential monetary risk of providing the solicitors certificate by the lawyer can be equal to the amount of loan or money being borrowed, or alternatively being guaranteed in the transaction, plus interest and recovery costs.
Why did I just find out I have to get a solicitors certificate and my loan is nearly ready to settle?
Many of our clients are frustrated that this requirement was not made known to them by their bank or lender at the time the loan was approved, nor are they prepared for the additional legal costs incurred when asking their lawyers to provide a solicitors certificate.
I’ve been asked to guarantee a loan, what happens if there is a default under the loan?
Whatever security the guarantor has provided under their guarantee (most guarantees relate to all assets) may be taken possession by the bank, and sold to recoup the amount owing under the loan plus any default interest and other costs that they incur in the process.
A solicitor’s certificate is usually a lengthy and complex legal agreement that challenges the most experienced lawyers, let alone those who have little or no dealings with banks other than to buy or sell their home.
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