What is a guarantor

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A person who promises the lender she or he will repay a debt if the principal debtor defaults.
A guarantor will be requested if the clients who apply for a mortgage are unable to obtain financing by themselves. Circumstances where this could happen would include: insufficient employment history, poor history of debt repayment or un-confirmable income.

Just because someone is willing to be a guarantor does not mean the mortgage will automatically be approved. The guarantor becomes part of the mortgage application / approval process. The guarantor will have to disclose his or her assets & liabilities, income, and have a credit check done. The total 'picture' of all applicants is considered by the lender.

Once approved, the guarantor will have to sign the mortgage documents, showing his or her obligation to the lender. Before signing, the guarantor should obtain 'independent legal advice.' The guarantor should consult a lawyer who is not part of the real estate transaction, and who will explain to the guarantor exactly what his or her responsibilities will be should the primary debtor default on the mortgage.

A guarantee is a secondary obligation arising only on default by the primary debtor. A creditor (the lender) has no rights against the guarantor until the primary debtor defaults. However, as soon as the primary debtor defaults on even one payment, the lender may request payment from the guarantor. The lender does not have to notify the guarantor of the default before starting an action to enforce the guarantee.

Consequently, it is very important that you understand what you are signing if someone asks you to be a guarantor. Get legal advice from your own lawyer.

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