What does the solicitor explain before you sign a guarantee?

Before you sign, the solicitor goes through the loan and guarantee documents with you, without the borrower, and explains how much you could be asked to pay, what property is at risk, what happens if the borrower defaults and how you could get out. They sign the certificate your lender needs only once satisfied you understand and are signing freely.

What documents does the solicitor go through?

Everything the lender has asked you to sign: usually the guarantee, the loan contract or letter of offer for the borrower, and a mortgage over your property if you are giving one. Banks that follow the Banking Code of Practice must also give you information about the borrower's loan, including the proposed loan contract, a list of the other securities, any related credit report, and financial statements the borrower gave the bank for the loan in the last two years. Bring all of it, unsigned.

The solicitor takes you through the loan amount, the interest rate and any higher default rate, the loan term, the security the lender holds, and what you would owe if the borrower stopped paying.

How much could I be asked to pay?

That depends on the limit in the guarantee. Under the Banking Code, a guarantee to a bank is limited either to an amount or category of amounts, such as everything owing under one loan plus interest and recovery costs, or to the value of a particular property at the time the bank recovers. Read the limit closely. A guarantee that covers "all monies" the borrower owes, now or later, can reach loans that don't exist yet, as long as they fall within the limit. We explain how all monies and cross-collateral clauses work in your documents.

If there is more than one guarantor, the guarantee usually makes you jointly and severally liable, which means the lender can ask any one of you for the whole guaranteed amount.

What happens to my property if the borrower defaults?

If you give a mortgage over your home, the lender can, as a last step, sell it to recover the guaranteed debt. The solicitor explains the order a lender has to follow first and the notices you should receive along the way. Our guide to what happens to a guarantor if the borrower defaults sets out each step.

Why can't the borrower be there?

A court can set a guarantee aside if the guarantor signed under pressure or without understanding it, and the lender knew or should have known. The risk is highest in family guarantees, where the borrower is a child, partner or parent. That is why the Banking Code commits banks to taking reasonable steps to keep the borrower out of the guarantee meeting and the signing, and why independent advice is given to you alone. Our article on why spouses need separate advice explains the case law.

What is the solicitor's certificate?

It is the lender's evidence that you received independent legal advice. In Victoria, rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 requires that evidence to be on the Law Institute of Victoria's approved certificate, not a form the lender has drafted. The lawyer must act only for you, not for the borrower or the lender. Once the bank has confirmation of independent legal advice, it doesn't have to wait the three days the Banking Code otherwise requires between giving you the information and accepting your guarantee.

Why does it have to be in person?

Before signing the certificate, the solicitor must verify your identity. Rule 11.2 of the Solicitors Rules requires this to be done face to face, in person, with original documents, under the Verification of Identity Standard. A video call doesn't comply, so the certificate can only be signed at an in-person appointment. It is why we see every guarantor at our Melbourne CBD office.

What should I bring?

• Every document the lender sent you, unsigned.
• Original photo identification, usually your passport and driver licence. We confirm what you need when you book.
• A change of name or marriage certificate if your documents show different names.
• Your questions, and anything the borrower or broker has told you about the loan.

Our guarantor checklist has more detail, and what a solicitor's certificate is explains the certificate itself.