Be really sure before you sign surety
HOMEBUYERS are finding innovative ways of obtaining the necessary finance – and getting a third party with ample resources to sign as security for a mortgage or a loan can be an effective way of inducing financiers and banks to agree to the transaction.
“Those signing as sureties must be aware that they are entitled to charge a fee for this on a monthly or annual basis. If the borrower defaults on his prescribed monthly payments they will be immediately responsible for the shortfall,” says Lanice Steward, MD of Anne Porter Knight Frank.
“There can be no dealing or n e g o t i a t i o n wi t h f i n a n c i a l institutions on this. Payment has to be made as soon as the shortfall is called up.
“In some cases, the bondholder simply runs out of cash for the month. Quite frequently, however, it will be found that the problem is more serious than a simple lack of pocket money: the defaulter’s business or some enterprise with which he is involved may be running into trouble. We are increasingly seeing people in this situation, without permission of the surety holder, using the bond’s access facility to draw large sums of money.
“In the end, this inevitably results in the surety signatory ending up being responsible to the bank or creditor for large sums of money.”
She says surety guarantors should insist the debtor’s bank posts them a monthly statement of the debtor’s accounts. They should also get him to sign an agreement that if the shortfall exceeds a specified amount the property will automatically be transferred into the surety signatory’s name.