Be re­ally sure be­fore you sign surety

Weekend Argus (Saturday Edition) - - PROPERTY -

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.

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