Sunday 17 November 2019
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Due Diligence Key Before Becoming a Guarantor – by Mark McMackin

Toronto lawyer Mark McMackin says it’s important to obtain independent legal advice before acting as a loan guarantor for someone because of the potential financial implications.

“It’s important for independent counsel to review all of the documents because you’re basically stepping into that person’s shoes if they default (on the loan),” he says.

It’s often the case with parents or other relatives who want to help out a family member to purchase their first home.

“It’s important to be apprised of and comfortable with the ability for that person to pay the debt because otherwise, you’re in the driver’s seat and that can present problems,” the lawyer says. “If somebody defaults on a house mortgage, then you may have to get them out of there to sell the house. There’s a lot of trust involved.”

McMackin, partner with Brauti Thorning Zibarras LLP, made the comments during a recent appearance on SiriusXM Canada’s What She Said! with hosts Christine Bentley, Kate Wheeler and Sharon Caddy about becoming a guarantor. LISTEN TO Mark McMackin ON WHAT SHE SAID!.

He says it’s important for potential guarantors to be “street smart” to make sure they aren’t “buying” themselves a problem.

“It could blow back on you immensely,” he says.

McMackin says it’s important for guarantors to be prudent in their decision to guarantee a loan for someone because it could even affect their credit rating, he says.

“You could be putting your own credit history on the line,” he tells the show. “On your credit rating, it will be seen as a potential liability that you’re responsible for.”

McMackin points out there is really no way for a guarantor to get out of a debt obligation after the fact.

“The courts are very strict about the ability to make sure the person understands what they’re getting into,” he says.

McMackin says it’s vital that the guarantor has their own lawyer to guide them as to the suitability of the guarantee and whether it makes sense for them to do so.

He suggests guarantors put their name on the property title for which they have guaranteed the loan as a way to gain some control over what happens if there is a default. That way, he says, a guarantor can step in to sell the property if the mortgage isn’t being paid.

McMackin also notes that some of the same concerns can exist in business whereby an owner requires a loan and a business partner or a spouse may become involved in guaranteeing it.

“One may have to get independent legal advice as well because if he or she is putting up a personal residence as collateral to give this guarantee then he or she has to understand that if the business goes bad that could affect the equity in his or her house or any of those things,” he says.

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