There is a very familiar term often heard which is ” guarantor”

Extracted from www.bankinginfo.com.my are interesting salient points noted on this topic on guarantor:

(a) What really is a guarantee:

• it is a legal contract that binds you to pay the debt of the borrower if the borrower fails to do so. The financial instituation can sue you when the borrower does not pay back his/her debt.

(b) When you sign off as a guarantor, learn the difference between:

• Joint Guarantee- it means that upon the death of one of the guarantors, the obligations under the guarantee passes to the surviving guarantors
• Joint and Several Guarantee- it means that upon the death of  one of the guarantors, the estat of the deceased guarantor will remain liable under the guarantee together with the other guarantors

(c)  Who can be a guarantor?

• must be 18 years old or above;
• not a bankrupt;
• of sound mind and have mental capacity to understand the guarantee document and the responsibilties and obligations of a guarantor and
• must have freely consented to being a guarantor ( not be coerced or influence or fraud, misrepresentation or by mistake)

(d) Rights of a guarantor:

• right to obtain a copy of the letter of guarantee or contract of guarantee and other documents in relation to the loan transaction;
• right to seek advice from your lawyer before signing the contract of guarantee;
• right to the information on the outstanding balance of the account of the borrower with the financial institution subject to the borrower’s consent;
• right to call upon the borrower to pay off the loan to release you from all your liabilities under the guarantee and
• right to be indemnified by the  borrower for any payment made to the financial institution.  You can sue the  borrower for the amount that you have to pay to the financial institution.

(e) Liabilities of a guarantor:

• the extent of the liability of a guarantor will be specified in the guarantee document;
• a guarantee may be held liable for the liabilities of the borrower in accordance with the terms of the guarantee document &
• a guarantor can only be rendered liable under a guarantee if the borrower is in default of any payment to the financial institution and the financial institution makes a demand on the guarantor.

(g) Limitation of Action against guarantors:

• the financial institution cannot bring an action against the guarantor until a demand has in fact been made under the guarantee against the guarantor;
• depending on the provisions of the contract of guarantee, a demand may be served by hand, by ordinary post or by registered mail
• the financial institution has six years from the date of the first demand to bring legal action against the guarantor

(h) How to withdraw as guarantor:

• the guarantor can request and the financial institution may:
• agree without conditions;
• agree subject to an equivalent replacement guarantor. This is subject to the new guarantor agreeing to assume the present, past and future liabilities of the existing guarantor;
• agree subject to part of the debt being paid;
• diagree unless the principal debt is fully repaid and
• demand repayment of the entire debt.

(h) Other Salient points:

• if the debt is more than Rm30,000 as defined by the Bankruptcy Act 1967, the financial institution can take bankruptcy action against you to recover the debt;
• the guarantor can guarantee for only a specified time with the agreement with the financial institution;
• preferably all guarantors should sign together and if not within a reasonable time frame and without undue delay;

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