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  1. #1
    Join Date
    Aug 2009
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    All of New Zealand
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    837

    Default Thinking of being a Guarantor?

    After sorting out a really nasty situation I thought a blog might help others.


    http://www.ilender.co.nz/BlogRetrieve.aspx?BlogID=9145

    It's not the getting in that's the issue, it's the getting out!
    www.ilender.co.nz
    Financial Paramedics

  2. #2
    Join Date
    Nov 2006
    Location
    Cyberspace
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    5,774

    Default

    Just done that for two of my kids. They were a little short with equity for purchasing their second home. Limited to $22k and $25k respectively. The lawyer was surprised at the limits. Also surprised that I knew that they can be cancelled with notification from me.

    This is the second time which I have done this for the kids. Don't see it as an issue if you know the potential problems. As it is, I am up for a total of $47k. Not a hardship if it helps the family.

    Any suggestions on what I could do better, please advise. I'll do it next time.

  3. #3
    Join Date
    Dec 2010
    Location
    Cambridge, NZ
    Posts
    1,375

    Default

    Get a limit, and at least you know what the max damage will be...approximately anyway. Can't stress enough how important that is.

    One major problem of guarantees is the lack of control over the guaranteed party....for example, you guarantee the obligations of your child purchasing their first home.

    Said child then guarantees the loans (from the same bank and without talking to you first) of a risky business venture that fails. Your guarantee covers their guarantee even though you have never heard a word about it.

    You can cancel a guarantee, but that only applies to future liability...it doesn't cancel the guarantee in respect of existing liability.

  4. #4
    Join Date
    Aug 2009
    Location
    All of New Zealand
    Posts
    837

    Default

    Quote Originally Posted by Keys View Post
    Just done that for two of my kids. They were a little short with equity for purchasing their second home. Limited to $22k and $25k respectively. The lawyer was surprised at the limits. Also surprised that I knew that they can be cancelled with notification from me.

    This is the second time which I have done this for the kids. Don't see it as an issue if you know the potential problems. As it is, I am up for a total of $47k. Not a hardship if it helps the family.

    Any suggestions on what I could do better, please advise. I'll do it next time.
    Good to read a success story, looks like you have it about right, the post following yours spells out some of the pitfalls, particularly when it comes to what happens after the guarantee is given.
    www.ilender.co.nz
    Financial Paramedics

  5. #5
    Join Date
    May 2006
    Location
    Mordor
    Posts
    1,048

    Default

    Quote Originally Posted by Ivan McIntosh View Post

    One major problem of guarantees is the lack of control over the guaranteed party
    ....for example, you guarantee the obligations of your child purchasing their first home.

    Said child then guarantees the loans (from the same bank and without talking to you first) of a risky business venture that fails. Your guarantee covers their guarantee even though you have never heard a word about it.
    Yes well said. After years of telling people not to give guarantees - and being ignored, I drafted a document to give a little added protection. It was an authorisation/instruction to the lender requiring continuing disclosure of the borrowers financial position. Basically copies of bank statements and correspondence. That means the guarantors (usually parents) can keep an eye on the borrowers.

  6. #6
    Join Date
    May 2006
    Location
    Mordor
    Posts
    1,048

    Default

    Quote Originally Posted by Keys View Post
    Just done that for two of my kids. They were a little short with equity for purchasing their second home. Limited to $22k and $25k respectively. The lawyer was surprised at the limits. Also surprised that I knew that they can be cancelled with notification from me.

    This is the second time which I have done this for the kids. Don't see it as an issue if you know the potential problems. As it is, I am up for a total of $47k. Not a hardship if it helps the family.
    Good on you Keys. The default advice is "Do NOT give a guarantee." However horses for courses. Parents like to help their children and if the amount is limited and can be paid if called, then by all means proceed.

  7. #7

    Default

    Gosh. I would NEVER give a guarantee. Your lawyer will probably suggest the same. So many problems with them (and so much more work for lawyers). I would approach this with caution. I hope things will improve. Family and buisness (which it is) are a bad combo at times.


 

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