Guarantor-ing Real Estates in Malaysia
To strengthen a borrower’s credit standing or limit, financial institutions may require a guarantee in order to provide financing. But at which point will you actually legally bound yourself in unnecessary debt if the borrower cannot/will not pay?
PART 1: KNOWING YOUR GUARANTOR RIGHTS
A guarantor is a person who agrees to indemnify the holder of a loan all (borrower) or a portion of the unpaid principal balance in case of default by the borrower.
Traditionally, there are many who think that being a guarantor reflects the nature of having a good character — It’s true at some point; but many do not realize the risk they’re about to take; by simply becoming a guarantor.
A guarantee is a legal contract that binds the guarantor to pay for whatever debt a particular borrower fail to pay. The financial institution is able to take legal action against the guarantor if the borrower defaults his/her debts. Either way, both the borrower and the guarantor is liable under the binding legal contract between the financial institution.
How well do you know your Guarantor Rights?
In events where guarantor statuses are impossible to avoid, it’s always beneficial to know guarantor rights in order to avoid any mishaps. There are certain rights (before and after signing the contract) accorded to the binding contract between both the financial institution and borrower, and the guarantor. Among vital points are:
- The guarantor has the right to obtain outstanding balances information of the borrower’s account, with the financial institutions; and is subject to the borrower’s consent.
- The guarantor has the right to call upon the borrower to pay off the debt and release the guarantor from all liabilities under the guarantee.
- The guarantor has the right to seek legal advise (at own cost) before signing the binding legal contract.
- The guarantor has the right to obtain a copy of the guarantee letter and any other documents related to the loan transaction.
- The guarantor has the right to file a lawsuit against the borrower should the outstanding amount be paid by the guarantor (when the borrower fails to clear debt)
Guarantees are usually given in favor of a financial institution. Given sets of legal terminologies (terms & conditions), the guarantor may not fully understand each and every aspect of the binding contract. Explanation requests (regarding the contract) to appropriate financial institution officer(s) can be made prior to verbal agreement of the loan and guarantor status. Alternatively, the guarantor’s personal lawyer can also explain and advise the guarantor should there be any trust related issues pro-founded.
More information can be found on the next Malaysia Real Estate Guarantor post.
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