The Mortgage File - Covenantors and Guarantors

The lender may require persons other than the registered owner of the property to be liable for repayment of the mortgage loan and observance of the mortgage obligations. These persons are described as covenantors or guarantors.

A prudent lender will insist on independent legal advice (“ILA”) for any party (for example, a guarantor or covenantor) who does not derive benefit from the loan transaction. In most cases, the requirement for ILA is set out in the mortgage commitment. If it is not, you should discuss this issue with the lender and get clear, written instructions (or confirm the lender’s verbal instructions in writing). More difficult situations arise where the lender is not aware of the need for ILA; for example, where there may be actual or presumed undue influence.

The decision regarding the need for ILA should be the lenders and yours, although the lender will frequently rely upon you before making its decision. If the lender does not require ILA, confirm that fact – and the subsequent risk to the lender – in writing. You still have the option of refusing to act for the covenantor/guarantor and you should do so without hesitation if your “legal instincts” tell you that you could be at risk. If you are even thinking about acting as a witness for execution purposes only, don’t forget that you must still comply with the provisions of Appendix C, rules 7 to 9 of the BC Code.