Mortgage credit is the preferred instrument when financing the acquisition of a property. When a person goes to a financial institution to request a loan and the entity considers that its granting will be a risk, the possibility of presenting a guarantor is often considered. Thus, the figure of the guarantor is usually associated with mortgage contracts but we also see it in real estate rental contracts.
The guarantor, therefore, is a person with proven solvency and patrimonial level who guarantees with his signature the fulfillment of the obligations of the debtor or “guaranteed” . If you are thinking of getting a guarantor or exercising as such, you may have doubts as to the scope of this figure and the types of guarantor that exist.
How many types of collateral are there?
There are two types of collateral: the personal guarantee and the real guarantee.
When the guarantor signs his commitment as personal guarantor, in case the debtor incurs in breach of his obligations, the guarantor will respond to the financial institution with all his present and future assets.
This commitment implies for the guarantor that he can freely dispose of his patrimony, as it is not stipulated that he would respond with a specific asset. It is considered that in the event of non-payment, the guarantor will continue to respond with all of his present and future assets. On the other hand, the guarantor will have a reduced indebtedness capacity, as he is burdened with the same obligations as the guarantor.
It is usually assumed that the guarantee only works after having used up the money of the guaranteed debtor. In practice, financial entities oblige that the guarantee be jointly and severally at first request and with waiver of rights.
It is tremendously important to bear in mind that if the guarantee is signed under the figure of joint and several guarantee, the guarantor waives to exercise the benefits of exclusion, division and order. Under the figure of joint and several guarantee, the guarantor becomes a true debtor and contracts the same obligations as the applicant for the financing. With these clauses, the bank makes the guarantor renounce his legal rights and their imposition is considered sufficient cause to initiate a legal claim that may result in the annulment of the same for being an abusive clause.
When the guarantor signs the contract under the figure of a real guarantee, the guarantee offered to support the guarantor is a tangible asset, for example a property. As it is a specific property, the guarantor’s obligation is limited and is exhausted with it. The real guarantee avoids risking all the present and future patrimony.
In the case of collateral, the collateral for the loan may be a second property of the same collateral or it may be owned by a third party. This is the case, we are talking about the non-debtor mortgagee, which means that the person offers their own property as collateral so that the applicant is granted the mortgage. In case of non-payment, the mortgagee will respond with his home and up to the limit established in the contract.
To offer a property as payment for a loan, it must be free of other charges and registered in the Property Registry in the name of the guarantor. It is also required that it be the sole owner or demonstrate agreement between the co-owners in offering this property as real security for the payment of a mortgage. As of having constituted the mortgage, this charge appears reflected in the Land Registry endorsement.
How long does the guarantee last?
It is important to understand that the guarantee is extinguished at the same time as the main obligation, having completed all of the payments. The termination of the guarantor is not contemplated by the death of the guarantor. Rather, the obligation is passed along with rights and obligations to their heirs.
Can I not have any type of guarantee?
The guarantor is among the conditions imposed by financial institutions to grant mortgages to clients with limited income. There are ideal conditions to apply for a mortgage without any type of guarantee, such as providing a savings amount, showing a good debt capacity or a good employment history.
In any case, if the guarantor does not have the economic capacity to buy a flat and it is imperative to get an endorsement, perhaps you should rethink whether it is time to buy. An endorsement is always a bad idea. If you are still thinking about financing, it is advisable to ask other banks as well, they may not require a guarantee.
Commonly, the lack of information about the different types of guarantor, the rights of the guarantor and the serious consequences that their resignation may entail can cause a lot of headaches. At Sky Marketing we will be happy to offer you the advice you need to clarify your doubts in every aspect of the home buying and selling process.