We regularly receive enquiries about witnessing loan documents or guarantor documents. Often the person making the enquiry is not exactly sure what this involves and has simply been informed by their bank or broker that they need a ‘solicitor’s certificate’ but other than that they aren’t provided with a reason as to why this is required or that the cost of obtaining this doesn’t come cheaply.
Why do you need a solicitor’s certificate?
The purpose of the solicitor’s certificate is to show the lender that the customer fully understands the legal nature of what they are signing. There have been cases were a loan or guarantee has been set aside because the borrowers or guarantors were found to not have understood what they were signing. The Amadio case is Australia’s most well known and frequently referred to case regarding unconscionable dealings by a bank which resulting in the guarantee in question being set aside.
Why is the cost so high?
The cost of witnessing loan or guarantor documents is an expensive exercise which can cost hundreds of dollars (more in some cases). The reasons for this are:
- The solicitor must understand why the customer requires the loan or guarantee
- The solicitors must review all relevant loan or guarantor documents prior to the customer’s appointment with them
- The solicitor must check that the solicitor’s certificate provided by the lender complies with rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015.
- At the appointment, the solicitor must thoroughly go through the documents with the customer and make sure they understand the risks involved and their obligations under the loan or guarantee
- If the customer does not speak English then an interpreter’s service will need to be arranged at additional costs
- The solicitor must verify the customer’s identity
- The solicitor must obtain a form of acknowledgement in the form approved by the Law Institute of Victoria (rule 11)
- The solicitor will have to make a detailed file note as to their meeting with the customer in case a customer claims (and they occasionally do) they were not properly advised at the time of signing the loan or guarantee documents
- The solicitor may also have to send the documents directly to the lender
- Occasionally the solicitor may need to be involved in the final drawdown of the loan although this is less common
The above usually requires two hours’ work on average. However, there are alternative lending solutions such as equity release loans or smaller commercial lending loans or guarantees where the paperwork is significantly extensive and much more work is required of the solicitor.
It is a matter of risk management for the solicitor when considering if they are willing to provide a solicitor’s certificate. As a result, many firms may only provide a solicitor’s certificate to recent or current clients and have a strict no walk-ins policy. The age of the customer also plays a part, a solicitor will have to considers matters such as capacity and vulnerability of the customer. If the solicitor feels the customer may lack the capacity to understand and then sign the documents, it is appropriate for the solicitor to request a letter of capacity from the customers regularly GP.
Contact us today to discuss what option may be available to you.
Please note, the above contains very general information on the subject matter and should not be regarded as legal advice. Legal advice should always be sought as to your specific circumstances.