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If you're a guarantor for your son or daughter's mortgage, the banks will come after you

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Senior couple at home reacting to many bills

Senior couple at home reacting to many bills

Senior couple at home reacting to many bills

I KNOW of a number of readers who are experiencing pressure from their banks over mortgage arrears.

No surprise there – but, in these cases, their parents or other relative went as guarantor on their loans when they were originally taken out and are now being hassled for money by financial institutions.

The use of guarantors became popular during the most frenetic phase of the property bubble as banks, so anxious to lend, abandoned stress-testing and favoured lumping asset-rich parents in on loans bought by first-time buyers.

Now those twenty- and thirtysomethings are in trouble and finding that Mum and Dad are getting threatening letters from banks eager to chase arrears. Often, they know that elderly people are debt-phobic and embarrassed enough to cough up.

So, what can you do to protect yourself if you have a guarantor or are one? We asked David Hall, of the Irish Mortgage Holders Organisation, for his advice.

 

IF YOU ARE A GUARANTOR:

The first thing to realise is that you are legally liable for the entire mortgage. David explains: "If the mortgage is €200,000, it's not that you owe half, while your child owes the other half. You are jointly and equally responsible for the whole debt and the banks will chase whoever they can to get it."

There is no process or set of rules governing guarantors. Quite simply, you are in a fall-back position if the mortgage isn't paid – even for one skipped payment.

Check if you are 'co-owner' or guarantor. The former gives you rights under the Mortgage Arrears Resolution Process (MARP), especially if you are living in the house with your adult child.

Check if you are a temporary or full guarantor. If it was for the first five years only, get your name taken off now via a solicitor.

"If the bank thinks there is a target in the form of your home equity or pension, they will use it," says David.

If you are called upon to make up a payment, you must do so.

However, if the bank is attempting to foreclose the entire mortgage, it's vital that you protect yourself, your assets and your other children's inheritance by getting independent legal advice and support.

 

IF YOU'RE A HOMEOWNER AND YOUR PARENT IS A GUARANTOR:

If you are in arrears, you are automatically entitled to enter the MARP. This will protect you, and your parents, from immediate threat of repossession.

Complete the Standard Financial Statement (SFS) they demand and make every effort to make payments.

Help your parents to get independent advice about protecting their assets and income (see table, top right).

Because it's not in the bank's interest to allow time lapse on arrears if there's a potential guarantor, the guarantor will be called on.

Let them know in advance so they are not shocked.

Talk to your bank – is there an arrangement you can come to without involving your parents? Some only tap them if the borrower refuses to engage.


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