Introduction
Do you know what the rights and obligations of a guarantor are? This article offers an in-depth look at who can take on this role and what their responsibilities are.
With the 2008 financial crisis, the role of the guarantor became more relevant in the context of housing credit. Financial institutions, when evaluating the granting of credit, in addition to requiring essential documents and proof of income from applicants, often require the inclusion of a guarantor. This request occurs especially when there is a perception of less financial or professional stability on the part of the applicants.
This article aims to clarify important aspects about the role of the guarantor, a crucial legal figure in the approval of many housing loans.
What does it mean to be a Guarantor, in the eyes of the Portuguese Law?
Firstly, the guarantor is the person who assumes responsibility for paying the debt on a mortgage loan, if the main debtor fails to fulfill his obligations.
Through the bail mechanism, the guarantor pledges all his assets in favor of the creditor, usually a bank, assuming responsibility for paying the debt, if necessary.
Who can be a guarantor?
In general, anyone can become a guarantor, depending on the lender's specific requirements, which are assessed on a case-by-case basis.
Be a guarantor of a mortgage loan
When being a guarantor on a loan to purchase a property, the commitment is very substantial. This is a high-value loan, with strict guarantee requirements from the bank.
The guarantor's main obligation in this type of credit is to cover the loan installments if the debtor is unable to meet his financial commitments. However, there are possibilities of not following this procedure.
During the formalization of the contract, the guarantor has the option of requesting the benefit of prior excussion. With this benefit, he can refuse to pay the debt before the bank tries to recover the amount through foreclosure on the borrower's assets.
This measure serves as protection for the guarantor, preventing him from being held immediately responsible for paying the debt in cases such as the existence of a mortgage on the property. In this way, the guarantor, by enjoying the benefit of prior foreclosure, maintains the right not to pay the debt until the bank begins the process of seizing the debtor's assets.
Is it possible to stop being a guarantor?
It is possible to be a guarantor and take advantage of the benefit of prior excussion. However, even with this benefit established in the guarantor contract of a home loan, if the property is seized, the guarantor may contest it if the insufficiency of the debtor's assets is not clearly demonstrated.
In this context, a practical solution may involve the renegotiation of the amounts in dispute between the debtor, the guarantor and the creditor. The debtor may be responsible for appointing a new guarantor or for presenting additional guarantees to ensure compliance with the loan.
Requirements to be a guarantor
The criteria for being accepted as a guarantor for a loan vary according to each bank. Some of the common requirements considered by financial institutions include:
- Have sufficient income from work to cover the debt, if the debtor does not fulfill his obligations;
- Own movable and immovable assets;
- Have a positive history with the bank that is granting the credit;
- Never having been declared insolvent;
- Not be listed on the Banco de Portugal blacklist.
It is important to note that these criteria are not uniform across all banking institutions; they only serve to guide which aspects are considered for someone to be eligible as a credit guarantor.
Some banks may pay special attention to the potential guarantor's real estate assets, while others may focus more on the individual's remunerative capacity, such as a high salary, ensuring that he or she can assume the payments in the event of the debtor's default.
What are the guarantor's obligations?
Guarantors are subject to a series of obligations that they must comply with, including:
- Have assets of sufficient value to cover outstanding installments, if the debtor does not comply with his financial obligations;
- Have the responsibility to respond to the creditor (bank) whenever the debtor fails in his financial responsibilities;
- In situations where the debtor fails to comply with the bank, the guarantor's name is also included on the Banco de Portugal blacklist, categorizing him as a customer with banking incidents. This can present a major obstacle if the guarantor wishes to obtain personal credit in the future, as his association with a bad debt, even if he is not primarily responsible, may prevent such action.
What rights does the guarantor have?
The legislation offers certain protections for those who assume the role of guarantor. These rights include:
- The right to recover from the debtor the money or property that was used to settle the debt, although it is important to note that if the debtor has failed in his initial obligation to the creditor, he may be unlikely to fulfill his obligations to the guarantor;
- The possibility of renegotiation between the debtor and the creditor to reduce the value of the installments and possibly extend the loan term;
- The right to wait for the debt to end with the creditor;
- Subrogation, where the guarantor assumes the creditor's rights after payment of the debt. However, it is necessary to highlight that this option may not be very viable, as the debtor who has already failed once may not be able to repay the guarantor.
In conclusion, it is essential to understand that even if the guarantor fulfills his obligations in a scenario where the debtor defaults on a housing loan, there is no guarantee that he will take ownership of the property, unless a new purchase contract is established and sale. In the absence of such a contract, the guarantor can only demand the return of the invested money from the debtor.