When a person or organization desires a sense of security when providing a mortgage loan, they turn to a guaranty. A guaranty is a legal document that binds the person who creates it, to repaying the debt of another. This can include a person who is unable to pay because they lack the funds, or because they are bankrupt at the time. In other cases, the person mentioned in the guaranty can be sought after for repaying the debt as soon as it is due and set to be collected.
The person that accepts responsibility over the payment of a debt in a guaranty is known as a guarantor. They, in turn, accept the title of the “promisor” over a note, in the case that the payment is not received in due time. The guaranty, itself, must be written and signed by the guarantor, outlining the given details over the guarantee it provides over the payment of a note. Since mortgage loans are usually given in large amounts over a property, the lender must receive some sort of assurance that they will be repaid.
The person that acquires the mortgage loan may not be enough for the lender to trust in, or receive comfort over. For this matter, instead of a loan not being approved there lies the existence of a guaranty. In a guaranty, the person named to be the guarantor must be fully aware of all details of the guaranty as well as their responsibility and entitlements in regards to repayment, should the instance present itself. It is also crucial that their knowledge also expand to any clauses that would exempt them from repaying, as well as the cases that would cause them to pay and circumstances.
There are two different types of guaranty, one is a payment guaranty and the other is a collection guaranty. In the case of a payment guaranty, the lender seeking to collect on a payment may go without deviation to the guarantor. This bypasses their action of first attempting to collect from the debtor, if the debtor has failed to make a payment. On the other hand, in the case of a collection guaranty, the collector can seek payment from the guarantor only after they have intended to collect on the debtor’s assets, filed a lawsuit against the maker of the genuine note, or when the claim has been dwindled to a judgment.
Regardless of either type of guaranty, they both meet one certain condition likewise, which relates to the awareness of the guarantor. If any provisions or changes are made to the terms of the guaranty without the guarantor’s consent, then he, she, or they, are exempt from the guaranty. This is practically a nullifying action that would affect the note immediately, due to the lack of the guarantor’s knowledge and consent. Any changes made by the lender and/or the debtor must be first consented, approved, and signed by the guarantor in order for it to legally bind them.