- Advice on mortgages and guarantees should not be cursory, superficial or incomplete.
- It is necessary to explain clearly the purpose and effect of guarantees or mortgages.
- Solicitors should be wary when asked to advise clients who are borrowing for the benefit of family members or other third parties when the clients’ home is offered as security.
- Always advise on risks, especially where the client is providing security for a third party’s benefit.
The potential exposures that solicitors face when advising on security documents where the person gaining the benefit of the transaction is a third party have again been highlighted in recent cases.
A third party guarantor must be given ‘competent, independent and objective’ advice on the purpose and effect of the transaction (Alceon Group Pty Ltd v Rose  NSWSC 868).
Where the terms of a loan are harsh and oppressive there is plainly a requirement for advice to be given as to both the legal effect and the risks associated with entering into the security transaction (Bakovski v Lenehan  NSWSC 671).
It is necessary to provide advice in terms that the mortgagor or guarantor can understand.
In acting for a mortgagor, guarantor or person providing some other form of security on a loan, particularly a loan to a third party, it is prudent to consider: