Banks will often require individuals applying for a loan or guaranteeing a loan to receive certificates of independent legal advice (‘Solicitor Certificate’) from a solicitor about the potential consequences for the borrower/guarantor in the event of default under the loan agreement.
For the banks, this achieves two objectives on their part. First, they ensure that the individual is aware of the potential consequences in the event the borrower defaults under the loan, and secondly – and arguably more importantly to the banks – it is a means of shifting liability away from the bank and onto the independent legal advice provider, in the event the borrower/guarantor enters the loan, and later argues that they were not aware of the full extent of their obligations under the loan agreement.
Whilst a bank or mortgage broker might describe this as a simple process, which is a matter of a solicitor ‘witnessing a few loan documents’, the truth is, it involves the solicitor giving significant considerations to the consequences of default under the particular loan agreement.
The tradition of banks requiring borrowers/guarantors to obtain Solicitor Certificates goes back to Amadio. In this case, the Court of Australia held that the bank had acted unconscionably in obtaining an elderly couple’s mortgage and guarantee for a loan, by not ensuring they were entered into the arrangement being fully informed of the gravity of the consequences for them in the event the borrower defaulted under the loan. Since this case, banks have required individuals to receive Solicitor Certificates as a matter of common practice. Banks have become more diligent in requiring the provision of independent legal advice in the wake of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The provision of independent legal advice can be a veritable minefield for the solicitor providing this advice. In the event the bank commences proceedings to force sale of any property used to secure a loan through a mortgage given by the borrower and/or guarantor, the solicitor could be exposed to a counter-claim by a borrower/guarantor if the solicitor cannot prove that they thoroughly reviewed the loan documents, and provided the individual with informed legal advice regarding the consequences for default prior to them signing the loan documents.
The inherent risk to solicitors of signing these certificates is exacerbated by the limited turn-around time allowed for the provision of the advice, with clients regularly requiring the advice and all guarantee documents signed and returned to the banks within 1 to 2 days before settlement of a property purchase.
As you can imagine, this presents the solicitor with an enormous task of thoroughly reviewing upwards of 10 individual documents which are specific to each particular case, within a very limited timeframe. As such, the cost of this service usually reflects the significant liability the solicitor assumes, and the short amount of time allowed to review the documents and supply informed advice about the loan.
In order to provide informed legal advice, the solicitor will need to review any and all documents associated with the matter, including but not limited to the following;
(i) Guarantee documents;
(ii) Mortgage deeds;
(iii) Loan offer documents;
(iv) Statutory declarations; and
(v) Trust deeds for trust entities associated with the borrower.
Prompt Legal Services can assist If you require a certificate of independent legal advice. Our fees vary depending on the nature and complexity of the loan being undertaken, and we offer a 20% discount off the total price upon presentation of valid Australian Pensioner Card or Australian Health Care Card. Call our offices now on (03) 9379 0877 for a free 30-minute consultation if you would like to discuss this matter in more detail with one of our qualified lawyers.