Repsol YPF

Where property is concerned, guarantees are often used to guarantee the payment of a mortgage or rent when the landlord requests it. Guarantees are public contracts which are signed in the presence of a notary, generally, the notary used by the bank that is providing the mortgage. There are two kinds of guarantee, personal guarantees (issued by natural persons) and banker’s references, where it is the bank that assumes responsibility for the debt. 

Banker’s references are often requested as a guarantee of payment of rent for a property. They are usually requested for a year, and involve the tenant depositing a year’s rent, a sum that is subject to bank charges, which are usually between 0.75% and 1% every three months. Banker’s references should only be requested as a rent payment guarantee if the tenant does not have a regular monthly income or if the reports concerning their financial situation are insufficient. In other cases it is unnecessary, and it is very common for the person looking to rent to reject the property where the landlord is requesting a banker’s reference and go for another one. 

Mortgages

The bank requests guarantees when granting a mortgage if the credit exceeds 80% of the property valuation, when the applicants are not debt-free, in the case of precarious contracts or young people. In order to guarantee a mortgage you need to have a fixed wage, own property and have a healthy current account. 

The guarantee can be for the full mortgage repayment, or just a part of it. In the latter case, the mortgage holder must ask the bank to terminate the guarantee contract once it is over, and the bank must request that the mortgage holder supply a new guarantor to guarantee the mortgage repayment. 

Guarantor’s risks 

Before becoming a guarantor, you must know exactly which percentage of the mortgage you are going to cover, as well as the precise conditions of the contract. Once you commit to assume the debt, you lose solvency, since you commit your assets, and this may prevent you from gaining funding should you need it. It is important that you agree with the bank the circumstances in which they could claim repayment from you. Usually the bank resorts to the guarantor if it does not receive repayment from the mortgage holder, however sometimes, the bank automatically charges the guarantor if the debtor stops paying despite having money. 

When there are several guarantors, the bank usually charges the most solvent of them, irrespective of the share that each one of them is responsible for. All of these clauses must be perfectly clear in the contract document. Likewise, the guarantor must be informed of any changes that either the mortgage holder or the bank make to the mortgage, as well as communicating their agreement or disagreement with them, and in the case of disagreement, cancel their contract as a guarantor.   

Insolvent debtors

When the guarantor has to honour the mortgage payment, he acquires the right to claim the money back from the mortgage holder, and in the event that they cannot return the amount paid, the guarantor can request the sale of the property in order to pay the debt. 

This situation of non-payment can be declared on the tax return, however in order for it to take effect for the purposes of the Inland Revenue, there must be a “legal bankruptcy ruling”, in other words a ruling that certifies the debtor’s insolvency. That way, the guarantor can reflect their loss of assets due to paying money that has not been returned on their tax return.  

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