If a mortgage broker has told you that a private lender needs you to get “independent legal advice” before you sign, you may be a borrower taking a bridging or second mortgage loan, or a family member asked to guarantee someone else’s loan. It can feel like a formality standing between you and settlement. It is not.
This article explains in general terms what independent legal advice involves in Australia, why lenders require it, what a solicitor’s certificate is, and the terms worth understanding before you sign. It is written with Victoria in mind and for families who may prefer to discuss documents in Mandarin or Cantonese.
What independent legal advice involves
Independent legal advice means advice from a lawyer who acts for you, not for the lender, the broker or the borrower you may be helping. The lawyer reads the loan agreement, mortgage, guarantee and related documents, explains their legal effect, and answers your questions. For a guarantor, the advice is usually given without the borrower present, so you can ask questions freely and the lawyer can be satisfied you are deciding for yourself. The lawyer may ask what you believe you are agreeing to, and correct any misunderstanding.
Why the lender requires it
Lenders want enforceable security. Australian courts can set aside a guarantee or mortgage in some circumstances, for example where the signer was at a special disadvantage the lender knew of and took advantage of, or where a wife guaranteed her husband’s debts without receiving a benefit or understanding them, and the lender did not ensure they were explained (a principle that may extend to some other close relationships). Independent advice helps the lender show that the guarantor understood the transaction and signed freely.
What a solicitor’s certificate is
A solicitor’s certificate is a document your lawyer signs, after advising you, confirming broadly that the lawyer explained the nature and effect of the documents and that you appeared to understand them and to sign freely. The lender relies on it. Lenders’ forms differ, and practice varies between states, so your lawyer will check what the form asks them to confirm. A lawyer should decline to sign a certificate if they are not genuinely satisfied.
Terms to understand before you sign
Default interest
Many private loans provide for a higher interest rate if a payment is missed or the loan is not repaid on time. You should understand when it starts, how it is calculated and whether it applies to the whole debt.
Fees
Private loans may involve establishment, legal, valuation, extension, early repayment and exit fees, and enforcement costs. Some are deducted from the advance, so you may receive less than you owe.
Term and exit
Bridging and second mortgage loans are often short. It matters what happens if your property has not sold or a refinance is not approved by the end of the term, and whether an extension is available.
Cross-collateral clauses
A cross-collateral clause can mean that a mortgage over one property also secures other loans, or that security for other loans also secures this one. A default on one facility may then put several properties at risk.
All-moneys clauses
An all-moneys clause can extend a mortgage or guarantee to all amounts the borrower owes the lender, now or in the future, not just the loan you are being asked about. For a guarantor, this can be a significant extension of exposure.
Guarantor liability
A guarantee may be limited to a set amount or unlimited, may continue until released, and may make you liable together with other guarantors, so the lender can pursue any one of you for the whole debt. An indemnity can make you liable even where the borrower’s obligation itself is unenforceable. A guarantee may also be supported by a mortgage over your own home.
Consequences of default
If the loan goes into default, the lender may demand the debt, charge default interest and costs, take possession of and sell mortgaged property after the required notices, and pursue guarantors personally, which can ultimately lead to bankruptcy proceedings.
Risks for parents, spouses and other family guarantors
Family guarantees are often given out of love or obligation: a parent supporting a child’s business, or a spouse supporting a partner’s investment. The guarantor may receive no benefit but put their home at risk, and family dynamics can make it hard to say no or ask questions in front of the borrower. A guarantee can also matter if the relationship later breaks down or the borrower dies. Independent advice gives the guarantor a private space to understand the risk and decide.
What the lawyer does not advise on
Independent legal advice covers legal effect and legal risk. It does not tell you whether the deal is commercially wise, whether the interest rate is competitive, whether the borrower’s business will succeed or whether you can afford the repayments. Those are questions for you, your accountant or financial adviser, and the broker within their role. A lawyer may point out terms that appear unusual or one-sided, but the decision to proceed is yours.
Language, interpreters and genuine understanding
Advice is only meaningful if it is understood. We can explain documents directly in Mandarin or Cantonese. Where another language is needed, an independent professional interpreter is generally preferable to a family member, and especially to the borrower. A lawyer should not sign a solicitor’s certificate unless they are satisfied that the client genuinely understands what they are signing, whatever the timetable.
Questions to ask before you sign
- What is the total amount I could become liable for, including interest, fees and costs?
- Is there an all-moneys or cross-collateral clause, and what does it cover?
- When does default interest apply, and what counts as a default?
- What happens if the property does not sell or the refinance fails by the end of the term?
- As a guarantor, is my liability limited, and can I be released?
- Could my own home be sold if the borrower defaults?
- What will the solicitor’s certificate say, and am I comfortable with it?
How we work with mortgage brokers on independent advice
Brokers often refer borrowers and guarantors to us when a private lender requires independent advice. We act for the borrower or guarantor alone, never for the lender in the same loan. We ask for the documents and timetable early so the advice is not rushed, and, with the client’s consent, tell the broker when the advice is complete and whether the certificate can be given. Each client receives a costs disclosure.
Frequently asked questions
Why do I need independent legal advice to be a guarantor?
The lender wants evidence that you understood the guarantee and signed freely. The advice also explains your exposure before you commit.
Can the lender’s lawyer give me independent legal advice?
No. Independent advice should come from a lawyer acting only for you, not for the lender or the borrower.
Will the lawyer tell me whether the loan is a good deal?
No. The lawyer explains legal effect and legal risk. Whether the loan is affordable or commercially sensible is a matter for you and your financial advisers.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates gives independent legal advice to borrowers and guarantors on private loans, second mortgages, bridging finance and guarantees, and provides solicitor’s certificates where we are satisfied the client understands the documents. Justin Chua trained in accounting (Bachelor of Commerce, accounting major), is an affiliate member of STEP (the Society of Trust and Estate Practitioners), and is a Nationally Accredited Mediator and an Accredited Family Business Advisor. We advise in English, Mandarin and Cantonese, assist clients across Australia and overseas, and have a notary public for documents signed abroad.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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