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Talking Property: Guarantees to family members and the risks involved

Cynthia was approaching retirement age when her son, Gary, asked her to sign a guarantee for him. She was very close with Gary, as he had been a great support since her husband passed away, and Cynthia had always done her best to provide for him where she was able to.

Cynthia had recently paid off the remainder of her mortgage on her home to ensure she would be able to live on the pension when she retired. She had worked hard to build a good nest egg for her retirement.

Gary told Cynthia he needed the loan to secure an overdraft facility for his growing business. Cynthia was very proud of Gary and his success as an astute businessman. He had a reliable income and Cynthia felt comfortable guaranteeing his new loan facility with the bank. With this knowledge, she visited her local lawyer to sign the guarantee and assured them that she trusted Gary unreservedly.

As part of the bank’s security requirements for the guarantee, Cynthia allowed the bank to register a mortgage against her home. Gary said that he would meet all interest and principal repayments on the loan and he had assured her it would be repaid within the year. A few years later, Cynthia took a fall at home and with her reduced mobility, was forced to sell her large two storey home and move into residential care.

On the day her home was due to be sold, Cynthia discovered to her horror that Gary had not repaid any principal on his loan.


As part of settlement, the bank required she repay the entire loan before it would release its mortgage secured over her home. Surprised, Cynthia asked Gary to urgently repay his loan. Gary explained that his business was struggling and he did not have any cash available to repay his loan. With no other alternative, Cynthia was forced to repay Gary’s loan from the proceeds of sale. Cynthia and Gary’s relationship soured as a result. With her savings for retirement depleted, Cynthia cannot maintain any semblance of the lifestyle she had so carefully planned.


For further Property Law advice, get in touch with Nick and the Property Law team.
nick@davenportslaw.co.nz | 09 883 4420


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