Aug 01, 2021
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LIII of a Series - Personal Guarantees part 4
In the previous Post LII I explained that while the courts are stricter in their requirement that a borrower/owner/mortgagor repay her or his loan, the Courts will more easily find a guarantee to be unenforceable (when various equitable defenses are raised by the guarantor).
In this post, I want to look at the often misunderstood concept of Independent Legal Advice or “ILA” as it’s often referred to. Independent Legal Advice is just that; it is legal advice given to one party in a transaction from a lawyer whose responsibilities and professional duties and obligations are independent of the other parties to that transaction. So when a lender and borrower have their own counsel, and a guarantor is required to have ILA, the guarantor must seek that legal advice independently from the lawyers acting for the lender and the borrower. The guarantor needs her or his own lawyer to advise her or him about the guarantee.
But make no bones about it, ILA protects the lender. While it is legal advice given to the guarantor in this scenario, the lender is the beneficiary of the ILA process. This is because a guarantor whose guarantee is being enforced by the lender will lose her or his equitable defenses (some of which were listed in Post XLII) as a result of the guarantor having reviewed the guarantee with an independent lawyer. A guarantor who receives ILA will not have available to her or him most if not all of the equitable defenses that can otherwise be used by a guarantor to successfully defend an action by the lender to enforce the guarantee. Put another way, a guarantor who has had ILA will be much more likely to be found liable by the courts to pay to the lender the amounts set out in the guarantee.
But the rules requiring the guarantor to be given all notices that the borrower needs to be given, and requiring the guarantor to consent to all renewals or extensions or other amendments to the loan still apply, as those matters occur after the guarantee was signed. The ILA only affects the guarantor’s defenses that may have existed when the guarantee was signed.
Next blog will review when ILA is needed and when it is not needed, particularly in the context of guarantees. And as always, this blog is intended for information purposes only. It is not legal advice and cannot be relied on as such. Nor is it a substitute for hiring your own legal counsel, who will be an essential member of your mortgage default and power of sale team. And lastly, this blog is just my opinion. I reserve the right to change my mind. And I reserve the right to be wrong.
Be well and stay healthy.