Guarantee Agreement – Conventional Mortgage

Jurisdiction: Country: Canada | Province or State: Ontario

What is a Guarantee Agreement – Conventional Mortgage?

A Guarantee Agreement for a conventional mortgage is a promise you give to a lender. You agree to be responsible if the borrower does not pay the mortgage. It sits alongside the mortgage granted by the borrower. It does not create a mortgage on your property. It creates a personal obligation for you.

“Conventional mortgage” means the mortgage is not insured by a default insurer. The loan is usually up to 80% of the property value. Lenders use guarantees to strengthen the file. They want another person or company to stand behind the debt. Your guarantee helps the lender manage risk.

You might sign this if you are helping a family member. You might sign this if you own a business that is taking a mortgage. Directors often guarantee a company’s mortgage. You might also sign this if you are part of a partnership or a joint venture. Private lenders often ask for guarantees on investment properties.

You would use this form when the lender requires it as a condition of funding. It records the legal terms. It defines the scope of your promise. It sets the cap, if any. It covers interest, costs, and enforcement rights. It also sets out what happens on renewal, amendment, or default.

Typical usage scenarios include these. A parent guarantees a child’s first home mortgage. A small corporation buys a building, and the directors guarantee. An investor’s holding company guarantees a mortgage taken by an operating company. Two partners buy a rental property, and each guarantees the other’s obligations. A borrower with borderline income asks a friend or relative to support the loan.

This form is standard in mortgage deals in Ontario. It is common with banks, credit unions, and private lenders. It protects the lender if the borrower cannot pay. It signals your confidence in the borrower. It also carries real risk to you. If the borrower defaults, you can be sued. You should understand every clause before you sign.

When Would You Use a Guarantee Agreement – Conventional Mortgage?

You use this form when the lender makes it a condition of the loan. This often happens when the borrower’s income or credit is thin. It also happens when the property is investment grade, not owner-occupied. Lenders prefer stronger recourse in those cases. They want a second pocket to recover from if things go wrong.

If you are a parent helping a child, you may face a guarantee request. The lender may accept a limited guarantee in that case. The guarantee might be capped to a set amount. It may drop off after a period of clean payments. Ask the lender before you sign. Get the cap in writing if offered.

If you run a small business, expect a guarantee request. A company is a separate legal person. Lenders do not rely only on corporate assets. Directors and owners often guarantee the mortgage. This is standard practice with commercial mortgages. The guarantee might be joint and several among multiple owners. That means the lender can pursue any one guarantor for the full debt.

If you are part of a real estate syndicate, the lender may require cross-guarantees. Each party may guarantee the borrower entity. This can also apply in joint ventures. The lender wants multiple paths to repayment. Read how your guarantee interacts with others. Check if you are several, joint, or joint and several.

If you are dealing with a private lender, a guarantee is common. Private lenders rely on both the property and personal recourse. They may ask for a broad guarantee. It may include costs, default interest, and legal fees. It may also cover renewals, extensions, and amendments. Expect little flexibility unless you negotiate a cap.

You would not use this form if you are co-borrowing instead. A co-borrower signs the mortgage itself. A guarantor does not. A guarantor promises the lender that the borrower will perform. The lender can choose who to pursue on default. That includes the guarantor.

You should also expect to use this form if the borrower is a trust or partnership. The lender may require the trustees or partners to guarantee. Your guarantee may continue through renewals. It may remain until a written release is granted. Do not assume it ends when the mortgage renews. The document usually says it survives changes.

Legal Characteristics of the Guarantee Agreement – Conventional Mortgage

A mortgage guarantee is a binding contract. It binds you when it is in writing and signed by you. The lender must provide consideration. That is usually the mortgage advance or an extension of time. Often, the agreement also includes an indemnity. An indemnity is a separate promise to compensate the lender for loss. This helps the lender avoid certain technical defenses. It makes the obligation more robust.

The agreement will set out the scope of your liability. It may be unlimited. It may be limited to a cap. It often includes all interest, costs, and fees. It usually covers future renewals and amendments. It may allow the lender to change the mortgage without your consent. You should check how far those rights go. If the lender can materially increase risk, you need to know.

Enforceability depends on proper execution and clarity. The names must match legal records. The property should be clearly described. The mortgage should be identified by date and parties. The guarantee must state the obligations guaranteed. It should be clear if it is a continuing guarantee. It should describe any caps and carve-outs. It should say how and when it ends.

Most lenders require independent legal advice for individual guarantors. This is not only a formality. It reduces the risk of undue influence claims. It shows you understood the risk and signed freely. You meet a lawyer alone. The lawyer explains the terms and consequences. The lawyer signs a certificate. You sign acknowledging the advice. Many lenders will not accept the guarantee without this step.

Capacity matters. You must have legal capacity to contract. If you sign for a corporation, you must have authority. The lender will ask for a director’s resolution or officer’s certificate. If you sign as attorney for someone else, the power of attorney must permit it. Provide a copy to the lender. They will review the authority scope.

Execution formalities help enforceability. Sign in ink or per lender’s digital process. Use the exact legal name. Have a qualified witness who is not a party. The witness should be present when you sign. They should sign and print their name and address. Date the document. If notarization is required by the lender, follow that process. Keep copies of ID, if the lender requests them.

The lender’s rights on default are broad. They can demand payment from you. They do not need to exhaust remedies against the borrower first. They can sue you directly. They can also add legal costs if the document allows it. They may take action under the mortgage and the guarantee at the same time. If there is a shortfall after sale, they can pursue you.

You may have subrogation rights after payment. That means you can step into the lender’s shoes against the borrower. Many guarantees postpone these rights. They often say your rights rank behind the lender until full payment. This protects the lender’s recovery. It prevents you from competing with the lender too early.

The agreement usually allows assignment. If the lender sells the mortgage, the guarantee moves with it. You remain bound by your promise. You are released only if the document or lender gives a release. Do not assume a change in lender ends your obligations. It does not, unless the agreement says so.

Time limits to enforce exist. They start when the lender discovers the claim. The details can be complex. Ask the lender about their enforcement policy. The guarantee often contains clauses affecting timing. Step carefully if you are negotiating a cap or expiry.

How to Fill Out a Guarantee Agreement – Conventional Mortgage

Follow these steps to complete the form correctly. Read each clause. Confirm every detail before you sign. Keep your sentences short and notes clear.

1) Gather the base documents.

• Get the commitment letter. It shows the lender’s conditions.
• Get the draft mortgage or charge. It lists key terms.
• Get borrower identification and legal names. Match them exactly.
• Get property details and the legal description.
• Ask for the lender’s guarantee template. Use their form if required.

2) Confirm the parties.

• Identify the lender’s exact legal name. Use the same as in the mortgage.
• Identify the borrower’s exact legal name. Match the mortgage draft.
• Identify you as the guarantor. Use your full legal name.
• If you are a corporation, use the exact registered name. Include the jurisdiction.
• Add your corporation number if the lender asks.

3) Define the guaranteed obligations.

• State that you guarantee the borrower’s obligations under the mortgage.
• Include principal, interest, fees, and costs.
• Confirm if the guarantee covers renewals and amendments.
• Confirm if it covers extensions, capitalization, or restructurings.
• If the lender requires an indemnity, include it. Many forms do by default.

4) Choose limited or unlimited liability.

• Ask if the lender allows a cap. If yes, insert a maximum amount.
• State if the cap includes interest and costs. Clarify this in writing.
• If partial cap is used, define what is capped and what is not.
• If unlimited, the form will say so. Understand the risk if you accept it.

5) Clarify joint and several liability.

• If there are multiple guarantors, the form may be joint and several.
• That means the lender can claim the full amount from any one of you.
• If you want several-only liability, negotiate it early. Most lenders refuse.

6) Add waivers and lender rights.

• Most forms include waivers of notice of default. Read them.
• They allow the lender to change terms without your consent. Know the limits.
• They may allow release of security without releasing you. Confirm your comfort.
• They often postpone your set-off or subrogation rights. Note this impact.

7) Address independent legal advice (ILA).

• Arrange a meeting with a lawyer who is not the lender’s lawyer.
• Meet alone. Bring the guarantee and the commitment letter.
• The lawyer will explain the legal effect and your risk.
• Sign the ILA acknowledgment and certificate. The lawyer signs too.
• Attach the certificate to the guarantee if the lender requires it.

8) Add representations and warranties.

• You will confirm you have capacity and authority.
• You will confirm you received and understood the documents.
• If you sign for a corporation, attach a resolution. Use the lender’s form if any.
• Confirm there is no conflict that prevents your signature.

9) Insert notice details.

• Insert your mailing address and email for notices.
• Insert the lender’s notice address per their instructions.
• Insert the borrower’s notice address if the form asks.
• Add how notice is deemed delivered. Use the template’s options.

10) Insert governing law and jurisdiction.

• Confirm Ontario law applies. The form should state that.
• Confirm the venue for any legal action. Usually Ontario courts.

11) Complete privacy and consent sections.

• Many lenders include consent to credit checks.
• Read and initial if required. This allows lender monitoring.
• If you do not agree, the lender may not accept the guarantee.

12) Execution details for individuals.

• Sign using your usual signature.
• Print your name beneath. Match your ID.
• Have an independent adult witness watch you sign.
• The witness signs and prints their name and address.
• Date the document. Use the correct city and province in the venue line.

13) Execution details for corporations.

• Sign by an authorized officer or director.
• Print name and title below the signature.
• Affix the corporate seal if you have one. Many lenders still ask.
• Attach a resolution or officer’s certificate confirming authority.
• If two-signature authority applies, follow it. Do not deviate.

14) Special signing scenarios.

• If you sign by power of attorney, attach a copy of the power.
• Confirm the power permits giving a guarantee. Many do not.
• If a translator is used, include a translation certificate if required.
• If the lender wants notarization, book a notary appointment.

15) Attach schedules.

• Schedule A: Property legal description. Copy from the title search.
• Schedule B: Mortgage details. Include date, principal, interest, and term.
• Schedule C: Guarantee limits and conditions. Include any caps and expiry.
• Schedule D: Corporate resolutions and officer certificates, if needed.
• Label each schedule clearly. Refer to them in the main body.

16) Confirm survival of obligations.

• Check the clause on renewals and amendments. It should state your guarantee survives.
• Check the clause on assignment. It should continue if the mortgage is sold.
• Check the clause on release. You are released only by a written release.

17) Clarify termination and release conditions.

• If the lender allows a drop-off date, insert it.
• If release is tied to a loan-to-value test, define it.
• If release requires written confirmation, note the process.
• Do not rely on verbal promises. Put it in the document.

18) Review default and enforcement clauses.

• Confirm what triggers a default under the mortgage.
• See how notice is given and when payment is due.
• Understand that the lender may pursue you without suing the borrower first.
• Confirm fee and cost recovery. Expect full indemnity language.

19) Initial key pages.

• Some lenders ask you to initial each page.
• Always initial pages with caps or special terms.
• Initial any handwritten changes. Do not leave blanks.

20) Final pre-signing checklist.

• Names match across all documents.
• Amounts and caps are correct and consistent.
• All schedules are attached and referenced.
• Witness section completed. Date inserted. City and province inserted.
• ILA certificate attached if required. Corporate authority attached if needed.

21) Deliver the signed package.

• Send a scanned copy to the lender or their lawyer.
• Keep the originals safe. The lender may ask for them.
• Keep a complete copy for your records. Include schedules and certificates.

22) After signing.

• Track renewal and amendment notices.
• Ask for a release when the mortgage is paid in full.
• Do not assume your guarantee ended. Get confirmation in writing.
• If the borrower misses payments, expect contact from the lender. Respond promptly.

Practical tips as you complete the form:

• Clarify a cap in dollars, not percentages.
• State whether the cap includes interest and fees.
• Avoid vague expiry triggers. Use clear dates or events.
• If your goal is a temporary guarantee, tie it to a set time.
• If others are also guarantors, ask for a contribution agreement. This is separate from the lender’s form.
• Do not sign under pressure. You can pause to seek advice.
• Flag any changes in the mortgage later. An amendment can affect your risk.

This form has serious consequences. It can affect your assets and credit. The lender can enforce it if the borrower defaults. Complete it carefully. Confirm details with the lender before you sign. Seek legal advice so you understand the risk you accept.

Legal Terms You Might Encounter

Guarantor: You are the guarantor if you sign this form. You promise to pay the lender if the borrower fails. Your promise can be unlimited or capped. It can also be “continuing,” which means it covers future changes.

Borrower (Mortgagor): The borrower is the person or company that took the mortgage loan. The borrower owns the property and makes payments. Your guarantee backs the borrower’s obligations.

Lender (Mortgagee): The lender advanced the mortgage funds. The lender holds the mortgage on the property as security. The lender can also enforce this guarantee against you if the borrower defaults.

Principal Amount: This is the main loan amount advanced under the mortgage. Your guarantee may cover this amount, plus interest, fees, and costs. Check if your guarantee caps your liability or not.

Continuing Guarantee: A continuing guarantee stays in effect over time. It can cover renewals, extensions, and changes to the loan. It can also cover new advances if the loan is a revolving facility. If you want limits, make sure the form states them.

Joint and Several Liability: If there are multiple guarantors, you may be “jointly and severally” liable. The lender can pursue any one guarantor for the full amount. You would then sort out contributions between co-guarantors.

Event of Default: A default happens when the borrower breaks the mortgage terms. Common defaults include missed payments, unpaid taxes, or lapsed insurance. After default, the lender can demand payment from you under the guarantee.

Demand: Many guarantees are “on demand.” The lender can demand payment from you once the borrower defaults. Sometimes the lender can demand payment from you without suing the borrower first. Read the demand and notice clauses closely.

Subrogation: After you pay the lender, you may step into the lender’s shoes. That is subrogation. You can claim against the borrower or against the property. Some guarantees delay or limit this right until the lender is fully repaid.

Waiver: A waiver means you give up certain rights or defences. Common waivers let the lender change the loan without your consent. They also allow the lender to deal with the borrower or the property without releasing you. Read waivers carefully.

Assignment: The lender can assign the mortgage and the guarantee to another party. Your obligations usually continue after an assignment. You would then be liable to the new lender under the same terms.

FAQs

Do you need independent legal advice before signing?

You don’t have to get it in every case, but it helps. Independent advice confirms you understand the risks and limits challenges later. Many lenders recommend it. If your spouse or a company is involved, advice is often expected.

Do you have to guarantee the full amount?

No. You can ask for a cap. The cap can be a fixed dollar amount. It can also be a percentage, or specific obligations only. Confirm the cap covers interest, costs, and fees or excludes them. Make sure the cap is clear in the form.

Do you need to register this guarantee anywhere?

Most personal guarantees are not registered. The mortgage itself is registered on title. Your guarantee typically sits in the lender’s file. Some lenders file a general notice of security under personal property rules. Ask the lender how they will store it.

Do you need to provide financial statements?

Often yes. Lenders want to assess your ability to pay. They may ask for income, assets, and liabilities. They can also ask for tax returns or bank statements. Keep copies of whatever you provide. Update them if the lender asks later.

Do you remain bound if the mortgage renews or is refinanced?

Many guarantees cover renewals and changes. Some cover refinancing, increases, or extensions. Read the continuing guarantee and modification clauses. If you want the guarantee to end at maturity, put that in writing in the form.

Do you get notified if the borrower misses a payment?

Not always. Some guarantees waive notice. The lender can demand payment from you after a default without warning. Ask the lender to send you copies of default notices. Confirm your correct address for service in the notice section.

Do you have a right to revoke the guarantee later?

Sometimes you can revoke for future advances. You remain liable for existing debt. Revocation rights depend on the wording in the form. They also depend on the loan type. If you intend to revoke, send written notice as the form requires.

Do you need to sign in person, with witnesses or notarization?

Most lenders require a wet-ink or verified electronic signature. A witness is often required. The witness should be independent and present at signing. Some lenders ask for notarization or a commissioning certificate. Follow the lender’s instructions exactly.

Checklist: Before, During, and After

Before signing

• Confirm the borrower’s legal name and contact details.
• Confirm the lender’s legal name and contact details.
• Review the mortgage commitment, terms, and amortization.
• Get the principal amount, interest rate, and payment schedule.
• Confirm fees, default interest, and penalty rules.
• Ask if the guarantee must be unlimited or capped.
• If capped, set a clear cap and what it includes.
• Identify events of default that trigger demand.
• Check if the guarantee is continuing or time-limited.
• Ask if renewals, extensions, or refinancings are covered.
• Ask if new advances are covered after signing.
• Review waiver clauses and their impact on you.
• Confirm if the lender can sue you first.
• Confirm notice requirements and delivery method.
• Confirm the address for service for you and the lender.
• Ask if you will receive borrower default notices.
• Ask if financial statements are required now or later.
• Confirm identity verification and witness requirements.
• Decide if you will get independent legal advice.
• If married or in a partnership, consider spousal implications.
• If you co-own assets, coordinate with co-owners early.
• Gather ID, any requested statements, and proof of address.
• If a corporation is the borrower, review corporate authorizations.
• If there are co-guarantors, agree on contribution arrangements.

During signing

• Use the lender’s latest form version.
• Enter your full legal name exactly as on ID.
• Enter your address for service and email for notices.
• Enter the borrower’s legal name and property address.
• Enter the mortgage principal and account number if assigned.
• Record the interest rate and payment frequency if requested.
• State your guarantee cap, if any, both in words and figures.
• Confirm if the cap includes interest, costs, and legal fees.
• Check the continuing guarantee and modification clauses.
• Review the “on demand” and “no notice” provisions.
• Check “joint and several” language if there are co-guarantors.
• Confirm assignment and subrogation clauses.
• Review waiver of defences and set-off, if included.
• Confirm governing law and jurisdiction clauses.
• Attach any schedules for caps or special terms.
• Initial each page and each change or handwritten note.
• Sign in the correct signature block with the correct capacity.
• If a witness is required, use an independent adult witness.
• Have the witness print name, address, and occupation.
• Date the document in all places that require a date.
• If notarization or commissioning is required, complete it now.
• Keep a scanned copy immediately after execution.

After signing

• Deliver the signed original to the lender or its lawyer.
• Obtain a fully countersigned copy for your records.
• Confirm the lender’s acceptance in writing.
• Ask the lender to record your notice preferences.
• Diarize the loan maturity and any renewal options.
• Diarize covenants you must maintain, if any.
• Set reminders to request statements at regular intervals.
• Keep financial documents that support your obligations.
• Update the lender if your address or email changes.
• Monitor borrower payment status where possible.
• Request notice of defaults or amendments in writing.
• If the loan changes, assess whether you need an amendment.
• On discharge or payoff, request a guarantor release letter.
• Store originals securely and keep digital backups.

Common Mistakes to Avoid

Leaving the guarantee unlimited without meaning to.

• Consequence: You could be liable for the entire debt and costs.
• Tip: Don’t forget to add a clear cap if you need one.

Assuming the guarantee ends at the first maturity date.

• Consequence: Continuing guarantees can cover renewals and changes.
• Tip: Don’t forget to limit duration or renewals in writing if needed.

Overlooking waiver and modification clauses.

• Consequence: The lender may change the loan without your consent.
• Tip: Don’t forget to read and understand every waiver you grant.

Signing with the wrong formalities.

• Consequence: The lender may reject the document or delay funding.
• Tip: Don’t forget proper witnessing, dating, and initials on all pages.

Using the wrong service address or not updating it.

• Consequence: You might miss a demand or default notice.
• Tip: Don’t forget to keep your notice address current with the lender.

What to Do After Filling Out the Form

Deliver the signed document

• Send the signed guarantee to the lender or its lawyer.
• Use the delivery method requested in the instructions.
• Ask for written confirmation of receipt and acceptance.

Confirm the lender’s records

• Confirm your notice address, email, and phone on file.
• Ask the lender to send you copies of default notices.
• Confirm any reporting requirements and deadlines.

Set calendar reminders

• Note payment dates, maturity date, and any renewal windows.
• Add reminders to request periodic loan statements.
• Add a reminder to review the guarantee annually.

Track loan performance

• If you can, monitor payments and tax or insurance status.
• Ask for updates if the borrower falls behind.
• Act early if you receive a demand or warning.

Manage amendments and changes

• If the loan terms change, ask for a copy.
• If your cap or terms should change, request an amendment.
• Get any release or amendment signed in the same formal way.

Plan for refinancing or sale

• If the borrower refinances or sells, ask about your release.
• Request a guarantor release letter upon discharge or payoff.
• Confirm the release covers interest, fees, and costs.

Consider revocation options

• If permitted, you can revoke for future advances.
• Send written notice as the form requires.
• Keep proof of delivery and confirm receipt.

Maintain records

• Store signed copies and related emails in one folder.
• Keep identity and financial documents used for approval.
• Keep a log of communications with dates and names.

If a demand arrives

• Read the demand and check amounts claimed.
• Confirm whether amounts fall within any cap.
• Respond on time. Consider getting independent advice fast.