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#648030 - 12/06/06 07:55 PM Guarantor on consumer HELOC
Love those Regs Offline
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Joined: Apr 2002
Posts: 292
Southern State
Bank customer asks us to make a HELOC to his son and daughter-in-law. He will guarantee the loan but does not want to be listed anywhere on any of the docs. He wants the "kids" to believe they are solely responsible for the debt and not expect him to bail them out. We are expecting the "kids" credit to be bad or he wouldn't have approached us the way he did.

Does Dad get any disclosures related to the loan?

We will pull a credit report on Dad and will provide him with a credit score disclosure.

What am I missing here?
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#648136 - 12/06/06 09:14 PM Re: Guarantor on consumer HELOC Love those Regs
SavannahOne Offline
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Joined: Sep 2005
Posts: 1,163
Georgia
Dad gets the same disclosures as he would if this was all "public", you just don't give a copy to the kids. This request is not particularly rare, but is much cleaner in commercial transactions.

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#648487 - 12/07/06 03:31 PM Re: Guarantor on consumer HELOC SavannahOne
ToTo Offline
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Joined: Apr 2004
Posts: 595
OZ
Be sure your guaranty contains the Reg AA co-signer notice (required unless this is a purchase transaction). Also, if your guaranty contains a right of offset (or security interest) in the parent's deposit account, you need to disclose that security interest in the documentation that the kids receive (see the commentary to 226.6(c)-5).

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#648528 - 12/07/06 04:02 PM Re: Guarantor on consumer HELOC ToTo
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,763
Bloomington, IN
Quote:
He wants the "kids" to believe they are solely responsible for the debt and not expect him to bail them out.



I would be very very cautious of a "ghost guarantor". Unless the kids authorize you to release information on their account to the dad, then under the privacy laws you have no grounds to furnish any information to the dad.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#649164 - 12/08/06 01:48 PM Re: Guarantor on consumer HELOC Dan Persfull
SkyDiver Offline
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SkyDiver
Joined: Jul 2002
Posts: 274
Northeast
Dan: I thought a guarantor had the rights to know about the performance of the loan, loan details, etc. What am I missing?

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#649168 - 12/08/06 01:59 PM Re: Guarantor on consumer HELOC SkyDiver
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,763
Bloomington, IN
How can someone guarantee a debt without the borrower knowing about it or giving authorization to the bank to release information concerning the credit to a third a party?

The post indicated that the kids will not know that dad is guaranteeing the loan. As for as the kids know the transaction is between them and the bank. In that case the bank has no grounds or authority to release any information to the dad, whether he "ghost guarantees" the loan or not. The bank must follow the privacy guidelines pertaining to the kids application and transactions.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#649173 - 12/08/06 02:10 PM Re: Guarantor on consumer HELOC Dan Persfull
SkyDiver Offline
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SkyDiver
Joined: Jul 2002
Posts: 274
Northeast
I agree. Missed the part about "the kids won't know"

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