Bank Loans - A Cautionary Tale for Guarantors

A local Limassol couple (they wish to remain anonymous), who agreed to sign as guarantors for friends on a loan valued at 7,000 CY pounds eight years ago, are now in danger of losing their own business, family home, land and livelihood because of the debts incurred by the husband-and-wife team they originally tried to help.

They have asked that their story be told in order to highlight to others the dangers involved in acting as guarantor.

At the time, the couple, who were the 5th of 5 named guarantors on the list, believed that they would only be liable for a portion of the sum being borrowed, their fifth of the total amount. However, until last year, when the bank notified them that as guarantors they were liable for their friends’ debt, they were unaware that their friends had ever defaulted on their loan. When the couple confronted their friends, they were assured that the situation was under control and the matter was in hand.

The couple thought nothing more about the situation until a few weeks ago when they received notification from their friend’s bank that the outstanding loan had now risen to 33,000 euro (with the interest accrued over the loan term, and taking into account the friends’ total debts of 2 loans, 3 overdrafts, a master and visa card), and that they were now liable for the total amount.

As a consequence, the bank took action to issue notice on the couple’s land in Parekklisia, valued at 200,000 euro, securing the debt originally loaned to their friends. This action in turn has resulted in the couple being blacklisted by their own bank, who will no longer offer them credit facilities, meaning they are unable to place orders with their European suppliers for equipment and materials to maintain their business. The knock-on effect has been disastrous.

“We started with nothing and have worked hard for years to build up our business, our home, our lifestyle, to pay for our child’s education…and we are literally in danger of losing everything; and all because we agreed to help ‘friends’ when they wanted a loan of just 7,000 pounds,” said the couple.

To complicate the situation, the debtor’s husband is awaiting a prison sentence and is currently unemployed. His wife continues to work and although she promised her friend she would cash in her Provident Fund to help pay off the debt, has so far not done so.

Meanwhile, the ‘friends’ bank is satisfied that its loan is now covered and is not pursuing any other guarantors, so it appears the outstanding debt is now the sole responsibility of the Limassol couple. “I don’t understand how it is that we are liable for all their debt? When we agreed to become guarantors we were one of 5, so thought the debt was spread evenly between us”. The bank informed the couple that they are liable because one guarantor is ‘missing’ (cannot be located), a second has no funds or assets declared apparently, the third and fourth are the husband and wife team, named individually as guarantors of their own loan, so the debt is now passed on to the 5th couple. “Why are we the scapegoats? Why isn’t the bank chasing the other guarantors? I know for a fact our friend has a Provident Fund so why hasn’t the bank seized that and any other assets they may have to pay off their loan? And if they were defaulting on their loan why were they allowed to keep borrowing more money? Surely the bank should have taken action much earlier and notified us of the situation sooner?”

Because of the ‘Memorandum of Notice’ now placed on their land, the couple’s hands are tied. They cannot borrow money, raise their overdraft, consolidate their loan or sell their land because of the order. “And what happens if their debt continues to grow? Will it still be our responsibility? Where does it end? The guarantor system is fundamentally flawed. We’re being driven to bankruptcy and meanwhile they are carrying on their lives as if nothing has happened. They even managed to have 2 holidays this year yet we’re about to lose our livelihoods to settle their debt”.

The couple are determined to battle on and do everything in their power to salvage their business and maintain their child’s education and livelihood. “Somehow we have to get through this but surely the banks must accept this system is grossly unfair. It seems as long as someone is clever enough to put their assets in another name, whether they act as guarantor or not, they will never be liable. Meanwhile, for those who innocently carry on doing the ‘right’ thing, unaware of the risks, they’re left to pay the price. If we had known this is how the guarantor system works do you think our assets would have been in our own names? It’s not right”.

A spokesman from the bank who refused to be named said the bank is simply safeguarding its loan and everything it has done has been “legal and above board. Guarantors should be aware that they are jointly and severally liable for a loan and it’s in their interest to ensure they read the small print of any loan agreement thoroughly before agreeing to guarantee any amount”. The spokesman also added that a guarantor “has the right to ask to be released from their liability”, but it is at the bank’s discretion whether or not they agree to it.

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