These letters are typical of many I receive about co-signing problems. Too
often, people co-sign without giving it much thought.
Once you co-sign a note, there are only two ways to get off. Either the loan
must be repaid in full, by the borrower or you, or the lender must agree to
take you off.
Lenders require a co-signer when they don't have enough confidence in the borrower.
The lender is not going to let a co-signer off the hook when the borrower stops
paying. The risk of non-payment is why the lender required a co-signer in the
first place!
There is no way for the writer of the first letter to get off the hook. The
lender doesn't care that the borrower left the co-signer's sister. The lender
just wants to be repaid.
In the second letter, the borrower is making the payments but the co-signer
is handicapped in getting a loan of his own because he would be required to
step in if the borrower defaults.
This is a loan qualification problem, not a credit problem. Lenders impose
limits on the amount of existing debt a borrower can carry, and the co-signing
obligation is considered debt for qualification purposes.
This problem can usually be remedied by documenting that the borrower has been
making the payments on time for a reasonable period. The lender in such case
will probably remove the debt from your loan application. You remain a co-signer,
but the lender is ignoring your obligation to the other lender in assessing
your ability to repay a new loan.
"My nephew has asked me to co-sign his mortgage. He says that after
the loan is closed, I will be taken off the deed and my obligation will terminate.
Is this right?"
No. When you co-sign for a note, you stay liable for the repayment of the note
until it is paid off. Taking your name off the deed does not eliminate that
obligation.
"My brother in law has asked me to co-sign for a home and the real
estate agent tells me that after six month of good payment by the borrower I
can be removed from the title and loan. Is this true?"
Probably not. It is strictly up to the lender, who might let you off the hook
in 6 months, or perhaps after 12 months, or perhaps never.
"I have been asked to co-sign a rental agreement so a friend can get
an apartment. Is this the same as co-signing for a loan?"
They are very similar. If you co-sign for a loan, you are on the hook until
the loan is paid in full, unless the lender lets you off. If you co-sign for
a lease, you are on the hook for the period of the lease, unless the landlord
lets you off.
April 10, 2000
