Sunday, February 07, 2010
Co-signer for Credit Purposes Only
I reviewed a recent FCRA and credit damages lawsuit where one party was making a "I was a co-signer for credit only" arguement. She contends that she only co-signed to help the other party to qualify for the loan and had no intention of actually being liable for the payments. The story continues when the two have a falling out, the OTHER co-signer stops making payments and the collateral securing the loan was taken back by the bank. And, of course, the credit reports of both parties were now showing the negative reposession. For the record, there is no such thing as a co-signer for credit only. Read your loan documents and they will clearly state that both parties are equally liable for payments and equally at risk if payments are not made. Thankfully this case was settled and there was no potentially new legal definition for "co-signer for credit only."
This article should not be interpreted as legal advice or testimony. It does not represent any conclusive opinion of the author or any of the credit experts from ExpertCreditWitness.com.
Comments:
I wasn't necessarily referring just to mortgages, I was also referring to co-signers for car loans etc. This is where I have seen more people not really understanding what they are getting into. I would hope that if you are co-signing for something as big as a mortgage you would be much more involved in what is going on. However, I do feel that a good loan officer will make sure to explain what they are getting into, and I do know that borrower hear exactly what they want to hear and it is ultimately their responsibility to know what they are putting there "John Hancock" on.
It is amazing and sad to me that people are so misinformed about credit issues and business principles in general. To me, this just further points to the need for consumer education. People need to understand that they have to READ the terms of their loan documents/contracts before signing their lives away. They are responsible for their own actions and no one else is going to be there to save them later ... nor should they be. That said, I think more effort should be made by to educate consumers UPFRONT so that they can make wise financial decisions and fully understand the implications of their actions.
I can't say that I've seen these kinds of situations several times but in the hundreds of mortgages I've closed and the thousands of business lending solutions we've put together for clients I think we all know that it's extremely rare for any borrower to read all the documents they sign for loans. Most loan products that are extended involve the borrower checking the basics (what is the rate and what are the terms etc.) and then having trust in the individual or lending institution or both. It would seem to me that you would have a pretty naive borrower who thinks that their "co-signing" is no big deal or that it's for "credit purposes only". However, when things go south people will say a lot of things and they become victims real fast. Be mad at the other borrower but you signed up for this when you signed on the dotted line. Bottom line, if you borrow with me then we share our fate together on this loan obligation...be prepared to pay it yourself or you will go down with the ship if the loan goes south. Pretty simple and basic...the lawyer on this case must have been chasing ambulances last month.
Some loan programs and lenders allow a Co-Borrower to be on the loan and not on the title. In that case, I can see why someone might think (or have been told) they were a co-borrower for credit purposes only. However, you're right. That doesn't relieve them from their responsibility for the re-payment of the loan. In fact, the loan documents clearly state that everyone signing for the loan is equally obligated. If the borrower(s) choose not to read the loan documents they might allow themselves to be misled by what someone tells them. It is unfortunate that some co-borrowers are taken advantage of so that someone can use their credit, income and assets to obtain a home loan. As long as their name is on the loan, all borrowers are fully responsible. I, also, have seen this dozens of times. Signing documents and obtaining a mortgage loan is a privilege and the borrower needs to understand the significance of their undertaking.
When does it cease to be the lender's responsibility to explain the terms and become the responsibility of the borrower to read their paperwork? Now, if someone is telling a borrower that they would have their name removed six months into the term then I'd call that something else, like fraud. I think any good credit expert witness knows the difference between someone choosing not to understand their obligations and someone who has been victimized by blatant fraud.
I agree fully with you on this one, however, I do believe that the lending institutions do not do a good job of explaining to people when they are co-signing exactly what they are doing. You don't know how many times I have heard people say to me, I was told after 6 months they would remove my name and I would not be responsible anymore and now its been 1 or 2 years and I can't get taken off. I think there are a lot of people out there that don't read there contracts.
Leave a Comment:
To ensure the quality of our blog, comments will be moderated. Please, no outbound links in the comments.