Have you ever heard the saying don't lend money to a friend or a relative unless you never plan to see it again? What about co-signing on a car, boat or now even a house? I always warn people of this and despite my best efforts, they say it will be alright, I trust them.
But, it never works out that way and can cause even more family distress down the road. A couple years ago, I had a client that was buying a house and was having a friend co-sign for them on the property. All looked good, and they gave the friend all the lowdown of what could happen if they default. Of course it was, "it is alright, I trust them and this will only help my credit."
Two years have now gone by and the house is in default and the buyers have called me to try to sell the home, but the now ex-friend has said he doesn't want anything to do with them and is refusing to sign the papers to sell the property.
His plan is that he lets the property get farther in default and then contact the bank to take over the loan exclusively and kick the buyers out, and since they are both on the title, he wants to take the legal action to get them removed.
The one thing the co-signer did, that he wasn't planning on doing originally, was put his name on the title. But, his credit has already been affected by this home purchase, and from what I understand, that really has put a strain on his home life as well. You see, he didn't bother to tell his wife that he was doing this!
The bad news for the buyers is now they can't find housing, because so far everyone who has pulled their credit sees they are in default on a home and they don't want to let them move in. They are fearful that they will get stuck with a deadbeat renter that could stay for months without paying.
So, if you are person with great credit, don't sign your name on a friend's loan to help out, as your credit may go in the toilet, but maybe just lend them the money as a down payment and hope you get it back. That way, even if you lose the 20% down you helped them with, you won't be stuck with the bad credit for seven years like this person is now.
Todd Clark - broker
Kastings & Associates
Phone: (503)524-9494
Fax: (503)622-8739
Todd Clark and the Friendly Home Team
Knipe Realty
Todd@IFoundYourNewHome.com
Phone: (503)524-9494
Fax: (503)746-9573
I am a licensed Realtor who specializes in Washington County, Oregon and also work in both Clackamas and Multnomah Counties including the cities of Aloha, Beaverton, Canby, Clackamas, Gladstone, Gresham, Happy Valley, Hillsboro, Milwaukie, Oregon City, Sherwood and Tigard. All information contained in these posts are copyrighted and cannot be used without prior written approval authorization from the author me Todd Clark. If you are looking for an outstanding agent please give me a call I would love to help you with all your real estate needs.
What if there was a way you could search the MLS for FREE just like Realtors
Now you can access the MLS using similar tools as Realtors. You are in control of what you want to search for, and you can search the MLS at your leisure. The information you submit in the form below can also be used to put you on an automated system where you'll be emailed all homes that meet your search criteria. You'll get internet access to a website that includes pictures, prices, and addresses to real estate that's listed in the MLS!
Boy that is tough, We see it all the time a parent co-signs a car loan then goes to buy a house and is encumbered by the debt even though they have never had to make a payment it does affect the borrowers debt to income when seeking another loan. I have written off a few loans to friends and family but luckily they weren't recorded notes just I hope you pay me back some day deals. Steve
A solution could have been for the co-signor to have a copy of the mortgage statement mailed to him every month so he would have been alerted at the first sign of the buyer falling behind. He could have put up the money to correct the deficiency before it hit his credit and sold the home early.
Todd
Indeed, that can be a problem.
Happy Memorial Day to you!
Sincerely
Tom Braatz
Todd, what a devasting conclusion for a gullible good samaritan. Never co-sign for more than you can afford to lose.
I co-signed for my niece on a four year car loan. It was nerve racking, to say the least, wondering if I had made a serious error in judgement. She was a young mother working and going to college. Two years later she came by and said "Auntie I just paid off my car. I wanted to surprise you. I paid double payments every month.
Wow what a relief.
Steve - Exactly, they don't realize that if they now try to buy the car it will cost them again!
Lisa - I don't think this co-signer had the money to do that, even if he had the statements mailed to him. His parents are now bailing him out on this one!
Tom - It has turned more into a nightmare for him than a problem.
Dionne - You certainly got lucky and I'm glad everything worked out for you and her. I hope you gave her a great Christmas gift for helping your credit on that one!