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- Should You Cosign for a Relative?
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When you co-sign a loan for an acquaintance, you are trusting their ability to pay back their debt obligation. If the person you co-sign for fails to keep up with payments, your credit also will suffer. Many co-signers look to remedies such as selling the property or removing their name to fix their liability on a defaulted debt. Unfortunately, you are on the hook for the bill unless the primary borrower decides to sell the property to fulfill the loan.
Co-signers use their stellar credit to secure a loan for a friend, relative or acquaintance. Typically, that person does not have the income or credit to secure a loan on their own. The co-signer allows the creditor to pull his credit score for the application and commits to paying back the loan if the primary borrower defaults on the loan.
Co-signing comes with many risks. If the primary borrower defaults, you become liable for the debt. This credit obligation appears on your credit report including all past-due notifications, collections and any judgments. That is why it's important to give the creditor your contact information to make good on the debt so you don't get any nasty surprises on your credit report.
Selling the Property
As a co-signer you get all the liabilities and none of the property rights. You do not have rights to sell the property when the primary borrower defaults. The primary borrower has title to the house or property. However, if your name was put on the title to the property, you are not technically a "co-signer." You are termed a co-owner and may sell the property according to the laws and procedures of your state. As simply a co-signer, you could talk to the primary borrower to try to persuade them to sell the property to pay off the note if they cannot pay their bill.
Protect Your Credit
Make sure to give your contact information to the credit to ensure you are notified in the instance of default. Never co-sign for someone if you do not have the financial means to pay back the note on the property yourself. Keep a copy of all documents that you sign and request that the creditor notify you in writing if the primary borrower defaults on the loan. You may then make the payments on behalf of the primary borrower and then seek remedy in civil court.