Co-signing on a mortgage is a big responsibility, especially if it isn't on your own property. The most common reason for having a co-signer on a mortgage is because the primary borrower does not qualify based on his own income. A co-signer is added, using his or her income to help the borrower qualify for the loan. Once you co-sign for the loan, it's not always easy to get released.
Responsibilities as a Co-signer
A co-signer on a mortgage has the same responsibility as a co-borrower without the benefit. A co-borrower is liable for repayment of the loan, but also holds an interest in the property. A co-signer is liable for repayment but does not have ownership in the property. Essentially, you are being benevolent in putting your income and assets up to get the loan approved, often for a friend or family member. If the loan goes bad, the bank can take legal action against you, even though you don't own the collateral.
When a loan closes, you sign a variety of contracts, the most important of which is the promissory note. This is the contract between the borrower, the co-signers and the lender. The note will list a maturity date. This is the date by which the borrower must pay the loan. Unless there is a specific clause stating your obligation will be released prior to the date, you will be liable for the loan until it is paid off.
If you want to remove your obligation on the loan, contact the lender. The first thing you need to determine is if the loan is current. If there is any hint of delinquency, it will be almost impossible to get released. If the loan is current, the primary borrower will have to provide updated financial information. The bank will calculate the borrower's debt-to-income ratio. If the borrower can't cover the payments in addition to his other debt, the bank likely won't agree to the release. However, if the borrower is strong enough to carry the loan on his own, there's a good chance you can get out of the obligation.
Documenting the Release
Once the bank approves the release, it will modify the loan. Typically, this involves a new note or a note modification agreement. In either case, the primary borrower will be the one signing it. This is because the contract will be between the borrower and the lender. There will be a clause in the document stating that you are released as co-signer. Even though you're not signing, be sure to request a copy from the borrower. Because you're not on the loan, the bank won't release any further information or documentation to you.
Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.