Cosigning a loan is a big help to a homeowner in need, but also a huge responsibility. If that loan goes bad and the primary borrower can't pay, the lender will come after your assets. You may want to remove your name from the cosigned loan if you sense a pending default by the primary borrower. However, the bank must approve your removal and getting that approval usually isn't easy.
When you start the process to remove your name from a co-signed loan, be aware that it can take some time. First, you will need to come to an agreement with the borrower. Next, the borrower will have to get the loan reviewed by the lender. Depending on how quick he gets the lender the necessary information and the amount of volume the lender is dealing with, this can take several weeks. Once approved it can take another few weeks to execute the documents and get your name removed. It can be a long process, especially if any delays pop up between the lender and the borrower.
To facilitate the release, first speak to the primary borrower. Inform him that you can no longer be a co-signer on the loan and that if he can’t carry the loan on his own, he will need to arrange for another co-signer. While you can make the request directly to the lender, it will be better coming from the borrower. Since it is his loan and you’re requesting release, it’s a red flag that the loan is, or likely will soon be, delinquent.
Once the request has been made, the lender needs to review the loan to make sure there are sufficient sources of repayment. It will review the borrower’s financial statements and run his credit report to make sure the debt-to-income ratio is within its guidelines. If not, the borrower will have to add a new co-signer with enough income and good enough credit to qualify. If the borrower can’t add enough strength to the loan, the lender will not approve your release.
If the borrower can carry the loan on his own or with another co-signer, the lender will go about releasing you from the loan. Sometimes, this can be done with a simple modification document. The document states that you previously co-signed the loan and are now released from your obligation. Some lenders will require a full refinance. This means the borrower and any new co-signer will have to sign new loan documents and pay all relevant fees associated. Either way, once complete this releases you from your obligation on the loan.
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.