Recovering Property from a Cosigned Loan
What is Cosigning a Loan?
Cosigning on a loan is an important decision that carries with it many potential benefits. A person may voluntarily cosign on a loan with the primary borrower, who is typically a friend or relative. Cosigning allows the primary borrower to obtain a loan that they might not otherwise be qualified for due to restrictions, such as bad credit or a non-existing credit history. Cosigning provides the lender with some assurance that the loan will be paid for.
What are some of the Consequences of Cosigning?
There may also be serious consequences to cosigning a loan, since in essence the cosigner assumes liability in case the borrower is unable to make payments. In some instances the cosigner may be held liable for such costs as the full amount of the loan, as well as late fees or costs associated with collection. Such expenses may negatively affect the credit history of the cosigner.
If the borrower is unable to make payments on the loan, the loan will go into default status with the lender. In such instances, the lender is legally entitled to obtain monetary payments from a cosigner. They may also be sued by the lender, or have wages garnished in order to pay for the debt. For this reason it is important to discuss all the implications of cosigning with both the lender and the borrower whom you are cosigning with.
Can I Recover Property or Fees from a Loan I Cosigned on?
While it is best to be prepared before cosigning the loan, there are several steps you can take to recover losses incurred in case the loan goes into default. Here are some options to consider in such a situation:
• Ask whether the borrower can resume making payments
• If the borrower is unable to continue making payments, determine whether your budget will allow you to assume payments or ownership properties
• If you have assumed the entire payment amounts, consider whether the borrower will transfer their ownership interest to you in exchange
• If you have obtained an ownership interest over properties, check to see if you can have the loan refinanced to reflect your sole ownership, and whether you may legally purchase the property
• Inquire whether any properties may be sold in order to protect your credit rating
• Consult with the primary borrower in order to determine whether they can repay you the money you spent in getting the loan out of default status
Do I need a Lawyer to Cosign a Loan?
While cosigning on a loan is mostly a personal decision, as you can see it can have heavy consequences for the cosigner. You may wish to hire a lawyer before you cosign in order to obtain advice and counseling regarding your options. It is a good idea to enter into a written contract with the borrower in which you outline specific steps to take in the event that the borrower goes into default with the lender. An experienced lawyer can help you draft such a contract so that your interests will be protected beforehand.
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Last Modified: 06-30-2010 04:20 PM PDT
