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 (Realtor), GRI (Your Washington Co. Real Estate Expert)
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