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When Co-Signing a Mortgage Goes Wrong (Part Three)!

By
Real Estate Agent

This post is actually targeted at a non-member of the ActiveRain community. However, EVERYONE might be able to benefit from this information.

This anonymous individual left the following comment on my When Co-Signing a Mortgage Goes Wrong II post...

"My father in law told us that he co-signed a mortgage for a friend. We are now suspecting that the friend is in default on their payments.  What happens to and who is responsible for that mortgage when my father in law passes away. Does his estate, which will go to his two sons, become responsible for that mortgage?"

I spoke with my personal real estate attorney Mark Thomas with Thomas Law Firm, LLC.

(SIDE NOTE: If you aren't closing your Columbia, Lexington or Irmo real estate transactions with Mark, you might as well go to Vegas and roll dice on the crap table!)

Mark sent me the following response......

 

"...most people confuse note and mortgage - here is my best answer
for each:

1) If he co-signed, he is responsible for payment of the loan, and any
default will harm his credit, and could be a claim on the estate.

2) signed the mortgage - means he is a co-owner of the home, and will be
listed in the foreclosure action by the bank. If he did not sign the note,
his involvement ends there..."

When someone obtains financing to purchase a home, the home buyer will sign two sets of documentation. Let me make clear the difference between two documents.

In simplest terms, a borrower signs a promissory NOTE which promises to repay the borrowed money. A borrower signs a MORTGAGE to pledge the purchased home as collateral. Hence, when the note is not been paid according to the terms of a particular agreement, the MORTGAGE is used to foreclosure the property.

Hence, ALL SIGNERS of the NOTE are responsible for REPAYMENT!

ATTENTION ANONYMOUS COMMENTER.......Mark Thomas and I do not represent you or your Father-in-Law. Therefore, the opinions expressed are solely from a "generally speaking" perspective. Mark and I do not know the full extent of your Father-in-Law situation. Hence, we can't (nor are we attempting) to give you real estate or legal advice. However, we are encouraging your father-in-law to seek Legal Counsel!

Hopefully, this post will make someone think twice about co-signing any binding document.

Happy Holidays!

Troy Ott
Coldwell Banker United, REALTORS - Columbia, SC

Tough situation for your anonymous poster.  Good info though!!!

Dec 09, 2008 04:18 AM
Nicole Weidauer
Keller Williams Greater Seattle - Shoreline, WA

Great point- this one is a tough issue to deal with. On the one hand you want to them with the situation (if it goes into default or not) BUT you also want to slap them upside the head for getting into the situation in the first place!

I am no expert but I think that when a co-signer dies, the debt goes away- it doesn't go to the estate.. to the best of my knowledge. Just like credit card debt. But don't take my word for it.

I don't know if you listen to Dave Ramsey but he always makes a point of telling people that co-signing is a TERRIBLE IDEA!!

Best of luck, anonymous. With David on your side, you are in good hands and he will resolve whatever issues you are dealing with!

Thanks for sharing, Nicole Weidauer

The Egerer & Weidauer Team, Keller Williams Realty North Seattle

Dec 09, 2008 04:51 AM
Patricia Kennedy
RLAH@properties - Washington, DC
Home in the Capital

David, there must be a lot of people out there who are regretting co-signing someone's mortgage.  Co-signing any note is a terrible idea.  Yikes!

Dec 09, 2008 05:01 AM
Tony and Libby Kelly
Keller Williams Realty Portland Premiere - Lake Oswego, OR
CRS, ABR, ePro, SRES, CLHMS, CDPE

Yes, this just adds to the long list of reasons not to co-sign on a mortgage or a car or anything else.

Dec 09, 2008 05:15 AM
Anonymous
Shawn M. French, Attorney at Law

This is a very good and succinct answer, but not entirely complete.  First, if the lender forecloses and does not request a deficiency, they will not be able to reach the father's property or estate assets, if he has not pledged any of those assets.  Second, a "co-signor" could also be a guarantor on the debt, which may not allow the father, or his estate, to benefit from certain statutory protections against deficiency judgments.  A guarantee is actually a third document separate from the Note and Mortgage.  A Guarantor is not technically the same thing as a Co-Signor, but the two terms are often used interchangeably  It is important that if your father does pass away that the personal representative of his estate properly notify the lender so that they can make any claim they might have and be barred if they do not. 

Ofcourse, the best way to protect the interests of your father or his estate would be to contact an attorney who is experienced in handling lenders and foreclosure matters. 

Dec 09, 2008 12:24 PM
#5
Leesa Finley
RED Properties - Wake Forest, NC
RED Properties - Raleigh NC Real Estate

Wow, tough situation your poster finds themselves (or their father) in.  It is great that you got this information out to your loyal readers - it can all be very confusing!

Dec 10, 2008 08:49 PM
Ann Allen Hoover
RE/MAX Advantage South - Hoover, AL
CDPE SRES ASP e-PRO Realtor - Homes for Sale - AL

David, this is such good information!  I am going to go back and read your prior posts.

Dec 11, 2008 10:37 AM
Bobby Wallace
Vacant Land Solutions - Charleston, SC
Sell Your Vacant Land The Hassle Free Way!

David - Great point! (And everyone thought that mortgage brokers were just being nice & helpful when they asked "is there anyone that you can get to co-sign?") 

Dec 11, 2008 12:42 PM
Not a real person
San Diego, CA

I think you are right, David. Many people can learn from your post. I've never co-signed anything at the advice of my wise old grandmother. I do donate to a lot of charities, and I have had a couple of friends claim that they were charities, and since I don't require proof of IRS charitable status, well, they got a small donation that year -- LOL.

Dec 13, 2008 08:59 PM