Coming after co-signer before primary borrower?

[Silver1]

This is a little odd. Sister-in-law tells me that several years ago, she co-signed on an apartment lease to help out her younger sister, who was young and had no real credit history to speak of at the time she rented the apartment.

Younger sister ran into trouble a couple of years into the lease, and although she'd been making timely payments until she lost her job, she had to vacate on short notice and left an outstanding bill over 2k.

Sister-in-law received one demand for payment directly from the apt. management, then received a collections notice in short order. Luckily she asked me about it before the thirty days was up and I told her to request validation quickly, before the thirty day deadline was up. She received validation showing where she'd cosigned, but what she was after was a breakdown of the charges, since the original bill just had an amount to pay and nothing else.

She's wondering why all collection efforts have been directed at her and her sister is receiving no communications whatsoever from either collections or the apt. management. I have to admit, though I've leared a lot these past couple of years that I'm not sure why that would be. I know the co-signer guarantees the debt, but is there no difference between the two as far as how collection activities are targeted? Since the co-signer has guaranteed the debt, I'm guessing not, but it seems as though they'd exhaust their avenues where the primary borrower is concerned before focusing on the co-signer.

She's working it out with her sister to get her to pay off the debt so that this doesn't go any further, but I'm curious as to how that all works out as far as collection efforts for primary 'borrower' vs. co-signer. Thanks!

[razr]

They are both equally responsible. For whatever reason SIL was contacted first.

And if the Landlord can't give an itemized bill, why pay the bill? If it went to court, they would have to prove every penny.

-r

[chilton1]

Silver, tell your sister in law that she is legally responsible and she sould try to remedy the situation before it finds its way to her credit report. Basically she told the apartment complex that is her younger sister cant pay then she will be responsible. The sister has already shown that she cant or is unwilling to pay so why waste the enery and resources to get her to pay?

I found this article that is very helpful for those who are considering cosigning for someone.

To Co-sign or Not to Co-sign...That Is the Question

Stephen Snyder

Those of you who recently filed bankruptcy (and those bad credit scores) may be tempted, like I was, to ask a friend, parent or relative to co-sign on a loan with you.

Don't do it.

It weakens your position with lenders. Once a lender sees a co-signer on one of your loans—the lender will question your stability and move into “cover their butt” mode. And the way lenders cover their butts, is by forcing you to get a co-signer on your next loan...and the loan after that...and the loan after that.

Bottom line: When you have an existing co-signed loan—the chance of a lender requiring a co-signer on your next loan increases significantly.

There are right ways to recover from bankruptcy (or just rebuild bad credit) properly and quickly. But having a co-signer only delays your recovery and sets you up for complications along the way.

If you are unable to qualify for the credit you need...take it as a sign that it is not meant to be...until you can qualify on your own.

What if you are asked to become a co-signer?

I have a core belief...and it goes something like this, “Lend people money only if you can afford not to get it back and you won't hold a grudge if you don't—but never ever lend people your credit.”

If you're thinking about co-signing for someone...

Don't do it.

There is too much at stake.

If the borrower defaults on the loan, two things will happen to your credit reports and FICO credit scores:

1. If the loan goes into default, the lender looks to you to make the payment(s)...so have your checkbook ready.

2. Each time the loan becomes 30 days past due, a late payment will appear on your credit report(s) for up to 7 years...and as a result your credit scores will be lower than they could be.

Additionally, when you co-sign...

1. The payment you co-signed for is calculated in your debt-to-income ratio. So going in debt for someone else could actually prevent you from getting the credit you need when you need it. And it could increase the cost of credit since your scores may be lower.

2. When each lender reviews your credit report(s) to consider the loan, they will post a credit inquiry that will lower your credit scores.

3. Your own credit card interest rates could skyrocket due to the added debt. In what is becoming more common practice, credit card issuers are reviewing your credit reports and looking for how much debt you have with other companies.

4. The added debt could lower your insurance credit scores to the point where it could impact your ability to get or keep homeowner's and auto insurance or cause your premiums to increase.

As you can see, there is very little value in co-signing a loan. But there is a lot of downside risk.

And these days your credit score is about more than just your ability to obtain credit...it's about your insurance rates and almost everything else in your financial life.

Co-signing for family members…

I can remember stories about my family members asking our Uncle David to co-sign. I should know, I was one of them.

What I noticed is that after one family member asked Uncle David to co-sign...all the other family members deemed it their birthright to do the same. Whether it was for a car, motorcycle, camera equipment, or business loans...Uncle David was (and still is) there to the rescue. (Does your family have an Uncle David?)

To a lot of my family, Uncle David turned into Uncle David Bank and Trust, Inc. The sad fact is many family members took advantage of his kindness. Some only paid him back after they passed away. Many times he was left high and dry, making the payments for the borrower.

It's a tough balance to be kind to others, even family members, and remain financially responsible. But one thing I know, I never...never... never...loan someone my credit by co-signing. It's just too risky.

What about co-signing for your children?

If you can easily afford your insurance rates to double, your credit card limits to be reduced, and your interest rates on your revolving credit to increase substantially, then go ahead and do it.

Not me.

I feel it's better to do other things to help your children establish credit.

When my wife and I have children, our plan is to show our kids how to accomplish their credit goals without a co-signer. Will we help them? Sure we will. But not by co-signing. By the time they need to purchase their first car, their credit scores alone will qualify them.

We plan to teach them about the importance of managing their credit and credit scores so they are able to reach and maintain high credit scores; save for a down payment using money they earn (not borrow); and how to compare and select a lender to work with.

What about having a spouse co-sign on a loan?

Well, that isn't co-signing. That's co-borrowing...a different animal altogether. Co-borrowing is common practice among married people on a loan for a car or mortgage. And there is nothing wrong with co-borrowing. The goal, however, would be not to have everything held together. You need to build individual and joint credit so you can weather a storm (i.e., death, serious illness, etc.) on your own if need be.

I only recommend co-borrowing with a responsible spouse. And if you're not married I would even go so far as to suggest reviewing your partner's FICO credit scores! (Should we call this a FICO Pre-Nup?) Consider me paranoid. A person's credit history tends to leave clues. If the clues unearth a trail of bad credit...don't be naive.

[Silver1]

I agree; this is exactly why I have never co-signed for anyone, even when I didn't have issues of my own. ;0) The risk was just too great.

I did mention to her that if she didn't get an itemized breakdown when she got the response back from the CA, that she needed to write back to them to say that they didn't respond to all of her requests, and that they need to provide her with a breakdown of all charges. Haven't gotten back to her to see if she did this or not.

I will let her know that it doesn't look like there is any obligation on the lender's part to go after the primary before going after the co-signer; I think that part was what had her most confused.

Thanks everyone!

[bigjohnstud4200]

Younger sister ran into trouble a couple of years into the lease

HOW LONG WAS THE LEASE?! If she signed a ONE year lease and her sister extended it beyond that time, the co-signer is NOT liable! She is only liable for the lease she signed for, one year!

[chilton1]

HOW LONG WAS THE LEASE?! If she signed a ONE year lease and her sister extended it beyond that time, the co-signer is NOT liable! She is only liable for the lease she signed for, one year!

Excellent point. She did say the sister ran into trouble a couple of years into the lease.

[PORTER1979]

I have several years experience in collections for every type of loan default(withstanding student loans and apartments). But, apartment complexes will ALWAYS seek for a judgement. Any time there was ever a cosigner on a debt I was responsible for collecting, I pursued the cosigner immediately rather than the primary. The reasoning is that the cosigner is going to have far better credit and be more responsible and easy to intimidate therefore a better "payer" than the primary who has no available credit cards and probably doesn't care at all about their credit. The cosigner needs to get this taken care of ASAP and attempt to get the primary to pay her back whenever possible...do NOT, I repeat do NOT set up a payment plan where the less responsible sister(primary) is in charge of making payments etc...she WILL miss or be late on a payment and they will again go after the cosigner.

[CleverCynic]

I would like to add though that you SHOULD co-sign for your children's school loans. That is the way the system is set up and you will deprive them of a competitive advantage throughout their life by depriving them of an education. The government will hear no if's and's or but's. It's a social contract you partake in when you choose to have kids. (Assuming you don't just pay for it outright)

For the older crowd, there is no more "working summer to pay school" the rest of the year. The cost of education has increased 15 times faster than wages over the last 30 years with verifiable sources.

[Silver1]

HOW LONG WAS THE LEASE?! If she signed a ONE year lease and her sister extended it beyond that time, the co-signer is NOT liable! She is only liable for the lease she signed for, one year!

Hey, excellent point! Thank you, I wouldn't have thought of that. I will ask her if her sister extended it beyond whatever original term was specified where she co-signed. If her sister extended the lease w/out her sister's co-signing, then it sounds like she would be off the hook? Thank you!

[chilton1]

Hey, excellent point! Thank you, I wouldn't have thought of that. I will ask her if her sister extended it beyond whatever original term was specified where she co-signed. If her sister extended the lease w/out her sister's co-signing, then it sounds like she would be off the hook? Thank you!

let us know how it turns out. I need closure.

[IHateCAs]

It makes perfect sense to go after the co-signer first. If you need a co-signer, you are not worth going after when you skip on rent. You don't have the money.

[Silver1]

let us know how it turns out. I need closure.

;0) Will do. I plan to call her up today about this or drop by; I know she's having a mini freak-out over it. I'll post back when I find out more. Thanks all!

[bigjohnstud4200]

[Silver1]

Yuck, I think she's pretty well SOL.

She read off the copy of the agreement they sent her as part of validation, and from what it sounds like, I think she is on the hook for it?

Initial lease term of the contract began on 1 June 2005 and ended 30 November 2005. The paper says the lease contract will automatically renew month-to-month unless either party gives at least 30 days written notice of termination or intent to vacate.

SIL says the only time she co-signed was at the original lease term at time of move-in, but I think that lease language might throw all that business out the window?

[bigjohnstud4200]

Yuck, I think she's pretty well SOL.

She read off the copy of the agreement they sent her as part of validation, and from what it sounds like, I think she is on the hook for it?

Initial lease term of the contract began on 1 June 2005 and ended 30 November 2005. The paper says the lease contract will automatically renew month-to-month unless either party gives at least 30 days written notice of termination or intent to vacate.

SIL says the only time she co-signed was at the original lease term at time of move-in, but I think that lease language might throw all that business out the window?

That's any standard lease. They all automatically go to month to month if you don't renew and usually they up the price. I'm still not convinced she's liable for anything beyond the 4 months, but if she is, she's only liable for ONE month plus any unpaid months prior to eviction. Nothing more.

You should contact an attorney, but I think that after the contract expired and the rental company allowed the primary tenant to stay they have no liablilty against the co-signer whom ONLY SIGNED FOR 4 MONTHS. She can't be automatically entered into any other contract beyond what she signed for.. at least that's my feeling. Maybe Recoverying Attorney or Nascar can shed some light.

[Silver1]

That's any standard lease. They all automatically go to month to month if you don't renew and usually they up the price. I'm still not convinced she's liable for anything beyond the 4 months, but if she is, she's only liable for ONE month plus any unpaid months prior to eviction. Nothing more.

You should contact an attorney, but I think that after the contract expired and the rental company allowed the primary tenant to stay they have no liablilty against the co-signer whom ONLY SIGNED FOR 4 MONTHS. She can't be automatically entered into any other contract beyond what she signed for.. at least that's my feeling. Maybe Recoverying Attorney or Nascar can shed some light.

Thank you! I think that will convince her to consult with a lawyer which is what I have been telling her to do. That does make sense about the automatic renewal issue. Thanks all- I appreciate everyone's advice! I will post back with what she finds out. I really want her to get it taken care of and it is making her miserable. Yuck. I'll post a follow-up.