By Kay Wilson-Bolton
August 25, 2006
There are many homeowners in America today because someone agreed to co-sign, or lend their name, credit score and income to the application so the buyer/occupant can qualify for the loan.
It has been proven many times that many co-signers do not realize the full impact of their decision and have suffered consequences because of it.
Every buyer should read every document before signing them. The courts have been harsh with people who used their failure to read documents as an excuse for their problems.
We know that not all English speakers are readers so language preferences can only make this problem bigger.
Lenders are on the frontline of the loan process. REALTORS® are sometimes engaged in the process. When a loan approval starts to deteriorate, the natural thing to do is hunt for someone who will loan his or her credentials to a friend or relative to co-sign the note.
The failure to communicate the total scope of consequences for co-signing is causing some heartache in the region.
Here are two examples of tragedies. One co-signer was brought into the purchase of a home in Fillmore. The escrow company did not run a check on his social security number, which would have revealed a child support debt of $30,000.
After the escrow closed, the lien against the co-borrower attached to the house. This fact was not known to the buyers until they sold their house three years later. They discovered a lien of almost $50,000 against his home that had to be paid off before he could close his escrow.
The co-borrower had no money and the seller can only hope that someday they can retrieve the $50,000.
Another example just revealed itself in Ventura where a foreclosure occurred against a condo. The co-borrower had agreed to personally guarantee the note, without realizing what that meant.
Now that the foreclosure has occurred, the bank has contacted him to recover any losses that might occur.
Even I have co-signed for a friend and had to pay the piper. I have a judgment against him and he cannot buy a car or do much of anything because of it, but I had to pay the monthly payment for five years.
So, beware. Ask lots of questions. Get legal advice before you commit yourself to a long-term debt where you get no benefit or return on your money. If you know someone who is considering co-signing, urge them to have a consultation with a trust advisor first. An attorney is a good resource as well as an experienced REALTOR®.
Not all situations turn out badly, but the sad stories are just that. Co-signing can impact a co-borrowers ability to buy his or her own home until the note is paid.
Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista and brings a regional perspective to local issues. She can be reached at 805.340.5025