Cosign A Loan With Caution

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We made the mistake of cosigning on our daughter’s loan. Her husband got laid off, the payments fell behind, they kept out of foreclosure, but we want off the loan NOW. Is this even possible?


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This is not possible unless your daughter and husband can qualify to refinance the loan into their own name. This could be very easy or very difficult depending on credit score, how many late payments have been made, and how much equity is in the house.

You might be surprised at the fact that many people in this same position can qualify for a loan, late payments notwithstanding, simply because the home has had some time to appreciate. If the area in question has appreciated considerably it’s worth a shot.

Even if the payments for your daughter and her husband are much higher than they are with you on the loan, they need it in their name because the damage that late payments or foreclosure can do to you is immeasurable. Simply having late payments (over 30 days late) on a mortgage can prevent you from obtain favorable rates on any future mortgages that you do and sometimes prevent you from getting the loan at all.

Another thing that will happen if it hasn’t already is that your other creditors will drop your limits if you have available balances with them. All your creditors have an ongoing access to your credit file and if they see these late payments, and you have credit cards with available balances, they will reduce your maximums and sometimes even cancel the account.

The bottom line is your daughter and husband have done you harm and can possibly harm you again if you stay on the loan. There are only 3 solutions. They can refinance alone, they can sell the house, or they can check to see if the lender on your mortgage has any special guidelines that allow them to be “ requalified” without you on the loan. Unfortunately for you, this last one is a long shot.

Check with your lender first, but then proceed immediately to refinance or sale.

One last note of caution. Some less reputable mortgage brokers have a history of fraudulently claiming that a certain borrower will be living in a house as their primary residence when in fact they are what’s considered a “ non-occupant co borrower.” Before you raise a stink with the lender, you will want to verify that, on the original mortgage application you DID NOT ever sign anything claiming that you would live in the house as your primary residence.

If you find that this is the case, or that you are in first position on the loan and not, in fact, a cosigner (which is common), the situation becomes more complicated because there is potential mortgage fraud involved. Do not notify the lender of this until you have sought legal counsel as you run the risk of incriminating yourself. There are other ethical gray areas here which do not belong in a public discourse. Bottom line: find someone in the know.

Answered about 7 years ago
Matthew Graham
986 6

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