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A co-signer is sometimes called a "surety", a "guarantor" or
an "accommodation party". Regardless of the name
attached to it, the basic agreement to pay off the loan or contract
price if the other party defaults is always present. Likewise,
regardless of the term used, you may be sued to
satisfy the obligation if the loan or contract is not paid off.
If you are asked to co-sign on a loan or installment purchase there
are several things you should consider before doing so.
Most importantly you should consider whether you can afford to pay
off the loan or contract if the other person stops making payments.
This is a very real possibility since the other person is
not a good credit risk or they would not need you to co-sign in the
first place. If you cannot afford to pay off the contract,
you should not co-sign on it and take on the legal obligation
to satisfy it in the future.
Sometimes co-signers are also asked to put up some of their own property,
such as their car, as collateral for someone else's loan.
If you do so, this property can be seized if payments are not
kept up on the loan, often without the filing of a lawsuit. Allowing
your property to act as collateral
for someone else's loan is an extremely risky proposition and you
should carefully consider whether you should do so. Again, before
co-signing you should ask yourself if you can afford to pay off the
loan because it may be necessary to do so to protect your property.
Anytime you co-sign you should be sure that the contract specifies
that you will be notified if the other person gets behind
in their payments. This is especially important if you allow your
property to act as collateral for someone else's loan. This notice
will allow you to act promptly to
protect yourself from being sued and to prevent the seizure of your
property.
If you do co-sign on a contract for a loan or purchase, you should
be sure to get copies of all of the important documents
relating to the transaction. This would include the loan agreement
or contract, the Truth-in-Lending disclosure statement and any security
agreements executed relating
to collateral for the loan or contract.
If the other party defaults on their obligation and you as the co-signer
are forced to pay off the obligation, the other party then
becomes liable to you for the amount which you paid to satisfy
the obligation. This creates a legal right for you to sue the original
debtor to collect the money which you paid.
Keep in mind, however, that the other person was a poor credit risk
to begin with or you would not have had to co-sign. Also,
that person has just failed to live up to their obligation on the
debt you had to pay off. Therefore, your right to sue that person
may be of limited value if they don't
have any money or assets to draw from to compensate you for the money
you have paid out on their behalf.
All of these factors should be carefully considered before you agree
to co-sign with someone else on a contract for a loan or
purchase. Most importantly, be sure that you can afford to pay off
the
loan or contract if it becomes necessary to do so. If you cannot
afford it, you're placing yourself in a position to be sued on that
obligation and could stand to lose
some of your own property.
If you need an attorney and don't have one, the Lawyer Referral and Information Service can help.
Call Us Monday - Friday from 8:30 AM - Noon and 1:15 PM - 3:00 PM
at (814) 459-4411. |
