Co-Signing a Florida Mortgage: The Danger

Thinking about co-signing a Florida mortgage for a friend or family member?

You might want to do some serious thinking before you take that step. Don’t underestimate the possible risk of your signature being on a legal document along with someone whose credit score is highly questionable.

Co-signing has been known to destroy relationships and wreak financial havoc. In fact, most experts will tell you it’s a bad idea.

CO-SIGNING means you are effectively telling the lender you are responsible for the loan, equally with the borrower. If the borrower fails to pay, you are guaranteeing that payment.

Think about it. You’re not just helping someone get approved for a Florida home loan, you’re promising to pay the debt yourself if the borrower does not. If the lender decides to sue you and wins, it can go after your wages and your property.

That’s important. Studies have shown that as many as three out of four co-signers ultimately end up making payments on the loan.

“Twenty percent of consumers that have gone into our debt management plans have had issues with co-signing,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA).

Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys, says cases are frequently seen with parents who co-sign on a loan for a child with bad credit.

Marc Stern, a consumer bankruptcy attorney in Seattle, says 20-30 percent of his cases involve consumers who have co-signed for a loan.

Some financial experts say co-signing can be appropriate under the right circumstances. Jessica Cecere, of the Consumer Credit Counseling Service of Palm Beach County/Treasure Coast of Florida Inc., doesn’t promote co-signing, but says it can be an opportunity for a parent to teach financial responsibility to a child with no credit history.

Only you can make the call, but below are three “knows” that you should know if you are considering co-signing a Florida mortgage:

1. Know the person you are helping.

Believe it or not, some people barely know the borrower, especially the financial habits of the person involved. Experts strongly advise that you consider the person’s maturity and his/her ability to be responsible if a friend or relative approaches you about co-signing a loan.

2. Know your capability and responsibility.

Never co-sign on a loan that you don’t intend to pay yourself. There is a very good reason that the bank does not want to assume the risk. Expect to be making payments on it. That way, you can hope for the best, and that you never have to do a think, while at the same time staying ready for a Florida mortgage loan coming your way.

3. Know how to operate like a lending institution, and by that, we mean…

• Get a copy of the borrower’s credit report and credit score.
• Find out if the borrower is paying his or her current bills on time by asking for current financial statements.
• Make sure he or she has a steady job, and ask to see his or her W-2s.
• Find out how he or she plans to pay the bills over the term of the Florida mortgage.
• Read the contract and understand the terms. Have an attorney look over the contract so you know your liability. Doing this does a lot to take away from the “impulse buy.”
• Keep a copy of the contract and truth-in-lending disclosures.
• Find out the worst-case scenario. Ask the lender to calculate exactly the amount you would owe if you had to pay for the Florida mortgage loan.
• Take note of their personal information. Make sure you keep his or her current address and work information up to date.
• Ask the lender to put in writing immediate notification if the borrower misses a payment and that you are to receive a copy of the monthly statements.
• Check in with the co-signer often. This way if you believe a problem is imminent you can work with the borrower to find out alternatives, such as refinancing, selling of the item, or finding a second job, in order to avoid foreclosure.

You may choose not to sign, but rather than leave the person stung by your response, provide some alternatives. Credit counselors suggest telling the borrower that he or she can improve credit by staying with one bank, getting a secured credit card, etc. All in all, the number one word to remember when thinking of co-signing a Florida home loan is caution.