If you have found the perfect house in your dream location, but cannot get the mortgage loan approved, you might need the help of a cosigner. A cosigner is typically a close family member or friend who is willing to take credit risk on your behalf. They have a reputable and long credit history that lenders can rely upon. They basically guarantee the lender that if you, the primary borrower, defaults on the payment, the cosigner will step up and pay on your behalf.
If you’re thinking of asking someone to enter into such an agreement with you, you may want to know what are some of the terms and conditions involved in this relationship. What rights will the cosigner have over your property? And what legal actions can they possibly take against you in case you default on the payments? Should you opt for a cosigner or a co-borrower when applying for a certain loan? Knowing the risks before time may save you from a lot of trouble further down the road and may even make it easier for you to choose the right cosigner for your loan.
Cosigner Vs Co-borrower
It is important to understand the difference in legal arrangement when you have a cosigner instead of a co-borrower for your loan. A cosigner acts as a backup payment provider in case you default on your loan. They have good credit history and are financially stable enough to be counted upon by the lender. However, they are not liable to assist you with the payment until and unless you default. Typically, they also do not share any ownership rights on the property you took the loan for. Generally students who are applying for a student loan or people applying for apartment loans will require their parents as cosigners of the loan. This is because the parents have a longer, more reliable and often stable credit history to assuage the lender than their childrens’ financial statement.
A Co-borrower, on the other hand, shares the burden of regular payments with the primary borrower. They are as much responsible for making the payments on time as the primary borrower is. They also have a share in the ownership of the property. Usually, couples and business partners agree to enter into a co-borrower relationship as they may then be awarded a bigger loan than they may have received individually.
Agreement Between Cosigner and Borrower
The agreement between a cosigner and borrower is basically a legal document that outlines the terms and conditions of the loan as well as the financial understanding among all parties. As a cosigner, make sure you read through all the clauses involved and ensure that the borrower keeps you in the loop regarding their credit and future payments. You may also ask to be given access to otherwise confidential information, like payment history, bank balance and credit history. Having information reduces the risk otherwise involved with such an agreement.
What Rights Does A Cosigner Have On A House?
As far as cosigner rights regarding ownership are concerned, there aren’t any. The cosigner is only liable to pay off the debt in case the primary borrower defaults on the payments. The cosigners name generally only appears on the lender’s contract, not on the title of the security involved. Hence, they have no say in the property they are cosigning for. However, in some instances, the cosigner may be asked to sign certain documents pertaining to the title of the property. This is just to verify that the information provided by the primary borrower is correct.
In some special instances, the primary borrower may request the cosigner to include his or her name on the title contract. This is entirely up to the borrower of the loan as well as the lender’s terms and conditions. If this is the case, then the cosigner does have a right of ownership in the property. Sometimes, a parent’s name may thus appear on the title of a vehicle or house to which they have agreed to cosign a loan for. This gives them ownership rights of the property they are cosigning for and makes it more comfortable for them to agree to cosign for a big and potentially risky loan.
What Rights Does A Co-Borrower Have On The House?
The co-borrower has as much a share in the ownership of the property as the primary borrower. This is because they are liable to pay off the debt alongside the primary borrower. The names of both the co-borrowers also appear on the title of the property. Hence, the co-borrower has equal rights and obligations with regards to the property he or she agrees to cosign for.
Does A Cosigner Have To Live In The Same House?
This is not a requirement when trying to get your loan approved. However, some lenders have their own policies and may require that the cosigner lives in the same state as the primary borrower. The lender may also specify that the cosigner has to be a blood relative. This is especially the case when applying for a mortgage loan with a cosigner. Make sure you are aware of any terms and conditions stipulated by the lender before you ask someone to cosign for you.
Can A Cosigner Take You To Court?
Technically speaking, the cosigner has all the right to take you, the primary borrower, to court on any charge. The real question is how well the cosigner is able to defend him or herself and on what grounds they may sue you. It is not possible for the cosigner to sue the primary borrower if the latter party starts to default on the loan. This is because the entire lender contract hinged on the possibility of the primary borrower being unable to pay the loan and the cosigner agreeing to step in in case this situation arises.
However, there are still a number of conditions under which the primary borrower may be sued by the cosigner.
The cosigner may ask the primary borrower to agree to sign a separate contract agreeing to pay the loan. They may also ask the primary borrower to shoulder any expenses incurred in case the lender decides to sue the cosigner if the debt defaults. These contracts may be signed as a way to hold the primary borrower responsible for the loan and as conditional prior to cosigning. They reduce the risk for the cosigner and relieve some of the pressure involved in such situations.
If such contracts are in place, the cosigner can have a strong position in court in case payments default. They can sue the primary borrower for violating the terms of the contract signed between them. As a cosigner, it is always a good idea to have such bounding contracts in place before you agree to shoulder the responsibility of a cosigner.
Cross-Complaint Against The Primary Borrower
If the lending company pursues the cosigner for the failure of payments by a primary borrower, the cosigner may file a cross-complaint against the primary borrower in a court of law. The payment of debt will still be the responsibility of the cosigner as stipulated by the cosigner contract, but they may secure the right to receive some of the money the primary borrower defaulted on by filing a cross-complaint.
If the cosigner can provide sufficient proof that the lender contract between them and the primary borrower was based on fraud, they may sue the primary borrower with confidence. This may require providing proof such as emails, texts or forged documents providing misleading information to the cosigner by the primary borrower. It may also include proof of not being present at the time of the contract, for example, if the cosigner was out of the state or country when the contract was signed.
In a nutshell, as a primary borrower, you should carefully consider the possibility of getting a cosigner vs a co-borrower for a certain loan. Cosigning is a risky move and one must only enter into such a contract with a trustworthy person. And if asked to step in these shoes, always have a safety net in place in case things go awry.