If indeed both parties are responsible for payments, then when a payment is missed or late the bank should have the responsibility of notifying both the loan holder and the cosigner. However I have a feeling that this is not standard practice, and the bank just notifies the signer.
So here is a scenario in which the cosigner can be screwed and not even realize it until it is too late to undo the damage to his credit rating.
When the cosigner option needs to be exercised by the bank, what are the usual terms? Does the cosigner simply continue the interest and payment structure of the original debtor? Or do the terms become accelerated meaning the cosigner must pay off the remaining balance immediately (plus appropriate interest and penalties)?
You say the debt is a few years old. How much are we talking about? If it’s a small enough amount, you may want to pay it off to avoid credit problems, then work on getting your money out of this sleaze.
If that’s not a good option, do everything you can to get the bank on your side chasing this guy. Set up a dialog right away.
**First, both are “signers,” they just signed together so they are “co-signers.” Under the note (contract) they are signing, there is absolutely no difference in what their responsibilities and liabilities are. At the time they take out the loan they give the bank both of their addresses, and, if different, which address they would like notices and such sent to. This is generally the address of the party that plans on making payments (“the primary address”).
Now it gets tricky. Most of the early notices (“reminder” type letters) are computer generated and sent to the primary address. Calls are usually placed by an autodialer to the primary phone number after the account goes a certain number of days delinquent (11 days in our case).
Most larger banks do not consider late payments a problem until the customer is over 30 days delinquent (in other words you now owe them two payments). At that point senior collectors and loan officers get involved and it is usually at this point that the other signing party will first be notified of the default. (Note that once the account is over thirty days late it also will affect the credit rating of both parties.)
All that being said, there is nothing in any of our chattel security agreements that says we ever have to notify either party if a payment is late, other than a Statutorial Demand letter that must be sent before we repossess or take any legal action. That will be sent to all parties on the note (and copies sent to any parties that may be on title but not on the note).
**Yep. Keep track. Either party can always call in (most banks have automated lines for it) to check to see if payments were made.
Depends. As I said earlier, any parties signed on the note are already responsible for all the terms of the note. There is no clause or “option” to be exercised.
However, the bank would rather have the money than the car. So, even though they may have sent a notice of default and acceleration, they’re probably willing to accept just whatever payments are currently past due and have you continue along with monthly payments from that point.