I don’t understand - my brother is buying a house in Massachusetts. He is applying for loan from a bank with branches in Massachusetts which presumably is using documents and such that that comply with Mass. law. Why would the laws of my state ( NY , for example) matter?
I can’t understand how I could ever be held responsible if my husband co-signs for his brother nor why he would need my permission. We are both adults.
I don’t think it was ever like that in the US, - especially since you must be talking about loans with the same bank. It’s just a guess, but I think a lot of people don’t have any other loans at the bank where they have their home loan.
Anyway, I did for some period of time have an unsecured credit card from the same bank where I had overdraft protection on my checking account ( which s basically an unsecured loan) and I did have a home loan also from that bank. They never once took my mortgage payment and applied it to the other loans.
Good point. You get all of the grief and none of the benefit if you cosign a loan but are not on the title. The only salvation is that for title to transfer, the morgage must be paid off. (usually by the buyer’s mortgage)
Basically, if you are paying toward a loan, as I understand the bank can take that money an apply it against any loan for the same person(s). One of the cautions one of my less-than-solvent friend once mentioned is the bank can even go into your savings or chequing to take their credit card payment without your say-so if it is overdue, if it is all the same institution.
And I assume she could also raise the limit etc. without needing to notify the co-signer? What if she’d signed up for time payments on a credit card (Netflix and such, gym membership for 2 years, or those Ginsu knives?) even if you cancelled the card, could they come after you (as one of the cardholders, as co-signer) for the ongoing payments.
Another point - where are the parents?
Usually a mortgage cosigner is someone like parents, who already have their house, possibly paid off, won’t be going to the bank looking for a new mortgage on a house at today’s prices, are financially stable and advanced to the point that they have a decent stable income - i.e. someone able to afford it if they have to cover the cosigned loan.
If the parents won’t co-sign, why should the brother?
Different states have different laws about community property and shared debt. In some states, both spouses have to sign off on loans. One spouse can’t take out a loan without the other spouse’s signature. I’m not sure if co-signing works the same way. As for being responsible for the debt, that really only matters if the couple gets divorced. If they are married, it doesn’t really matter who’s paying off the debt. If OB defaults and the bank comes to YB for $$$, that’s coming out of the couple’s assets. I don’t think that YB can say he’s broke and that the wife’s assets won’t be touched. I would expect that the loan officer in a local bank would be able to answer the specifics about how it would work in their state.
In my community property state, I can’t say whether a spouse would have to sign with me, but we would both be equally liable. Just like if my husband ran up credit card debt.
Lots of useful answers, and way more aspects that matter than I ever thought of. I’m more convinced than ever that my friend needs to talk her husband into a meeting with an advisor BEFORE anything can happen with signing notes/mortgages. Probably a lawyer or professional financial advisor, or at the very least a friendly neighborhood banker. It sounds to me like he has the idea he can just walk away from the problem if things go bad and he needs to hear this is wrong for absolutely certain from someone he will believe knows about it.
I also forsee nothing but trouble ahead for the couple on the matter because I think they are approaching things starting from different values, and right now those values are in conflict. YB was brought up his whole life on Loyalty To Family Is Everything – I’ve heard the wife complain about several relatively trivial impacts of this already. Things like you just have to go on vacations with the family and You have to back up your blood even if you think they’re actually wrong. Does a ‘married in’ even could as full blood?
On the other side, it’s not that she totally dismisses the importance of family, but she didn’t come out of some ideal family unit and is well used to the idea that sometimes the people you may love are still wrong and you may have to put yourself first. And, as I said above, for her owning a house seems to be the Holy Grail of having a safe and established home. She is dead set on saving as much money as possible now to speed up the day they can buy. If her husband’s action screw that up for her…well, I don’t know how she’ll react. Probably not well.
A couple of people have brought up the idea of getting YB onto the mortgage as well as the note. Wouldn’t that potentially cause all sorts of additional problems? What if OB ran into financial problems, like maybe a job loss or some disabling condition? Would YP take over paying off that mortgage to save OB’s house? Basically wouldn’t that be ‘investing’ all that money in an asset he basically never recover from? Mightn’t that mean he couldn’t buy his own house for really long time? It probably would destroy his relationship with his brother, and likely his entire birth family, if he had to evict the brother to sell it and recoup his money? The whole situation makes me shudder.
To my surprise this is how things turned out when I cosigned on a mortgage and my family member went off the deep end. The house was in foreclosure and the bank would no longer accept any payments on the mortgage unless the entire balance were paid off in a lump sum immediately. And, yet, the bank never contacted me about it. As I understood what they were saying, my only options were to write them a check for over a quarter million, or walk away and watch as they auctioned off the house. Which is what I did.
The foreclosure process was well underway before I knew anything was wrong, and the bank didn’t seem to have any interest in doing anything else. I could have started making payments, and paying extra to catch up on all the missed payments, but the bank didn’t want to discuss that.
The mortgage is secured, in the end, by the bank’s ability to sell the house and pay themselves first. They never came after me in any way. This appeared on my credit report for (I think) 7 years and then disappeared. This was all in Maryland.
I offer this only as a personal observation from the layperson point of view. I’m curious what anybody more knowledgeable has to add.
Another thing to make this more confusing is insurance. Do you need it in this situation? My gut says you might want something to protect the property against damage, at least WRT major damage that would leave the house unlivable (fire, flood etc). I assume the lender would require it from the primary signer, but I’d probably still ask my agent. And, maybe more importantly, insurance against things like someone getting injured on the property or otherwise having reason to sue the property owner(s).
I’d imagine, at least on the latter part, this would be similar to the type of insurance a landlord would need on a house they’re renting out.
Did the foreclosure sale cover the remaining balance on the loan?
It would cause all the same problems as cosigning would. It’s just that if YB is on the deed , he would be a part-owner of the house which can be a benefit in some circumstances over just being a co-signer. If OB stops paying and YB doesn’t pick up the payments, co-owner vs co-signer doesn’t matter. The bank will eventually foreclose and YB gets nothing - but also paid nothing.
Let’s take a different situation - OB gets injured or loses his job. YB starts paying to protect his credit rating , figuring OB will get back on his feet. But he doesn’t. And the house gets sold. There may or may anything left after the sale - but if there’s anything left, co-signer is not legally entitled to it just based on co-signing the loan.
You can’t really assume the parents can cosign but won’t. I’m still thinking about buying a place to spend winters- and if I do , I’ll need a loan because I’m not planning to sell my paid-off house. But I do have an open home equity line of credit, which would probably keep me from being able to co-sign a loan for one of my kids even though I don’t actually owe anything on it.
Details aside, it’s hard to see how cosigning makes sense for a couple without a house that hopes to be buying one in the next few years - way too much chance of unpleasant complications.
This is the very essence of “can cosign but won’t”. “Can cosign” means they have the credit rating etc. “Won’t” means despite that, they have other reasons they choose not to.
Which brings up the point that OP’s situation is much like this, if YB may need a mortgage soon, they have to choose not to co-sign.
Particularly, I wonder - there’s a lot of extras in owning a house- the transfer and lawyer fees, etc. Plus property taxes, utilities, services like internet & phone, regular repairs. The mortgage may be the main part, but it’s not the only part. To what extent has OB planned for this. Insurance was a good point - would the cosigner be ntified that OB has not renewed his insurance, as required by the bank?
Which is why I ask how YB came to the (wrong) conclusion that he could un-cosign at any time. If OB told him that, then OB is either totally clued out about finances, or trying to con YB. (Why not both?) Either way, it’s a bad risk and indicates OB playing YB and taking advantage of his “commitment to family.” Particularly if they have a large-ish amount in savings for a down payment which could be at risk. Good point that YB needs to hear from a knowledgeable professional
But if he cosigned, and there’s an account in her name only, and her pay going directly into that, can the bank do anything? It seems to me they’d have to go through standard debt collection procedures.
They did not come after you because they covered their balance through the sale. Anything over that went to your family member. If the sale had fallen short you can be sure they would be after the two of you.
You ended up with ruined credit. Most of us here would consider that disastrous.
This seems odd. Did you move sometime after you co-signed? Did they claim to have contacted you?
I wasn’t clear enough - before I take another loan it might be “can’t but won’t” . After I take it, it will be “can’t” because I don’t have the income to qualify for that high a loan balance.
Probably the worst-case scenario would be a financial crisis that leads to a collapse in the real estate market, like what happened in 2008. If OB loses his job and isn’t able to make payments, the sale of the property might not cover the loan balance. In that case, YB could end up on the hook for the uncovered portion of the loan. That would be worse than having a bad credit rating. He could end up losing a lot of his own money or property that way.
I don’t know how likely this scenario is, but it could happen. The economy is unstable now because of Trump’s tariffs and other policies
If the loan is backed by the property that is a mortgage. Most other loans are backed by something of value, car, truck, boat, or RV.
Loans on homes (Mortgages) are almost based on the value of the home, the income and savings of the buyer. And if the primary lender defaults the bank will expect a co-signer to start making payments. If the loan goes into default the bank may come after both primary and secondary barrower. Now if the bank forecloses on the house. It then will sell probably at auction. If the sales amount exceeds the loan amount the primary will receive the difference. If the sales amount if less than the loan amount the bank then can seek to recover the loss amount.
In the US I have never heard of a bank making a personal loan on a house. Home loans are secured by the value in the house. When I was signing papers in the past, they were loan papers but everyone referred to the loan a mortgage.
Not quite, but close. IIRC maybe there was $40,000 or so left.
I thought it was pretty likely they’d be after us, but not a peep.
I didn’t move, or change my phone number or place of employment. I can’t think of any obstacle to them contacting me. They never claimed to have contacted me before the end, when I contacted them and they were giving perfunctory answers to my questions. They didn’t seem interested in talking with me at all.
This is just speculation: they were themselves in a lot of legal trouble for their mortgage practices and were processing many foreclosures, and they were getting a lot of bad press at the time too. Maybe they were just trying to reduce their public and court profile any way they could. Otherwise I don’t have any ideas why they were so uninterested.
We don’t have the details, but the OP indicates that this is a ‘family’ matter. That works both ways. Family helps YB: Family helps OB. I’ve met people who take that kind of recipricol obligation seriously.
I’ve also met people who invoke “family first” when it’s time for them to get help but for some reason they have circumstances which gets them out of reciprocating.
How would that work in this case? When YB wants to buy a house, OB being willing to co-sign the loan wouldn’t carry much weight with the bank. The loan officer would see that OB is already carrying a loan that YB has co-signed, so OB co-signing YB’s loan would hardly reduce the risk.