How Can You Get Out of a Co-Signing Obligation?

The letters below are typical of many I receive from people who co-sign without giving it much thought, or who are asked to co-sign with false assurances.

"I co-signed a loan for my brother-in-law who has since left my sister and has stopped paying the note…The lender is now after me to pay. How can I get out of this?"

You can't. Once you co-sign a note, there are only two ways to get out of it. Either the loan must be repaid in full, by the borrower or you, or the lender must agree to take you off.

The lender is not going to let you off the hook because the borrower stopped paying. The risk of non-payment is why the lender required a co-signer in the first place! The lender doesn't care that the borrower left your sister, he just wants to be repaid.

"My nephew has asked me to co-sign his mortgage. He says that after the loan is closed, I will be taken off the deed and my obligation will terminate. Is this right?"

No, removal of your name from the deed does not eliminate your obligation.

"My brother in law has asked me to co-sign for a home and the real estate agent tells me that after six month of good payment by the borrower I can be removed from the title and loan. Is this true?"

Probably not. It is strictly up to the lender, who might let you off the hook in 6 months, or perhaps after 12 months, or perhaps never.

Co-Signing Can Affect Your Qualifications For a Loan

"In a week moment I agreed to help a friend get a mortgage by co-signing his note. My friend has always made the payments, but I discovered that his mortgage shows up as debt on my credit report, and it prevents me from getting a mortgage of my own. How do I deal with this?"

This is a loan qualification problem, not a credit problem. Lenders impose limits on the amount of existing debt a borrower can carry, and a co-signing obligation is considered debt for qualification purposes.

This problem can usually be remedied by documenting that the borrower has been making the payments on time for a reasonable period. The lender in such case will probably remove the debt from your loan application. You remain a co-signer, but the lender is ignoring your obligation to the other lender in assessing your ability to repay a new loan.

Co-Signing a Lease

"I have been asked to co-sign a rental agreement so a friend can get an apartment. Is this the same as co-signing for a loan?"

They are very similar. If you co-sign for a loan, you are on the hook until the loan is paid in full, unless the lender lets you off. If you co-sign for a lease, you are on the hook for the period of the lease, unless the landlord lets you off.

Effect of Debt Consolidation on a Co-Signing Obligation

"If a student has a co-signer for college loans and consolidates those loans when he is employed, are the co-signers removed from the loans? If not, are the co-signers notified of their position (responsibility) with the new lender/lenders?"

"Consolidation" usually means that existing loans are repaid and replaced with a new loan. Where that happens, any co-signers are off the hook.

Sometimes, however, "consolidation" means that a third party has made a deal with a borrower to receive payments from the borrower, with the third party passing on the monies to the various lenders. In this case, the original loan contracts remain in force and the co-signers remain liable. It is unlikely that the co-signers will be notified in either case.