Cosigning/Guarantor

Be extremely careful about obtaining credit for someone else and/or being a guarantor or a co-signor for a loan. This occurs many times when the area apartment complexes and landlords require parents to act as a guarantor on a lease. If you are a co-signor, you are also responsible for the debt, even if you had an agreement with the other person that the loan was really for them and that they would be responsible for all of the payments. In the eyes of the lender, it is your debt also. By being a guarantor, you are agreeing that if the other party does not pay that you will be responsible to pay.

Keep in mind that if your friend or relative needs a co-signor it usually means that their credit is already bad because they have not paid back credit when agreed for other debts. That means that they are more likely than not to pay the debt here or to not pay you, should you be required to pay back the debt when they default.

Make sure that if you do loan someone money that you always do it by a check with an indication in the memo section of the check that it is a loan. If you do give cash, make sure that the cash is in exchange for something in writing signed by the other person which sets out the terms of the loan i.e. deadline by which the loan will be paid back.

Joint and Several Liability means that everyone who signs the document agrees that one or more will be held liable on the debt. This happens more often with leases whereby all the roommates are responsible no matter who pays. If one roommate is not paying their portion than all the roommates are held responsible for that portion. The landlord can pick and choose who to go after for the money owed. In most instances, they will choose to go after the roommate who is most conscientious because that roommate will be concerned about their credit history. In other words, even though you paid your portion of the rent, the landlord can sue you even though it is the other roommate who did not pay. It is possible that you can then hold the roommate responsible for what you had the pay the landlord on the roommate's behalf.

http://www.ftc.gov/bcp/conline/pubs/credit/cosign.htm
Cosigning loans

This is general information about the law and is not intended to be a substitute for legal advice as it relates to your particular situation. Consult with our office to discuss how your particular facts relate to the law.