Can I Lose My Home if I Co-Sign for Someone Else and They Default?

If a close friend or family member has asked you to cosign for a loan, there are a number of things you should consider before agreeing to act as a cosigner. A cosigner essentially has full responsibility for the loan, in most cases. If the primary borrower defaults on the loan, the lender can attempt to collect from you. In some cases, a lien could be attached to your own home for the amount due on the loan.

Why Would You Need To Cosign?

If someone applies for a loan and the lender does not feel that she meets the qualifications for it, she may be asked to secure a cosigner. While each lender has its own qualifications and each situation is different, there are two common reasons why a person may be required to secure a cosigner: either the borrower does not meet the income requirements for the loan, or she has a poor credit history. Regardless of the reason, if a lender requires a cosigner it is because the lender is not convinced that the borrower will repay the loan.

Cosigner Liability

When you agree to cosign for a loan, that typically means you are legally liable for the entire debt, including interest and any costs associated with collecting the loan. Furthermore, in some states, the lender is not required to attempt to collect the debt from the primary borrower before coming after you to collect the debt. The debt may not even need to be considered officially in default before the lender can attempt to collect from you. In other words, if the primary borrower misses a single payment, the lender may be able to immediately contact you for the payment. State laws vary with regard to whether or not the lender must first attempt to collect from the primary borrower, but in all states the cosigner is ultimately liable for the entire debt.

Default

If the primary borrower defaults on the loan, the lender may file a lawsuit against both the primary borrower and you, as the cosigner. If the lender obtains a monetary judgment as a result of the lawsuit, it will be against both of you. Since the lender likely knows that the primary borrower is unable to pay the debt, and has few assets, the lender will likely turn to you to satisfy the judgment. In many states, a creditor may attach a lien to your home if it has a judgment against you. Most states allow a homestead exemption which exempts your home from attachment up to a certain dollar amount; the amount varies widely by state. If, however, you have more equity in your home than the homestead exemption allows, you may find a lien attached to your home.

Considerations

Cosigning for someone can have serious financial consequences if the person defaults. While you may not actually lose your home, you could wind up with a large lien attached to it that you are forced to repay. In addition, if you cosign for a large loan, such as a mortgage, it may affect your ability to acquire your own loan or refinance an existing loan, because you are considered responsible for the entire amount of the loan for which you cosigned.

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Liability of Debt

Debt is a necessary part of maintaining good financial health for many businesses and individuals. But debt also puts the borrower in a position of accepting liability for the borrowed money. The liability of debt, including who is responsible for paying it back and under what circumstances, involves many areas of law and is important or both lenders and borrowers to understand in order to make fiscally responsible decisions.

Loan Agreements

Liability of debt falls under legal regulations based on the type of debt as well as the loan agreements lenders and borrowers sign. These agreements define the liability for debt and include terms, such as how long the borrower has to pay back the debt, what the rate of interest will be and under what conditions the lender can take possession of any property the borrower puts up at collateral. Loan agreements are subject to contract law, which means neither party can attempt to defraud the other without risking the validity of the loan agreement.

Limiting Liability

Several types of business structures offer limited liability for a business's owners. Corporations and LLCs, or limited liability companies, have legal protection that shields the owners' personal assets and keeps them separate from business debt. This allows owners to take risks on behalf of the business without risking their personal finances. Business structures also prevent personal debt from affecting a business' standing.

Piercing the Corporate Veil

In some cases, a court may hold a business owner personally liable even if there is a limited liability arrangement. This process is known as piercing the corporate veil and it can only occur when the owner is directly involved in fraud or other illegal activity that causes a business to incur debts or to be unable to pay off legitimate debts. In these cases, the owners may be liable for business debts and their assets, including property and investments, may be seized to repay the business' lenders.

Bankruptcy

When an individual or business files for bankruptcy, the issue of debt liability determines how the court discharges debt and what it means for the borrower. Upon filing for bankruptcy a borrower receives a stay, which means lenders can't take legal action against the borrower regardless of liability. Bankruptcy courts must honor the correct order of repayment based on the borrower's liabilities; for example, the first lenders to be repaid are those with secured debts backed by property the borrower still owns, while unsecured debts have a lower order of liability and are paid back later, if at all.

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Benefits of Financial Statement Disclosures

In modern economies, a new era of government accountability emerges. Public officials attempt to set sound procedures to monitor, measure and disclose economic information. Businesses and non-profits also have jumped on the bandwagon of clean, complete financial reporting. This increased level of accounting openness benefits the public and investors, as they can read financial-statement disclosures to gauge such factors as liquidity and profitability.

Regulatory Compliance

When a business is forthcoming with performance data, it cultivates better and tighter relationships with regulatory authorities. By doing so, the firm can potentially preempt government inquiries and expedite corrective actions. Regulatory compliance goes a long way toward preventing significant operating losses, which typically stem from such adverse actions as fines, temporary suspensions and penalties. To avert negative regulatory initiatives, publicly traded companies follow disclosure requirements that government agencies, such as the U.S. Securities and Exchange Commission, have established.

Improved Corporate Reputation

Companies rely on various tools, mostly technological, to analyze their operating data and determine the best way to disclose performance information. They may rely on mainframe computers -- as well as financial and accounting software -- to reveal to the public the company's ins and outs. A business may use computer programs to track operating data over several years and show the public how it has evolved over time, financially speaking. Firms with straightforward, clean reporting processes often enjoy a good reputation in the marketplace, which usually translates into increased market share and customer loyalty.

Financial Transparency

To combat fraud in financial reporting, organizations often hire forensic specialists -- such as accounting-crimes experts and fraud investigators -- to root out instances of illegal activities in corporate operations. These specialists may use auditing programs to analyze the way bookkeepers record operating activities, as well as other history-sniffing software to detect potential vulnerabilities in corporate financial reporting. The goal here is to ensure "back-to-back financial transparency," meaning forensic experts want to set appropriate procedures from transaction recording and entry verification to financial reporting. Increased financial transparency eases the disclosure of performance data in accounting statements.

Increased Investor Interest

Corporate financiers usually side with a business that consistently reports clear, positive operating results. Corporate management may not draw a standing ovation and congratulatory handshakes when times are bad, but investors would put negative results into perspective and look at a five- or three-year span instead of one year. Companies that adequately disclose financial information generally see an increase in their share values, especially those listed on a public market, such as the New York Stock Exchange.

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Definition of Outstanding Debt

According to the Business Dictionary, outstanding debt is the "unpaid portion of a debt that may include interest accrued on the balance." In other words, outstanding debt includes all of the money a person owes. In addition to the amounts borrowed, outstanding debt also includes the interest that is charged on the debt on a daily basis.

Types

Because outstanding debt includes money owed to all sources from which it was borrowed, people carry many different types of outstanding debt. One of the most common ones is credit card debt, as anybody who uses a credit card has at least a small amount of outstanding debt. Even if the card is paid in full every month, the debt is outstanding during the part of the month before it is paid. Other types of outstanding debt include auto loans, student loans, mortgages and home equity lines of credit.

Principal Balance

The principal balance is the main portion of an outstanding debt. Once all the payments a person has made on a loan have been applied to paying interest charges and repaying the money borrowed, the principal balance is the amount of the money borrowed that still remains to be repaid. For example, if a person has a $200,000 mortgage on a home, after five years of payments the principal balance may be down to just $183,350.

Interest Owed

Interest is typically charged on a daily basis, so if any days have elapsed since making the last payment on a debt, then a person also must include some amount of interest owed when calculating the amount of outstanding debt. For example, say a person has carried a balance of $3,500 on a credit card at 14 percent annual interest. Divide 14 percent by 360 to calculate that 0.039 percent interest is charged every day. If it has been 20 days since making the last payment, then the interest owed is $3,500 times 0.039 percent times 20, or $27.22. Therefore, the person's outstanding debt on the credit card is actually $3,527.22.

Paying Off Debt

When paying off outstanding debt, people should consider how much of their monthly payments are going toward interest and how much is decreasing the principal balance. Especially during the first few payments on a loan, a large portion of the monthly payment will cover interest, and the principal balance will hardly decrease at all. Making extra payments that go directly toward the principal balance greatly decreases the amount of interest paid over the life of the loan. Paying off debt quickly also reduces the total outstanding debt and can help you get better interest rates on new loans.

Federal Debt

Another major type of outstanding debt that does not fall within the category of personal debt is the outstanding debt of the federal government. Many people know this as the "national debt." This amount is the total of all the money the government has borrowed but has not yet repaid, both to its citizens and to foreign governments. The Bureau of Public Debt within the Department of the Treasury manages the treasury bills, notes and bonds that make up the federal debt.

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Grants Program Information

By definition, a federal grant is money that is awarded for a specific purpose. The grant money is tax free, and there is no repayment required. Federal grants are awarded by individual government departments. The United States Federal government awards billions of dollars each year for a multitude of reasons.

Catalog Of Federal Domestic Assistance

Grants Of All Sizes

Catalog of Federal Domestic Assistance (CFDA) is a publication to assist the public as a guide through the multitude of Federal domestic grants. CFDA provides a complete "listing of Federal programs." Included in the CFDA is information about programs, agencies and regional and local agencies offices.

Programs

Tax Free Money

The grant awards described in the CFDA for federal grant monies navigational is broken down into nine (IX) user step by step instructions. Starting with the instructions on how to view each program's complete details. To how to perform keyword searches, sort searches by column headers, number of programs the display per page, and instructions on how to save the information or print a copy of it. There is a screen shot showing exactly what to do, where to do it, and in what order.

Executive Order 12372

TThe Executive Order 12372 dictates that the federal agencies will provide assistance to interview those elected officials. This executive order outlines how states are to coordinate with federal agencies on plans that will best utilize the funds. The Office of Management and Budget (OMB) will coordinate with the states and maintain final approval on Federally funded State development projects.

Who Is Eligible

Under the current grant guidelines, any American citizen, and even United States visa residents, are authorized to apply for, and receive, federal government, state government, and even private foundations' funded loans and grants. Furthermore, these programs don't require background credit validations, collateral, or co-signing sponsorship. Even a credit history with bankruptcy is not a deterrent to obtaining grants.

Finding Grant Opportunity

Once a specific purpose had been determined to apply for a Federal Grant, the job has just started. The complete process will take many hours of research, writing, proofreading, re-writing, building a business plan, computation, and ensuring the guidelines for this specific purpose are followed to the letter.

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How to Write a Settlement Letter for a Creditor

If you've fallen behind on your credit card bills, negotiating a settlement with your creditor may be an option. A settlement allows you to clear debt by paying less than what you owe, giving your creditors a chance to reduce their losses. While you can hire a debt settlement company to negotiate on your behalf, you can typically achieve the same results by drafting your own settlement proposal.

Instructions

1

Calculate how much you can afford to offer as a settlement. The amount a creditor will settle for varies but you can expect to pay anywhere from 25 percent to 75 percent, depending on how much you owe and how delinquent the account is. Typically, creditors prefer to receive a lump-sum payment but some creditors may be willing to accept a payment plan.

2

Open a new word processing document on your computer and type your name and address in the upper right-hand corner. Insert a space and return to the left-hand side of the document. Type the creditor's name and address, insert two lines and type the date.

3

Insert an additional line after the date. Type the account number in the following format: RE: Settlement of Account XXXXXXXX. Insert a line and type the salutation.

4

State your name and account number in the opening paragraph. Explain to the creditor why you have been unable to pay i.e. unemployment, illness, divorce, etc. Offer to provide supporting documentation if it's available.

5

Outline the terms of your settlement proposal. State the amount you are willing to settle for and whether you prefer to make a lump-sum payment or multiple monthly payments. Explain to the creditor why you feel a settlement arrangement would be beneficial for both of you.

6

Close the letter by thanking the creditor for considering your offer. Sign the letter and make a copy for your records. Send the letter via certified or registered mail in case its receipt is disputed.

7

Wait for the creditor's response. If the creditor agrees to your offer, contact them to make payment arrangements. Offer to pay via money order, cashier's check or wire transfer.

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How to Qualify to Rent a House

To rent a house you will need to meet certain requirements. The landlord will review your personal information and verify your information to determine the likelihood that you will be a good tenant. Each landlord will have their own standards and criteria that you will have to meet. When you apply to rent a home, you may want to apply for several, if you think there is a chance that you could be denied.

Instructions

1

Visit a landlord and submit an application. When you find a house you would like to rent, make an appointment to see the landlord. Submit an application with your name, address, phone number, social security number, date of birth and your place of employment. The landlord will also need your previous landlord's name as well as copies of recent paystubs. The application will also ask for personal references. When you have signed the application the landlord will get a copy of your credit report and verify the information on your application. These factors will determine if the landlord will rent to you.

2

Wait for approval or denial. The landlord wants to make sure your income is enough to make the rent payments. Once the landlord calls your previous landlord he will be able to see if your rent payments were timely. If you were always late paying your rent or nearly evicted, your application may not be approved. Your credit report will be instrumental when it comes to making a decision about your rental application. If you have a number of judgments, liens, collection accounts and other derogatory credit, the landlord may reject your application. Another factor to consider is how long you have been on your job. If you have had several jobs, for two or three months, within the last year, the landlord may decide to pass on your application.

3

Sign the lease agreement, if approved. You will receive keys after you sign the lease agreement. The lease agreement will outline the terms and will include the amount of your rent and when it's due.

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