Cosigners face liabilities for co-signee foreclosures
Should you find yourself in a situation where the primary borrower is unable to make payments on their mortgage, it may be beneficial for you to speak with a Minnesota bankruptcy lawyer who can provide legal assistance.
In recent articles, we've discussed the cosigner-borrower relationship as it relates to Chapter 7 and Chapter 13 bankruptcy in Minnesota. However, in today's volatile economic climate, an unforeseen bankruptcy isn't the only situation that could affect cosigners should the borrower choose to pursue protection.
For instance, while foreclosures are reportedly at their lowest level in the state since 2006, it's important for new and existing cosigners to understand how their finances could be impacted by a default on the part of the primary borrower.
Cosigning a home loan, understanding your risk during foreclosure
As a cosigner, you inherit a legal responsibility for the mortgage loan should you pursue this agreement. In this case, the lenders could demand immediate payments or require the cosigner to pay off the full amount owed on the mortgage.
In addition, a foreclosure doesn't immediately erase the entire loan balance. So even following this financial action, cosigners and borrowers may need to cover an outstanding mortgage deficiency. Should a cosigner not be able to meet this agreement, the lenders can also initiate alternative means to recover the debt, such as property liens, asset seizure and wage garnishment.
The financial damage of foreclosure
Just like the primary borrower, cosigners will suffer credit score damage for any delinquent loan payments. According to FICO, a major credit score provider, even one late payment of 90 days can result in a credit score drop of roughly 90 points. This means that prior to a foreclosure, cosigners could see their finances take a substantial hit due to the poor payment habits of the borrower.
Should you find yourself in a situation where the primary borrower is unable to make payments on their mortgage, it may be beneficial for you to speak with a Minnesota bankruptcy lawyer who can provide legal assistance. Bankruptcy may be a solution to help both you and the borrower reduce the total damage of a foreclosure or missed payments, and may be beneficial for those looking to protect their long-term finances.