By Quentin Fottrell, MarketWatch
My coworker has spent the past few months prepping her house for sale. She currently lives with other family members due to the high cost of housing in our area, but this has also afforded her a big opportunity to sell up. (We live in the Denver metro area.)
Housing prices have skyrocketed since the purchase of her home, so her family wants to sell the house and split the proceeds with the other family members, with her moving back with her parents temporarily to save some money for a larger home and other expenses.
Yesterday, she mentioned she had a co-signer of the mortgage who is a distant relation and has never resided in the home. This person has never contributed anything financially to the mortgage or the house. They need this individual’s signature to put the house up for sale.
Upon being asked, this person demanded 25% of the profit from selling the house, and told her she was lucky he wasn’t asking for 50%! It seems this person is entitled to nothing, but as he was a co-signer of the loan, my friend is in a tough spot.
Is there any way she can sell her house, or get this distant relative off her mortgage so she can sell the house?
This is a cautionary tale. If you must buy a home with someone or have a co-signer to help you qualify for the mortgage because your salary or credit rating does not meet the bank’s requirements, don't jump at the first person who offers help.
Even if it is someone you know well, ask yourself if they have another reason for volunteering. If it’s a distant relative, that requires even more caution. Why would he agree to this if he barely knows your coworker? He has shown his true colors. He wanted a slice of the pie!
That works both ways: If you are a co-signer, you are liable for the loan if the primary applicant and/or the person on the deed fails to pay the mortgage. In this case, your coworker should ensure this relative is a co-signer and not also on the deed of the house.
If he is only a co-signer, he is effectively a guarantor who is also responsible for the loan should your coworker not pay. He cannot object to her selling the home. He is either mistaken in the leverage he holds, or your coworker has confused co-signer with co-owner.
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The mortgage agreement may have a co-signer release by which your friend can release the co-signer after a specified period of time and/or having met other conditions. It could be two years of on-time payments and an increase in her credit score.
Alternatively, ask the lender or refinance. The latter is often the most convenient option for people in this situation, but your friend may be unwilling or unable to do this given her timeline to sell and the costs involved in refinancing for a short period.
Your coworker did not buy this house alone, and she cannot sell it alone. She needs to seek the counsel of a real-estate attorney to sort through the paperwork, liaise with the lender, and figure out the best way forward. Only then can she make an informed decision.
First and foremost, she should know the status of this person: co-signer, or co-signer and co-owner? If it’s the former, she could decide to give her distant relative a monetary gift as thanks, with the advice of the real-estate attorney.
Given his demands as a co-signer, I would not be gilding any lilies anytime soon.
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