Any risk to cosigning for my mother?
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Any risk to cosigning for my mother?
My mom is 73 and is cash poor and house rich. She lives in a home that she bought 20 years ago. She owes $255,000 on the loan. The house is worth $900. She has tried to refinance, in order to take out cash, but has little
income to qualify as she does not work. She lives on S.S., food stamps, and has sold most anything she has that is of value jewelry, art, cars. We have suggested she sell and rent, but this is where her life is and she does not want to leave her community of friends. She also lives on the fruit trees she has cultivated and grown in her yard over the last 2 decades. She has no interest in moving here tour state to live by us. I understand that it would be difficult for someone to uproot their lives at that age, in this situation. She is not interested in a reverse mortgage. She’s asked my husband to co-sign on the loan so she can extract $100,000 to live on. What do we need to think about in terms of protecting ourselves? As well as what to do when that money runs out. Trying to cover our bases. We understand we need a legal agreement. She tends to want everything her way so we want everything in writing so we don’t somehow create problems for ourselves. The house is in a trust to be left to me and my sibling.
Asked on October 8, 2017 under Real Estate Law, Florida
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 4 years ago | Contributor
If you co-sign the loan, you make yourself liable or responsible for it--even if your mother passes away. So say that she takes out $100k and by the time she passes away, has repaid, for example, $80,000 of it: you, as cosigners, would be liable for the other $80k. Now, it is certainly possible that the bank will not come after you personally but will foreclose instead--but they would have the legal right to instead sue you for the money (or to sue you if somehow foreclosing on the home does not fully pay off the remaining balance of the loan). There is no way to "cover" yourself against this: if you cosign the loan, it is your mortgage and you are liable for it, and anything you and your mother might sign will in no way bind the bank or lender, which is not a party to that agreement.
Furthermore, you will have a $100k (or whatever amount you take out) loan on your credit history, negatively impacting your ability to take a loan for yourselves, should you need one.
Do not do this. Your mother has a number of very good options which you yourself laid out: sell the home, pocket the equity, and rent a new place nearby (no reason why she'd have to move far); take out a reverse mortgage; etc. Do not let her prefences make you obligate yourselves for tens or hundreds of thousands of dollars.
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