What action can be taken against a co-signer of a mortgage if the mortgage goes into default?

UPDATED: Aug 5, 2011

Advertiser Disclosure

It’s all about you. We want to help you make the right legal decisions.

We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.

UPDATED: Aug 5, 2011Fact Checked

Get Legal Help Today

Compare Quotes From Top Companies and Save

secured lock Secured with SHA-256 Encryption

What action can be taken against a co-signer of a mortgage if the mortgage goes into default?

My husband and I are trying to buy a house together, but he’s on a mortgage for an old friend of his, who needed help securing the loan 5 years ago. The friendship is now strained, and the friend is unable (or unwilling) to refinance in just his name. If we force a sale, the friend will be very unhappy. What action could the bank take against my husband (or me) if the friend does something stupid and the house ends up worth far less than the outstanding mortgage? For example, could they take money from our joint account (which was all mine), my account, the house I own in Europe, etc.?

Asked on August 5, 2011 Texas


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Your question deals with the pitfalls of when someone is a co-signer on a loan for a relative and friend who is the primary borrower on the loan secured by real proprty. The problem for your husband is that he is obligated on the loan of the friend does not make its payments, but has no ownership interest in the real property securing the loan.

If the loan that your husband co-signed goes into default, your husband's credit score will be damaged. If the property he co-signed the loan for is foreclosed upon by the holder of its mortgage (trust deed), his credit score will be damaged further. Worse yet, if the loan is not "purchase money" and the home is sold for less than what is owed on the loan, he and the primary borrowers could be responsible for a deficiency judgment if your state does not have anti-deficiency laws.

If there is a resulting deficiency judgment in the event of a foreclosure (and your state has no ant-deficiency laws), there could be a judgment against your husband and the primary borrowers where your husband's assets could be subject to a levy to collect on the judgment.

I recommend that you and your husband consult with a real estate lawyer on the subject of the co-signed loan to safeguard your interests.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

secured lock Secured with SHA-256 Encryption