By Phillip Addis —
We all know the old adages, “blood is thicker than water,” and “money is the root of all evil.” Which of these, however, applies to co-signing a sales contract, an apartment lease or a student loan?
Before you lend that helping hand (or signature), let’s consider the risks involved.
These examples are from actual attorney files, though the names have been changed to protect the “innocent.”
Sissy, Buffy and Jodie have moved out of Uncle Bill and Mr. French’s apartment to start their own lives, but each has taken a slightly different path.
Sissy, graduated from college and entering the working world, decides she needs a better car. With the help of a friend, she finds a great deal on a used sports car for a mere $35,000. As a newly-employed person, she doesn’t have established credit and needs some co-signers before she can drive her car off the lot.
Buffy decides she needs to move into a house off campus with four roommates because the residence hall is just too crowded and noisy. The landlord insists fledgling college students with no money must have someone with a steady method of income guarantee the lease. The rent is only $2,000 per month.
Jodie struggles in choosing what path he wishes to pursue in life. Not really wanting to attend a public university or live at home during college, he finds a private school out of state, but will need a student loan of $20,000 to help bridge those costs. All that is required is a co-signer.
Uncle Bill and Mr. French are happy to help. They co-sign the car purchase, guarantee the apartment lease and the student loan.
Fast forward one year.
Sissy has not been able to pay for the car and it has been repossessed. Uncle Bill and Mr. French receive a notice in the mail that the $35,000 sports car sold for only $20,000 and they still owe $15,000. Please pay up. Uncle Bill and Mr. French object. Sissy is the one who bought the car. They were just trying to help. It was a $35,000 car and it is unreasonable it sold for only $20,000. They will not pay.
Uncle Bill and Mr. French get sued for the amount due and have absolutely no defense.
A repossessed car drops in value. It doesn’t matter that it was Sissy’s car, she has no money. The judge enters judgment against Uncle Bill and Mr. French for $15,000.
Uncle Bill and Mr. French get a notice from Buffy’s landlord that there is unpaid rent, unpaid utility bills and damages. That is impossible, we paid Buffy’s rent of $400 per month and we know she did not damage the apartment. It turns out Buffy’s roommates were not as responsible. They failed to pay their share of the rent and also caused thousands of dollars in damage to the apartment. The unpaid bill is $5,000. Uncle Bill and Mr. French refuse to pay.
They get sued. The judge informs Uncle Bill and Mr. French under the terms of a lease, everyone is responsible for the full amount of the rent plus any damage, including co-signers. Even though the roommates may have been the ones who caused the damage and did not pay the rent, the co-signers are jointly liable. Judgment is entered against them for $5,000.
Jodie comes home happy to spend the summer with family. When his grades arrive, it turns out he did not bother to attend class. He will not be going back to school in the fall. A few weeks later Uncle Bill and Mr. French receive a letter from the student loan company stating that since Jodie will not be returning to school, the $20,000 loan is now due and monthly payments will be starting. Jodie is unemployed and does not have the ability to make the payments. In order to teach him a lesson, Uncle Bill and Mr. French refuse to make the loan payments.
They get sued.
The judge informs Uncle Bill and Mr. French that since they co-signed a loan, it is their loan. It doesn’t matter that Jodie did not go to school or they wish to teach him a lesson, they agreed to pay the loan. Judgment is entered for $20,000.
The moral of the story: Banks, landlords and finance companies don’t care if “blood is thicker than water.” “Money is the root of all evil.” They just want to be paid. If you co-sign any contract, even for your children, assume you will be paying the bill.
Phil Addis is an attorney in La Crosse and affiliated with the Law Firm of DeWitt, Ross & Stevens, S.C. He admits that in his foolish youth he co-signed contracts for friends and family and had to pay those bills. He speaks with the voice of experience.
504 Main Street, Suite 200
La Crosse, WI 54601