If I co-sign on a mortgage for a friend, do I expose myself to potential liability if something happens on the property? For example, if som...

Question

If I co-sign on a mortgage for a friend, do I expose myself to potential liability if something happens on the property? For example, if someone gets seriously hurt on the property and sues the person I co-signed for, can the injured individual come after me?

Answer

No, but DON'T EVER CO-SIGN ANYTHING FOR ANYBODY. The bank's professional risk assessors have determined that Your Friend isn't a good enough credit risk to handle the mortgage. You aren't smarter than they are. The LawGuru archives are littered with the sad stories of people who co-signed. Don't become one of them.

Answer

Co-signing the mortgage does not make you an owner and thus does not make you liable where the owner would be liable. You might get sued anyway, but the lawsuit should fail.

Mr. Stone is right that you should be cautious about co-signing a mortgage. If your friend defaults, the bank will come after you for the entire unpaid balance. That sort of thing happens all the time. Even if your friend is the most upstanding person in the world, he could lose his job or become unable to work; that would lead to a default and you would be on the hook. Keep this in mind when you decide what to do. It's a much more serious risk than the one you asked us about.

Answer

I don't think you would be allowed to be a co-signer in a mortgage without being a co-owner. I suppose that legally is possible but I have actually never seen a co-signer who was not an owner when mortgage was done. Banks don't allow it because it creates problems with foreclosure and many other issues. The real estate agents/mortgage brokers who are very interested in the deal and promote the idea of a "cosigner" then prepare a grant deed after the closing to tranfer title shortly after the dust settles to get the so-called "co-signer" off the title. That violates the mortgage which has a clause against tranfers of an interest in the property without the bank's permission and technically triggers the acceleration of the mortgage (everything is immediately due and payable). Therefore, if a co-owner (your name is on the grant deed) then you have the same liability as any property owner until you are out of title. If the mortgage is not paid timely then your credit will be affected. There is no liability to you personally for the mortgage after a foreclosure so at least you would not have to worry about that. I know that other lawyers have mentioned herein that there is personal liability to you after foreclosure but I disagree because the loan would be purchase money and there is something called the one-action rule which I will not explain but is hopefully familiar to the other attorneys who worry about post-foreclosure (trustee's sale) deficiency liability.