I am going to break a YM rule.

[Gardening Grandma]

Do not co-sign a loan for a relative...

The relative is my son. He went through an ugly divorce two years ago. He needs to either sell his house or refi to pay his ex her share of the equity. He is listing the house, but realizes that it may not sell quickly enough so has asked me to cosign for a refi. (He's already tried on his own, but was told his income didn't qualify). He's gone through an extended bout with unemployment, but has kept up the payments. No other debts.
I am aware of the pitfalls, but this is my son. He does not know my income or assets. I plan to take a copy of tax returns and investment account statements directly to the loan officer and ask that they be kept confidential. I will also ask to have my name put on the title.
The house was appraised at $225K. His loan balance is about $75K and he needs to give the ex $75K (He's already given her $10K).

I've pondered possible consequences and have told DH that I am doing this (he isn't crazy about it, but has not voiced strong objections).
I am open to any comments and advice.

[The J]

You're in a good financial position. I would assume you could afford to make the payments if necessary. I've read the posts about your son over the years. He seems like a good person. You're not sacrificing your future for this, just potentially some comfort. I'd do it.

[DVM gone riding]

are you wanting us to tell you to run or tell you it is ok??

You know the pitfalls and risks, that said it is your son, he needs this and you are taking appropriate precautions to mitigate your risk. Just one question: If he does default-and it sounds unlikely-Can you pay the mortgage?

[DVM gone riding]

one other comment-don't let him talk you into "taking out a little extra for stuff" Let it refinance for half its value and give the money the ex needs to the ex, nothing more. He will get his money when the thing sells and NOT before.

[Gardening Grandma]

are you wanting us to tell you to run or tell you it is ok??

I know this board better than to expect an "it's ok". But you may be able to help me head off problems by coming up with aspects I had not considered.

don't let him talk you into "taking out a little extra for stuff"

Yep, I am absolutely opposed to financing "stuff". And he's going to have a hard time with the kids for a while. The ex will use her money to try and buy them. But she will blow through it pretty quickly, I'm sure. (Sad)

I would assume you could afford to make the payments if necessary.

If necessary, I could. I'd have to stop contributing to the kids' college fund ($511/mo and saving for tuition for the younger ($300/mo). But it would be doable.

[The J]

If necessary, I could. I'd have to stop contributing to the kids' college fund ($511/mo and saving for tuition for the younger ($300/mo). But it would be doable

I assume your son knows you make the college fund contributions. If so, then make sure this is clear to him -- if he doesn't pay, he's sacrificing his kids' college funds.

[Deleted]

Rules are made to be broken. I've seen your earlier posts and your son sounds like a good guy trying to get out of a very bad situation and look out for his kids. The facts that he's kept up the payments, has no debt other than the mortgage and has plenty of equity in the house all confrim that. If you've got a decent Plan B if he defaults, then do it. You may even want a written agreement with him as to what Plan B is.

If he refinances, will he still keep the house on the market? My one concern would be that he wouldn't save enough from the refi to recover the up-front costs if the house sells in, say, 6 months. They always want a new title policy, sometimes a point paid up front, appraisal and application fees, etc.

I offered to co-sign for my own son. The situation was different- he's single, 2 years out of college, good job, but almost no credit history. Plan B would have been selling the house if he defaulted, but I wasn't worried that it would come to that. He ended up finding his own financing through a local nonprofit set up to keep neighborhoods stable and houses occupied by owners, and the rate was very good, so he managed well without a co-signer.

[Gardening Grandma]

Yes, he plans to keep the house on the market. He is under quite a bit of pressure right now because her lawyer apparently has the authority to take over and sell the house - which the lawyer could do at a price much lower than market value. So the purpose of the refi is to get her settlement handed over.

He also wants to move to a neighboring school district. The older boy is already attending school there (the mother lives in that district).

Plan A is he sells the house and moves to the other school district. He'll have a bit of equity to put into another house. But you are right. I need to come up with a Plan B.

He's going to go talk to the loan officer again tomorrow and try to get the refi on his own, but I'm collecting the necessary documents in case he does need my signature.

[Artemis Windsong]

Bottom line would be for you to buy the house for the refi or amount owned the ex. Have the son move. You would then have to sell the house. If you do this, you would be entitled to a fair profit but could share the sale value with your son.

My best wish for you is to get the ex paid off then flip the house for a huge profit.

[Deleted]

GG, you mention that HER lawyer can take over the sale and sell it for a much lower price. Does that mean he would still have to pay her the "appraised" value? A house is only worth what a buyer will pay for it. I am sure there are lots of couples where one party would like to get half of the appraised value whether or not the house would actually sell for that in this market. The house behind me has been listed for almost three years, dropping from $799,000 to $589,000 about 18 months ago and still not selling. Wouldn't he have been screwed if he had had to pay her half the "appraised" value?

I think I would revisit this issue with his lawyer and maybe even the judge. If her lawyer sells it at a lower value, she should still only get half of the equity. And that may be his best bet since he wants to sell it.

[lurkyloo]

If you do wind up cosigning the refi, I'd recommend that as part of the agreement you get online access to the standing of the account just so's you can see that the payments are getting made in a timely fashion. You don't want to find out the hard way (after your credit's been trashed) that the mortgage is in arrears.

Other than that, I can see how cosigning would be worth it to you to help your son get his ex out. Best wishes to all of you.

[kindthatjingles]

Coming from someone who just got out of a bad divorce and is starting over, there is a difference between a hand up and a hand out. You are giving him a hand up. Sounds like he is a responsible guy. It will probably take a lot of stress off him to get this all finalized as well

[Deleted]

Feb 6, 2011 16:15:28 GMT -5 Artemis Windsong said:

Bottom line would be for you to buy the house for the refi or amount owned the ex. Have the son move. You would then have to sell the house. If you do this, you would be entitled to a fair profit but could share the sale value with your son.

My best wish for you is to get the ex paid off then flip the house for a huge profit.

I'd talk to a tax expert first. She'd probably get taxed to death on the gain.

[bobbysgirl]

GG: I think you know by now that my heart is not stone. That's not to say it can't be. But I would have a couple of questions before I did anything. If the divorce was 2 years ago, I would assume that he had 2 years to make his moves. Or is it just finalized? That part isn't clear to me. With that said, if you can help him without hurting your retirement, then go with your heart. The brain knows things, but the heart knows more. After all, money is a tool.

[kansasflower]

No advice, but a FYI: not sure you can keep your financial status confidential from your son. Every mortgage note I've signed for has the applicant and cosigner income and assets listed on the documents. If you submit it to the bank as part of the application, you can expect it to show up in the loan documents.

[ineedaplan]

Feb 6, 2011 18:13:42 GMT -5 kansasflower said:

No advice, but a FYI: not sure you can keep your financial status confidential from your son. Every mortgage note I've signed for has the applicant and cosigner income and assets listed on the documents. If you submit it to the bank as part of the application, you can expect it to show up in the loan documents.

Not true in my state you can asked for a "closed" or separate closing where no assets are disclosed to either party. I did this when I sold my last house and when I bought my current home because I am a business owner in a small community and I don't want my personal information known outside of those who need to know.

[Gardening Grandma]

bobbysgirl,
Initially he did not want to sell because he was trying to keep things constant for the kids (the initial split was very, very acrimonious). Then he procrastinated. He's a good guy, but he does have a tendency to procrastinate. Now it needs to happen.

southernsusanna,
Yes, the amount payable to her has been set. It was written into the final decree and based on 1/2 the assessed value at the time. So he could end up with less than her. It doesn't seem fair, but he did have the choice of putting the house on the market then and giving her 1/2 whatever it cleared. He was trying to minimize the impact on the kids by keeping them in the same home for a while.

ineedaplan,
Do you mind if I ask what state you live in?
I'd really like to keep my financial situation confidential. He knows we are comfortable, but he doesn't really have a clear picture. I'm hoping I can keep it that way.

I appreciate all the responses. I am doing this from my heart, but I need my head to be clear.

[ineedaplan]

This message has been deleted.

[zibazinski]

Why don't you just put what your son owes you as a 2nd mortgage on the property? It protects you but doesn't make you liable if he doesn't pay the note.

[debtheaven]

GG, your son sounds like a great guy, and you sound like a great mom.

I have another idea, it might be carp. But, since I am guessing you are planning on leaving your kids something when you go, have you ever considered giving this son an early inheritance? IF you were to go that route, you'd need to clear it with your other children, and I don't know if that would be a problem or not. And of course you'd need to do the necessary paperwork and make it "official" and legal. IOW, the money you would gift him now would be deducted from his future inheritance.

I have a very close friend who grew up on a farm, her parents told her she could be a nurse or a teacher, nothing else, because a woman's job was to be there for her family. And they would pay for her to get her education but the family farm would go to her brother. After her husband left her with two kids under four for his assistant, her parents felt badly and gave her an "early inheritance". My friend bought a studio, and the rental income allowed her to teach PT so she could go back to school PT (there were no night classes here in those days) and eventually become a psychologist, which was what my friend had always wanted to do in the first place. The story has a happy end, she has a great practice now, in part thanks to her parents' generous gift, when she needed it.

I thought this could possibly be a solution for you, gifting him that money sooner rather than later.

And if doing so did take that financial pressure off your son, you could always stipulate that in exchange for this early "gift", he takes over the school fees and / or college savings you are currently paying / saving for.

And then maybe you and your DH could take another nice trip.

Just a thought.

[ineedaplan]

GG: you can pm me for my state. FWIW, the lawyers, bankers, and realtors did not act like keeping the closing information confidential was a big thing.

[mudflap81]

Do you have a plan setup to make sure you know that the payments are being made every month? Most of the times I've seen people burned is the co-signer finds out 4 or 5 months into non-payment that they're behind and their credit is already sinking (even though the other person promised to tell them before they missed the first payment).

[TD2K]

GG, tough call. I understand where you are coming with your son and he sounds responsible. I think the "YM rule" is because a lot of people have shown up here burned on co-signing and in some cases, for people they never would have thought would have stiffed them.

If the worse happens and he stiffed you, would you end up with a minor financial loss, a significant one or one that would put you in the doghouse? I think it's likely between the first and second but it's something to consider.

If my sister phoned me and asked for $5k, no questions. $50k, she'd still get it. $500k, that's another matter. Good luck.

[happyscooter]

I too remember your story from MSN your money. If you decide to do this, could you possibly keep the exDIL from finding out that you helped your son? There is a big difference in her knowing that you bought tennis shoes for the grandchildren to start school in and/or you co-signing a loan. I know that she knows all that you have done over the years for your grandchildren, but if she knows that you are willing to help your son with $$$$$ big time, she might keep coming back.

It happens.

[Deleted]

I guess there's another option depending on how "comfortable" you are. Since there is so much equity in the house you could lend DS the 75k secured by a 2nd TD. For tax purposes you must put in an interest rate (4% is fine). That could give you both options. 1) He doesn't have to make payments until he either sells the house or finds a job 2). It will be a lot cheaper than a refi and you're not on the hook for a big loan 3) A third option might be along the lines of what Debt suggested. Suppose it makes sense for him to keep the house instead of selling it. You can start "gifting" him a portion of the loan balance each year, or trade it for the property management work he does for you and DH. Not sure what his real estate market is like but surely this has to be a low point to sell.

[ca]

Sounds like you are going in with your eyes open. Just don't let it ruin your credit, monitor if he pays the mortgage or not and if he cannot then step in and do it then add it to his tab when he sells the house. Help me him just don't let it ruin your credit or your relationship with your son. Hope it works out!

[Urban Chicago]

My heart must have grown 3 sizes today. When I read posts like this, where the OP is helping a family member financially, I very rarely think it's a good idea, but today I've seen at least 2 situations that break the mold.

OP, yes, help out your son. I would consider just lending him the money, rather than co-signing, but it sounds like you don't want him or his ex to know that you have it to lend. You'll just have to take your chances that your son will pay, or at least tell you before the fact if he can't.

[8 Bit WWBG]

I understand that some people have had bad experiences with co-signing. When a person is campaigning for your signature, they sure as hell aren't going to tell you that they intend to simply stop paying 6 months down the line.

I've never cared for the "never co-sign" rule. Perhaps I've been lucky; perhaps those I entered into agreement with were better, or perhaps a little of both.

Having been both co-signer and co-signed for with zero problems WHATSOEVER, I believe it can work. But I do understand that it can also go horribly wrong -- even without mal-intent (say, a job loss) and the co-signer can get stuck with the payments.

[Gardening Grandma]

Thank you all for all of your comments. You don't know how much I appreciate them.

I guess there's another option depending on how "comfortable" you are. Since there is so much equity in the house you could lend DS the 75k secured by a 2nd TD. For tax purposes you must put in an interest rate (4% is fine).

"Comfortable" means different things to different people. By MY standards we are "comfortable" (and my son would consider us "rich"), but many on this board would consider us lower to middle income. Our combined retirement income is about 95K (which will go up next month as DH starts drawing SS). We have about $550K in retirement accounts, $87K in a taxable account, a rental house, and about $300K in equity in our residence.

However, this is not DH's biological son. He was grown and gone when we married. They have a cordial relationship and DH trusts him enough to make him PM of the rental, but DH does not have the same bond as I do. I raised him and his brother as a single mom and since his divorce, we've become even closer. It is difficult for me to ask DH if we can withdraw $75K from the taxable account to loan him - even with putting a lien on the property. I'm considering asking anyway.

If I do co-sign, I will get online access to the account so that I can verify that it's paid on time (he does have good credit, just not enough income to qualify). I will also make it clear to him that anytime there is a chance that payment might be late, he is to let me know and I'll front the payment or the difference for an IOU.

Again, I really appreciate all of the comments, the good wishes, and the creative ideas. You guys are the best!

[Firebird]

Feb 6, 2011 17:24:17 GMT -5 kindthatjingles said:

Coming from someone who just got out of a bad divorce and is starting over, there is a difference between a hand up and a hand out. You are giving him a hand up. Sounds like he is a responsible guy. It will probably take a lot of stress off him to get this all finalized as well

Agreed and very well put. A less-extreme example from the other side of the fence: my mom spotted me $80 this weekend because I made a dumb mistake (wrote a check before realizing I didn't have as much in my checking as I thought I did). She'll have that money back next week and she knows it. Now, if this was a pattern-- she would stop floating me the money, you can bet on it. Same if she didn't get paid back.

But since this is the first time I've ever asked her for such a thing, over years of managing my own money in a very responsible manner, she didn't mind and was happy to help. Me, I was grateful not to have to do a cash advance on my credit card to cover the shortfall.

A "hand up" once in awhile to an otherwise responsible family member does not a doormat / ATM / sucker / etc. make.