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7527 N. Seeley Avenue, Suite 1, Chicago,
IL 60645 | Phone: 773.818.9054| Fax: 866.381.4238 | preferredinvestorsrealty@gmail.com
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Tuesday, May 24, 2011
Be Wary of Co-Signing on a Friend or Relative's Lease
Janet Portman has a great Rent It Right column in the Chicago Tribune and recently had a question
from a relative who co-signed on a lease. See it below. Q. I agreed to co-sign a lease for
my nephew. He lost his job, fell behind on the rent and eventually left the rental. But he owes two months' rent, and the
landlord has demanded that I pay up. He's threatening to garnish my wages or attach my bank account. Can he do this?
A. Agreeing to be a co-signer is a significant undertaking. When you did so, you agreed to pay debts that the tenant,
your nephew, failed to pay.
Unless the agreement says otherwise (and most don't, because these agreements are
written by lawyers who are working on behalf of landlords), the landlord won't have to try to get the money first from the
tenant, nor even exhaust the security deposit, before turning to you.
If you are a deep pocket and easy to find,
the landlord will naturally look to you. In fact, savvy landlords won't accept co-signers who are not well-heeled and local
for precisely this reason.
The most problematic consequence for co-signers occurs when the tenant has a defense
to the demand. For example, suppose the tenant moves out, and the landlord claims he has left damage that exceeds the security
deposit. The tenant says that the damage existed when he moved in.
The landlord cannot garnish wages or attach
bank accounts until he has gone to court and obtained a judgment for money damages. But if the tenant does not show up for
court and lets the landlord win by default, or offers a losing defense, your wages and bank accounts will be on the line
if the tenant won't or can't pay.
Of course, skipping town or not vigorously defending the case would be a rotten
thing to do to Uncle Julian. Most tenants who use family as co-signers will do their best to protect their family members.
And savvy landlords know that a family co-signer will exert significant psychological pressure on the tenant to
honor his obligations, which makes such a co-signer a good bet.
Many states want to make very sure that co-signers
understand the extent of their responsibilities when they co-sign a credit contract, loan or vehicle lease.
California requires that the following warning accompany any such contract in which a co-signer is involved:
"You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you
will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility. You may have
to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection
costs, which increase this amount.
"The creditor can collect this debt from you without first trying to
collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower,
such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit
record. This notice is not the contract that makes you liable for the debt."
Landlords are not required
to give similar warnings, but there's no logical reason not to. It might scare off some co-signers, but, in the long run,
it will make things easier for a landlord who has to turn to the co-signer to satisfy a tenant debt.
Tuesday, May 10, 2011
Percentage of Homes with Negative Equity Here Sets Record
Taken from yesterday's Sun Times: The percent of mortgaged homes in the Chicago metropolitan
area with negative equity set another new record in the first quarter, hitting 45.7 percent, according to the latest report
from Zillow. That was up from what was a record 38.6 percent in the fourth quarter of
2010. Home values dropped 13.8 percent in the first quarter from a year earlier to $167,900
and are down 38.1 percent from their peak, the report showed. Values fell 4.8 percent from the fourth quarter. Nationally,
28.4 percent of single family homes with mortgages had negative equity, meaning homeowners owed more on their mortgages
than their homes were worth. Values nationally fell faster than they have in any quarter
since 2008, prompting Zillow to revise its forecast of a bottom being reached in the market this year. The bottom likely
won’t occur until 2012 at the earliest, the real estate information company said. Values nationally fell 3 percent
from the fourth quarter to $169,600. They dropped 8.2 percent from the first quarter of 2010 and are down 29.5 percent from
their peak in June 2006, Zillow said. The report revealed 97 percent of 132 metropolitan
markets saw home value declines. Only the metropolitan areas of Champaign-Urbana, Ill., Fort Myers, Fla. and Honolulu saw
home values increase in the first quarter, up 0.8 percent, 2.4 percent and 0.3 percent respectively. “Home
value declines are currently equal to those we experienced during the darkest days of the housing recession,” Zillow
Chief Economist Stan Humphries said in a statement, adding, now it’s “almost certain that we won’t see
a bottom in home values until 2012 or later.”
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Preferred Investors Realty, LLC ** 7527 N. Seeley Avenue, Suite 1, Chicago, IL 60645 ** 773.818.9054 office ** 866.381.4238
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