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I am sorry to hear about this situation. On this website, I do not always get to give good news, and this is one of these times. I understand that hearing things less than optimal is not easy, and I empathize. Thanks in advance for not "shooting the messenger."
1) As a cosigner, you are just as liable as she is. The lender can pursue you, her, or both of you.
2) There is no "right to negotiate" a defaulted loan. The lender may pursue either/both party(ies) for the full amount.
3) Now, the lender can negotiate, but they do not have to, and can seek relief via the court of law for the defaulted contract. Whether they do so or not is at their discretion. Ergo yes, this is legal.
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