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I have been asked by my relative to co-sign on a residential

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I have been asked by my relative to co-sign on a residential home mortgage (being used to re-finance an original seller carry back first mortgage). The relative lives in the single family home as sole residence in California. If I co-sign am I protected against possible deficiency judgment based on CCP 580 or is there any way a non-owner co-signer can be personally liable in case of a default/ foreclosure
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  LawTalk replied 1 year ago.

Good afternoon,

I'm Doug, and I'm sorry to hear of the confusion. My goal is to provide you with excellent service today.

In direct answer to your question, the CA anti-deficiency statute only applies to a lender who forecloses on the property through a Deed of Trust. If that is what happens to your relative in the event of a default, then both you and they will be protected by the anti-deficiency statute in CA so long as the loan was a purchase money loan to buy the property originally.

However, the lender has another option and while not used often with just a borrower, if there is a co-signor who has assets the lender may instead of foreclosing outside of court, may choose to sue in court for foreclosure rather than take the property through the deed of trust---and in so doing, get a deficiency judgment against you.

I'll preface my remarks by saying I am fully against the idea of anyone co-signing for someone else who is not at a minimum a family member by blood or marriage---and then to do so only if you can afford the monetary loss.

With nearly 30 years of legal practice under my belt and countless conversations with folks seeking bankruptcy protection because of a loan that they co-signed on a decade earlier, and is being sued on---I have to suggest that agreeing to cosign carries a real risk.

As a co-signor, you have absolutely no interest in the transaction or the property. You are merely acting as a guarantor---as a bank---ready to step forward and pay out of your own pocket, if the loan payments are not paid.

As a co-signor, the lender can let the owner keep the property if they default and just come after you. The fact that there might be equity in the property today means little in terms of protecting you years from now. If there is a default, both of you could be sued. And with people who need a co-signor to begin with---when it comes time to pay the judgment it is the co-signor who is usually able to pay, and gets hit the hardest.

You gain no lien right as a co-signor. Your only remedy would be to sue them for breach of contract---presuming that you can show that they agreed with you, that as consideration for you co-signing, that they promise to male all the payments.

Your remedy is to sue someone who probably might well turn out to be a judgment proof defendant, as they couldn't pay the mortgage in the first place---much less a large money judgment, and a person who can avoid the loss entirely by simply filing bankruptcy.

In a word----don't do it, unless you can afford to take the entire loss yourself. And if you can, you might just as well make the loan yourself---because at least you could take a promissory note.

If you must agree to co-sign for the sake of your relationship with the other person---then demand to be on the title as well, so at least you can compel the sale of the property through court if they default and place the property at risk of foreclosure and you are risk of a money judgment.

Finally, know that if you co-sign, that will impact your credit and show up as a credit debt that you owe. The effect could be that you won't qualify to purchase a car or a home on credit. And, taking on such debt can result in your credit score being lowered if they are late even one time on a mortgage payment.

Please keep in mind that, even though you have already paid your deposit money over to JustAnswer, until you rate me highly for my service, I will not be paid for having assisted you with your questions.

If you have additional questions, you may of course reply back to me and I will be happy to continue to assist you further until your questions have been answered to your satisfaction.

I wish you the best in your future.

Doug

LawTalk, Attorney
Category: Real Estate Law
Satisfied Customers: 27997
Experience: I have 30 years legal experience. Additionally, in CA I held a Real Estate Broker's license.
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Expert:  LawTalk replied 1 year ago.
Thank you for your positive rating of my service, Jamie. It has been my pleasure to assist you and I hope than you will ask for me on JustAnswer should a future need ever arise. I am generally available at least 6 days a week, and often 7, and it would be my privilege to assist you again in the future.

I welcome you to request my assistance in any future legal questions you may have, by simply placing my name in the first sentence of your new question.


Thanks again.

Doug

When you receive your Customer Satisfaction Survey from JustAnswer, please do rate me highly (9-10) there as well. It would be tremendously appreciated.
Customer: replied 1 year ago.

Thank you for your advice. Due to particular family considerations I am still considering doing this but for further understanding of the actual risk I would like your clarification on one very specific technical point under California CCP 580(d). My understanding is that under 580d, if a secured lender forecloses and uses the power of sale under the deed of trust then they cannot go after the borrower for a deficiency even if the sale nets less than the debt due. My narrow question is, does that protection also apply to a co-signer; that is, if the lender does do a non-judical foreclosure, is the co-signer off the hook as well as the home owner borrower?Thanks for this additional clarification.


Jamie

Expert:  LawTalk replied 1 year ago.
Hi Jamie,

I apologize if I was not clear enough in my earlier discussion. In the event of a non-judicial foreclosure both borrower and co-signor are protected by the anti-deficiency statute.

Doug
Customer: replied 1 year ago.

Thanks for the clarification. Very helpful.


Best regards,


Jamie

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