Co-Signers Lack of Notice Upon Default
Posted by William on Mar 23, 2011 in Bankruptcy, Consumer Debt, Debt Collections Defense, News | 4 commentsIf you are a co-signer on a loan, there are a few things you should know. The only reason why you were asked to be a co-signer in the first place is the fact that your loved one, whether daughter, son, niece, nephew, or friend, quite simply could not afford the payments on what they wanted to buy. Your loved one was over-extending himself or herself. Most lenders are clever and are very good at evaluating risk. They have multi-million dollar empires and employ only the finest and brightest research teams to come up with formulas to decipher what certain people in very specific salary ranges can afford. The lender knew from the very beginning that your loved one could not afford the payments they were promising to pay, so they asked you to agree to pay as well. Well, your co-signer status makes you liable on this debt. Now, the question is: what happens when your loved one defaults.
Many people think that if they co-sign on a loan for a loved one, the creditor will first try to collect from the borrower and only as a last resort request payment from the co-signer. This theory may be one you heard from family, friends, or even your bank. However, the law does not require creditors to first hunt down your loved one, demand payment, and then only after months of not getting paid request a payment from you. We all wish this was the case.
First off, you need to know that the lender may not even give you notice of delinquency. For example, if at the time you co-signed for the loan (which could have been years ago) you and your loved one happened to provide the creditor with the same address, the creditor is not required to give you a separate notice of delinquency. This is especially troublesome where your loved one still uses your address for the purpose of receiving mail but does not actually live with you.
For example, when your child lives in the dorms on his or her college campus and comes home only a few times a year. In addition, you could be served with a delinquency notice months after your loved one stopped making payments. That being said, a creditor is obligated to send you a notice of delinquency if he has in his records separate addresses for you and your loved one.
In addition, the creditor is allowed to report default on the loan to the credit bureaus at the same time they send you a notice of delinquency. Many times, before the time you receive the notice of delinquency and are given a chance to correct the problem, the creditor has already reported the default and your credit report is already negatively impacted. Yes, that’s right. Your credit score can get hit at the same time you are first notified of delinquency on that account. And as mentioned in previous blogs, your loved one may have been months behind on payments before the creditor issues a notice of delinquency to you.
If you are facing possible liability as a co-signer or if you are receiving communications from debt collectors for a debt you believe you do not owe, contact an Orange County Collections Defense Attorney today for a free consultation. We can assess your potential liability and can enter into negotiations with creditors to minimize your liability and damage to your credit score.
Hello. We live in CA and my husband co-signed for his cousin’s student loan, who resides and goes to college in the state of NY. The lender has always had two separate addresses for us. In the past, with the borrower did not make a payment, my husband was contacted and we made a payment, if necessary, as more often than not, the borrower then made the payment. My husband was mailed a letter from an attorney/collections firm in Ohio, indicating that the loan is in default and demanding the balance of the loan $44k+ from him. We did not receive a delinquency notice prior to this collection letter, however, we have been advised that the borrower in NY did. In your blog above, it states that a creditor is obligated to send you a notice of delingquency if he has in his records separate addresses for you and the borrower. Is the lack of notice sufficent for fighting this collection? The borrower is still in college and has the means to make the payments and/or we will ensure timely payments are made, as we have done in the past, but we would like to avoid, if possible, paying the loan in full. Do we have any recourse here? Thank you.
Hi Marnie, thank you for visiting my site and blog. I am sorry to hear about your trouble. These banks and collection agencies can be very unwieldy and sometimes outright nasty, even in a student loan setting. In truth, the nastiness factor for student loan debt collection has gone up because student loans are generally not dischargeable in bankruptcy. In any event, I am not sure what you mean by “fighting” the collection. It seems to me based upon what you have told me that if you were to contact the collection agency and/or the original creditor and point out that they failed to give you notice and offer to bring the loan current, they would be inclined, particularly considering your past history with them. Additionally, you also indicated that he is still in school, is there some particular reason the school loans are not currently placed on an “in-school forbearance”? Most individuals place all school loans on forbearance until they have completed their studies. The main benefit is that they don’t have to worry about making payments, billing issues, etc., but the downside is that the interest is compounded.
Me and a friend bought a timeshare in Mexico about 19 years ago– for use only. We pay the annual maintenance fee each year. For some reason this year we got a call saying they did not get the payment we mailed in January 2012…furthermore stating we have not paid in 4 years, since 2008! We have mailed the payment each year and each year’s end get a Notice of payment for the next year. Not once have we received any Notice that we were delinquent! I am not sure what happened, yet this year’s payments (checks) have not been cashed! Are they not required to notify us if we were delinquent..all this time?? They say we owe $5,000 payments, late fees and penaltes!!! HOW IS THIS POSSIBLE??
Hi Deloris, thank you for your visiting my site and blog. I haven’t seen your paperwork on your timeshare, but usually billing issues, notice requirements, and fees/penalty rules are expressly detailed in your original agreement. So I would start there. Regarding your delinquency notice, it sounds like the timeshare company may have misapplied your payments. I would contact your bank and get copies of your cancelled checks and then contact the timeshare company to discuss the matter with them.