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I live with my girlfriend. We are in a committed relationship and we both see things progressing toward marriage. We recently found out that the house we live in needs a new roof. She owns the house; I am not on the title. I pay half the mortgage as rent. The roof is a big expense and neither she nor I have the cash to pay in full so we're looking at financing. If we co-sign a loan we'll get a better rate. I understand that by co-signing if she were unable to pay then I would be on the hook, essentially paying for a roof for a house that I do not own. I want to help her, but I also want to protect myself. How do I do this?

I'm not worried about our relationship. I'm thinking about what if she got hit by the proverbial bus. Then the bank would own the house and I'd still be stuck paying for the roof.

  • If you default, the bank would own whatever they are owed. Anything beyond that would come back to you. Better answer would be to sell it before you default and pay off the loan ... Or refinance for a longer term that you could afford. – keshlam Mar 24 '16 at 19:16
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    "Anything beyond that would come back to you." Actually, no. Anything beyond that would go to the estate. – ChrisInEdmonton Mar 24 '16 at 19:22
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    Rule #1: Don't cosign. Rule #2: See Rule #1. – Loren Pechtel Sep 30 '17 at 2:16
  • Needs a new roof? How bad is the damage can you just repair it (or, gulp, repair it yourself) instead? – rogerdpack May 1 at 16:31
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Okay, I'm just going to come right out and say this. Don't cosign this loan. Unless the difference in interest is very significant, this is all downside for you without much benefit for your girlfriend, unless your girlfriend has a will that leaves everything to you. Then it's just mostly downside for you.

If you choose to ignore this advice, the minimum that you need is to write up a plain-language agreement between the two of you, and have you both sign it. This should cover what happens if the two of you split up and what happens if she dies. As you know, you can't just absolve yourself of the debt if that happens, but you could have a document indicating that the estate will repay you.

That's the minimum. What you should probably do is get an actual legal contract written up. This would likely cost a few hundred dollars. If you think this is too expensive, you should not be cosigning the loan.

Even with a legal agreement in place, this will get messy if anything goes wrong.

Another alternative is for you to take on the loan entirely, and then make a loan to your girlfriend which she uses for the roof. You are stuck paying off the loan to the bank, but it would be comparatively much simpler to deal with the case of a death or a separation. You aren't stuck with a cosigned loan but instead, two separate loans. The obvious drawback is that the bank will not give as good an interest rate as with a cosigned loan, as their risks are higher.

  • Thank you, I appreciate your candor. This is good advice. – Chris Mar 24 '16 at 20:44
  • I guess he could put a lien on the house but that is messssy... – rogerdpack May 1 at 16:30
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This is an old question, but if someone really wanted to pursue this path, the best thing would be to refinance the house with both names on the deed.

The primary problem here is not the girlfriend. The problem is that the girlfriend doesn't own the house; the bank does. If the boyfriend signs the loan for the roof, he can only collect against the girlfriend's equity. Other than that, he has no claim to the house. His claim is secondary to the bank's. And he has no relationship with the bank of the original mortgage. The bank can sell the house for just the amount of the loan and leave him stuck for the entire loan for the roof.

If they refinance, then they could both be on the mortgage. The survivor of a tragedy could then either sell the house or continue to pay the mortgage in most cases (the exact loan agreement matters). Note also the life insurance option. If either party dies, the life insurance might pay off the house.

Regardless, best would be to refinance the house for enough to pay for the roof as well. This might be tricky to negotiate with the bank. In some circumstances, you might have to go through a second mortgage to reach that. Depends on how much equity she has and how much equity the new roof will add.

As others have noted, the agreement about what happens in case of tragedy or separation should be made before someone undertakes this route. It's easy to be fair to each other now. Asking a grieving relative or an angry ex to be reasonable and fair is much more difficult.

  • the minute you claim that a person with a mortgage doesn't own their house ("the bank does") I stop reading. It is a ludicrous and unhelpful claim. With such little knowledge of real estate or finance law, the rest of the advice is probably also incorrect. – Kate Gregory Oct 2 '17 at 17:41
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Draft a promissory note that has an activation clause which becomes effective in the event she defaults on the loan, or passes away. The note should be written using the home as collateral. In The event of her death, or default, even if the bank took her home, you would have legal claim to any equity remaining after the first mortgage was satisfied.

You could draft a promissory note yourself by using online legal resources for less than 100.00.

protected by Community Sep 30 '17 at 0:20

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