 Mom
shouldn't have co-signed for her brother
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 Dear
Dr. Don,
My mom co-signed a car loan for my uncle. My uncle has a very bad
credit rating. One thing the bank didn't do is to check his credit
rating. They just went ahead and did the loan. My uncle has stopped
making payments on the car and he is in jail. We also found out
he should never have had a banking account, business, car, driver
license, etc. We found out he is still on parole.
My uncle is also a con artist. My mom is stuck in the middle of
this mess and I think my uncle is dragging her with him. I'm afraid
something is going to happen to her.
Can my mom sue a bank for not checking for his credit rating? My
mom has been trying to call her lawyer and leaving messages. He
hasn't called back. The bank also repossessed my uncle's car last
week. Now, my mom is very worried.
-- Kat Co-sign
 Dear
Kat,
Your mom might eventually need a lawyer but not
to sue the bank. Tell her to stop bothering her lawyer until she
starts thinking some things through, on her own.
When a person co-signs a loan, he or she takes on
the responsibility to repay the loan. The bank lent the money based
on your mother's credit, not your uncle's credit. She took a financial
risk that your uncle would make the car payments. He didn't, and
now that payment history and repossession are on her credit report.
Since the car has already been repossessed, that's
where she should focus her thoughts. The law concerning repossession
varies by state, and that's where she may need her lawyer. But typically
she is responsible for the difference between the outstanding loan
balance and what the car sells for at auction, plus the bank's auction
expenses and repossession costs. If the auction price doesn't cover
the deficiency, then the bank will continue to look to your mother,
and your uncle, for payment.
The lender typically has to offer to sell the car
back to the borrower prior to auctioning the vehicle at a price
that will pay off the loan balance and the bank's expenses. Avoiding
the auction expenses can save some money, but buying the car raises
a whole other set of issues, like finding a new-car loan with bad
credit, selling the car on her own, title, insurance and registration
issues.
A phone call to the bank should be sufficient
to see where things stand with the repossession and the money it
needs to become whole on the transaction. If she needs legal help
from that point she should call her lawyer.
While the repossession and payment history surrounding the vehicle
will stay on her credit report for seven years, your mom will be
able to rebuild her credit history over time and improve her credit
score. She took a risk for her brother and lost. Blaming the bank
isn't the answer.
While it won't help your mother's situation, readers considering
co-signing a loan should read the Federal Trade Commission's Facts
for Consumers guide "Cosigning
a Loan." My favorite line in the guide is, "When you're
asked to cosign, you're being asked to take a risk that a professional
lender won't take." The FTC also has a guide on vehicle
repossession.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "financing
a home," "saving & investing" or "money."
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