What options does a cosigner have when the original borrower refuses to pay?
June 28, 2010 6:16 PM   Subscribe

What options does a cosigner have when the original borrower refuses to pay?

My husband cosigned a private student loan for a friend many years ago. My husband believed his friend was trustworthy and had compassion for her situation. She was married, but neither she nor her husband had good enough credit to get this loan by themselves.

She graduated and entered a government program that defers and pays on loans. I am not sure if she could have deferred a private loan, but the program would not pay on it. At this point, my husband starting receiving calls and letters because she was not paying the loan. My husband and his former friend talked on the phone once at this point and she said she would work out getting the loan deferred/paid, but apparently she never did. After that phone call, she stopped returning his calls or emails.

What is really infuriating is that she entered and completed a Masters degree, and I am sure she could have deferred the loan, but she did not since my husband is paying it to keep it from affecting our credit. We do not pay it until the last minute each month in order to see if she will pay it. In the past few years she has paid it twice, randomly. The creditor calls us at all hours, but they said their policy was not to report it until the payment is one month late, so my husband pays it on the phone a couple of days before that deadline each month. We even had to call from our honeymoon in Mexico to pay it one month.

I have looked for information about this woman and have discovered that she travels, pays to have her laundry done by someone else, and spends money on other items that suggest she is not without the means of paying for this loan. (This is also how I found out that she pursued a Masters degree.)

The final complication is that she now lives several states away. She has family here in GA.

So my questions are:

1. Do we have the grounds to sue her?
2. If so, can we do it in our own state to save ourselves more cost?
3. If so, could we arrange to have her served when she visits our state?
4. What is the best process to move forward?
5. Do we need a lawyer or can we simply go to small claims court?
6. Is there any way to sue her for the future payments for this loan or would we have to sue her every couple of years until it is paid off (10 years)?
posted by anonymous to Law & Government (14 answers total) 1 user marked this as a favorite
I'm not a lawyer so I'm not help with any of the legal questions. However, you said you were paying by phone. I would start paying by check and in the memo section writing that it's for her loan. Just to create even more of a paper trail. Again, not a lawyer so this may not be the best advice to give just saying that's what I would do.
posted by GlowWyrm at 6:44 PM on June 28, 2010

This is something a lawyer is going to have to help you with. A lawyer who can read the loan documents your husband signed.

He has those, right?

If not, he needs to get them.
posted by bilabial at 6:46 PM on June 28, 2010 [1 favorite]

You need a lawyer.
Small claims seems unlikely. In Florida, for example, small claims is for $5,000 and less. I assume the college loan was much greater than that.

Once you have a lawyer, he should be the one answering the rest of the questions.
posted by Flood at 6:47 PM on June 28, 2010

So, here's the deal. I am a lawyer but of course, IANYL.

By "co-signing" your husband became the "guarantor" in loan-speak.
Your husband's rights are:

1) Pay the loan IN FULL and sue friend for what he's paid.
This can be filed in the state and county where your husband lives, where the loan was serviced OR where friend lives. File where you are - it's more convenient.
2) Sue friend for the payments your husband has already made. Repeat every few years as payments build up
3) continue on month-by-month until the loan is paid off, then sue friend.

That's really it. You can't file an action which will have the result of removing your husband as a guarantor. His situation is exactly why these lenders WANT guarantors.

I could dream up an exotic claim where husband gets a judgment against friend TODAY for the whole amount due and then garnishes her bank accounts, etc. but that's highly unlikely.

If husband had come to me as a lawyer on this I'd start with big, nasty demand letter to friend with lots of language about how I was going to embarrass her and ruin her life (all of which I would be happy to do) in an effort to get her to start paying. And if she didn't I'd then recommend suing her for the payments currently already made by husband, repeat every year or two until my onerous presence in her life because more intolerable than just being a f@#$@# adult and paying her debt.

No good answer to this one. That's all I've got.
posted by BrooksCooper at 7:38 PM on June 28, 2010 [12 favorites]

I'm in a similar situation to you and saw a lawyer who told me the same thing that BrooksCooper said.

And even if you did win a small claims suit, making former friend pay up is a challenge as well.
posted by k8t at 9:11 PM on June 28, 2010

BrooksCooper is basically advising you to be a bigger pain to her than the banks is to you. Notice how getting repeated and constant calls from the bank motivate you to make the payments? He's suggesting that you use basically the same principle (if not exactly the same tactics).

I'd consider that good advice.
posted by oddman at 9:14 PM on June 28, 2010

Also, if you follow BrooksCoopers comment you will then start affecting her credit if she does not pay a judgement. Right now, your husband is protecting your credit as well as hers.
posted by JohnnyGunn at 9:47 PM on June 28, 2010

I would start paying by check and in the memo section writing that it's for her loan. Just to create even more of a paper trail.

This probably doesn't create a paper trail, because it's somewhat unlikely that more than one human (and quite likely no humans) will ever see the check again (or even an image of it) once you seal the envelope.
posted by one more dead town's last parade at 10:48 PM on June 28, 2010

You have a record with your bank as to what money was paid with those checks, and to whom. It creates a very easy to follow paper trail. I would definitely take this to court.
posted by sophist at 11:18 PM on June 28, 2010

one more dead town's last parade,

On two different occasions I was glad to have a paper trail in the form of a check. Once was when a company deposited my payment to the wrong account then sent me a letter saying I never paid. When I told them I had paid on time they said they never received my payment. When I told them the check had cleared my bank they said I had to have written the account number down wrong on the check. They gave me the run around for a few days until I printed out a copy of the cleared check which had the *correct* account number written in the memo section. As soon as they saw it was their mistake, they credited my account. The second time was when a company mailed the actual check back to me saying it didn't clear the bank. (I still have no clue why they ended up with the actual canceled check). When I flipped the check over you could see it had been stamped by the bank. I then got online and printed out the copy of the same check from my online bank account to show them that yes, that is the same check and even though I have no idea why it got mailed back to them, it was indeed deducted from my account (with plenty of funds remaining).

I don't know if I just had bad luck on those two occasions but I was glad I had a paper trail that I could easily print out from my online bank account to get the problems solved.
posted by GlowWyrm at 11:51 PM on June 28, 2010

I would not follow BrooksCooper's suggestions. The banks know what the law is and what a creditor may do and say. I am not sure that Brooks does.
posted by megatherium at 4:22 AM on June 29, 2010

Fair enough -- any attorney is very likely going to have to follow the provisions of the Fair Debt Collections Practices Act, which is going to limit some of the tactics an attorney might otherwise employ (for example, "exaggerating" the amount of monies sought). Make sure your attorney knows that the FDCPA is (and any equivalent state statutes).

With that said, when I read BrooksCooper's suggestions I didn't make the assumption that he was disregarding the FDCPA.
posted by seventyfour at 7:21 AM on June 29, 2010

On two different occasions I was glad to have a paper trail in the form of a check.

That works for smaller companies, but if they're like most student loan servicers (or Verizon), you do not get to see the image of the check, because it's not processed as a checkā€”it's processed as an ACH withdrawal. You see only the name of the payee and the amount. After you seal the envelope, you are almost certainly the last human to see the actual physical check.
posted by one more dead town's last parade at 9:27 AM on June 29, 2010

"With that said, when I read BrooksCooper's suggestions I didn't make the assumption that he was disregarding the FDCPA."

FDCPA does not apply to the original creditor. On these facts husband is an original creditor and thus has no FDCPA duties.

Just trolled back looking for a post I'd made.
posted by BrooksCooper at 10:27 PM on March 8, 2011

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