Q: We have a problem and we hope you can help us. Our son and daughter-in-law have been married for a little less than two years.
To enable them to qualify for their house, we co-signed the note. They have been making the payments so far. We’re trying to see if they qualify for a loan assumption, which would allow us to remove our names from the mortgage.
What happens if they don’t qualify to take over the mortgage, or if they decide to “bail” on the payments in the future? What are our rights and obligations? Please e-mail us. Looking forward to hearing from you.
A: From what you’ve told me, you don’t have a whole lot of options. Your son and his wife would need to refinance the loan in their names alone. Only in very rare circumstances and only with a local bank that keeps the loan in-house (as opposed to selling it on the secondary market), have I heard of a loan assumption. A loan assumption, as you call it, would allow your son and daughter-in-law to be the only borrowers under the loan and you and your spouse to be removed from the loan.
In any case, it sounds as if refinancing isn’t an option right now. You’re going to have to wait until they are stronger financially and then ask them to refinance the loan into their own names.
The time for you and your husband to have thought about whether your son and daughter-in-law were good bets financially was before you signed on the dotted line, not now. Now, as when you took out the loan, the lender believes that you will step up and pay the mortgage if your son and daughter-in-law “bail.” In fact, you are legally obligated to do just that. If you don’t, your entire credit history and score are at risk.
You need to have a conversation with your son about this situation to ease your mind, if nothing else. Then, you need to make plans for what you and your husband will do if the worst should happen.
I’m hoping your kids step up and work it out, but you don’t even want to know how many letters I get each week from parents whose children have “bailed,” leaving them holding the bag just as they reach their “golden years.”