Don't Be a Sucker: The Truth About Guarantor and Cosigner Agreements

Most people understand the risks of being a cosigner for a car purchase or lease. But how should you reply if a good friend or a close family member says, "Will you please be my guarantor — not cosigner, just a guarantor — for the apartment I would like to lease?"

Is there a difference?

"Mr. Beaver," "Nick" began in his phone call, "I've read your column for years and need some guidance. My nephew, 'Mitch,' is 42 and has a horrible credit score. He had difficulty in the past paying bills on time, but recently cleaned up his act, has a good job and steady relationship and appears to be on the right financial path.

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"He wants to rent an apartment for himself and his girlfriend. Both of them work and have good incomes. He was told to find a 'guarantor,' or the management company would not lease him the apartment.

"I am being somewhat pressured by family to take on that role, and they tell me that, at most, I would be responsible for one month's rent if he defaults, and then I could walk away. I can live with that — but is it correct? Is there a difference between a cosigner and guarantor on a lease?"

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What Nick did not know about his nephew?

I said, "Nick, let's do some due diligence research on Mitch right now. If he's been sued or has gotten in trouble criminally, it will be on the Superior Court Civil and Criminal Filings index, so turn on your computer."

We found many entries about Mitch — two bankruptcies, lawsuits and judgments against him going back years, several because this jerk pays rent for a month and then stops, becoming a squatter.

He has written checks galore on closed accounts, and his name appears on the Criminal Register, which shows that he did time in the slammer for the bad checks —which Nick knew nothing about.

"Yeah, I see all that," Nick said, "but I still feel almost forced to help the kid." That history should have scared the pants off of him.

"Nick, he's no kid. He is trouble, so let me fill you in on the nonsense you were given about being liable for only one month's rent as a guarantor."

There are differences

I explained to Nick that a cosigner has equal responsibility for the rent or other financial obligations, and this begins when the agreement (lease or purchase contract) is signed. With a lease, cosigners are considered to be tenants and may live in the property.

A guarantor might sign a separate agreement, assuming responsibility for the debt only if the primary borrower defaults. They do not have the right to occupy the property. So, at first glance, it might appear that serving as a guarantor is fairly safe — the financial exposure is much less than that of a cosigner.

That said, it is very common for real property leases to make a guarantor's legal obligations virtually identical to those of a cosigner. In my experience, if a guarantor rejects those terms, property managers will pull the plug on the entire transaction. It becomes a take-it-or-leave-it situation.

Think before being pressured into being generous

"Nick," I said, "we all need to get real — very real — and ask ourselves the following questions when someone requests us to cosign or become a guarantor, especially if the person has already proven themselves to be an irresponsible flake or are at the beginning of a romantic relationship."

• Why do they need my help?
• Are they, or other family members, putting a guilt trip on me?
• What did they do to put themselves in a position of needing a cosigner or guarantor?
• Will they hit up someone else if I refuse? (They will.)

You should also accept that you are not this person's guardian angel — they will survive without your help.

Why would you accept the significant financial risks that will likely impact your credit and mental well-being when — not if, but when — they default and you wind up getting sued for their debt?

Consequences at home: Relationship strain

Mixing finances with personal relationships often guarantees embarrassment, feelings of betrayal and the loss of trust when the borrower fails to follow through on promises.

It's even worse if the borrower defaults on the loan and makes no effort to protect the generous family member who was there when needed — sometimes the borrower will even blame the cosigner for having the nerve to insist they repay their debt.

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Even if the borrower is financially responsible, cosigning is a significant financial risk. If you are not comfortable with it, decline.

The bottom line is that cosigning or guaranteeing any financial transaction is a major commitment with real consequences. Seriously consider it only if you have absolute confidence in the borrower's ability to repay and can answer yes to this question: Can you accept the potential risks to your own well-being and that of your family?

Finally, in a dating relationship, realize there are cons by the bushel who "just need a little help" in getting into that apartment or buying a car. Refuse.

When they say, "If you really loved me, you would help, but I guess you don't," you can think to yourself, "That's right! I don't have 'sucker' stamped on my forehead!"

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

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