Ask Money

The co-borrower blues

Chris Farrell Jun 11, 2012

Question: I purchased a condo with a good friend approximately 5 years ago. We co-signed the mortgage and have had a great experience co-owning as friends. I recently got engaged and it’s time for me (us) to move on.

I’m having a difficult time finding an alternative to having my name removed from the co-signed mortgage. My friend is not interested in selling the condo (it’s underwater) and I believe I’m comfortable handing over my part of paid principle to my friend. I expect my friend would qualify for financing of the entire mortgage value, and I expect he can afford to pay the entire monthly mortgage without concern.

What options exist for us? I’m surprised if this scenario is unique in today’s world. Thank you for any guidance you may have. Tom, Minneapolis, MN

Answer: No, your situation isn’t unique, although most of the time, our emails on co-signed loans come with tragedy and disappointment rather than cheer and good feelings.

However, if I understand your question right, you’re really a co-borrower rather than a cosigner. A cosigner is responsible for the debt payments if the borrower defaults. You and your friend were joint applicants for the mortgage, you share ownership in the home and both of you borrowed to buy the condo. Lenders like the added security of a cosigner and co-borrower, which is why it’s so hard to get your name off the document.

So, whether you’re a cosigner or a co-borrower, there is typically only one way to remove your name from the mortgage: Your friend needs to refinance it under his name. You’re then removed from the document.

Hopefully, the condo can be refinanced. It looks like your friend’s income is high enough that he can qualify for the mortgage on his own. The bank may balk at refinancing with the condo underwater, but it’s always worth a try. There is some evidence that persistence pays off in the refinancing market. Otherwise, assuming you two don’t want to sell, I’d wait for market conditions to improve and refinance at that point.

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