When you co-sign a loan, you're essentially taking the loan on as if it was your own. It will go on your credit report, and the lender will come after you if the borrower doesn't pay. Co-signing a loan doesn't remove your legal rights, though, and you can sue the borrower for any legitimate cause of action.
Your Basic Right to Sue
When you agree to co-sign a loan, you can still sue the borrower for any reason -- whether or not it's related to the loan. The real question with any lawsuit is not whether you can file it but whether you can win. If you file a frivolous lawsuit, the borrower could come after you for attorney's fees and court costs. The circumstances under which you can sue the borrower as a direct result of the loan itself are limited.
Fraud and Forgery in Lending
If the borrower forged your name on the co-signer contract or committed fraud to induce you to sign the contract, you can sue her and the lender to have your name removed from the loan. You'll have to show sufficient evidence of fraud, such as proof that you were out of the country when the loan was signed or emails evidencing misleading information from the borrower.
Breach of Contract
If you have a separate contract with the borrower in which he promises to repay the loan, you can sue him for breach of contract if he defaults. One way to protect yourself from lenders is to ask the borrower to indemnify you when you sign the loan. This means he'll take responsibility if you are sued for failure to repay the loan. Try getting the borrower to sign such an agreement and you'll be able to sue.
A cross-complaint is a complaint filed against an additional party in a lawsuit. If the lender sues you for not repaying the loan after the borrower defaults, you can file a cross-complaint against the borrower. You'll still be required to repay the lending company, but your cross-complaint will allow you to pursue any money the borrower has.
- Ohio Legal Services: What Is a Counterclaim?
- Consumer Law, Cases and Materials, 4th Edition; John A. Spanogle, Jr. et al.
- Bankrate: Should Co-signer Sue Kid Over Student Loan?
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