How Do I Guarantee Repayment if I Cosign for a Loan?
Full Question:
Answer:
While there are never any guarantees against future disputes, it is always advisable to have any important agreements in writing. It is always best to get a written agreement from the borrower that the cosigner will be repaid if the borrower defaults. It may be possible to sue a primary borrower, such as when there was an agreement with the cosigner to repay the money, and what evidence exists regarding the agreements. If you obtain a promissory note and ultimately get a judgment for failure to pay the promissory note, it is possible to use the unpaid judgment to place a judgment lien on property, such as real property, bank accounts, vehicles, or other assets, or have wages garnished.
A promissory note may be secured or unsecured. When it is secured, it means that property, called collateral, may be taken by the lender if the borrower fails to pay the loan payment. If the debtor files bankruptcy, the lender may be able to recover the value of the loan by taking possession of the specified collateral instead of receiving only a portion of the borrowers property after it is divided among all creditors. Collateral may be many different types of property, such as shares of stock of a company, inventory, accounts receivable, etc.
A promissory note may provide for payments to be made in installments or in a lump sum. The terms may provide for a series of smaller payments at the beginning of the loan period and a larger balloon payment at the end of the loan period. The option for a confessed judgment agreement, also called a cognovit note, may also be included. A confessed judgment agreement requires the debtor not to claim defenses and agree to have a judgment entered against him if he fails to pay and the matter is taken to court. After a judgment in the creditor's favor, a lien may be created on the property securing the loan. A request for a judgment lien is filed in court,
Promissory Note: A promissory note is a written promise to pay a debt and is typically signed at the time of the loan. It is an unconditional promise to pay on demand or at a fixed or determined future time a particular sum of money to or to the order of a specified person or to the bearer.
Cognovit Note: A cognovit note is a note in which the maker acknowledges the debt and authorizes the entry of judgment against him or her without notice or a hearing : a note containing a confession of judgment. This type of note is not valid in many States.
Collateral Note: A collateral note is a note secured by collateral. Same as a secured note.
Demand Note: A demand note is a note payable on demand from the person who is owed the money.
Floating Note: A floating rate note (or adjustable rate note) is a note where interest varies.
Recourse Note: A recourse note is a note where the default may result in loss of collateral and also personal suit and judgment. Most notes are recourse notes.
Renewal Note: A renewal note is a note that renews a previous note due date.
Unsecured Note: An unsecured note is a note that is not secured by any collateral but only the promise to pay (i.e. signature only is required to loan the money).
A postmarital agreement is normally used in situations where one or both parties: has significant wealth or expects to receive a large inheritance, has a personal business, wish to keep all assets and debts separate, were previously married, and/or have children from a previous relationship. Generally, inheritances and property owned before marriage are separate property, but separate property may be claimed as marital property in certain cases, such as when it has been commingled with marital property or the other spouse contributes to separate property.
It can be used to accomplish many legal and financial objectives, but in general couples use it to protect separate property (a family business, for instance), support an estate plan, define what is marital or community property, reduce conflicts and save money in the event of divorce, and establish procedures for deciding future events.
There are three main issues that are typically addressed by a court if the agreement is challenged:
a. Was the agreement entered into voluntarily;
b. Did the parties have the opportunity to have the agreement reviewed by counsel of his/her own choosing; and
c. Was there full disclosure of all assets, liabilities and income?
If these three items can be proven, then the burden to set aside the agreement shifts to the other side (with a higher burden of proof) and the primary focus will be on whether the agreement was "unconscionable" at the time of enforcement, which shall be determined by the court as a matter of law.
A postnuptial agreement may be declared invalid under the following circumstances:
a. Unconscionability. A postmarital agreement must be fair and reasonable. A postmarital agreement can't cause financial hardship to the other party. Unconscionable contracts are often found to be invalid in the courts.
b. Both parties didn't have independent counsel. Each party must have his or her own lawyer. Many people mistakenly believe that they can have one lawyer represent both of them. However, each party must have his or her own legal counsel. A lawyer must make it clear to the unrepresented party that he or she does not represent him/her, and further advise them to obtain their own lawyer.
If a party needs to have the document translated due to language barriers and is prevented from doing so, this may lead to a challenge based on a lack of understanding and/or duress that prevented a fairly and knowlingly made agreement.
c. The agreement has incomplete information. There must be full disclosure when negotiating a postmarital agreement. Quite often a person will try to hide some assets when he or she negotiates. If a person does not make full disclosure during the negotiation of a postmarital agreement, there can eventually be strong grounds to void the agreement.
d. The agreement has false information. A postmarital agreement can't be based on false and misleading financial information. A person must make full disclosure during the negotiations.
e. Invalid provisions. A postmarital agreement can't limit child support or any other child support-related areas. If a postmarital agreement contains clauses that try to limit child support or child support-related areas, then that specific clause will be invalidated. In most cases, the court will only strike the illegal clause, and enforce the remainder of the postmarital agreement, provided that it is fair and equitable.
f. Reasonable time for consideration. These agreements must be thoroughly reviewed and considered.
g. Undue pressure. Postmarital agreements are often challenged once the parties get divorced. One of the most popular challenges to a postmarital agreement is an allegation that a person was pressured by his or her spouse, the lawyer, or the in-laws to sign the postmarital agreement. Some attorneys suggest that the signing of the agreement be videotaped.
h. No written agreement. All postmarital agreements must be in writing. An oral postmarital agreement is not enforceable.
The following are the essential requirements that must be satisfied in order for a postemarital agreement to be upheld:
a. There must be full and fair disclosure of the earnings, property, and financial obligations of the parties. A complete and comprehensive financial statement must be attached to the agreement that sets forth the parties' earnings, property, and financial obligations. A CIS should also be attached to the agreement.
b. Both parties should be represented by attorneys. A postmarital agreement will likely not be enforceable if the other party did not consult with an attorney, or did not waive the right to do so in writing.
c. The agreement must not be unconscionable. An unconscionable premarital agreement is defined as an agreement that would leave a spouse as a public charge or close to it.These situations are as follows:
(i) When a spouse is rendered without a means of reasonable support.
(ii) a spouse becomes a public charge
(iii) When a spouse is provided a standard of living far below that which was enjoyed before the marriage.
It is critically important that all parties have adequate time to review and sign a postmarital agreement. A period of six to eight weeks should provide the parties with enough time to negotiate an agreement and allow everyone to reflect upon its terms at their leisure, without feeling undue pressure. While six to eight weeks is ideal, this does not mean to suggest that an attorney cannot successfully complete a postmarital agreement in less time. If there is a short period of time for the preparation and negotiation of the agreement, it may be stated in the body of the agreement that the parties recognize that they have come to an understanding within a limited period of time, and feel that the time frame did not in any way affect their ability to freely and voluntarily enter into the agreement or cause them to do so under any coercion, duress, or undue pressure.
