Differences Between a Co-Buyer & a Co-Signer

Joint financial ventures require close consideration.

Purchase and loan transactions often involve co-buyers or co-signers. There are many reasons why individuals may consider joint, financial ventures. Unmarried persons who share the use of properties frequently co-buy to protect personal and monetary interests. Parents or grandparents may co-sign loans for younger, family members to help them get a start in life. Whatever the motivations, individuals should understand the distinctions between co-buying and co-signing before entering into such arrangements. Each involve unique factors that must carefully be considered.

Facts of Co-buying and Co-signing

Ownership interests are common with co-buying, but not with co-signing.

Co-buying generally involves the creation of an ownership interest. When two or more parties enter into a joint purchase arrangement, all parties generally share legal title to the property. For example, if two parties buy real estate together, both names are included on the property deed. Ownership types can differ significantly. Conversely, co-signing usually does not create an ownership interest. A co-signer vouches to repay the debt of another. Therefore, if a parent co-signs a car loan for a child, the parent will not own the car with that child. However, if the child's car payments are not made, the parent can be held liable to repay the debt.

Planning Ahead

Advance planning and careful thought should precede co-buying or co-signing.

A person should determine how he can legally recoup his investment before co-buying property with another party. Since co-owners typically must agree to sell jointly held properties, they should devise clear, exit strategies before purchasing. Advance planning can help avert legal battles in case disputes among co-owners develop. Different forms of ownership, such as joint tenancies, tenancies-in-common and separate severance agreements all should be investigated. A co-signer also needs to carefully weigh her risks. Securing another party's loan not only exposes a person to debt, it also may reduce the co-signer's own borrowing power. Additionally, credit scores may also be impacted if co-purchase or co-signing arrangements go awry.

Effects on Inheritance

Inheritance plans should be analyzed when co-buying or co-signing.

Both co-buying and co-signing can create inheritance ramifications. Some forms of co-ownership automatically leave decedent co-buyers' property interests to surviving co-owners. Other forms of ownership leave a decedent co-buyers' interests to his heirs. Co-owners need to choose the correct forms of ownership to accomplish their inheritance objectives. Co-signing also can affect inheritance. The terms of a loan can bind a co-signer's estate to repay unpaid, cosigned debt.

Benefits of Legal Advice

Co-buying and co-signing raise legal implications.

Both co-buying and co-signing create a gamut of legal issues. Understanding the fine nuances of different ownership formations and the liabilities that arise with co-buying and co-signing should be prudently reviewed. Seeking the counsel of an attorney to navigate through the decision-making process of co-buying and co-signing is advised.

References

• Federal Trade Commission; Co-signing a Loan
• Massachusetts Association of Realtors; Co-ownership of Real Property