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Real estate Q&A: How do I cosign a mortgage and not end up in a horror story?

Q: My sister has bad credit but a good job and wants to buy a house. I have strong credit but a modest salary. She asked me to cosign her mortgage loan, and the bank insists on putting me on the deed. I trust her, but I am nervous. Should I do this? – Susan

A: As a lawyer, no one ever comes to me to inform me that they cosigned a loan, and everything worked out great. Instead, I hear many horror stories. I am not saying that you should never cosign for a close relative – family is important, and you should always try to help when you can.

If you decide to extend this great trust and help your sister, make sure to get some protection for yourself in case things go wrong. Your greatest protection is making sure that you have an ownership interest in anything you cosign a loan to buy. It seems that you have this one covered already due to the bank's requirements. By owning part of the property you have some control over it and in the worst-case scenario can force its sale to pay off the mortgage.

Owning part of the house comes with the typical responsibilities of ownership. Taxes will need to be paid, the lawn cut, and the roof repaired.

Any time you own property with someone other than your spouse, you should have a written co-ownership agreement in place. This contract, which is sometimes called a "cohabitation agreement," should deal with details ranging from who is responsible for maintenance to what happens if one of you wants to sell and the other does not want to.

The importance of drafting this agreement is twofold: It makes you both think through the ramifications of borrowing money and owning a house together, and it puts some solutions for everyday problems in place while you are both getting along.

ABOUT THE WRITER

Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He practices real estate, business litigation and contract law from his office in Sunrise, Fla. He is the chairman of the Real Estate Section of the Broward County Bar Association and is a co-host of the weekly radio show Legal News and Review. He frequently consults on general real estate matters and trends in Florida with various companies across the nation. Send him questions online at www.sunsentinel.com/askpro or follow him on Twitter @GarySingerLaw.

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