Matt About Money

Co-signing backfire ruins chance to lease an apartment


A kindhearted gesture backfires for a man who co-signed his sister-in-law’s lease: She broke her lease, left a debt, ruined his credit and his ability to rent a new home

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Dear Opening Credits,
I’m sitting here with eyes filled with tears. Yesterday I was denied an apartment when my application failed. My husband used his name on the application so that both of our incomes could be counted and applied to the three times the rent the apartment requires. We were called and told we couldn’t get our home. We have to move out of where we are by the end of the month.

Three years ago, my husband co-signed for my sister to be able to get an apartment. No problem, right? Well, she broke her lease, and with his name on the application she has incurred $7,000 in charges on his credit!! She hid this from us, and she never handled her problems after breaking this lease knowing there would be some penalty. She let this charge run up so high that it ruined our chances of getting a home. Please tell me there is some way to get this off. We have great rental history, we pay all of our bills on time. We are 24 and need desperate help and assistance. — Amber


Dear Amber,
I hope that by the time you read this your tears have dried. You are in a tough but not insurmountable spot.

Naturally, you and your husband applied for the home you wanted in both of your names. You’re married and so act as a unit. Such a joint venture is usually to your benefit as you’d be combining your income on the application.

Landlords and property managers want to be sure that whoever is moving in can easily afford the rent, hence the expectation that you earn thrice that amount. That calculation is fairly standard. In fact, most financial planners recommend that housing costs comprise no more than a third of a household budget. As such, you would (conceivably) have plenty of cash left over to cover the rest of your monthly expenses. It’s not that landlords are concerned with your financial well-being — it’s because they want to offset the chance that you’ll struggle with payments and fall behind. They also want to ensure their revenue flow.

The other factor key to approval is the applicant’s credit history. Landlords have access to special files that show rental history as well as the usual consumer credit reports from the three big credit bureaus (TransUnion, Experian and Equifax). If that rental report lists an eviction, a red flag will certainly wave.

I can’t tell from your letter whether your sister was evicted or if she moved out before that happened, but it’s clear that she left owing a big balance. Because your husband co-signed on the lease, he became as responsible for the arrearage as your sister. In effect, your husband promised the landlord that if sis didn’t pay, he would. What a tragedy. He did your sibling a major favor by guaranteeing the lease with his good name and credit, and she promptly ruined it for him.

Some landlords report late payments to credit bureaus, because when she stopped paying her rent, a debt was born. At that stage, the landlord might not just evict the tenant, but sue for the overdue rent amount or sell the debt to a collection agency.

In either case, everyone whose name was on the lease is liable. If your husband was named in a lawsuit and the landlord won, a monetary judgment would be placed on his credit report in the public records section. If it went to a collection agency, that also would be on his report in the trade lines section and the collector can come after him.

Whichever way it went, the landlords are seeing evidence of this woman’s bad debt on your husband’s report when you applied for a home together.

Don’t reach for the tissues again, though. You have recourse. Since your husband is not denying the validity of the matter, disputing it will do no good. The debt will show up for as long as the law allows: seven years.

What he can do is prove that he really is a good credit risk. He just made a mistake in trusting your sister, which he will never do again.

To mend the damage and convince a landlord that the two of you would make excellent tenants, it’s time to practice the fine art of persuasion, says Wm. F. (Rick) Watson, an administrative law judge who answers landlord-tenant questions.

“You have to convince the landlord that his risk in renting to you is nominal,” says Watson. You need to go back to the landlord and explain what happened to your husband’s credit. Then offer a larger-than-requested security deposit or an additional month’s rent. Also, your husband needs to add a 100-word statement to his credit report, says Watson. It’s your husband’s opportunity to present his side of the story. Some landlords will be understanding and overlook the bad debt, especially since everything else on the report is positive. If that doesn’t work, keep trying with other apartments.

I gather your sister won’t pay the debt off, but maybe you and your husband can. In that case, his credit will improve more quickly. He even may be able to settle the balance for a lot less than what is owed if it’s with a collection agency. Co-signing is tricky business, as I’m sure you both have learned. All too often, the arrangement backfires, leaving the person with the good credit in the dust.

See related: Mom co-signed, now stuck with student loan payments


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