How Do I Remove Myself As Co-signer on a Loan

I bought a motorcycle a year ago. Now the finance company won't honor a clause the dealer wrote into the loan. What can I do?

I co-signed for a motorcycle in Jacksonville Florida over 12 months ago at a Harley Davidson dealership. In the contract the finance officer and me put in there that after 12 months my name would come off of said loan. All payments have been made on time in fact every two weeks. More than the amount of the payment is also sent. Never has been late either. We call Harley Davidson finance company they own it. Now they say that the finance officer should not have written that and it is not legal. That the laws of Nevada apply for the loan. Not Florida laws. I have the contract no were in the contract does it mention Nevada or laws of that state. They are refusing to take my name off as a co-signer. The original owner does not want to re-finance we got a good rate at 2.9% if we have to re-finance everyone even HD is at 9.9% we would lose. My engine just blew up so I want a new car but this loan is reflecting on my credit and everyone says I have to get that taken care of. I do not have any other bills, own my home for several years. I pay for everything in cash. I don't use credit cards. My credit rating is good. How can I to get off as co-signer if the Harley people will not take me off even though I have it in writing they will?

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Bill's Answer
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Highlights


  • Contracts are written to lock co-signers in.
  • Refinancing is the best way to remove a co-signer.
  • Bankruptcy will also remove a co-signer's liability.

In general, loan contracts are written to not allow a co-signer to withdraw from the contract at will. There are no, “We are not friends anymore so I want to be released from my co-signer liability” clauses in any loan contract I have seen. If the primary borrower stops making payments, the co-signer has 100% liability for the unpaid debt. There are four ways to relieve a co-signer from a loan’s liability:

  • Refinance the loan in one name only
  • Sell the item secured by the loan and use the proceeds from the sale to retire the loan
  • File for chapter 7 bankruptcy
  • If your signature was forged on the loan application, file a lawsuit against the borrower and ask the court for relief

If the loan in question is a student loan, some lenders allow for the release of the co-signer when basic requirements are fulfilled. See the Bills.com article Co-signing a Student Loan to learn more about co-signing a student loan.

The Facts Here

To paraphrase your facts, a motorcycle dealer in Florida wrote a contract to finance a motorcycle. You are a co-signer. All payments are made in a timely manner, but you want out of the deal because of the impact on your credit rating or debt-to-income ratio. The Florida dealer wrote terms that, one year later, the Nevada finance company refuses to honor.

It would be unusual for a lender to write a clause in a loan agreement that would allow a co-signer to remove him or herself from an agreement, and I am not surprised that the finance company would balk at this. Under normal circumstances, the only way you can extract yourself from this type of contract is for the other cosigner to refinance and put him or herself as the borrower. However, the Florida dealer wrote this clause into the contract, both parties signed it, and the Nevada finance company never raised this clause as an issue over the last year.

I recommend you and the cosigner to speak with an attorney in Florida with experience in consumer law to determine what your rights are under Florida law. My guess is that the Florida attorney will use a legal doctrine called “laches” to ask a Florida court to enforce the clause.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

52 Comments

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  • AC
    Mar, 2012
    Althea
    Hi there, I got an experience of being a co-signer for my sister's student loan 7 years ago. I'm an active military member, Once i get my PCS here in Florida, the American Education Services sent me a letter of my sister is delinquency in payment. So, Because she is my sister and i trust her, i called her and told her about the notice that i got and she told me that, she already made a payment,just disregard the letter i got. And last July 2011 i got deployed in Iraq and once i got back January 2012, i got this notice that i need to pay the full amount left in the loan because they can't contact my sister. And since I cosigned that loan I'm aware of the responsibility. I call the Loan Agency right away and told to me that if i pay the full amount it will not the hurt my credit score. So, I know i don't have a choice, the next day i paid it. Not a credit card but in my own cash. I don't use credit card just to let you know. I always make advance payment in all my bills. And now the hard part, I just got my new vehicle and when i need to get a loan to my own bank, They denied me because a have a full credit score and did reflect the delinquency payment of that student loan i co-signed. Now i wanna know if there's anything i can do to fix and erase that bad credit history in my name? My point is, during the time they are sending me the notice of delinquent payment, I'm not aware of that because I'm deployed! But once i got back in florida and saw that letter, right away i call them and paid that loan. Is there's any legal steps i can do to fix it? Just wanna know because it's really hurt my credit score an the fact that it's unfair in my side because I'm not aware of those notices that they are sending me. Hope to get a reply. Highly appreciated in advance.
    0 Votes

    • BA
      Mar, 2012
      Bill
      You described the consequences a co-signer faces when the primary borrower defaults on a loan. Not only does the co-signer suffer harm to their credit score, but also has liability to repay the balance due if the primary stops paying altogether.

      You mentioned being an active military service member. Under the Servicemembers Civil Relief Act (SCRA), a federal law, special protections exist for those on active duty or who recently completed active duty regarding their financial obligations. I confess I am not well-versed in the SCRA, but based on my limited understanding of the act, creditors are not barred from reporting delinquent debts of active duty members to the credit reporting agencies (the credit bureaus). Consult with your local judge advocate general to learn if the SCRA applies to any part of your issue.

      If not, consider writing a letter to the lender explaining your situation, and ask that as a matter of good will, it remove the derogatory mark from your credit file.
      0 Votes

  • ML
    Feb, 2012
    Muki
    HI, About 9 years ago, I signed for a 30 year mortgage with my brother and my Mom. At the time, the bank we signed with was Country Wide and through them they decided not to use my credit because it wasn't strong enough. So in other words, the bank statements that paid the mortgage did not have my name on them. Since then, I got married, moved out and bought a home with my wife (lived here for 5 years). When I purchased my home with my wife, the bank did not have any records of the house with my brother. Fast forward, Bank of America bought Country wide and assumed their loans. My signature was on the document so they added my name to their loan documents without notification. I found out about the change when I completed a refinance. So I've read the four different ways to remove myself. Is there any other way? If I file Chapter 7 would I lose my home I live in? If i involve a lawyer, would I get a different result?
    0 Votes

    • BA
      Feb, 2012
      Bill
      You should speak with a lawyer. You say that you signed for the loan, so you seem to have been responsible for the whole time, even though your name was not on the monthly statements. Still, it may be the case that you were not part of the loan or that BofA did something improper in adding you to the loan.

      If you are responsible, speak with a bankruptcy attorney, to see if filing for bankruptcy could help you remove your BofA loan debt and what the effects would be on your current home and assets.
      0 Votes

  • JW
    Feb, 2012
    Jennifer
    I am the co-signer on a student loan. A few years ago a friend asked me to co-sign for his student loan, however since I was on the west coast and he was on the east coast at the time he forged my signature on the student loan. He was since kicked out of school and now refuses to make any payments on the loan or to reimburse me for any of the payments that I make to keep the account in good status. Unfortunately I have been reported twice for the loan being too delinquent, past 60 days, however the only reason I was reported is that I never received any phone call notification that the loan was that far past due and I was going to be reported to the credit bureau. The loan company does not send me any statements or documents of the loan, which I have asked for many times. I wanted to see how I can get the original papers for the loan and request statements and receipts of payments, and any advice on ways I can go about getting myself off of this loan! Thanks for your help.
    0 Votes

    • BA
      Feb, 2012
      Bill
      There are four ways to remove oneself as a co-signer:
      1. Refinance the loan and not include a party in the refinance.
      2. Sell the property in question (if the loan is secured), which will extinguish the loan liability, unless there is deficiency balance.
      3. File for chapter 7 bankruptcy.
      4. If the loan is for a home, allow a strategic default. However, all parties on the loan will be responsible for any deficiency balance.

      Student loans are different from secured loans because, obviously, there is no property securing the loan. Student loans are also different from other consumer loans in that they cannot be discharged in a bankruptcy, unless there is a hardship.

      In your case, an act of fraud attributed liability to you for the loan. It would be unfair for a court to enforce a forged contract. You need to create a affidavit that states you did not sign the loan contract. See the Dept. of Education false certification discharge discussion. See the Sallie Mae Student loan discharge or cancellation page to learn how to contact Sallie Mae's claims department.

      0 Votes

  • KN
    Jan, 2012
    Kit
    When I was 17 I had a co-signer help me get a car from a dealership. He signed stuff but I paid for everything, down payment and insurance and all of that, for exactly a year and a half out of a 3-year payment plan. I lost my job so I couldn't continue to pay for the car. My brother picked up paying for the car for exactly the past year's time, and at the time that he started paying for it, said it was cool if I wanted the car back in the future, he just wanted to use it right now. I brought it up again recently and he was still cool with me having the car back. Now, when I spoke to the original co-signer, a month or two ago he was fine with everything and kept saying we would get together and talk about it. Now when I'm trying to get together with him so we can really discuss and plan things and work it all out so that I can either a) have the car back and pick up paying for it again, or b) have back the $6,000 (out of 10,000 total) that I have already paid (car only, not insurance) - he (the co-signer) is saying I have no rights, I'm entitled to nothing, etc. etc. So my question is, what are my rights, and what am I entitled to, and so forth? I'd like to get this all worked out as peacefully as possible, but if I must I will use legal force (suing, or something). His name is on the title, but I had paid for everything up until the year-and-a-half mark. He had to pay for the car for a whopping two months before my brother picked up payments on the car. Now that it's January, it has been a year that my brother has had the car now. I live in the state of Virginia, if that helps for a detailed answer :P
    1 Votes

    • BA
      Jan, 2012
      Bill
      I will assume the brother you mentioned is the co-signer. The co-signer bases his theory of complete and total ownership of the vehicle on his name appearing on the title. That gives him the right to possess and sell the vehicle, as far as the state is concerned. You base your claim to own a partial interest in the vehicle on your making payments for half the life of the loan. He has a legal claim to the vehicle, and you have an equitable claim.

      It would be unfair for the co-signer to have complete ownership of a vehicle he paid only 50% for. Assuming you can prove to a court you made 18 out of 36 payments, then a court will agree you own 50% interest in the vehicle.

      A lawsuit is expensive. Mediation is cheaper. Explain to the co-signer that you would like to settle this dispute with a mediator. If the co-signer does not accept this alternative, then you two choices: Let it go, or file a lawsuit.
      0 Votes

  • JL
    Oct, 2011
    Jaryn
    About 2 days ago I cosigned for a friend for a used car from a used car lot. I was wondering if there is a 3-day time line to resign as the cosigner and return the car to the used car lot. Is this possible?
    0 Votes

    • BA
      Oct, 2011
      Bill
      I am not aware of any state law requiring an X-day cooling off period when buying a car, or a cooling off period for loan co-signers.

      You asked about returning the car. Certainly, the dealer will buy the car back at a discounted price. Make the dealer an offer.
      0 Votes