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.