What Happens If Your Co-signer Dies? - MoneySense

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By Bruce Sellery on September 26, 2012 Estimated reading time: 3 minutes

What happens if your co-signer dies?

By Bruce Sellery on September 26, 2012 Estimated reading time: 3 minutes

Bruce Sellery says make sure you know the risks before you agree to co-sign a loan.

This article is 1 year old. Some details may be outdated.

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Question

If I have a co-signer on a loan, and she passes away, what happens? I obviously don’t have a co-signer anymore. But I wonder if the will bank go after her estate for the balance if I should default.

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Answer

Co-signing a loan is not a step you should take lightly, because even in death you’ll be liable for the loan.

I checked with a number of the big banks and the answers were all the same: If the co-signer were to die, the estate would take the place of the deceased person on the loan. There would continue to be two borrowers liable for the account—one living and one deceased.

This is usually outlined in the loan agreement, says Dawn Deans, an estate lawyer with the 2020 Law Group. “There is often a ‘successor clause’ that binds you and your estate to repay the debt. If that clause is not in the agreement than the co-signer’s obligation could end in their death.”

As long as the living borrower continues to make payments on-time and there is no default on the loan, nothing would change. But in the event of a default the bank would have the right to pursue both the living borrower and the estate equally. The estate would need to pay all debts before distributing funds to the beneficiaries named in the will.

The executor should place a “notice to creditors” in the newspaper informing anyone who has an outstanding loan of the person’s death, says Deans. Once the notice period has past the executor can be distributed the estate without liability.

If there isn’t enough money in the estate for whatever reason, it is unlikely that the surviving family members would be liable. Generally speaking only a person who has signed on the dotted line to repay a loan is legally responsible for the loan. But it is worth consulting an estate lawyer on that question. Circumstances and place of resident can lead to different outcome, in part because regulations can differ from province to province.

In an earlier post I looked at questions to ask your parents regarding their affairs. I didn’t address co-signing loans in particular, but the topic is important to include.

Consider this scenario: There are two siblings, a son and daughter, and one surviving parent. Unbeknownst to the daughter, the mother co-signs a big loan for the son who has been having serious financial problems. She then dies suddenly and soon after the son stops making payments on the debt. The will spells out dollar amounts for the two siblings and for various charities, but the bank has called in its loan and now there isn’t enough money in the estate to execute the will according to her wishes. No one is happy with that outcome.

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My point is that you need to think very, very carefully before you choose to co-sign a loan. There are financial implications, to be sure. But there is also a significant risk to the health of the relationships with those you love.

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About Bruce Sellery

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.

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  1. Husband and wife wife takes out personal loan she says house and land was used to secure the loan . The deed was solely in husband’s name. He gets cancer decides to quitclaim deed all property to his only son who is the only child. The woman is the stepmother. Not sure if the deceased father was a cosigner or just the one who put collateral up for the wife loan. The wife / stepmother is suing son to have deed reversed back to husband’s estate days the lender is being defrayded as well how can the son know if there is any loan tied to the property to secure a loan if can’t get any I formation from The widow stepmother.

    Reply

  2. She also claims the husband was not in his right mind to transfer by quitclaim deed and that the stepson has committed fraudulent acts. None of this is true of course but a summons to court has been served and a answer has to be given in 5 days. The stepson cannot speak for the estate of his father that is included in the suit. There was not a will according to the widowed stepmother and the estate has not been probated not a administrator or not has an executor been named yet.

    Reply

  3. QUESTION? My mom co-signed for my sister for a loan . My mom had a JUDGEMENT,put on her at time of signing. WELL the principle BORROWER lost property, and co-signer ,my mom NOW became responsible to pay back loan . They came after her ranch but it’s HOMESTEADED, so they couldn’t. She was going to sell property in March ,2020, but then she DIED APRIL 7,2020. I became sole Executor, and I have had the probate hearing and recently had my name transferred onto the DEED to become LEGALLY , OFFICIAL. BUT NOW they are coming after the RANCH again, and my LAWYER said they may get it. The PROPERTY is paid in FULL .QUESTION 1, HOW can they come after it when I dont have any ties to the loan . 2 MAIN QUESTION , CAN I SALE MY PROPERTY legally.

    Reply

    1. Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.

      Reply

  4. But the mortgage statement or the mortgage paperwork that we signed States me as the owner and him as a cosigner and he’s deceased is the house mine

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  5. My husband is thinking about co-signing a student loan for my step granddaughter. If she defaults, I understand that he would be responsible for the loan. If he dies would I be responsible for the loan, even though my name is not on the loan? If the title to the house is in both of our names and I am still alive, can they try to take the money from the house? She wants to get a 15 year loan that she says will remove the co-signers name after 24 months. He is 64 and if she defaults, he will be almost 80 before it is paid off.

    Reply

    1. Thank you for the question. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.

      Reply

  6. What happens to the truck I was 2 months behind on my payments and they repossessed it I made a point to make my payments to the company and then my grandfather died and before I got caught up they took it out of the state the $6,000 they paid the truck off where’s the truck?

    Reply

    1. Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.

      Reply

  7. my mom sold the house after my step dad died over the covid 19 of last year 2020 and am oldest daughter from two sisters and my brother. and just bother me that mom lie to about the house and did’nt recive half the money and my husband been support me with this

    Reply

  8. Hello if I bought a manuafactor home 16 years ago and now I am fixing to pay it off but my credit was not good enough and my grandma co-signed for me and now she is dead and she left some credit cards in debit owing some money and on the property tittle it says Ileana trippe & estate of Luisa barely my grandma does that mean I will have a lien on my Trailor that I bought cause her name is still on the tittle paperwork when I told them she has died she passed 5 years now I have two notes left what should I do? Sincerely

    Reply

    1. Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.

      Reply

  9. my grandmother co signed me a mobile home the mobile home is in my name and she just a co signer if my grandmother passes away would her legel garden come take my trailer away from me if trailer is in my name and my grandma is just a co signer on my mobile home

    Reply

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