Thursday, September 17, 2009

Be careful about winding up with other people's debt

Michelle Singletary has a hard-hitting column today (Sept. 17) on P. A17 of The Washington Post in her “The Color of Money” column; it’s “Family Bonds and Financial Burdens”, with link here.

In answering a reader’s question, Singletary warns that when you cosign on a loan for a relative in need, you tie your own credit history and financial reputation to that of the needy relative. “You may find it harder to get a mortgage or even rent an apartment if you are on the hook for someone else’s debt”, she writes.

True. In an earlier column a few months back, Singletary had noted that we have a “selfish system”. And sometime before even that, she had noted a pastor who was just beginning to notice the coming challenges of eldercare and saving for it.

Another way one could wind up with other people's debt in the past was to sell a home under assumption, in which the buyer didn't have to qualify. In the early 1990s the FHA supposedly tightened up on this. In any case, one should never sell a property with a note on it without knowing if one is ultimately still liable for the note (and maybe even a deficiency, in an upside-down market).

It’s all true, and we see these little family intra-dependency squabbles on shows like Judge Judy all the time. We’re finding that in an individualistic society the same “rules of engagement” don’t work well for everybody. But they didn’t in older tribal or collective cultures, either.

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