What is a co-signer’s liability if there was a misrepresentation regarding a loan extension?

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What is a co-signer’s liability if there was a misrepresentation regarding a loan extension?

My daughter bought a car at a buy here/pay here dealership. She was already in contract with them when she lost her job and was getting ready to start a new one. However, because of the gap between paychecks she was behind on her payments and they told her that if she could have someone sign for her they would give her an extension. So I did co-sign. Before signing I asked if I would be held accountable for any default and was told several times that I would not be since it was a extension. Well she defaulted andthey repossessed the car. Now 6 years later they are taking us to court.

Asked on April 5, 2011 under Bankruptcy Law, Indiana

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

There is good news and bad news for you.

The good news is that misrepresentation can be grounds for rescinding--or voiding--a contract, including a loan agreement. So misrepresentations made to you might give you grounds to get yourself personally out of the obligations.

Now the bad news:

* Your reliance on the misrepresentation must be reasonable for it be grounds to rescind. Since the whole purpose of a cosigner is to give another person to guaranty a loan, it may not have been reasonable to rely on statements that the cosignor would not be held accountable.

* On the face of it, a cosignor is lialble. The burden would be on you  to prove the misrepresentation. That may be very difficult after 6 years, especially if you have nothing in writing.

* Your daughter would likely remain liable no matter what.


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