Consider Carefully the Consequences of Endorsing or Assuming Lease Responsibility for Your Children
In the bustling urban landscapes of New York, Boston, and other high-cost cities, parents often find themselves stepping in to help their college-graduating children by serving as a guarantor or co-signer for their apartments. However, these acts of support come with significant financial risks.
As a guarantor or co-signer, parents are legally liable for the entire rent and potential other costs if the tenant fails to pay. This liability is not limited to their child's share but extends from day one or in case of default. Moreover, guarantors often have no right to occupy the apartment but can be pursued in court for unpaid rent or damages.
One of the key risks for parents is joint and several liability. If the lease is joint and several, the guarantor and tenant are each fully responsible for the entire debt, meaning the landlord can collect from either party independently. This can lead to co-signers being sued as part of eviction actions or guarantors possibly facing a civil suit later, which can have serious financial and credit consequences.
To mitigate these risks, parents should choose guaranteeing over co-signing if possible, as eviction lawsuits name co-signers directly, whereas guarantors may face a slower, separate civil process. It's also crucial for parents to review lease terms closely, verifying what exactly the guarantee entails, whether it covers rent only or also damages, legal fees, and other costs.
Negotiating agreements to limit liability is also advisable. Parents may negotiate agreements limiting their liability to their child's portion of the rent or for a fixed term; otherwise, they may be liable for all tenants in a joint lease.
Regular communication with the tenant is essential to avoid surprises. Parents should regularly check on payment status and understand their financial exposure. Be prepared that landlords can collect from guarantors without first exhausting remedies against tenants due to modern waiver clauses in leases.
Knowing if and how the guarantor responsibility can be revoked upon renewal or after a certain period is also crucial. In some cases, the responsibility may be revoked if the child has a one-year track record of paying on time.
The risks associated with being a guarantor or co-signer are amplified in high-cost cities where rents are substantial. Parents should assess their own financial capacity carefully and seek legal advice before agreeing to be guarantors or co-signers.
In the event of non-payment, renter's insurance can protect both the guarantor and the tenant in the worst-case scenario. Comparing rates and coverage for renter's insurance can be done at Bankrate.
In some cases, the renter can pay for a rent coverage product that protects landlords against defaults, which may encourage landlords to accept tenants who would not otherwise qualify.
As parents navigate the complexities of helping their children secure housing in high-cost cities, understanding and mitigating the associated financial risks is essential. By following best practices and seeking professional advice, parents can ensure they are making informed decisions and protecting their financial well-being.
- Investopedia
- Zillow
- Nolo
- Bankrate
- Apartments.com
- "When serving as a guarantor or co-signer, it's crucial for parents to be aware of joint and several liability, which means they could be held responsible for the entire debt if the tenant fails to pay."
- "To mitigate some of the financial risks, parents should consider negotiating agreements to limit their liability, such as being liable only for their child's portion of the rent or for a fixed term."
