Loan agreements should state what happens when the borrower dies.
If you act as a co-signer on a loan, you're responsible for making the loan payments when the borrower is unable to do so. If the borrower dies, you might have to continue to make payments, though the terms of the loan agreement will dictate if there are any continued obligations on the co-signer's behalf. Talk to an attorney if you need legal advice about your rights or obligations as a co-signer.
Co-signers
When you co-sign a loan, you tell the lender that you will pay for the loan if the borrower doesn't make the payments. You also agree to having the loan listed on your credit report, though you do not generally get to use the proceeds or benefits of the loan. For example, a car loan co-signer may have to make car payments if the borrower is unable to come up with the money, but that doesn't mean the co-signer can use the car.
Death of Borrower
When a borrower dies and there are multiple borrowers or co-signers on the loan, the responsibility to pay the loan falls to the co-signer, according to Bankrate.com. This means the co-signer must continue to make payments on the loan. This is true whether the co-signer is a co-buyer, meaning she has an ownership interest in the property, or not, meaning she has no right to use the property.
Probate
When a person dies, all his assets and debts get lumped together into an estate. That estate must go through the probate process, the legal process through which a dead person's property is transferred to new owners. When the decedent left behind a debt, the debt must typically be repaid with the estate assets. In this situation, the estate may pay the creditor for the remaining debt, but the co-signer must still make payments until this happens.
Considerations
Whenever you co-sign a loan, it's important that you read the terms of the agreement thoroughly. The loan documents should address what happens in the event the borrower or the co-signer dies. In some situations, for example, the loan agreement may dictate that the co-signer is responsible for paying the remaining amount upon the death of the borrower. In other situations, such as student loans, one creditor may agree to discharge the loan in the event of the borrower's death, while others may not.
Tags: make payments, borrower dies, borrower unable, continue make, continue make payments, co-sign loan