One lesson from these experiences is that parents should structure transfers in ways that will avoid continuing financial responsibility for their children's debts. Providing Financing Be wary of providing financing for the buyer of property, even if the buyer is your child. If the buyer defaults, a major source of retirement income could be interrupted or lost. Whenever possible, the children should get financing from a financial institution or other third party. Cosigning Notes Children whose credit rating is questionable usually must have a cosigner on their loans.
Borrowers usually ask their parents, other relatives or close friends to cosign their notes.
Cosigners do not always assume the same liability as the primary borrower, but they always assume some liability. If a person cosigns with the borrower in the lower right corner of the note, the law regards that person as a comaker. If a parent is a comaker on a note with a child and property solely owned by the child is pledged as security, the parent is fully liable for repayment of the loan. This includes any deficiency outstanding after foreclosure and disposition of the security. The lender can collect from the parent if the child defaults on the loan.