Month: October 2012

Borrower Beware: Co-Signed and Guaranteed Loans Can Haunt You for Years

In the spirit of Halloween, the scariest article in this weekend’s Wall Street Journal wasn’t about the story about new ways that haunted houses are terrorizing people.

Nope, the one that gave me nightmares was about the perils of co-signed debt, lurking in the shadows, waiting to attack a parent (or grandparent) for co-signing a student loan.

And this is a monster that can’t be out-run: In addition to being 100% responsible for the debt, the student loan debt could be deemed non-dischargeable in a Bankruptcy by the guarantor.

Long story short, the debt could follow you for years, until it’s paid in full. The Wall Street Journal did a follow-up blog post, providing more advice for those considering co-signing student loan debt.

According to that blog post, “90% of private loans had co-signers last year.” The reason is obvious: if there is any level of risk of non-payment, a lender wants to get more obligors to collect against.

This should be a cause of concern for any person asked to co-sign a loan, whether it be a consumer loan or a commercial loan. Think carefully before signing it. If it goes bad, you could be liable for the entire amount.

Also, read the terms carefully. On many personal guaranty agreements, especially ones involving long term credit advances, the guarantor’s obligation to guarantee advances may out-last their involvement with the business that borrowed the money.

Sometimes, the only way to beat this monster is to never sign up for the fight in the first place.

What Tim McGraw Can Teach You About Injunctions in Tennessee

During the first week of law school, law students learn how to read caselaw.

The way it works is this: Judges decide legal issues by writing legal opinions that summarize existing law and apply the existing law to the facts before them in that case (or by departing from existing law to create new law). Over time, the line of published legal opinions creates “The Law.”

Long story short, a good way to learn the law on a topic is to look for a recent case dealing with the topic.

That’s why I am citing the Curb Records, Inc. v. Samuel T. McGraw case from last week. (That’s “Tim McGraw” a.k.a. Mr. Faith Hill.) I don’t delve into entertainment law very often (although I’ve sued a few country singers in my time for unpaid debts), but this case has a very good review of Tennessee injunctions and the standards to obtain injunctive relief.

This legal opinion discusses the primary law (Tenn. R. Civ. P. 65.04), along with the most recent cases discussing the standards. Plus, because it’s a case from last week, you can cite it with confidence that it remains good law and hasn’t been overruled. It’s worth a read.

Tim McGraw will undoubtedly be flattered to hear that the Tennessee Court of Appeals finds, as a matter of fact, that “McGraw is undisputedly an entertainer offering unique and
extraordinary services.”

Digital Footprints: The Best Credit Applications Include E-Mail Addresses

I’ve got a client who does a great job on their collection referrals. Their referral packet includes the usual: addresses for the borrower; whether the borrower owns the property; employment information; banking information; and copies of the relevant loan documents.

But, tucked away in their Credit Application, there’s an extra line that includes a unique request: provide an e-mail address.

You may wonder how an e-mail address could help in collections. If the borrower isn’t answering your calls and is dodging your process server, you may think, how quickly would they delete an e-mail from you?

The e-mail address isn’t merely a way to make contact with the borrower. Instead, it provides a unique way to identify and locate them online. In collecting on an unpaid debt, I’ve found that an e-mail address is as close as a digital footprint as there is online.

As an illustration, imagine running a Facebook or LinkedIn search for “Mike Jones.”  You’ll get hundreds of false hits, because there are probably a lot of Mike Jones in this world. But, with an e-mail address, you would run a search for “mikejones1974@gmail.com.” There’s only one of that person.

So, that internet search results in finding the person you’re looking for, because Facebook and other social networking services allow you to search both by name or e-mail address. Plus, you’ll potentially find a long list of online activity, whether it be comments on blogs (be careful in the comments section below) or other postings online.

People tend to keep active e-mail addresses, especially ones they’ve used for years. It’s a great resource, and an easy, discrete piece of information to ask for.