Question QUESTION: My fiance owns a commercial business (carwash) in NJ (has for the last 25 years). Due to many exenuating circumstances, his health, the rainy weather on east coast and the 14% interest rate on the $515,000 mortgage (it had to be refinanced 2 years ago quickly when nobody else would touch it)he cannot afford to to keep the carwash running without losing money. His ex-fiance co-signed the mortgage and she has quite a bit of money. He has been trying to sell the property for almost 2 years now and so far no luck. He has it listed and his agent is looking for [bottom feeders] and still no luck. The business appraised for over $900k in 2007 (includes lots of land and the carwash itself). My question is this: If he cannot continue to make the mortage payments, cannot keep the business running without losing money and no one will buy it-what can he do? SOme months he has to ask the co-signer to send money to pay mortgage, etc. Co-signer also wants to just be done with it. Taxes are owed on it (approx. 40k). It's coming up for refinancing in October and once again the co-sginer wil be obligated to co-sign again. What are the options in cases like this? I was told that since the co-signer has money and property he cannot just let it go into default because they will go after the co-signer and she will have to pay. The situation has become desperate and we don't know what to do. Any solid information would be much appreciated. If you need more info. please let me know.
ANSWER: I happen to be dealing with this very same situation for a car wash tenant in one of the properties I manage, where the tenant is in default of the loan, and is struggling to meet the rent. Unfortunately, there's probably not a lot I can give in the way of advice, since both the loan and the lease are monetary obligations of both your fiancee and the cosigner. If your fiancee defaults on either one or both, then the cosigner will definitely be sought after for damages (along with your fiancee).
My only suggestion would be to go to the lender and try to negotiate modified loan terms to get the payment lowered (that's what our tenant is close to finalizing, although he had to hire an attorney to get the bank to work with him). You can also petition the landlord for rent relief...some landlords are more agreeable to that than others. Faced with the prospect of an empty building, perhaps they will agree to work something out.
The cosigner can let this go into default, but if they do, they run the risk of damaging their credit, and also they will likely be pursued by both the lender and the landlord (if they also guaranteed the lease).
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QUESTION: There is no lease on the building or the land it is on - my fiance owns both. If they go after him if he defaults, there is nothing to get from him. He doesn't have a job and doeesn't take any money from the carwash. He is also disabled due to a neurological disorder and his sister had to take over POA in 2006. It's just a mess... His POA will be talking with the lender because a new loan is required on Oct. The co-signer already has bad credit (hence the high interest rate already being charged on the loan). Since she is very, very wealthy and if damage to her credit doesn't matter, if she has to Pay a lot of money to settle the debts will it be a tax write off for her?
Also, What about an auction?
Answer If the lender doesn't get paid, they will likely foreclose. If they don't receive enough money from a resulting sale of the property & assets, and if the loan isn't a non-recourse loan, then they would proceed to collect any amounts owed from both the parties. I can't say whether the payment of the debts would have tax benefits to the cosigner, as that largely depends on her financial situation. Not sure what you mean about an auction, but you can certainly attempt to sell the real estate & the business, either separately or together. Your fiancee filing bankruptcy may also be an option if the situation is as dire as you suggest. Either way, I would definitely recommend that you consult an attorney or credit counselor to explore what options may be best.
