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Co-Signers Beware: Judgment May Be Entered Against You Even if You're Not Served

Legal Implications of Co-Signing a Loan

A co-signer, or co-borrower, has equal responsibility with the primary borrower to repay the full amount of a loan. The lender can take legal action against one or both borrowers for the total debt.

Rules on Enforcing Judgments Against Unserved Co-Obligors in New York

New York law[1] has an extra rule that benefits lenders. If multiple co-borrowers are jointly obligated on a loan, the lender only needs to properly serve one co-borrower to obtain a default judgment against all co-borrowers. However, the judgment may only be enforced against jointly-owned assets and the individually-owned assets of the served co-borrower. The lender can bring a separate lawsuit against the unserved co-borrower later to reach their individual property under CPLR 1502.

Carefully Consider Co-Signing Risks

Co-signing a loan is a major financial commitment that continues even if the co-signer dies, as the obligation passes to their estate. Individuals should carefully weigh the decision to co-sign since their legal duty to repay could span their lifetime.

CPLR 1502: Provisional remedies and defenses in a subsequent action against co-obligor

CPLR 1502 outlines the procedures and defenses that apply when a creditor brings a lawsuit against a co-obligor on a debt who was not originally named in the lawsuit.

Key Points

  • A creditor can bring a subsequent action against a co-obligor who was not originally named in the lawsuit to recover the unpaid balance of the debt.
  • The complaint in the subsequent action must be verified.
  • In the subsequent action, the defendant may raise any defenses or counterclaims that they could have raised in the original action if they had been served with the summons.
  • In the subsequent action, the defendant may also raise objections to the original judgment and defenses or counterclaims that have arisen since the original judgment was entered.

Purpose of CPLR 1502

CPLR 1502 is designed to ensure that co-obligors have a fair opportunity to defend themselves against a debt and prevent creditors from unfairly collecting debts from co-obligors unaware of the original lawsuit.

Implications of CPLR 1502

For creditors, CPLR 1502 means that they may need to take additional steps to collect debts from co-obligors who were not originally named in the lawsuit. For co-obligors, CPLR 1502 means that they have the right to defend themselves against a debt even if they were not originally named in the lawsuit.

Contact us if you are being pursued as a co-signer and need help.

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[1] CPLR § 1501. This is NEW YORK law. Please consult your individual state's laws.