Some friends recently dropped by “to talk”. Once the iced tea was served and the four of us were comfortably seated around the dining room table, I turned to Dave (fictional name) and asked, “So tell me. What’s going on?”
Dave said, “Joe, you know we have been on the waiting list to move into that rental complex. We have some good news…our name is at the top of the list. We met with the property manager today and he told us that the unit is ours if we have someone sign as a reference.” Dave handed me the paper. “Would you be able to sign this?”
More than a reference
It all sounded innocuous enough, but as I scrutinized the document, I was pretty sure that Dave and his wife didn’t really know what it was. Looking up, I asked Dave, “Do you understand what this is?”
“Well, not really.”
“The owners of the rental complex want assurance that they will be paid, so they are asking someone to co-sign the agreement. That way, if you aren’t able to make a payment, they have someone else to get the money from. I hate to disappoint you, but Janice and I have a policy: we don’t co-sign agreements for anyone.”
Dave seemed to understand. “Joe, I wouldn’t want you to do anything you don’t think you should. Thanks anyway.”
A policy can help awkward situations be less awkward
Because Janice and I had previously discussed the issue of co-signing, we had a ready answer for Dave and his wife, making our “no” an easy one. If we had not thought this through ahead of time, we would have found ourselves trying to trying to formulate our response with Dave and his wife in the room. That could have been awkward.
This post is not on the pros and cons of co-signing; it is about thinking through such issues ahead of time and creating a clear stance. Doing so makes saying “no” much easier and even graceful. Dave and his wife did not feel that our decision had anything to do with them personally. After all, we don’t co-sign for anyone.
What are some other financial policies that are good to think about ahead of time?
- Will you loan money to anyone? If not, why not? If so, under what circumstances?
- Will you loan non monetary items (car, golf clubs, etc) to anyone?
- Under what circumstances will you give money to an individual?
- Would such a gift be different with a family member than a non family member?
You get the idea. Forming a policy ahead of time not only forces you to think through an issue, but gives you a clear and united response when you need it. If you don’t have such policies, consider setting them now, before you need them.
What other financial (or non-financial) issues have you established policies for? How are they working?
photo credit: lipár
Wow, good thing you read the document before signing. You could have gotten into a heck of a sutuation if you ended up on the hook for some reason.
Mike,
No joke! Maybe “read before signing” is the real lesson from this post. I wonder if the property manager intentionally used the word “reference” instead of “co-sign” to entice someone to sign something they didn’t understand.
I’m glad that “Dave” and his wife were so understanding. I agree that this situation went much smoother than it could have, all because you have a policy in place. This is a great idea!
Khaleef,
Yes, they were very understanding and a bit embarrassed. Our policy was indeed helpful. I could immediately speak for both my wife and myself because we had already talked it through.
“Dave” and his wife never did get that rental unit, so I assume they never found anyone to co-sign for them.
It is very challenging sometimes to deal with such situations when you haven’t thought through the ramifications of such a decision. Such efforts gives you the basis for a strong no. I do think being firm could have spared your friendship.
Roshawn,
Yes, we are still good friends, with no detectable strain in our relationship. Had Jan and I co-signed the agreement, we could have been setting ourselves up for very unpleasant relations with these friends (when they started missing rent payments).
To echo what others have said, glad you read the fine print! No need to sign such a document for your friends. That said, since they are friends I’m glad there seem to be no hard feelings.
My no policy is around helping friends move. I have had back pain before, so I don’t want to risk major injury while moving heavy things. I have had no issues so far with people not understanding
Squirrelers,
You have a very legitimate no policy. In fact, someone would have to be totally insensitive to have an issue with it. But, this being said, it is surprising how many people with back problems will agree to help, risking more injury, instead of saying no.
I always have a problem with this. We also have some rough policies, but when the time actually comes to say no… I get all messed up, thinking we are in a better position… much blessed than those people so may be we should be doing this even though we don’t want to… Any ideas for nutters like me?
Suba,
Not that I am a know it all, but being as you asked, these anchors help keep me on track with our policies:
1. My wife and I agreed to the policy. If I arbitrarily change our policy, I am undermining our agreement. Not good.
2. I firmly believe that some “helps” are not really helpful. Co-signing for someone who can’t get a loan simply skirts the core issue of poor credit and/or money management. Real help is forcing the person to deal with the real issues.
3. Biblical passages such as Proverbs 17:18 which explicitly warn against co-signing.
I will discuss the “whys” of our policies in more depth in tomorrows post
https://personalfinancebythebook.com/why-we-say-%E2%80%9Cno%E2%80%9D-to-co-signing-and-making-loans/
I hope this helps.
Good thing that you read before signing, Joe!
“I wonder if the property manager intentionally used the word “reference” instead of “co-sign” to entice someone to sign something they didn’t understand.”
It seems a little fraudulent for them to refer to the person as a reference. Still, better to have to avoid wrangling it out in court.
This is great advice in the investment world. There are many. Setting them down and following thru is the key. Example: I will not let a single stock comprise more than 10% of my investable assets. This one alone would have been a life saver to the employees of Enron!
DIY,
Great application of this post. It is all about setting your boundaries and following through with what you decide. I admit that I hadn’t considered the investment application, but, like you said, if Enron employees had used this principle as you suggested, they could have saved themselves from the ensuing disaster. Any more applications?
Kevin,
I wondered the same thing. It could be that the property manager used the work “reference” fraudulently or Dave could have simply been confused about exactly what he was asking me to sign. I don’t really have any way of knowing, but I am glad I read it.