To co-sign or not to co-sign?

The intrepid Kay Cleaves over at StrawStickStone.com contacted me a few weeks ago with a blog idea on the topic of accepting lease guarantors and co-signers.  With students who have little or no credit history in the rental market right now, Chicago landlords may be considering the worth of adding a guarantor to a lease.  First, the basics: a guarantor is a person who voluntarily agrees to be responsible to pay for another person’s obligations if that other person defaults on those obligations.  In a sense, the guarantor “vouches” for the tenant.  So, if mom signs a lease as a guarantor for little Johnny and Johnny fails to pay the rent, in theory, mom is responsible for the rent.

I’m going to defy convention here and generally recommend against adding a guarantor or co-signer to a lease.  That sound you hear is the collective explosion of the heads of leasing agents throughout the city.  But, hear me out!  Many agents take the position that accepting a co-signer or guarantor opens up a whole new set of prospective renters.  I would argue that accepting a co-signer or guarantor opens a landlord up to a whole set of potentially bad renters.

Are all potential renters with bad or little credit bad tenants?  No, but many (most?) are.  There is a reason landlords (and banks and insurance companies and auto dealers and on and on) rely on the credit score.  It has a proven track record.  So what if little Johnny’s mom – who has good credit – is going to sign off on the lease.  The bottom line is that the landlord just handed the keys to Johnny, not mom.  And, as Chicago landlords know all too well, it will take a long time to get Johnny out of the rental unit, even if mom signed the lease.

A tenant who needs to be propped up by someone else is probably, on the whole, not a good candidate to be a tenant.  A guarantor does not make a bad tenant a good tenant.  Given the amount of time it takes to evict a bad tenant, a guarantor does not help at all.

Add to this the fact that if the guarantor is not local, the guarantor is just about worthless.   In order to “collect” from a non-local guarantor, a landlord needs to file the eviction, win a money judgment against the tenant and guarantor, find an attorney in the jurisdiction where the guarantor resides, file a collection lawsuit in that jurisdiction, serve the out-of-town guarantor or their boss, and pursue the collection.  What a hassle!  Keep in mind that Chicago landlord’s governed by the CRLTO can’t get their attorney’s fees added to their eviction judgments.  In many cases, the cost-benefit analysis as to whether it is worthwhile to pursue a guarantor will suggest that it might not be.

Are there exceptions?  Maybe.  I could see a landlord consider accepting a local guarantor, but that requires just the right set of facts and circumstances.

It is just my opinion (and it’s not a “legal opinion”), but, to me, a guarantor or co-signer is like one if those really bad home warranties that get thrown in a real estate transaction. It might pay off every now and then, but usually, it doesn’t.  It’s not worth the aggravation and it is almost a self-fulfilling prophecy of an unsuccessful rental.  Because it can take four or five months to get a bad tenant out, it is probably better to leave a property vacant for “one more month” and pass on a tenant that does not meet the landlord’s rental criteria.  Why be a guinea-pig?  Let that non-qualifying tenant become someone else’s problem.