3 scenarios that should make a potential guarantor think twice

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In a city where rental requirements are tough to meet—the standard expectation is an annual income of at least 40 times the monthly rent—the need for a guarantor is unsurprising. So much so that the practice can even extend to sale transactions if a board needs extra assurance that a buyer can cover their monthlies, a guarantor might be brought in, as well. 

That said, taking on the role of guarantor means a significant financial responsibility, since you'll be legally on the hook for missed rent or maintenance payments if the person you're vouching for is suddenly unable (or unwilling) to handle their own bills. Of course, there are ways to protect yourself going into the situation, as well as common sense rules of thumb to consider. 

"If someone says 'I'd like you to guarantee my lease,' you should get an understanding of the person's financial situation at the moment, or have a sense of whether or not they're dependable," advises Jeffrey Geller of Insurent Lease Guaranty (FYI, a Brick sponsor). For instance, if you discover that someone has terrible credit or recent housing court actions against them, it might not be the wisest to tie yourselves to them legally and financially.

Common sense aside, however, there are some guarantor setups that are best avoided altogether. Below, three scenarios in which your response to a guarantor request should maybe be a firm 'no': 

You're covering your child's roommates, too

Guarantors are most commonly used by young renters who need their parents' help to meet the qualifications for a rental. This is all well and good (provided you trust your kid), but can be a different ballgame if it means that you're guaranteeing an entire apartment full of roommates, rather than just your child. (Unless otherwise specified, a standard guarantor agreement stipulates that you'll be responsible for the rent of the entire apartment, not just your child's portion.)

"Sometimes I have to say, 'Are you aware that you're guaranteeing three people on the lease?' and they'll say 'No, I only want to guarantee my daughter'," explains Caroline Surace of Halstead Management. "People have to be very careful about who they're guaranteeing."

Provided the landlord allows, Surace recommends an agreement where each individual renter has a guarantor that has signed on to specifically cover only their portion of the rent.

And if the management company doesn't allow this kind of split, it's best to draft a separate agreement among the guarantors so you still have legal protection if things go awry. "Under those circumstances, I would advise the parent to get in touch with the other parents, if they don't already know them, and make an agreement between them where they split the liability, so it's not just resting on one guarantor, even if only one person is technically the guarantor on the paperwork that's used by the building's management," says Citi Habitats agent Jason Burke. (In this case, if something went wrong, the guarantor would still be answerable to the management, but you'd have a legal arrangement in place, the better to hash out who owes what with the other parents and their attorneys after the fact.) 

"Try to break up that liability between you and the other parents or guardians or whoever it may be [that's guaranteeing the other renters]," advises Burke. Otherwise, you'll be legally liable for the potential missed rent payments of several 22-year-olds, some of whom you barely know—not a desireable financial position for anyone.

A co-worker or employee asks you to vouch

Believe it or not, it's apparently reasonably common for colleagues to act as guarantors, but according to experts, not necessarily advisable. 

"In some cases with foreign buyers, their parents or family are abroad and can't act as guarantors, so then it becomes, 'My friend from work is willing to guarantee me'," says Surace. This is even riskier than guaranteeing a rental, because if you act as a guarantor for a purchase, you're on the hook as long as the person owns the apartment.

"It's not like putting money in escrow for a set time period—it's forever, and people forget that," says Surace. "So it becomes a problem if [the board] has to go after the guarantor for missed payments, and that person says 'but wait a minute, I signed that 10 years ago.'"

Similarly, says Burke, employers sometimes agree to act as guarantor for staffers, which creates a risky financial scenario, to put it lightly. "I was helping someone find an apartment, and she said her guarantor was her boss—that's a very scary situation," he explains. "My question is: What if she quits? What if she secures a new job? Then that employee could potentially be working somewhere else, and decide to stop paying rent and live rent-free, at your expense."

Bottom line: Mixing business and real estate might seem like a natural fit, but it isn't.

You're doing your friend a favor

Just as it's not a great idea to get financially entangled with a colleague, mixing money and friendship is a potentially volatile combination.

"I've heard of friends guaranteeing other friends, but I wouldn't advise it—that is the quickest way to end a friendship," says Burke. "Sometimes you don't know your friends as well as you think you do."

To wit: Burke cites an acquaintance who recently acted as a guarantor for one of her friends, not knowing that his credit was terrible at the time. "The reason his credit was bad was because he was in collections, which was because he doesn't pay his bills," Burke explains. "So he stopped paying rent halfway through the lease, and she was going through litigation trying to get her name off of the guarantor agreement, but she can't." In the end, his friend had to settle on paying the landlord a lump sum to end the lease, and resign herself to not being repaid by the (former) friend she'd guaranteed.

"Everyone needs to be aware of the fact that when they guarantee someone, they are taking on the entire liability for the apartment in the event the renter doesn't cover the rent," says Burke. You might like someone, sure, but if someone's coming to you with a guarantor request, unless you like them enough to potentially part with thousands of dollars, you might want to re-consider before you say yes.