I have a homestead lease. My sister that is not on the lease has co-signed a mortgage with me for the home built on my homestead. Does my sister have a right to the lease? Do they have to be my successor?
By Henderson Huihui, NHLC Staff Attorney
In short: no. You are not required to name your co-signor as your successor or co-lessee, and they do not automatically become a successor or co-lessee just from co-signing your loan.
After the Department of Hawaiian Home Lands (DHHL) awards a homestead lease, the lessee may need a loan for the cost of an existing home on the property or to build a new home. Depending on the lessee’s credit score, the lender for the loan may require the lessee to have a co-signer to qualify for the loan. A person who gets a lease through successorship also might need a co-signer to take on an existing mortgage for the buildings on the property. In either of these scenarios, often the person who agrees to co-sign the loan will be a family member, and there can be confusion within the family about whether the co-signer gets co-lessee rights to the lease.
Because co-signing a mortgage for a lease happens with the lender, co-signing does not give the co-signer any rights to the lease. A common example is when a lessee has a spouse who co-signs the mortgage. The spouse does not automatically become a co-lessee or a successor, even if the spouse meets blood quantum requirements.
That said, someone could be both a co-signer and a successor or co-lessee for other reasons. For example, a lessee could designate a co-signer to be the successor to the lease, or they could transfer an interest in the lease to the co-signer. But again, the lessee is not required to do that. There are some important things for a lessee and their ‘ohana to consider when thinking about co-signing loans for buildings or improvements on homesteads:
- Co-signing a loan for a homestead property does not give any rights to the lease or the structures on the lease.
- Lessees are not required to designate their co-signer as the successor to their lease, nor are they required to consult with or seek the permission of their co-signer when they designate a successor to the lease.
- Only the lessee has the right to transfer a lease and is not required to transfer or sell the lease to a co-signer.
- If mortgage payments are not made, DHHL may seek to cancel a lease even if the co-signer agreed with the lessee they would make some or all payments. Co-signers are financially obligated to the lender for the duration of the mortgage, even if the primary borrower passes away and the co-signer does not succeed to the lease.
- If a co-signer wants to remove their name and obligation from the mortgage, mortgage contracts generally require the lender’s permission, and it can be difficult. The mortgage may need to be refinanced, which may result in a different interest rate, and the lessee likely has to qualify for a loan covering the remaining balance.
Lessees and co-signers should understand the risks, responsibilities, and lease rights related to co-signing a mortgage. Ask your lender or financial counselor if you have questions about the duties related to the specific loan options you are considering. Legal counsel can also be helpful answering questions about legal rights to the lease.
E Nīnau iā NHLC provides general information about the law. E Nīnau iā NHLC is not legal advice. You can contact NHLC about your legal needs by calling NHLC’s offices at 808-521-2302. You can also learn more about NHLC at nativehawaiianlegalcorp.org.