Question
I bought a house in Israel recently. In order to finance the purchase, I mortgaged the house to a local Israeli bank. Since I don't have a credit history in Israel, the bank asked me to provide cosigners. I approached some acquaintances and one of them agreed to serve as a cosigner but asked for remuneration. The bank will not approach the cosigner unless I miss a payment but the bank does not need to take me to court before charging the cosigner. I don't mind paying him but I thought that maybe there is a ribbis issue since in case he has to pay the bank, he will effectively be lending me the money that he pays the bank. Since I will need to reimburse the cosigner for the entire amount that he will pay the bank, it seems to me that the money I am paying the cosigner is like interest on the loan that he will extend to me if he pays the bank. Am I correct?
Answer
Your question is well-taken. As you correctly observe this can be a ribbis issue and in fact your situation is a modern version of an issue that has been discussed for hundreds of years in various situations. Ribbis questions are very subtle since a minor detail can alter the situation from being permitted to a severeTorah prohibition. Therefore, we must carefully apply what has been discussed by poskim in the past.
A cosigner is called an oreiv in Hebrew. Torah law differentiates three types of cosigners. Since many laws, including this law, depend on the classification of the oreiv the first thing we must do is classify your cosigner. What determines the type of cosigner are the conditions that must be met before the lender can collect from the cosigner.
The basic type of oreiv is a cosigner (CM 129, 8) who is only required to pay after beis din determines that the borrower cannot pay. Thus, if the borrower has assets that can be sold, the lender cannot force the cosigner to pay. Furthermore, even if there are no assets that are apparently available, the lender has to first sue the borrower in beis din before the cosigner is required to pay. Since the terms of your mortgage allow the bank to turn to the cosigner even if you have the means to pay and just choose not to pay, your cosigner does not fall into this category.
Another category of cosigner, known as an oreiv shlof dutz, is a cosigner who may be forced by the borrower to pay the loan without considering the wishes of the lender. Since in your situation you are not able to force the bank to collect from the cosigner and not from you, your cosigner is clearly not an oreiv shlof dutz.
Therefore, your cosigner is classified as an oreiv kablan, a cosigner who can be forced to pay by the lender even if the borrower is capable (by the standards of Torah law) of paying, but cannot be forced by the borrower to pay. Basically, it is the lender who can decide from whom he wishes to collect. Even though the bank has to make some effort to receive payment from you before it attempts to collect from the cosigner, since it may collect from your cosigner without your proving to beis din that you do not have the means to pay, your cosigner has the status of an oreiv kablan.
Thus, the question is whether one may pay someone to serve as an oreiv kablan on his behalf.
In order to determine the answer, we must first understand the relationship between the lender, borrower and oreiv kablan.
We find in the Rishonim two approaches to understanding the nature of an oreiv kablan. In order to understand the two approaches, it is important to mention that, in general, the one who receives money from a lender is not necessarily the one who owes the money that the lender gave. The reason is because the Gemara (Kiddushin 7A) teaches us that if A tells B that if he gives money to C, then he, A, will be responsible, then A is obligated to pay B by virtue of B's giving money to C. When one signs as a cosigner, he obligates himself to repay the loan (as per the conditions of the loan) if the lender gives money to the person who requested money from him, who officially is called the borrower.
Based on the above, if B lends money to C and A signs as a cosigner who has the status of an oreiv kablan, both A and C are obligated to B to repay the loan. Of course, if A repays the loan, since A did not intend to give the money as a present to C, C becomes obligated to repay A the amount of money that he paid B on his behalf. From the moment that the cosigner A repays the loan, the original borrower C has the legal status of a borrower from A.
The two approaches of the Rishonim dispute whether C assumes this status retroactive to the time when B originally extended the loan or only from the time that A repaid the loan. The approach of the Rashbo is that C only assumes this status from the time that A paid the loan on behalf of C. Rashi disagrees and maintains that he assumes this status retroactive to the time when the loan was extended. This means that according to Rashi, even though B gave C the money, the real borrower from B is determined when someone repays B for the loan.
Your question is whether C may pay A to have him sign as a cosigner of this kind.
According to the Rashbo if A eventually pays the loan, the result is still that C paid A the fee well before A lent him money. We note further that according to the Rashbo the situation when a borrower pays an oreiv kablan is exactly the same as when one pays someone to be an ordinary oreiv. An ordinary oreiv, if he pays the loan, becomes the lender to the original borrower. Thus, according to the Rashbo, if we can prove that a borrower may pay someone to serve as an ordinary oreiv we will have proven that one may pay someone to serve as an oreiv kablan as well.
The Taz (YD 170, 3) cites a responsum of the Rosh that is ruled by SA (CM 129, 22) to show that one may pay someone to serve as an ordinary oreiv. Even though at the time the borrower paid the oreiv it is possible that eventually it will turn out that he paid the oreiv to lend him money in the future, nonetheless it is permitted. Since according to the Rashbo an oreiv kablan is the same as an ordinary oreiv, we can answer your question by saying that according to the Rashbo, what you did is permitted.
According to Rashi, retroactively C paid A the fee at the time that A extended the loan to him. Thus, according to Rashi, when the cosigner pays your loan it turns out that he extended you a loan immediately after you paid him money. It might seem that your payment is prohibited because one may not pay someone to extend him a loan. The extra money is interest.
The Taz addresses this question. He argues that the proof from the Rosh cited above that one may pay an ordinary cosigner is also proof that one is allowed to pay a person to serve as an oreiv kablan even according to Rashi. His argument is that if we attribute the borrower's payment to an ordinary oreiv as payment in order to receive a loan, then the payment to an ordinary oreiv is forbidden since one may not pay someone in order to receive a loan from him at a future date.
Therefore, the Taz reasons, it must be that the reason it is permitted to pay someone to serve as an oreiv is because the reason the borrower pays the cosigner is not because he wants to borrow money from him if he cannot pay back the loan, but rather because he wants to receive a loan right now from the lender and the lender will not extend him a loan without cosigners on the loan. He says that if the cosigner were really concerned that the borrower will default, he would not agree to serve as a cosigner since it is not worth his while.
Therefore, the ruling of the Taz is that in general one may pay someone to sign for him as an oreiv kablan according to all rishonim. However, he forbids paying someone to be his oreiv shlof dutz because in that case the oreiv is immediately the borrower from the lender and the borrower is borrowing money from the oreiv Therefore, the payment that the borrower makes to this type of cosigner is a payment to lend him money, which is forbidden.
We note that the Chochmas Odom (132, 7) and Rav Shulchan Aruch (Ribbis 63) both rule like the Taz. However, the Chavos Da'as and Moharal Tzintz disagree.
Furthermore, very importantly from a practical standpoint, the Chelkas Binyomin (170, 1 Biyurim) points out that since the rationale of the Taz is that the borrower is not paying the cosigner because he expects that perhaps he will not pay and the cosigner will have to make a payment on his behalf, it follows that if there is indeed significant risk that the borrower will not be able to make a payment and the cosigner will have to pay the loan, then even the Taz agrees that one may not pay a cosigner.
Often this is a consideration and sometimes it is apparent. For example, if a bank or company charges different rates based on the creditworthiness of the borrower, it is obvious that risk is a consideration and even the Taz will not permit paying someone to serve as a cosigner.
Generally, when one runs into a ribbis issue, people make a heter iska. In general, this is definitely advisable since it allows one to avoid ribbis. However, in this case the Toras Ribbis (17, footnote 34) points out that one cannot use the usual iska document.
The reason is that the heter iska enables one to circumvent the ribbis prohibition because the extra money that the lender gets (known as the sechum hispashrus) is conditional on the borrower's profiting from the loan. The borrower can avoid paying this amount if he swears that he did not profit from the loan. However, when the borrower pays the cosigner a fee, the cosigner will keep this fee whether the borrower eventually profits from the loan or not. Therefore, one can only use what is known as a shtar iska shekulo pikodon which can be found in seforim that write about ribis. It is important to remember that one cannot rely on the usual shtar iska that people routinely use.
In conclusion: Many poskim, based on the Taz, permit you to pay someone to serve as your cosigner. However, if these people are asking to be paid because they fear that you may not pay your loan, you would need to make a shtar iska shekulo pikodon with them.
