Wednesday, May 13, 2009

Should You Loan Money to Family?

Yes. And, no. I think that that is what family is for. Well, not just that. Obviously.

What do you do when a family member asks you for money? A lot of money. More than would be allowed as a "gift" insofar as Uncle Sam sees it. And it would not be a gift. It would be a loan. Is it right to require specific payback terms? Say, immediate payment upon selling of any property? Is it right to state that a lien against the property will be placed to guarantee said payment? This is the kind of stuff that hurts families, if you ask me.

You want to help. You don't want to see family members digging themselves deeper into financial ruin. But when you don't have family members who can bail you out in said situation what do you do? If you are not working, no bank is going to give someone a loan, right?

Very sticky stuff. We're dealing with it right now. And it is not making us very "loved" by a couple of family members. I'm pretty sure we're on their "S-List" at this point. Yet, they still want money from us. A lot of money.

It's one thing to say, "Hey, we're a little strapped right now. Could you loan us a few hundred bucks until payday?" Or, something like that. It is quite another when family members have purchased a home that they never should have - big, expensive [very expensive!] house on 7 acres in San Diego. They are unable to make their payments at this point and for some reason have decided that we are supposed to "save" them. Uhh. No. I don't think so. And I'm sticking to my guns and if we do loan them money I want a lien on the property. I'm the bad guy. What would you do?

Should you lend a lot of money to family?
No. Never.
Get a Promissory Note and put a lien on the property.
Yes. And, ask for interest.
Yes. But don't expect to be paid back any time in the near future.
Don't just loan it to them - give it to them. They're family for goodness sake. free polls


  1. I have the dual advantage of being permentantly out of touch with family and of having no money to make me a target of their expectations. I do have about fifteen million fellow citizens who cannot make their mortgages and Congress has decided for me that i will be paying regaurdless. You can reasonably claim that you already gave at the IRS Office and you have nothing left for charities of your own choosing, which is exactly what the New Facists want.

    (Janeane Garafolo says that if you do not want to spend yourself into eternal dept for Other People's Houses then you are a racist.
    I still liked her in Mystery Men.)

    They will hate you forever if you do not give the money; they will hate you if you get the lien; they will resent you for the dept even if you just give them the money; you cannot win here: prepare yourself for a life of eternal villanhood. (Gawd i love puntuation!)

  2. Nick and I have loaned tens of thousands of dollars to both sides of the family with different results.

    My parents never had a credit card and if they didn't have the cash to buy it they didn't need it. My parents ALWAYS paid us back.

    His parents on the other hand owe us over 10K. I know, fool me once.

    About 3 weeks before their 50th wedding anniversary (to which we were expected to pay one quarter of) I suggested we (and his 3 siblings) take the cash (12K) for this over-the-top celebration of 50-years-of-financial-irresponsibilty-party and pay their creditors.

    I'm now the bad guy. The bad guy they still ask for money.

    Only if you get the lein, otherwise I say F'em.

  3. Hell no. They will be asking for more money again cuz they are more likely underwater. They need to cut their losses and walk away from the property.

  4. There is absolutely no way that I would loan them the money. There are circumstances where I might consider it, but I would have a very formal contract and do everything to cover myself legally. If they can't understand that, they don't deserve to borrow it.

    In this situation, if they can't even make their house payment as it is, how are they going to make their house payment AND their loan payment? It just sounds bad, bad, bad! I would risk being the bad guy and just stay clear of that situation. Maybe this is one of those times that you can add to the "Glad we're in Saudi and not SD" list! :)

  5. For medical issues I would maybe (depends on the circumstances) give/loan without strings but from what you're saying here, I agree with you 100%. Otherwise you'll never see a cent and they'll hit you up again.

  6. Or just wish them "Insha'Allah" LOL

  7. We're still in the dilemma. Said family members call twice a day - sometimes three times. Family members who, until they needed $$$, didn't call twice a year...

    Got to remember to use what you said, vermindust, about already giving to charity via the IRS.

    We aren't about to be fooled by this even once, Janice. Family members are pretty adamant about us not getting a lien; we are pretty adamant about us not giving the $$$.

    Exactly what I have been saying, Samantha. This is like putting a band-aid on a cut that needs stitches!

    I don't want to do the loan ispyu, but DH is willing to do it if we cover ourselves with all the right documents and liens and court documents [we're going to involve an attorney if we go through with it].

    We're only going to do this if we do it our way, WK, otherwise the deal is off the table.

    Good one, Samantha [and for the record the man and his wife lived here for a time, so they know exactly what that means!].

  8. Tell them you care too much about them to be their enablers in their bad choices. Tell them you will do all you can to help them sell their house and get into one that they CAN afford. To do anything else would be doing them a disservice in the long run. 'We love you too much to allow you to dig a deeper hole for yourself'

  9. legal papers etc won't protect you or increase the odds that you would be paid back.

    that's because you can't get blood out of a turnip.


  10. There are circumstances where I might loan money to a relative--In a case where it will actually help, and not just be delaying the inevitable and adding me to the people who are defaulted on.

    If someone resisted legal protections for the loan, I would not loan the money--probably not even if they later agreed to the same protections.


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