How to secure a friends/family loan
Discussion
A family friend is in a spot of bother over lawyers' bills and needs a six figure sum smartish. (She didn't get costs). She knows I have just sold one of my properties and have this kind of money sitting around making less than 1%. She's angled for a loan. I know that she will have the money within a year or so, and her own house is worth 3x the loan size. Yes, she could remortgage, but the faff and time are a factor. I'm prepared to lend it, but it is a chunk of change, and am uncertain what kind of security or paperwork would be prudent. Any thoughts?
At the moment, she has a problem.
The second you lend her the money, that will turn into your problem. What, exactly, is your interest in lending her a large sum? When we're talking six figures, "just being nice" is a luxury that not many of us can afford.
If she has the capacity to raise funds in any other way (even if it means "faff") then that's what she must do. If she has no other way to raise the funds then, well, that should tell you something in itself.
Unless this is pocket money to you, I wouldn't even consider it.
The second you lend her the money, that will turn into your problem. What, exactly, is your interest in lending her a large sum? When we're talking six figures, "just being nice" is a luxury that not many of us can afford.
If she has the capacity to raise funds in any other way (even if it means "faff") then that's what she must do. If she has no other way to raise the funds then, well, that should tell you something in itself.
Unless this is pocket money to you, I wouldn't even consider it.
deckster said:
At the moment, she has a problem.
The second you lend her the money, that will turn into your problem.
Absolutely, why go through all the potential stress and issues related to this? How exactly are you going to force her to pay if she turns around a year down the line and says "I don't have it" or more likely she would rather not pay it back.The second you lend her the money, that will turn into your problem.
My girlfriend's auntie lent her step son a similar amount of money. Ten years on he has a multi million pound house, a couple of BTLs, drives around in a brand new Mercedes ML and is constantly posting on Facebook about all the trips out to expensive restaurants they go on.
Girlfriends auntie asks for the money back as she wants to move house and yes, you guessed it apparently he doesn't have the money and can't afford it. It was only when she started going down the legal route did he start to make any effort to pay it back.
I would never do this in a million years. Is this whole turning my problem into your problem that people seem fond of doing a recent thing or has it always been this way?
Edited by anonymous-user on Wednesday 13th October 10:41
The golden rule with loaning to friends is you should assume you'll never see the money again.
Imagine getting into a problem like this, then turning to a friend who you know has just sold a house and hinting for a loan. Are you sure they are that friendly?
If she'll have the money back in a year or two and has a load of cash in a house then she doesn't need bailing out to survive. She can remortgage and then pay it off again in 12 months.
Imagine getting into a problem like this, then turning to a friend who you know has just sold a house and hinting for a loan. Are you sure they are that friendly?
If she'll have the money back in a year or two and has a load of cash in a house then she doesn't need bailing out to survive. She can remortgage and then pay it off again in 12 months.
barrysheene said:
A family friend is in a spot of bother over lawyers' bills and needs a six figure sum smartish. (She didn't get costs). She knows I have just sold one of my properties and have this kind of money sitting around making less than 1%. She's angled for a loan. I know that she will have the money within a year or so, and her own house is worth 3x the loan size. Yes, she could remortgage, but the faff and time are a factor. I'm prepared to lend it, but it is a chunk of change, and am uncertain what kind of security or paperwork would be prudent. Any thoughts?
Banks loan money every day. The know the risks, know what questions to ask and what checks to do to protect themselves. They can accept a certain level of default given they have untold number of loans on their books.To put it bluntly, you have no experience so the risk is so much higher for you. You also don't know her full financial situation and she may be offended if you ask.
Tell her it will take far more time and faff to arrange a loan with you so she should go to a bank. You may then get a sob story about how the bank won't lend to her - hence the real reason why she approached you.
Do you know what the lawyer's bills relate to? Does that have a bearing on her ability to borrow money? Are there other legal matters or expenses outstanding?
I really wouldn't do this if I was you
If you are, then nothing less than a second charge on the house AFTER you've seen the current mortgage statement (so you can assess the equity) and an undertaking to her solicitor that when she gets paid out from her court case you get repaid immediately.
If you are, then nothing less than a second charge on the house AFTER you've seen the current mortgage statement (so you can assess the equity) and an undertaking to her solicitor that when she gets paid out from her court case you get repaid immediately.
zedstar said:
I really wouldn't do this if I was you
If you are, then nothing less than a second charge on the house AFTER you've seen the current mortgage statement (so you can assess the equity) and an undertaking to her solicitor that when she gets paid out from her court case you get repaid immediately.
My worry with this is the costs to persue even if an agreement is secured - the process of chasing the money would presumably be quite expensive ?If you are, then nothing less than a second charge on the house AFTER you've seen the current mortgage statement (so you can assess the equity) and an undertaking to her solicitor that when she gets paid out from her court case you get repaid immediately.
barrysheene said:
A family friend is in a spot of bother over lawyers' bills and needs a six figure sum smartish. (She didn't get costs). She knows I have just sold one of my properties and have this kind of money sitting around making less than 1%. She's angled for a loan. I know that she will have the money within a year or so, and her own house is worth 3x the loan size. Yes, she could remortgage, but the faff and time are a factor. I'm prepared to lend it, but it is a chunk of change, and am uncertain what kind of security or paperwork would be prudent. Any thoughts?
First, what you are proposing is either very generous and compassionate, or deeply foolhardy, depending on one’s point of view. As you’ve asked the question, I’ll assume you fall into the first group. There is in principle no difficulty with you lending her the money, documenting the loan and its repayment terms, and taking security for the loan by way of a mortgage over her house.
However, you should be looking to have some legal advice and a lawyer drafting the documents for you. And there are some questions you want to be asking yourself and her:
- she says she will have the capital to repay you in a year. How solid is that claim? What is the source of her funds going to be? What other claims on her money might exist by then?
- over that year (or possibly longer) what is she going to pay you? Nothing/interest only/interest and capital? What’s the source of her ability to make repayments over the coming year, and what other calls on her money exist/will exist?
- how much equity is there in her house? You say her house is worth 3x the loan, but is there a current prior mortgagee, and if so what are they owed?
- if push comes to shove in a year’s time are you really going to be willing to start legal proceedings to repossess and sell her house?
- if you get to the point of selling her house to get your money back, what is the house’s forced sale value likely to be? And how confident are you that the housing market in 12m will look like it does today (or putting it differently, are you willing to stake a portion of your loan against the chance that it might be worse?)?
If you’re going to do this with a view to getting repaid, you need to think of the borrower as a customer and not a family friend, just as a bank would. If OTOH you’re prepared to lend and write the loan off, then you can afford to be pretty relaxed about things.
Also: have a think about her other options. Maybe she can stave off the beneficiary of the costs order for a year until she is in funds. Maybe not. If not, she will have to remortgage. If the obstacle to remortgage really just the faff, or is there a question mark over whether she has an income sufficient to service the debt she’d be taking on? If she can’t remortgage, chances are she will end up bankrupt with the house being sold to meet the debt and her being left with the cash that remains. Is that, for you, an acceptable outcome?
There are a lot of factors at play here many of which may be personal and so likely to blur what would otherwise be hard edged commercial considerations. But given you’ve asked the question it sounds like that’s a path you’re willing to consider. If so: follow the steps above, ask the questions and talk through the answers with your solicitor.
Lending a few grand, you can write up a loan agreement easily
A six figure sum would be a no no, without a charge on her house, I'm not sure on the legalities of this, but would likely involve more solicitors and more money
If you lend the money without a security on the house you need to expect to never see it again
A six figure sum would be a no no, without a charge on her house, I'm not sure on the legalities of this, but would likely involve more solicitors and more money
If you lend the money without a security on the house you need to expect to never see it again
You can help out without being the lender.
Help her apply for a loan/remortgage. Ask who her mortgage provider is, find the application forms, find the phone numbers to call and give her some ideas of repayment amounts over various terms. It doesn't have to be all or nothing, yes or no. Find other ways to help.
The usual PH disclaimers apply: If she's got nice boobs, have the full amount in her bank account by Friday.
Help her apply for a loan/remortgage. Ask who her mortgage provider is, find the application forms, find the phone numbers to call and give her some ideas of repayment amounts over various terms. It doesn't have to be all or nothing, yes or no. Find other ways to help.
The usual PH disclaimers apply: If she's got nice boobs, have the full amount in her bank account by Friday.
Edited by Mark Asread on Wednesday 13th October 15:19
barrysheene said:
Any thoughts?
Don't do it. It is a mistake. We should know. We did similar for my partner's brother, who later changed his mind about the whole loan thing... We do have a charge against his property but in reality know we are not likely to see the money for some considerable time (turns out that the type of people who look kindly on a
hole relatives and lend them money are also the kind of people who won't sell their house from under them and make them homeless)...Someone whose life is chaotic enough for them to get into massive debt with no means of repayment are perhaps not the most likely to be in a position to pay any subsequent loans back.
I'm not quite as bearish as everyone else. I don't think you would consider it and post about it if she was very chaotic and unreliable.
There's quite possibly a good chance that if you lend the money it she will pay you back. Thus the friendship continues
However, if she doesn't/cannot pay you back, are you willing to write the loan off OR have her sell her house? I cannot see the Friendship surviving that.
If you don't lend her the money, will the friendship continue?
Either way, her asking you for the loan imperils your friendship. You have to weigh that up against the financial downsides.
If it were me, I'd say very clearly but compassionately that you value the friendship, but have a rule about not lending to friends or family under any circumstances, as that keeps the relationship less complicated. Your choice OP
There's quite possibly a good chance that if you lend the money it she will pay you back. Thus the friendship continues
However, if she doesn't/cannot pay you back, are you willing to write the loan off OR have her sell her house? I cannot see the Friendship surviving that.
If you don't lend her the money, will the friendship continue?
Either way, her asking you for the loan imperils your friendship. You have to weigh that up against the financial downsides.
If it were me, I'd say very clearly but compassionately that you value the friendship, but have a rule about not lending to friends or family under any circumstances, as that keeps the relationship less complicated. Your choice OP
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