Don't lend money to a friend!!

sailinglegend

Many thanks for some useful responses.

The Natwest base rate change is not an issue here but it seems it changes the first of the month following the Bank Rate change.

I have left out many aspects of this complex situation and have just asked simple questions. I appreciate to get a meaningful answers more clarifications would be needed.

We agreed an interest only loan - as per his main house mortgage - because he could not afford to make any repayments of the capital. This discussion is not documented but the simple unregulated agreement implies an interest only loan. I agree this document is not adequate but it was drawn up by a solicitor.

The agreement was for two years, renewable if I hadn't requested full repayment or he hadn't made full repayment.

Over the first 10 years 35% of his monthly payments were zero so any overpayment would have gone to cover that interest, not to pay off the capital. This is surely why in a regulated loan situation the borrower should ask the lender where he wants any overpayment to go to. He has refused over the last two years to answer any questions like this which I would think will not go down well in court. His solicitor has now made a flippant defence of his position by asking 'do we expect the court to interpret their overpayments as an unsolicited gift to us?'

His has failed to explain why, over the many months when he could not pay because of his bad financial situation, he restarted payments always at the same rate. The 6.5% rate was £357/m and yet the rate at 2% would have been about £50/m. This all suggests that he no idea the agreement was tied to the base rate so his statement 10 years later that he has always been paying off the capital payment does not seem believable. This is our position if it goes to court.

One question that could be of general interest is at what point is it worth for either party to take this to court?

His mortgage company has extended his interest only mortgage twice so in April might call in their loan or repossess his property. He is now trying to secure a new mortgage but at his age of 68 any lender would need first charge on the property, so he has now paid us £31,500 which is his calculation to clear our charge. This is nearly £20,000 less than if we applied the statute of limitations. We have made a final offer of £13,000 in order to release our charge.

If he goes to court and wins we would pay 66% of his costs but he would still be paying about £4k himself - so he has only saved paying us £9k not £13k.

If we go to court and win we would receive £20k + £4k in costs plus we would get our 'power of sale' and therefore when we sell his property then our costs can be deducted from the money he receives. It is a grade two listed building with problems of undocumented repairs so it would go to auction and he could receive a lot less than if he repairs the property and sells it later.

I said it was complex but I hope there are some interesting points here - which explains why general terms and condition on an unregulated loan, even to a friend, should be 27 pages long.

Beware!!!!!

sourcrates

Just to throw a spanner in the works so to speak, an order for sale is what you appear to be refering too, they are very rarely granted these days, courts like to keep a roof over someones head if at all possible, if there are children, the elderly, or someone with a disability involved, you can forget it.

The number granted last year was miniscule, infact so few were granted, they no longer keep records of them.

So that option may not be as easy as you think.

glennstar

sailinglegend wrote: »

His solicitor has now made a flippant defence of his position by asking 'do we expect the court to interpret their overpayments as an unsolicited gift to us?'

I don't think this is an unfair statement by his representation. You are somehow stating that the drop in rate offsets his overpayment as if he knew he would miss payments. Have you done the calculation in the context of the capital being repaid to see exactly what that position is? How much did you chase him when he missed payments. I suspect you didn't as your mind was clearly elsewhere.

sailinglegend wrote: »

This all suggests that he no idea the agreement was tied to the base rate so his statement 10 years later that he has always been paying off the capital payment does not seem believable. This is our position if it goes to court.

Quite the contrary. I think it does seem believable and certainly undermines your position.

sailinglegend wrote: »

His mortgage company has extended his interest only mortgage twice so in April might call in their loan or repossess his property. He is now trying to secure a new mortgage but at his age of 68 any lender would need first charge on the property, so he has now paid us £31,500 which is his calculation to clear our charge. This is nearly £20,000 less than if we applied the statute of limitations. We have made a final offer of £13,000 in order to release our charge.

Why exactly do you think you have a second charge on the property?

sailinglegend wrote: »

I said it was complex but I hope there are some interesting points here - which explains why general terms and condition on an unregulated loan, even to a friend, should be 27 pages long.

On the contrary, just don't do it. You don't sound much like friends now.

sailinglegend wrote: »

Beware!!!!!

Indeed. I think I've mentioned previously, but just for the avoidance of doubt... just don't do it!