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  • FIRST POST
    • Trishy M
    • By Trishy M 12th Mar 18, 4:07 PM
    • 12Posts
    • 2Thanks
    Trishy M
    how do I protet myself if I lend money
    • #1
    • 12th Mar 18, 4:07 PM
    how do I protet myself if I lend money 12th Mar 18 at 4:07 PM


    Hello,


    I have a close relative who took out a loan that ended up being secured on the house. I think the company is called Together. Anyway he had problems a while back but spoke to them as you're supposed to, had payments agreed with them but they put charges and interest on and ruined his credit rating so the outstanding balance is more than at the start. He has been making their extortionate payments now for a few years but it won't be paid off for a long time. Its APR is really high.


    We are agreed the loan has to go.


    He is self employed so can't get a re-mortgage with a real bank (tried) but has an existing mortgage for £32000 thatís ok.


    House = £140,000, mortgage £32,000 loan now £40,000.


    I have excellent credit rating and equity in my house with a mortgage. House £140, mortgage £50. I have spoken to a lender and can get a good mortgage and in theory I am able to do one of the following:-


    *We thought about me buying the house for £72,000 with a Ďgiftí of the difference to clear the mortgages on it with him making the payments (safe for me with the mortgage on that house not mine and property in my name) but I would have to be a landlord & work out tax etc and the stamp duty £5400 and solicitor fees will put £7000+ on top of the loan. We think that would be better coming off the balance.


    *I take 2nd mortgage for £40000 on my house and he pays the repayment each month on top of his mortgage for 15 years until clear. He can afford the payments.


    Sounds straight forward and I donít believe there is any intention to take the money and run but stuff happens so:-


    Would we need solicitors for a loan agreement or do it ourselves?


    Can I make sure I get the outstanding money back if the house is sold?


    Can I put anything and enforce it if there is a problem with the payments?


    What if he dies?


    Any ideas would be appreciated please.

Page 2
    • IanSt
    • By IanSt 13th Mar 18, 10:27 AM
    • 260 Posts
    • 194 Thanks
    IanSt
    How close is this close relative of yours?

    If it were me then I might think of doing this for a very close relative i.e. sibling or parent, but I doubt I'd do it for any other relative more distantly related e.g. nephew, aunt, etc, because of the various problems mentioned above.
    • Biggles
    • By Biggles 13th Mar 18, 12:50 PM
    • 7,612 Posts
    • 5,011 Thanks
    Biggles
    He is self employed so can't get a re-mortgage with a real bank
    Originally posted by Trishy M
    Complete rubbish. Self-employed people can get mortgages - do you think they all live in tents? They don't have salaries but they have accounts that show their income.

    In fact, I remortgaged while I was self-employed. It isn't a problem, unless for 'self-employed' he really means 'loafing around and sponging off others'.

    He's not trustworthy, can't deal with money and is probably lying to you. Don't lend whatever you do.
    • dealer wins
    • By dealer wins 13th Mar 18, 4:50 PM
    • 5,781 Posts
    • 11,020 Thanks
    dealer wins
    Lending him the money would be the same as gifting him the money, either way you wont see it back again lol
    Choose life
    • Murmansk
    • By Murmansk 13th Mar 18, 6:38 PM
    • 74 Posts
    • 20 Thanks
    Murmansk
    I'm no financial expert but I do know about First Aid and when you come across an incident the first thing you do is "check for danger" - no point you getting injured too.

    The same applies here - the danger is plain to see so avoid it
    • Blackbeard of Perranporth
    • By Blackbeard of Perranporth 13th Mar 18, 6:56 PM
    • 5,046 Posts
    • 30,365 Thanks
    Blackbeard of Perranporth
    Close relative or ex friend. The choice would be to keep a close relative. Don!!!8217;t lend!

    Unless you say goodbye to your money!
    Commemorate Celebrate Inspire
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    • nb73
    • By nb73 13th Mar 18, 10:20 PM
    • 91 Posts
    • 122 Thanks
    nb73
    Protect yourself by offering to buy his house. He can pay off his loan with the money.

    You can rent it to him. When he has saved up enough, he can buy it back. But if he blows all the money on coke and hookers, you still have the house.
    • capital0ne
    • By capital0ne 13th Mar 18, 11:12 PM
    • 483 Posts
    • 239 Thanks
    capital0ne
    Never lend money to family (and friends) - if you really want to help just give them the money.

    That way you'll be doing a good thing and you won't fall out when the 'loan' isn't repaid.
    • Malthusian
    • By Malthusian 14th Mar 18, 9:23 AM
    • 4,114 Posts
    • 6,453 Thanks
    Malthusian
    Protect yourself by offering to buy his house. He can pay off his loan with the money.

    You can rent it to him. When he has saved up enough, he can buy it back. But if he blows all the money on coke and hookers, you still have the house.
    Originally posted by nb73
    The OP still stands to lose a lot of money if the "close relative" treats his rent payments in the same way as his loan repayments (highly likely given that the OP is open to emotional blackmail, which his bank isn't), and trashes the house, reducing its value or requiring the OP to spend a lot on repairs.

    Plus being a landlord, with all the legal responsibilities it entails, will consume even more of the OP's time and mental energy than being a creditor.

    There is no reason he can't sell the house on the open market and rent wherever he chooses. Unless the OP has a burning desire to go into business as a landlord they should not get involved.
    • MEM62
    • By MEM62 14th Mar 18, 2:37 PM
    • 1,575 Posts
    • 1,196 Thanks
    MEM62
    He can afford the payments.
    Originally posted by Trishy M
    Really?

    The secured loan and high interest rate suggests that the lender sees him as high risk. What makes you think you know better?

    You relative did not have access to mainstream borrowing at better terms or he would have taken it. He has already defaulted on this loan yet you are confident that he will pay you. Has the penny dropped yet?

    Just don't go there. You good intention is laudable but it will cost you big time.

    (And I am sure tour relative would have taken a mainstream loan if it was available to him at the time)
    • Trishy M
    • By Trishy M 14th Mar 18, 3:24 PM
    • 12 Posts
    • 2 Thanks
    Trishy M
    Thanks for advice, its what I would say to someone else. I have been ringing around and just to finish the thread if someone looks in future this is what I found to help with decision making.
    I have spoken to a solicitor (not all solicitors can do it so ask around):- There is enough equity in the property for the debt, I can put a charge on the house, the same as any other lender, to either pay the outstanding debt if it is sold or to force a sale if payments aren't made. The solicitor would draw up an agreement and pay the loan company directly. Cost is £500-600.
    • JohnRo
    • By JohnRo 14th Mar 18, 4:54 PM
    • 2,608 Posts
    • 2,421 Thanks
    JohnRo
    It's the potential cost to your relationship that's the longer term problem even if the money proves not to be.

    Having lent a considerable sum to my brother I can assure you all the grovelling, promises and clear plans of action before you lend out the money will soon be extended, excused and generally ignored to the point that what was agreed beforehand bears no relation to what happens after they've received it.

    The only way to do this properly is a cast iron financial arrangement via a third party which will cost you or them extra money as you've discovered and in my opinion and experience they will almost certainly then start to resent the repayments and the recipient.

    You might get lucky.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • IanManc
    • By IanManc 14th Mar 18, 5:29 PM
    • 543 Posts
    • 877 Thanks
    IanManc
    Thanks for advice, its what I would say to someone else. I have been ringing around and just to finish the thread if someone looks in future this is what I found to help with decision making.
    I have spoken to a solicitor (not all solicitors can do it so ask around):- There is enough equity in the property for the debt, I can put a charge on the house, the same as any other lender, to either pay the outstanding debt if it is sold or to force a sale if payments aren't made. The solicitor would draw up an agreement and pay the loan company directly. Cost is £500-600.
    Originally posted by Trishy M
    Still don't do it.

    If there's enough equity in the house to pay off the debt then your relative should sell the house, pay off the debt and buy a smaller home or rent.

    I know that your intentions are good but you would be really foolish to get involved in this - it will end in tears.

    You've asked for advice and the clear consensus on here is that you shouldn't get involved.

    It is your relative who should take responsibility for this situation, not you.

    I can't say it more plainly.
    • ChesterDog
    • By ChesterDog 14th Mar 18, 6:42 PM
    • 878 Posts
    • 1,643 Thanks
    ChesterDog
    One to whom we lent some money (and who would 'definitely' be able to repay it at the alloted time [being somewhat more astute, myself, I was fully aware of how meaningless that promise was]) eventually came up with what he/she felt was a really good idea when they found they couldn't repay it fully after all...

    If we lent them even more money, that would enable them to finish repaying the first loan we had made!

    And this time, they 'really would definitely' be able to repay us...

    :-)
    I am one of the Dogs of the Index.
    • xylophone
    • By xylophone 14th Mar 18, 8:07 PM
    • 25,377 Posts
    • 14,973 Thanks
    xylophone
    There is enough equity in the property for the debt, I can put a charge on the house,
    Presumably a second charge as there is already a first charge on the property?

    The first charge holder has "first dibs".....
    • grey gym sock
    • By grey gym sock 15th Mar 18, 12:58 AM
    • 4,339 Posts
    • 3,871 Thanks
    grey gym sock
    ok, let's suppose you have a second charge set up properly (by a solicitor).

    what happens if your relative keeps up payments on their first mortgage, but decides they have higher priorities than paying back anything to you? after all, you have security on the house, so you aren't really losing out, they will reason. and clearly you have no immediate need for the money, or you wouldn't have lent it to them in the first place.

    in that event, you are protected, in the sense that, after your relative has failed to make the payments that are due to you for a significant time, then you can go to court to get the house repossessed, which will probably get you all your money back.

    are you prepared to do that? i.e. take your relative to court, and repossess their house?

    if you are prepared to repossess, that will be incredibly stressful, and almost certainly destroy your relationship with your relative.

    if you're not prepared to repossess, your relative could easily keep postponing repayment indefinitely. you might think you can be reasonable by showing forbearance for a year, or 2 years, or whatever. but at some point, either you have to be prepared to repossess the house, or you're in danger of getting fobbed off for ever. there's no good middle way here.

    the alternative to repossession is to wait until your relative dies (assuming they die before you), at which point the house can be sold. there might then be enough value in the house to pay you off in full, though this is much less certain than with a relatively early repossession. because you would have years - perhaps decades - of interest rolled up, increasing the size of the loan, and house prices might or might not keep up with that rate of increase in the long term.

    some other points ...

    if you do this, you must make sure that you can make the payments on the loan you are taking out yourself, even if your relative isn't making payments to you on time. otherwise, you'd be taking a serious risk with your own finances.

    and the interest rate you charge your relative should really not be the same as the rate you are being charged to raise the money, but higher. partly because the interest you receive will be taxable, while the interest you're paying won't be tax-deductible - so you'd actually lose out if you don't charge more. also because you may not be paid on time, i.e. you're taking on some risk. also, your relative should be paying a higher rate of interest for a second charge than they are on their first mortgage - that is only reasonable (and it might even encourage them to be more serious about paying you back).

    but basically, don't do this unless your happy to pay back the loan you take out yourself with no help from your relative, and then to wait decades to be paid back, perhaps in full, perhaps not.
    • MEM62
    • By MEM62 16th Mar 18, 10:41 AM
    • 1,575 Posts
    • 1,196 Thanks
    MEM62
    Thanks for advice, its what I would say to someone else. I have been ringing around and just to finish the thread if someone looks in future this is what I found to help with decision making.
    I have spoken to a solicitor (not all solicitors can do it so ask around):- There is enough equity in the property for the debt, I can put a charge on the house, the same as any other lender, to either pay the outstanding debt if it is sold or to force a sale if payments aren't made. The solicitor would draw up an agreement and pay the loan company directly. Cost is £500-600.
    Originally posted by Trishy M
    And you are prepared to sell the house from under you relative when you cannot recover you money, are you? I am not so sure.

    I'll look out for your next post in a year or so. 'Lent my relative money and cannot force house sale to recover it.'
    • Bravepants
    • By Bravepants 16th Mar 18, 4:26 PM
    • 402 Posts
    • 436 Thanks
    Bravepants
    My partner's brother still owes her £5000 from a few years back. He's got a number of businesses and drives a big shiny Jaguar 4 by 4, but his ex-wife shafted him for most of his dosh, after SHE spent nearly £100,000 of inheritance from her mother on trash! Even if they get the money doesn't mean they will payback...familiarity breeds contempt.

    Also, my sister-in-law once asked me to be guarantor for a £4000 online loan for a small business she wanted to start, she said all I had to do was click a link and agree. Luckily the link showed me that the interest rate was 49.9%, meaning that it would turn into owing £8000. I pointed it out to her and she was suddenly like, "Oh it's OK, I got the money from somewhere else!" She started the business anyway, she did well for about 1 month before she realised she couldn't cope with the hard work and she quit it. Luckily I wasn't stuck with the payments!
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