Ironically, I always tell people do not lend money to friends or family. Well, guess what. I didn't follow my own advice. And I paid the price. I lent money to my sister. In my defense, I thought the reason was good (in a bad sort of way). Her home was in foreclosure and my elderly mother lives with her. If the house is lost, my mother is also on the street. And the situation was dire. The loan was in the very late stages of a residential foreclosure-just days away from a Sheriff's sale. To make the loan current a large sum of money was needed at once.
And, I thought I was clever. I didn't just give my sister the money. And I didn't just have her sign a note. I had her and her husband sign a note and mortgage, which they were delighted to do to get the needed cash, and I recorded said mortgage against another unencumbered piece of property they own making me not only secured, but first lienholder. (Yes, they should have sold that to make the loan current but that was not an option at this point.) I was careful. And I wasn't worried. This was my sister after all. I of course knew all about family lending horror stories but my family certainly was different. Of course they would happily pay me back! I saved the family home!
I gave a generous grace period and you can guess what happened when payments were finally due. She didn't want to pay. To make a very long and sad story short, after months of multiple attempts to work something out (equity for debt swap, easier repayment terms, etc. etc.) we reached a dead end. She just wouldn't pay a penny. ("I don't need it!") So, after being told flat out there would be no payments made, I foreclosed.
The result was shock and fury. All family contact was cut off. Not only were we suddenly were no longer on speaking terms and I banned from entering the house my money saved, making visits with my mom impossible, everyone was told what a horrible person I was. Her husband was so furious, I had to file a police report to stop harassment and threats. Yes, threats. It was very, very ugly. But, I stuck to my guns on the foreclosure. And, somewhat surprisingly, payments started coming in when it was clear there was no other choice.
After a few months of steady payments, I was able to sell the mortgage off to a third party mortgage buyer. I got about 60% of the value and ate the rest as a loss. I don't care, I am relieved to be out and glad they bought the note. I am spared what would have been a lifetime of playing banker with a sibling who hates me. It was really, really awful. I have medical disabilities myself and the stress was no good for me.
I had to learn the lesson of not lending to family-which I knew but really didn't know-the hard way. Luckily, I can survive the loss. But the family relationship is ruined forever.
Be advised. Don't lend money to family.
And, I thought I was clever. I didn't just give my sister the money. And I didn't just have her sign a note. I had her and her husband sign a note and mortgage, which they were delighted to do to get the needed cash, and I recorded said mortgage against another unencumbered piece of property they own making me not only secured, but first lienholder. (Yes, they should have sold that to make the loan current but that was not an option at this point.) I was careful. And I wasn't worried. This was my sister after all. I of course knew all about family lending horror stories but my family certainly was different. Of course they would happily pay me back! I saved the family home!
I gave a generous grace period and you can guess what happened when payments were finally due. She didn't want to pay. To make a very long and sad story short, after months of multiple attempts to work something out (equity for debt swap, easier repayment terms, etc. etc.) we reached a dead end. She just wouldn't pay a penny. ("I don't need it!") So, after being told flat out there would be no payments made, I foreclosed.
The result was shock and fury. All family contact was cut off. Not only were we suddenly were no longer on speaking terms and I banned from entering the house my money saved, making visits with my mom impossible, everyone was told what a horrible person I was. Her husband was so furious, I had to file a police report to stop harassment and threats. Yes, threats. It was very, very ugly. But, I stuck to my guns on the foreclosure. And, somewhat surprisingly, payments started coming in when it was clear there was no other choice.
After a few months of steady payments, I was able to sell the mortgage off to a third party mortgage buyer. I got about 60% of the value and ate the rest as a loss. I don't care, I am relieved to be out and glad they bought the note. I am spared what would have been a lifetime of playing banker with a sibling who hates me. It was really, really awful. I have medical disabilities myself and the stress was no good for me.
I had to learn the lesson of not lending to family-which I knew but really didn't know-the hard way. Luckily, I can survive the loss. But the family relationship is ruined forever.
Be advised. Don't lend money to family.
