Family Lending Horror Story

[TheWizard]

It seems to me that there are banks and credit unions that loan people money for cars and similar modest dollar amounts, perhaps not for a pending mortgage default.

If the people in question don't have a good enough credit rating to qualify for a commercial loan, then that's telling you something, isn't it?

 

[Blanche]

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.

The Bard's famous lines, unfortunately, still hold true, 500 years later.

Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Unfortunately, 500 years later, the Bard's words still hold true.

Your sister's sense of entitlement is EPIC. Have you been able to reach your mother by phone? If she is still capable, she cannot be held prisoner by your sister and I would arrange to pick her up outside your sister's home and visit with her on certain days, and then drop her off outside the home again. You shouldn't have to lose access to your mother because you wouldn't let your sister take advantage of you. More than losing your sibling, I think it absolutely "sucks" to lose access to your parent. So sorry this happened to you.

 

[YellowSubmarine]

My first loan to family was back in the 60s. Our TV went out and my Dad had his eye on a color TV. But, the expense was sudden and Red Skelton and Ed Sullivan were coming up on the weekend...we need a TV...lol
At 14, I had many side jobs and a paper route, I loaned the money and got it back in a month or two.

 

[CuriousJoe]

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.

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.

OP
Did your sister take care of your mother?
I had some what similar circumstance where I 'loaned' money to my sister. But she took care of my mother during old age and that 'freed' me up to pursue my career.
I never even thought of asking for the money back, and I am eternally grateful to my sister for her efforts.

 

[athena53]

Thanks for the cautionary tale. I'm glad you covered your bases legally and are free of the loan now.

In my family there have been a few small loans from my parents to buy first houses but they were always paid back. In 1978 I wanted to buy my first house, a 2-family, with a guy I was dating. We didn't have a lot to put down and were using a mortgage program with a max that was unrealistically low for NNJ. We'd already borrowed $2K from my parents and then I found out that we needed to pay for the oil in the recently-filled oil tanks- two of them, 500 gallons each. Another $2,000 we didn't have. We borrowed it from his sister and her husband. They wrote it up as a second mortgage- fine with me. The relationship broke up and for awhile I was living downstairs and dating the man I'd eventually marry and my co-owner was living upstairs. It got a bit ugly. I bet his sister and BIL figured I'd stop on the payments (I handled all the finances) but I didn't- in fact, I made the final payment early.

Late DH and I made interest-free loans twice to his family members but nothing we couldn't afford to lose. Both were paid back.

 

[robnplunder]

Almost an identical thing happened with my brother and me. He lost his job and borrowed $120k to start a restaurant. He had no money of his own to invest in the venture. To make a long story short, after a few years, he sold the business, but refused to pay the money he borrowed. He didn't even tell me he sold the business, so I couldn't ask to return the money. I was deeply hurt by his deception, and I never saw him again.

 

[Chuckanut]

Perhaps even worse is co-signing a large loan for a friend or relative. I’ve never done it but I’ve talked to enough people who had did, and I don't want the hassles.

 

[gauss]

Bold of you to assume someone like that would die with a solvent estate....

I am not sure if it matters at all if the estate is solvent or not.

He did say that he was the first lien holder on an unencumbered property.

If the value of that property exceeds the value of the loan, then does it really matter at all if the estate is solvent or not?

Unsecured creditors, on the other hand, should be very worried about the solvency of the estate.

-gauss

 

[jazz4cash]

Don't lend to friends. Period. The end. You won't be friends afterwards. Banks have signature loans, make them go there.

The folks that need help in these case can't go to a bank. I loaned my lifelong freind trivial amounts of money and although well meaning he was unable to repay before another emergency. At some point I realized there was a line of prior debts. Sadly he passed away last year. Someone told me only lend to friends/family if you are OK never being repaid. Of course that doesm't work when you are talking about mortgage debt. I miss my friend.

 

[jazz4cash]

A couple years ago I toured the Motown Museum in Detroit. They had an image of the note Berry Gordy signed to get a loan from the Berry Family Co-Op to start Motown Records. $800@6% interest.

 

[Koolau]

A couple years ago I toured the Motown Museum in Detroit. They had an image of the note Berry Gordy signed to get a loan from the Berry Family Co-Op to start Motown Records. $800@6% interest.

Recently watched the documentary on Motown - Gordy had ASKED for $1000 but was only APPROVED for the $800!!

 

[Lewis Clark]

A couple years ago I toured the Motown Museum in Detroit. They had an image of the note Berry Gordy signed to get a loan from the Berry Family Co-Op to start Motown Records. $800@6% interest.

Sometimes investments do make money.

 

[Koolau]

Sometimes investments do make money.

Yeah, I don't think my calculator goes that many digits!

 

[Teacher Terry]

There were a few times in my life when I was young and poor as a single mom and I borrowed money from both my parents and my sister. I paid it all back and it was really nice that they never charged me any interest. I cannot imagine not paying somebody back.

Fast-forward many years and there were a few times that I loaned a small amount of money to friends and they never paid it back. My third husband loaned a friend 1K to save their mobile home and not only did they never pay it back but they won 50 K at a casino and invited us over for a steak dinner to celebrate.

When I arrived and realized that they had won all that money I was furious, but never said a word. I also chose to never be in their company again. It was unimaginable to me that they didn’t pay us back once they won all that money.

 

[Route246]

Yeah, lent to BIL. His DW paid like clockwork on the note. When BIL divorced his DW, the payments stopped. We never brought up the subject. We figured family relationships are more important than money. BUT we never loaned to family again. If we couldn't gift to family, we weren't gonna get involved in their financial life.

Money is a tool to us. We strive to leave emotion out of it though it hurts more when family takes advantage of the relationship.

I don't loan. I only gift or give. If I get paid back it is a bonus but otherwise I have no call on the funds. If someone needed a loan they can go to a bank, a lender or a loan shark. I'm not a bank, a lender or a loan shark. I've been asked once and politely declined. Truthfully, at the time, 98% of our life savings was locked up with deferred taxes and/or capital gains and we were effectively cash poor but net worth rich. Investable assets look nice but any sales triggers capital gains taxes. When I explained this it was understood by the person who asked as he has an MBA and knows finance.

I also explained that I was being put into the unfair position of having to make a decision that was likely going to require me to say no. This is extremely unfair and places an unfair burden on me, a person who was minding his own business. I made it clear that this was probably inappropriate in the big picture. He understood and withdrew the request and apologized.

 

[athena53]

Perhaps even worse is co-signing a large loan for a friend or relative. I’ve never done it but I’ve talked to enough people who had did, and I don't want the hassles.

I offered to do that when DS bought his first house and had his first real job out of college. I explained that only he would be on the title but if he stopped paying the bank would come after me. (DH and I had discussed this- the payment would have been manageable if that happened.) He said, "Mom, I'd never put you in that position". Bless him, he found a private-public partnership meant for people just like him and got a good loan with a reasonable rate.

 

[Gumby]

I have given money to family members when needed, but I have never loaned them money. Because I heeded Polonius' advice.

 

[RunningBum]

I've loaned and co-signed for a former in-law, with the realistic expectation that I'd have to eat both. I got some of the loan back. Cost me about $20K. I hadn't even thought about it in quite a while until I saw this thread.

 

[JoeWras]

OP, thank you for sharing and putting real stories on advice many of us give around here.

Your cautionary tale is as old as time.

 

[MinnUser]

Sounds like the OP at least took measures to protect themselves. Sorry it has to happen, but family can be the worst. I have friends I'd loan money to over family in a heartbeat.

My brother always asks for money. Finally I offered to give him the money he wanted to pay his bills, but he needed to sit down with me and go through his finances and see where it was all going and how he could remedy the situation. He told me that his finances were none of my business, so I told him my money was none of his business.

My wife used to give her sister a lot of money, but when she married me I eventually broke her of that habit. It wasn't fixing her sister's behavior, and my wife was being used as an additional source of income. Her sister went to her brother for money. He learned the hard way like my wife. He sold her a good used vehicle at a low family price to help her out. She let her unlicensed driver son take it and he ran into another car and damaged both. Of course she never transferred the title or even bought insurance, so they contacted him. Family can suck.

 

[CalBird]

What would hurt you most are often from those who are close to you, like family.

 

[easysurfer]

This falls in the no good deed goes unpunished category.

I've done some good deeds for the family in the past and am still getting punished for it either in some money lent out that I'll have see again or all the time spent without much appreciation.

In the OP's situation, you first gave your sister a lifeline, yet when it was time her her to do her side of the bargain, she looks at you like "some nerve of you asking for repayment." Happens all too often.

 

[Rianne]

I have given money to family members when needed, but I have never loaned them money. Because I heeded Polonius' advice.

I agree. DH decided loans create friction between relationships, especially those you love and are important to you. We gift money if we think it’s warranted. No questions asked. I can’t see giving money to charities and not family or friends you love.

 

[MarieIG]

I was going to say I don't lend, but that's not 100% true. I very rarely lend, and never what I can't afford to loose. An exception (which I almost forgot) DF borrowed my tuition money for graduate school to pay his estimated taxes. (Why he didn't have the funds, I don't know as he typically seemed to have extra cash by that point in his life.) He have me a check soon afterwards, so it was not a traumatic situation, which is why it initially slipped my mind. We also "lent" money to my husband's parents for my FIL's hearing aide and to pay some of their expenses when their local economy shut down and bank withdrawals were limited a number of years ago.

We typically gift to the kiddos, and DGC, within our means.

 

[CO-guy]

I see other folks have posted that they have given money without expectation of repayment and I have certainly done that with both friends and family, particularly when it comes to helping with college expenses.

In the case of my closest friend, his kid had college expenses more than covered, but he didn't have the money to be the dad of an international student (flights, hotels, paying for things when visiting, etc.). So I gave him enough money to fulfill that role for those next four years. The only stipulation that I made was that we, "never talk about this again."