Family Lending Horror Story

[MarieIG]

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."

That was an amazing gift.

 

[JoeWras]

That was an amazing gift.

I like the part "never talk about this again." It works both ways. The lender brow beating the other party. Or the other party constantly thanking the lender for the forgiven loan.

If you are going to do it, then do it. And that's it. Done forever. This is the best way.

 

[Kings over Queens]

Lending to friends and family has never worked out well for me, for all the reasons previously discussed. It's frustrating because I've been in the position to borrow privately, and made damn sure to fulfill my promises. I bought my first business with small 5k loans from clients who knew and trusted me. I raised $25,000 in 5k loans paid back over 5 years a 8%.

 

[Dtail]

Only money I lent or cosigned was for my son. It was paid back. No possibilities for anyone else.
My fiancee lent 60k to her son (at 7% interest - kind of like a high yield bond), as not sure of the default rate......

 

[CO-guy]

I like the part "never talk about this again." It works both ways. The lender brow beating the other party. Or the other party constantly thanking the lender for the forgiven loan.

If you are going to do it, then do it. And that's it. Done forever. This is the best way.

He's a great guy and a good friend, but life has not treated him well. He became a widower while his daughter was still in elementary school and a solo parent ever since.

I wasn't worried about helping his daughter, my goddaughter with college. She had a full ride and all her other expenses paid for with a surplus of scholarships. Four years later she graduate summa cum laude, and continues to thrive professionally.

What worried me was making sure my friend could be there for every "move-in"/"move-out" day, every parents weekend, and any other time she needed her dad over those four years. And to that end, it was money well spent.

 

[chemEguy]

My wife loaned money to her younger brother about 20 years ago. We discussed before she did it and we agreed I would stay out of it completely. It wasn’t much, maybe 5K. I didn’t know the terms of agreement, I just know it was paid back.

 

[Gallaher]

My brother often asked me for loans. I knew better.
I had grown up with him.

 

[floss187]

There is no family/friend loan, only gifts. If you go into it with that mindset, you'll be better off. If you get it back, awesome. if not, it was already forgotten about.

 

[big-papa]

There is no family/friend loan, only gifts. If you go into it with that mindset, you'll be better off. If you get it back, awesome. if not, it was already forgotten about.

+1 Many years ago, one of my sisters asked for a loan for her business. I refused but told her I would make it a gift instead, but it would be the only one in our lifetimes. It worked out all the way around.

Cheers

 

[eyenitnoy]

What happened to Mom?! So, she used your (and hers) own mother as a carrot (refused you visits) but when the carrot failed, she fell back in line and made payments. Wow! At least you can go to your grave knowing you tried. Good for you.

Hi Oscar1:

As my sister and brother-in-law refuse me to come on their property and my mother lives in their home, I devised a work around.

I (thankfully) live in a different state than my sister. (After becoming disabled I moved to a low tax/lower cost state.) I have an uncle with whom I am close who lives in yet another state. I've arranged, at my expense, for my mother to travel by train (she won't fly) to visit and stay with my uncle and I travel there as well. We are doing this twice a year for a couple of two week or so visits.

It works out well for now as my mother who, though elderly, can still travel. And it allows her to visit both her uncle and me.

As an aside, I guess unsurprisingly, my sister has hit up my uncle for money. He refused an now has suffered a chill in their relationship although not to the extent I have faced. She of course told ever family member, friend, etc. what a monster I was for demanding repayment. But the result of this, regardless of whose "side" various family members are on, is that nobody, and I mean nobody, now wants to lend her a penny.

 

[eyenitnoy]

If the note contained a fair rate of interest, couldn't you always let it go until they pass away and then pick it up in probate? If you go first, then you would list it along with all your assets for your heirs/beneficiaries to obtain.

-gauss

H Gauss:

The note did have a fair interest rate, 4.08%, compounded annually. (Edit: This was chosen from the IRS minimum interest table at the time to avoid gift tax consequences) As for holding it "until they pass away" the reality is they are much younger than me, there are two of them on the note, and I have a disability. So, while it's possible, it is much more likely that I will go first.

The next issue is the amount. Because of the scope of the financial disaster they were in, I lent them a lot of money. And I've done the math. While doing this did not put me in immediate trouble, should I not get any of the money back, in a timeline as short as 5-10 years my own retirement finances could be in trouble. To give a brief ground on my situation, I am a devoted (20 year member now) FIRE planner who, due to an unexpected disability, was forced into retirement years early. My FIRE planning really saved my bacon! But this loan put me at risk.

The third and final issue was the shock. Although I have given "don't loan to family" advice countless times myself, I never seriously considered, especially since I took steps to secure the loan (due to issue 2) that they would refuse to pay me back. That illusion came crashing through when, sitting over a kitchen table discussing the matter, I was told to my face that they "weren't going to pay me anything because I didn't need it" and "I could go to court if I wanted but I would get nothing." I felt a grave injustice was happening and wasn't going to accept such a flat out refusal.

I immediately called a lawyer. In the painful months that followed I enforced payment followed by selling the loan to a 3rd party bank and getting enough of the money back as a lump some to properly shore up my long term financial projections. I should be good for many more years now.

It was a painful lesson and I still kick myself for lending the money-mother involvement or not. I could have just rented her an apartment or something when they lost the house. Lesson learned. I'll not make that mistake again.

 

[pacergal]

Thanks for the update. I am glad you have worked out a system to be able to visit your Mom.

 

[chemEguy]

H Gauss:

The note did have a fair interest rate, 4.08%, compounded annually. As for holding it "until they pass away" the reality is they are much younger than me, there are two of them on the note, and I have a disability. So, while it's possible, it is much more likely that I will go first.

The next issue is the amount. Because of the scope of the financial disaster they were in, I lent them a lot of money. And I've done the math. While doing this did not put me in immediate trouble, should I not get any of the money back, in a timeline as short as 5-10 years my own retirement finances could be in trouble. To give a brief ground on my situation, I am a devoted (20 year member now) FIRE planner who, due to an unexpected disability, was forced into retirement years early. My FIRE planning really saved my bacon! But this loan put me at risk.

The third and final issue was the shock. Although I have given "don't loan to family" advice countless times myself, I never seriously considered, especially since I took steps to secure the loan (due to issue 2) that they would refuse to pay me back. That illusion came crashing through when, sitting over a kitchen table discussing the matter, I was told to my face that they "weren't going to pay me anything because I didn't need it" and "I could go to court if I wanted but I would get nothing." I felt a grave injustice was happening and wasn't going to accept such a flat out refusal.

I immediately called a lawyer. In the painful months that followed I enforced payment followed by selling the loan to a 3rd party bank and getting enough of the money back as a lump some to properly shore up my long term financial projections. I should be good for many more years now.

It was a painful lesson and I still kick myself for lending the money-mother involvement or not. I could have just rented her an apartment or something when they lost the house. Lesson learned. I'll not make that mistake again.

My mom’s oldest brother pulled a stunt in the same spirit. He and her other brother were never in the best financial shape. My dad did reasonably well and although it was a modest upbringing for me, anyone paying attention could see he and my mom were in good shape financially.

When my grandmother and her sister started to experience a decline in health at almost the same time (both of them were the respective surviving spouses), said oldest brother convinced them to make him the sole power of attorney over their affairs. At the time they passed, I’d estimate the combined value of what they had was maybe 400K.

Turns out my uncle managed to get them to redo the inheritance and he got half of all of it, my other uncle and my mom one quarter. But it was clear he had been siphoning off money before that so the value of the estates were less than they should have been.

My dad managed to piece some of the financial records together and they confronted him about. His reply was, “you don’t need the money” and he stormed out.

The was the last time he spoke to either of them.

 

[mystang52]

I've cited Judge Judy in similar threads. She tells people to never lend money to family or friends; either give nothing or gift it to them. She points out, as happened here to the OP, that when it comes time to repay the loan somehow the lender is made out to be the bad guy. Many years ago we lent close friends money; it would have been a substantial hurt if they did not repay, but we could have weathered it. Fortunately they did repay. We also lent both our kids money, interest-free, to pay off their post graduate loans. I would not lend to friends now, but if I felt the need to help it would be as a gift.

 

[Chuckanut]

I've cited Judge Judy in similar threads. She tells people to never lend money to family or friends; either give nothing or gift it to them. She points out, as happened here to the OP, that when it comes time to repay the loan somehow the lender is made out to be the bad guy.

These people are what as known as Crazy Makers. They are masters of manipulating situations so that everybody else, including people who have helped them, are at fault if something bad happens.

Whatever bad things happens to the CM, it is NEVER their fault. They will only accept help on their own terms, and those terms can change at the drop of a hat. Any hat. The “you don’t need the money” excuse is a great example of what they do.

 

[dobig]

I'll lend my family money whenever they need it. It's my family and they're the only ones I care about.

I do make it known upfront to never, ever ask me to miss a payment. I'd rather make expectations known upfront and it saves problems down the road. Have never had an issue with repayment.

 

[gauss]

H Gauss:

The note did have a fair interest rate, 4.08%, compounded annually. (Edit: This was chosen from the IRS minimum interest table at the time to avoid gift tax consequences) As for holding it "until they pass away" the reality is they are much younger than me, there are two of them on the note, and I have a disability. So, while it's possible, it is much more likely that I will go first.

The next issue is the amount. Because of the scope of the financial disaster they were in, I lent them a lot of money. And I've done the math. While doing this did not put me in immediate trouble, should I not get any of the money back, in a timeline as short as 5-10 years my own retirement finances could be in trouble. To give a brief ground on my situation, I am a devoted (20 year member now) FIRE planner who, due to an unexpected disability, was forced into retirement years early. My FIRE planning really saved my bacon! But this loan put me at risk.

The third and final issue was the shock. Although I have given "don't loan to family" advice countless times myself, I never seriously considered, especially since I took steps to secure the loan (due to issue 2) that they would refuse to pay me back. That illusion came crashing through when, sitting over a kitchen table discussing the matter, I was told to my face that they "weren't going to pay me anything because I didn't need it" and "I could go to court if I wanted but I would get nothing." I felt a grave injustice was happening and wasn't going to accept such a flat out refusal.

I immediately called a lawyer. In the painful months that followed I enforced payment followed by selling the loan to a 3rd party bank and getting enough of the money back as a lump some to properly shore up my long term financial projections. I should be good for many more years now.

It was a painful lesson and I still kick myself for lending the money-mother involvement or not. I could have just rented her an apartment or something when they lost the house. Lesson learned. I'll not make that mistake again.

Wow -- what an awful situation.

I hope everything works out in the end.

Thank you for sharing your thoughtful response.

-gauss

 

[JBTX]

H Gauss:

The note did have a fair interest rate, 4.08%, compounded annually. (Edit: This was chosen from the IRS minimum interest table at the time to avoid gift tax consequences) As for holding it "until they pass away" the reality is they are much younger than me, there are two of them on the note, and I have a disability. So, while it's possible, it is much more likely that I will go first.

The next issue is the amount. Because of the scope of the financial disaster they were in, I lent them a lot of money. And I've done the math. While doing this did not put me in immediate trouble, should I not get any of the money back, in a timeline as short as 5-10 years my own retirement finances could be in trouble. To give a brief ground on my situation, I am a devoted (20 year member now) FIRE planner who, due to an unexpected disability, was forced into retirement years early. My FIRE planning really saved my bacon! But this loan put me at risk.

The third and final issue was the shock. Although I have given "don't loan to family" advice countless times myself, I never seriously considered, especially since I took steps to secure the loan (due to issue 2) that they would refuse to pay me back. That illusion came crashing through when, sitting over a kitchen table discussing the matter, I was told to my face that they "weren't going to pay me anything because I didn't need it" and "I could go to court if I wanted but I would get nothing." I felt a grave injustice was happening and wasn't going to accept such a flat out refusal.

I immediately called a lawyer. In the painful months that followed I enforced payment followed by selling the loan to a 3rd party bank and getting enough of the money back as a lump some to properly shore up my long term financial projections. I should be good for many more years now.

It was a painful lesson and I still kick myself for lending the money-mother involvement or not. I could have just rented her an apartment or something when they lost the house. Lesson learned. I'll not make that mistake again.

Was this completely out of character for your sister? The audacity for her to declare you don’t need it.

 

[albireo13]

My first wife passed away years back. Right away her Dad offered to refinance my mortgage at a low rate.
So ... he wanted to be the lender. It was obvious he wanted to get his hooks in me.
I just told him "Thank you but, I never mix money issues and family". he was a bit taken aback but, end of story. Sometimes that is what you have to do.

 

[jollystomper]

DW and I have also been the recipients of the "You don't need the money" line after lending to family members (*not* our kids, they have not been a problem in this area) who came to us in dire straits. One even used the additional line "you are stressing us out", which DW (in a rare nasty retort for her) responded "think of how much stress you would have if we had not helped you!"

Lessons learned. We are very selective when we lend money, and when we do we choose an amount that, if we never get it back, will not impact us. I am already anticipating having to lend money in the future when MIL needs more help and then passes, to cover expenses that will come up then (looong story), and anticipate a scenario similar to what OP has experienced.

 

[Sunset]

My first wife passed away years back. Right away her Dad offered to refinance my mortgage at a low rate.
So ... he wanted to be the lender. It was obvious he wanted to get his hooks in me.
I just told him "Thank you but, I never mix money issues and family". he was a bit taken aback but, end of story. Sometimes that is what you have to do.

Maybe he genuinely was thinking you might need some help, I've had that thought with my kids. I could be their low interest bank for their mortgage.
Not trying to put hooks in, just thinking it would help them to drop 3% in interest charges.

I had a mortgage from my Mom when I bought my first place. It was a good deal for me as it was lower interest than the banks wanted. I never thought of hooks, as just like a bank I had to pay on time every month.

 

[robnplunder]

I can understand if a family member can't return the money b/c he just don't have the money. Then, to me, it still is a long term loan. But, unfortunately, some of us have a misfortune of being stuck with sociopathic siblings, parents, or children who has no qualm about never paying back (once theirs, always theirs). Worse yet, they may come back for more. Just say no, and stay the hell away from them if possible.

 

[Montecfo]

I never loaned money to a family member, other than my father-twice.

This was when I was in college though. I was paying all my own expenses (financially independent from parents) but I got a student loan and my father immediately asked to borrow some from me. I think it was like 20% of the total.

I hated it but did not feel I could say no. But he spent zero dollars on my education. He did pay me back after what seemed like way too long.

I guess this is just another symptom of what a poor manager he was.

 

[jazz4cash]

My first wife passed away years back. Right away her Dad offered to refinance my mortgage at a low rate.
So ... he wanted to be the lender. It was obvious he wanted to get his hooks in me.
I just told him "Thank you but, I never mix money issues and family". he was a bit taken aback but, end of story. Sometimes that is what you have to do.

Why would he do that? How would he have his hooks in you anymore than a regular lender?

 

[jazz4cash]

Come to think of it, I have a relative that asked their adult child for a loan. I don't think there was any emergency and the father should've been able to use a bank. The child declined and that led to estrangement along with other issues for several years. The relationship seems to be better now.