patrick.net

Mr.Fantastic says

Except for the fact CL’s home isn’t worth the original loan amount which is why he’s “strategically defaulting”. You think losing out on potentially hundreds of thousands of dollars is “less risky” than loaning someone $10k unsecured?

The risk of a loan, and the amount of a loan have nothing to do with each other.

Lending $10K each to 80 people for a total of $800K unsecured is far, far more risky than lending $800K secured at 80% LTV.

Of course I wouldn't lend to somebody 80% LTV who had strategically defaulted if housing prices were out of whack. But any other time or place, yes I would if they had the income to make the payments.

I have loaned some people money and been repaid, others not. There are things for you to consider when loaning the person money:
1. How much can you afford to lose, e.g. is you income so high that you can recoup a $10k loss quickly?
2. WHY does this guy have $25K in credit card debt? This may mean he is just a big spender, who lives beyond his means. If he racked up the credit card debt just on frivolous spending, then this is his nature, and he'll have trouble paying anyone back anything.
3. Does he have a female partner? Sometimes two people make paying you back harder than one.

I would not loan someone money in this circumstance you describe. His need is not that great. Keep your dough and buy AAPL stock, silver ETF, etc.

Wait, I just read the guy begging to borrow $10K from you owns a "guitar collection" "hot rod" , "motorcycle" and other assorted junk? No way would I loan him a dime. He can sell his junk to pay off his credit card.

Don't do it.

I'm a bit of a soft touch, and a friend begged me to help him out by loaning him 2K towards a business that he wanted to start, agreed to pay me back in 6 months (actually he was certain he would pay me back months ahead of time), and really kissed up to me and worked on my sympathies until I decided to do it. Not only did he not pay me back, but he got nasty everytime I asked if it was going ok and if I would get the money on time. Then he avoided me, lied and kept piling on excuses when it came time for the money to be due. It was only 2K but it wound up ruining the friendship and spoiling me from ever loaning money again.

You may think your friend is different, but people who don't pay their debts are different from the rest of us. If you really feel the need to give money, at least get some collateral first (ask him to give you title to his car, his guitars, or even something of great sentimental value). You get to select it, not him. Once he pays you back, he gets it back. But never loan money without leverage...you will regret it and it will ruin the friendship.

Mr.Fantastic says

MarkInSF says

Of course I wouldn’t lend to somebody 80% LTV who had strategically defaulted if housing prices were out of whack. But any other time or place, yes I would if they had the income to make the payments.

See, that’s a bit different than “I wouldn’t care in the slightest if they did a strategic default.”
I’ve taught you well, son.

You didn't teach me anything, and you didn't quote me in full.

MarkInSF says

If I were running a bank, the only thing I would care about is if the borrower is likely to pay the loan back, and if they don’t if there is adequate recourse. I wouldn’t care in the slightest if they did a “strategic default”.

I suggest you connect the friend who "needs" your 10K of cash with those posters here who think it's a good idea. They all can show the strength of their convictions, and you get to keep your money.

He sounds like a democrat. If he had that much credit card debt, and wants to do this to save $800 dollars this is sad. What the difference between paying down a $25K debt and $800 per month? Whats the LTV? What was the ratio between Loan and montly income?

Sound like these unions, who believe firmly that those with AA degrees deserve to make as much as PhDs in Physics. Then when they get asked why, they say that they are worth it, because they made that much for so long. Dont believe the unions, dont believe your so called friend. Hes a democrat - and you may be too.........

But believe the corrupt politicians who sold our souls to the bank, universities and health care.

The slime who convoluted the housing and credit bubble so one needed the wage of a PhD to afford a house and occasional medical care. You know, the republicans and democrats on capital hill.

I would not loan that idiot anything either, anyone who racked up that kind of debt needs a long tenure in severe austerity.

What is your friend prepared to do to ensure you get paid?

9 out of 10 people who borrow money never pay a dime of it back. They perhaps start off with good intentions--or not--but never pay a dime back.

The other rare breed of us are honest and do pay money back. But we would never ask and would only accept help in dire circumstances. I ran into problems with my business earlier this year and a friend loaned me money. One of the first things I did when things got even a little bit better was to get a life insurance policy and name that friend as a beneficiary, so that if I kicked the bucket unexpectedly, she would get every dime back. And she absolutely will be paid back ASAP.

On the other hand, I ran into problems in the first place because I was ripped off, so I would never dream of doing the same thing to someone else. And I made sure it didn't even happen unintentionally with my death.

Assuming you had the money and could afford to lose the money, I would not even lend to the 1 out of 10 persons who will make sure you are paid back unless there was some evidence that person would take care of you under all circumstances including an early death.

bulletdodger says

If things go awry he can sell some vintage guitars, collectible automobiles, etc., to pay me back. Of course he could raise part of the money he needs by selling things first, but he likes the collectibles, wants to keep them, and thinks they could go up in value significantly. His mortgage broker says the 25K cash out is a sure thing. Of course I trust the mortgage broker.

Well... a guy who collects guitars and automobilies is suffering because of mere 10K or so? Is this a joke or what?

It sounded like, I have money somewhere in my house, but I don't want to use it cuz I like it kept that way. Will ya please take your money outta your wallet, and put it on my hand? I will pay back later.

Others have already said it, but I'll repeat. If he's a good friend, and it sounds like he is, you can do one of two things. Give him the money and tell him you never want to hear about it again. It's a gift, and you don't expect or want anything back. The second is to give him the money and tell him that he can pay some or all of it back when he can. Then think of it as a gift. If you get some or all of it back, good. If you don't, you're not disappointed. The first is better for friendship though. With the second, even though you knew you wouldn't get anything back, he would have promised to pay and then reneged.

Secure the loan 15% interest 3 month term. Prepay penalty. Money is money. Treat it like a business deal.

Hey friend. Those two words. Used to hear that on religious programs. It always got on my nerves.

Really it depends on how much. A couple of hundred bucks forget about it. Pay me whenever. Coffee at the coffee house. Hey dinners on me. It's nice to be able to buy things for your friends. Nothing like a good friend. Talking about all kinds of things. Politics, religion whats going on. Sex etc.

Business is business. When it comes to serious money there needs to be some kind of arrangment. Thats all I am saying.

Nomograph says

Don’t loan anyone money unless you are OK with never seeing it again. That’s my rule of thumb.

Does this include Wall Street? Hmmm... bad example.

Problem solved! Just use this sample loan contract.

______________, hereafter referred to as lender, do hereby lend ______________, hereafter referred to as borrower a sum of __________ at an interest rate of 0%. Borrower will replay lender on __________, hereafter referred to as due date.

If borrower does not replay the amount in full to lender by the due date, lender will be compensated by borrower in blow jobs, hereafter referred to as bj or bjs. Each bj will deduct $1 from the remaining loan.

The lender reserves the right to sell and/or transfer bjs to third parties.

________________
Loaner

________________
Borrower

Over the decades, I've said "no" twice to loan requests from friends. Immediately afterward, there was some dead air. But, eventually our friendships resumed as if nothing had ever occurred, and they last to this day. Say no early.

Dan, I think interest depends on volume that takes into account losses. When the losses are to high your doing something wrong. You stop then take stock. The Federal Reserve actually mulitply's money. They actually give 3 dollars or more for every dollar a bank has on deposit. For that bank to lend out. There has to be a sound basis for that to take place. Many say that the backing is the interest paid in. That could be true. However I feel that something like hard assets should be the backing. Could be silver, gold, lumber even property and houses.

Something you might want to look into. DOES THE LENDER THAT HAS TAKEN A HOUSE BACK (FORCLOUSED ON IT) PAY PROPERTY TAXES TO THE COUNTY. LIKE A REGULAR HOMEOWNER?

Whatever. The rules of life are that you morph into an adult at age 18, and you have 24x7 to balance credit card payments, what house you want to buy where, and so forth. You, Patrick, need 24x7 to manage your life, not his. The banks don't want to lend him the money. They have all the fancy computer and psychological models on what people pay back when. You just have sympathy.

Back off a bit and suggest he learn how to live within his means. It is a skill everybody needs practice at.

bulletdodger says

If things go awry he can sell some vintage guitars, collectible automobiles, etc., to pay me back.

The market for both collectible guitars and cars is over. Prices are going DOWN on vintage guitars and cars, other than those Barrett Jackson restos., are dropping too.

Unless he has a Gretsch White Penguin or something like a Duesenberg, he should get rid of some of his collection. I dumped my cars two years ago and my guitars last month (I should have dumped them two years ago).

Carl1 says

You, Patrick, need 24×7 to manage your life, not his.

A reader who goes by "bulletdodger" started this thread, not me.

I say no. There is some ambiguity in some of the web writtings. One real estate agent answered yes on Zillow (thar ya go). Make for a good sale wouldn't it? Back taxes. Taxes the previous owner did not pay. Usually a couple of months. They will make you liable if you buy. However I believe unoccupied property is not liable (how convienient).

Again the question is why am I paying taxes ON MY PROPERTY? I could see paying for schools and roads in some kind of seperate tax. However the question seems to run much deeper than that and it has to do with ownership methinks.

I say make lenders pay property taxes on unoccupied properties. It's only fair. You have to why not them. Makes for better deals for me. I like that. Get the difribulator out and charge the paddles up if that one ever makes the news. I doubt it will. There would be a lot of lenders swelling up and trying to keep dinner down on that one.

If you can afford it, I would meet him in the middle. Offer him $5,000 if he is willing to sell that much of his guitar collection or motorcycle or whatever. If he is willing to sell his stuff, that shows he is really motivated to pay you back. I would also be sure he knew exactly when you expected it back.

And then I would drop it. If he pays you back, great, if not, well not so great, but not to worry.

I've loaned friends money before. Only one ever repaid me. Typically, if I loan somebody money and they don't repay it, I'm done being friends with them. So only do it if you're willing to lose the money and lose the friend.

That being said, the one guy who DID repay me, I would have given the money to free and clear. I tried to, in fact, and he insisted on repaying me.

I got my answer on lenders paying property taxes. Thanks. Money whats money? Life is more than that.

rob918 says

Don’t do it unless it’s a gift…….Period. If the bank won’t loan him money, I wouldn’t suggest that you do it either.

Yep, I loaned money out like this once. Never saw it again.

And it is not that the person didn't want to pay. Just life becomes tough at times and unsecured debt is the last thing that will ever be paid if ever. Money loaning and friends/relatives do not mix together well. If you would loan this type of money, you run a huge risk of non repayment, repayment that may be late or even partial if ever. Life just happens.

I've watched enough Judge XXXX shows to know this one hahah.

Loans strain and break friendships.

And only loan to family if you treat it as a gift; no strings attached.

"What could go wrong?"...

As someone who has been down this road before a few times:

You might not get any of the money back and the "friend" will actually resent you for owing you the money. Not the way I would think but so often the case...

@jvolstad

I feel your pain...What a b!tch!

I lend money for a living to the kind of person your friend is. Judging by his collections he is a fun guy. Loans to fun people that are not collateralized do not get repaid.
He has also broken a major unwritten friend code which is that you should never ask for something that will put the other person in an awkward position.
If he really wants the money he can walk into any title lender and get a cash loan on his vehicles - or even better be an adult and sell one or two to come up with the $10k.

Way OT, but I'm so jazzed to see quite a few posters using the correct verb form of the noun 'loan': lend.

Nomograph says

“Is this a ridiculous risk on my part?”
Don’t loan anyone money unless you are OK with never seeing it again. That’s my rule of thumb.

Best advice you can get. Don't say loaned because you can safely assume that you are not going to get it back, even if your friend want to as he will be more broke in near future. Consider it as a charity if really need to help.

I read some more, and this looks worse and worse. He makes $65K and has a $375K mortgage? He makes $65K and has $25K in credit card debt? Go onto Zillow.com and see what his house is worth. If this guy "really needs this to happen" then he needs to sell his collection of junk or take in roommates, etc. I wouldn't touch loaning him money with a ten foot pole.

Is he actually serious about this or was he just thinking out loud for now? He can only qualify for a $320k loan at best if he has $0 debt. He will need $88k/year income for a bank to lend him money with a $2200/month payment.

If his house really appraises at $475k as you all hope for, a loan of $380k will mean he has to pay an extra monthly fee for PMI. Seems his minimum obligation to pay you back would be to get a loan of $385k.

If you lend money to him, this is what's gonna happen:
-You give him the money
-He pays the credit card debt
-He tries to refinance the loan value + $25k in equity.
-He gets rejected
-He has no way to pay you back
-He promises to pay you back
-The relationship gets awkward
-You write off your loss
-He buys a new motorcycle

Don't do it. Take that 10k and invest it in your future. I can cite numerous examples of how money tore friendships and family apart.

If 10K doesn't mean much to you, lend him the money. If you are going to worry and stress about getting it back (if and when when the excuses start ) if it is going to always be in the back of your mind wondering if you are going to get the money back , don't do it. My experience with loaning thousands of dollars to people in a jam is that, somehow they don't think that getting the money BACK to you is as important as was getting the money FROM you. And as someone here already said, they will actually RESENT you because they have to pay you back, once they are out of danger. I also found that I was at the bottom of a LONG list of people who they ALREADY owed money to. If this fellow's continued friendship is worth risking 10K, go ahead and do it.

Years back we got a panicked call from my husband's bro. The IRS was after him, he said. He needed $25K like immediately. We couldn't lay our hands on an instant $25K and told him so. He said, "But you have an IRA, you have a house." To which I (and I should've kept my mouth shut) said, "So do you!" He
finally borrowed it from another relative after calling us every name in the book. Turns out the guy had given his money to a man whom he'd known in gradeschool so they could become slumlords. The IRS was after him, not the brother. Then it turned out that the man had a gambling problem and the leg-breakers were also after him. The brother never did forgive us but, small loss.

Your friend's story just doesn't ring true, BD. IMHO.

Think about this. What is a friend for? We dont want to do that with a friend. Put you in his situation, When you are in trouble where do you go to? Family member? Friend? Go ahead and lend him a money and if he does not pay back It is OK too. Friend is forever. Just to make sure he is a real friend Not that kind of take advantaged friend. Do a good deed you will receive back a good deed.

#1. There's an old Chinese proverb about lending money to someone. They have to decide on what is more important, their money or their friendship.
#2 If your friendship is important than just give him the money because if you don't get the money back from him, you are giving him the money alway & you might lose a friend too.
#3. When someone can't afford to buy something without someone else's money, that should be a clue.

Landru3000 says

I also hope the mortgage broker is right about this scheme.

Indeed. One of my struggles with this is believing what a mortgage broker or a banker says. After all, they're the air that blew this bubble up.

BD

bulletdodger says

he’s the guy that took a week out of his life to fly cross country, help me load the truck, drive the 3k mile trip back to CA, then helped me unload. As friends go, he’s as good as it gets.
I can’t afford to look at this as a gift. Maybe I should take possession of the most valuable half of his guitar collection, one hot rod, one motorcycle, and one of his two dogs. That should be worth more than 10K to him.

This is surely the kind of friend that you should help if you can. But you did hit on a great idea. He has collateral. It seems from your post that this is intended to be a short term loan, so he should have no problem letting you take short term possession of whatever the two of you decide is appropriate security. And of course, use a written contract. As others have written, only loan money you are prepared to lose. Even if your friend sincerely has all intention of repaying the loan, sometimes stuff happens. Worst case, you have the security and/or you can deduct as a loss on your taxes.