patrick.net

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.

Just so you know, not everyone who loans money to friends/family loses it.
My (now elderly) parents have loaned money to each of my siblings and myself on occassions over the years. There was always a written contract. Interest was always charged at a rate that was a good deal for both parties. To my knowledge, the loans were always paid back in full. I don't know the details of any of my siblings loans as it is none of my business.
OTOH, I expect that any money I loan to my adult child is a gift. It never gets paid back.

Try suggesting your friend use prosper.com or some other p2p lending site to do the loan. First off, this would STILL allow you and his dad to plunk significant change down as a loan - and it would BE a loan, with the incumbent risks and so on, but the peer lending site would handle all of the things you wouldn't want to handle, such as collection agencies and whatnot. Also, perhaps this friend of yours could get funding from a marketplace of willing lenders instead of loved ones. And if his credit is good, the rate he can get would be far more competitive than the credit card debt. If not, he could still do the old switcheroo with a home equity loan later, if that is in fact a real option and not just fantasy.

iirc, there is a p2p lending site that facilitates loans ONLY between members who consent beforehand, i.e., it's not a marketplace, just a loan management company basically. So there's that option. Sry, can't remember what it's called, but I'm sure you can find it on google.

That's shabby treatment of a friend to suggest a p2p website. It says, "I don't trust you to pay me back." It's like sicking a loan shark on your friend.

Hes in a catch 22 of sorts. He's in debt like most borrowers up to his nose. 25k credit card oh my!
True he will reduce his monthly payments. Lengthening the time of his demise with a 30 year note. Interest is front loaded. There are a lot of factors of course. I am sure his lender has considered all of them. Exhorbitant interest is gouging people, to me anyway. There are questions in this. However. I would walk away. 2 years re-established. In the meantime he could find a deal on rentals or something. He's trying to do the right thing of course. However is the interest these "lenders" have him hooked into the right thing.

More things to consider is his employer connected to credit scores in any way. Insurance etc. That gives you a clue as to who owns those concerns. Some would say that is not a good thing to do walking away from the debt. Just don't borrow again that's all.

Hes trying to consolidate. Bring his payments down. Be carefull of ez-money. The whole thing makes you wonder what he was using that credit card for. You can live simply and save then get what you want. Your more apt to look for a better deal with your own money. Since it was so hard earned. EZ-money you don't consider so well. Then trying to struggle paying it back with hard earned money.

Philistine, I suppose you might be right about p2p being an insult, but it's hardly a loan shark operation. But more to the point, loaning 10k to a friend IS essentially a gift, because you don't really have a good way of asking for that money back, and asking for interest on top is not typically done. There's all sorts of bad protocol going on here with regard to friendship, and the friend is just as much at fault asking for a 25k loan as the other guy would be requesting the loan go through p2p.

Neither a borrower nor a lender be! Clearly, if you want to refi, and you have 25k in credit card debt, the responsible thing is to pay that off FIRST before entertaining the refi ideas. Clearly some tough love is required, and as a friend you can either say "NO LOAN" or "yes, but with conditions, you crazy, credit-card-chargin' idiot."

Big Paulie and the mob have better terms as far as I can see. I guess no one hear bothered to sit down and figure the VIG on a 30 year 200k loan. It's awfull. Much less a 25,000 revolving charge card. An equity line? Holy cow. Might as well sell your goat and your car to pay just part of the interest on that one. The buy now pay later mentality in this country has gone nuts. I don't think that getting a job making 50k requires you to get a house or credit cards. If you did have that kind of job and got a loan. You blew it. Don't do it again.

Rent, save, pay cash. SAVE A WHOLE LOT OF MONEY DOING IT. Forget the big screen and the computer.

Hey why is it up to you or me to keep the big boys going. I do things for myself. Not the community of corporations. Some think that is the common good for some reason. Why make them money? It's not that I hate them. It's not that I am jealous. It's the fact why give mine away to someone else. So I can look like I live big now. Owe everyone. Pretend I am one of them. When I clearly am not. I probably never will be. But OWN everything I have. Owe no one.

That description of what he's trying to borrow up there. Looks like hes going to pay you out of the 25k in equity he's going to be getting. What he could possibly do is roll in the 25k in cc debt into the loan. That should reduce his dti. Forget about borrowing more money. He looks like he's in it up to his neck right now. The pulling out 25k in equity does not make sense then. Unless he is trying to reduce his cc balance from 25k to 15k to qualify for the cash out 6-1 half a dozen the other.

IN FACT the lender should look kinder on REDUCING his payments via debt consolidation VS another cash out. He must have otherwise AAA credit and or more than enough equity.

In short something does not look right to me there - for you buddy. I'd get more information and little more educated. Your friend might need to do the same. I have not addressed the loan. Now I am. The lender is either making more this way. Or he dosen't know. He possibly needs to find him another program to get on. He can reduce the dti by rolling in the cc in the refi. They have much better LTV's on debt consolidations. Than they do cash out refi's.

So another words the lender would call rolling in that 25k in credit card debt onto the principle balance. They would pay off the credit card. A cash out refi. That should solve the problem of having to borrow any money from anyone. Because the dti would be taken off of the new loan for quailfying. Simple as that. Unless put the wrong details up there by mistake

Mr.Fantastic says

MarkInSF says

I think it would crazy to lend money to somebody that has $25K in credit card deb

That’s rich coming from someone who said he’d lend money to someone who defaulted on an $800,000 home (CL).
MarkInSF says

I wouldn’t care in the slightest if they did a “strategic default”.

I resemble that remark!

Like I say I would walk away from that deal unless someone explained to me. Why they could not roll in the credit card balance. On to his new refi loan. Which makes it virtually a cash out. Sounds fishy otherwise. 25k is 25k be it rolling it as a cc debt consolidation into the loan. Or taking cash out. Rolling the cc debt into the loan solves his debt to ratio problem. Call another loan company that should send them all scurrying insist he does so if your going to lend him any money.

Or have him do one of those strategerie default type things. Even a liquored up, hillbilly can tell you not to get that far into debt.

The more I read here, the more I wonder if there is something fishy about the friend's story.

His lender could be making promises just to sell the loan and then give the borrower some kind of BS when it comes to getting that much cash back. Or the friend, who is... let's say... not financially savvy could INTEND to pay off the cc debt with the 25K, but somehow end up not doing that and then not qualifying for the refi. Could you recommend he check with another lender to see if that lender can roll in the CC debt into home loan. That's a lot safer.

Interest was always charged at a rate that was a good deal for both parties.
At this juncture, it may be good to point at that the IRS sets a floor on the minimum interest rate that is charged. Well, you can go lower than that rate, but the you still owe the IRS taxes on phantom income based on the imputed rate. As eHow points out, the one nice part about this law is that it requires you to document the loan with at least some paperwork.

The real question is:

"What could possibly go right?"