<p>I’m a regular poster, but because this post will contain sensitive information, I’ve set up a new account to use temporarily.</p>
<p>DH’s brother is in hot water financially. He has always lived beyond his means, and for years was periodially bailed out by his parents. They have both died, and now he has come to my husband for a loan. His lifestyle is not flashy, but he has chosen to be somewhat underemployed and to live in one of the most expensive cities in the world. He has now charged up his credit cards and probably mortgaged his home to the hilt. He has some pressing bills, and he wants to make some renovations to his home to allow him to rent out part of it. He probably needs at least $40k to get him out of this hole. </p>
<p>My husband and I are in much better shape financially because we both have reasonably well-paying careers and we have always saved aggressively, avoided debt, and lived well within our means. We have a good income now, but my husband is past retirement age with some health problems and will probably be able to work only another year or two. I am about 10 years younger. Our retirement accounts were hit hard by the financial meltdown, as were the college funds for our two children, who are approaching college age. We own our home with no mortgage. We have a home equity line of credit on the house, with no money owed. We consider this our emergency fund. The money we have in liquid accounts is intended for some needed home improvements and other expenses. Everything else is invested and we do not want to sell now. This means that we would have to tap our HELOC for the money to lend my brother-in-law.</p>
<p>How much is this relationship worth to you ? I think you should only lend him money you can afford to see not being paid back. Often times people who are not good with money cannot dig themselves out of a hole no matter what. </p>
<p>Can he fix up the home himself instead of hiring someone ?</p>
<p>It sounds like it would definitely be a ‘sub-prime loan’ to your bro-in-law with you being the bank that won’t get paid back. </p>
<p>I wouldn’t do it. You need to make sure your immediate family’s taken care of first - especially your kids and your H. It sounds as if the bro-in-law would likely never pay you back so unless you’re willing to give this to him with no expectation of ever getting it back and are willing to not hassle him about it and not harbor negative feelings towards him if he doesn’t repay, you shouldn’t do it. It sounds like it’s high time reality hits home with him and he learns to stand on his own two feet.</p>
<p>I have a simple rule when it come to family and money - I’ll give them what I can afford to give - no strings attached - but I will never loan them money. </p>
<p>Banks make loans - and I am not a bank.</p>
<p>Given the way you have described your current situation, I don’t see how you can help more than just a little. I certainly would not go into debt to loan him money.</p>
<p>My brother-in-law has some assets. He lives in a home which has appreciated considerably and was worth over $2 million when the market was good. If he were forced to sell now, he would get substantially less. He does not want to move for several years. The equity in this house will have to fund his retirement, because he has no savings or retirement accounts. It will be much better for him not to be forced to sell now because of his financial problems. There are no other sources of money for him besides us.</p>
<p>I have to admit that I am somewhat angry about this. My feelings would be very different if his financial problems were the result of a job loss, or medical crisis, or anything else that was unpredictable. In that case, I would not hesitate to give him the money he needs. But he has always had financial problems. He has often consulted my husband about them, but always ignored his advice to either increase his income by giving up his glamorous but badly paying job for something more stable and lucrative or decrease his expenses by moving to a less expensive area. I also know that even if we give him the money, he will be back at some point in hot water again, needing more.</p>
<p>My husband feels that we have to help him out now, and I do, too. But we are wondering how to do it. Should we have a legal contract drawn up? Should we charge him interest? (We are going to have to pay interest on the HELOC.) Presumably he will pay us back in a few years when he sells the house.</p>
<p>I am also concerned about the effect of a large loan on the relationships. Will he come to see us as yet another creditor he can’t pay, and source of anxiety? Will he resent us, will we resent him? (I already do, actually.) </p>
<p>Do any of you have experience in this kind of situation?</p>
<p>munchkin, most of the money goes to pressing bills - the renovation costs are reasonable, and he will do most of the work himself.</p>
<p>ucsd<em>ucla</em>dad, When you put it that way, it does sound like a very bad idea. If we do lend the money, I would definitely expect it to be paid back and I would be furious if it weren’t. My husband is probably not capable of refusing to help, but he did ask me whether we should “put a lawyer” between us. He does not want to make this a gift, and neither do I. If I had a spare $40k, there are plenty of more deserving people, both in our extended families and unrelated, and causes. My husband’s parents gave both of them a significant amount of money to start in life. This has made a big difference to our financial security, as my husband was able to buy a house very early (before we met), and eventually by paying down the mortgage as quickly as possible we ended up completely debt-free. My brother-in-law was given even more money because he kept going back and asking.</p>
<p>hmom5, we can and we can’t afford it. If my elderly mother needed money, I would come up with it. If a relative needed medical care and couldn’t afford it, I would borrow the money. My husband feels that since his brother has assets (probably $1 million in equity in his home), there is no danger that we won’t be repaid. He is willing to make it a legal contract. My feeling is that the brother will always have other creditors who will be paid first. I hate this whole thing.</p>
<p>If your BIL has a million in home equity why can’t he take out a home loan instead of you taking a home loan to lend to him ? </p>
<p>I won’t go into debt to finance a family member’s life style choice. I only make gifts of charity to family with dire needs like job loss or ill health. </p>
<p>If your husband can’t say no to his brother, he can always blame it on his financial adviser … or you. ;)</p>
<p>If he has a million dollars in equity, he could get a bank loan… My concern would be that he is not telling you the whole story and that he really has very little equity (if any at all). Obviously I am on the outside looking in - but given what I am reading here, it would not surprise me if he had refinanced the house multiple times, pulling out equity each time - and now with the decline in values, owes more than it is worth.</p>
<p>I have heard Scualum’s policy before, and it’s the one I personally like best. Not lending the money is tough on your relationship with the brother in law, but getting lawyers involved would likely be just as bad for the relationship yet cost more $$. Would there be any interest in having a family vacation to visit your husband’s brother and help to paint, make repairs, and buy any of the necessities for the house that you can afford? That way your family would be helping him out in a way that encourages him to rent out part of his house in order to take control over his finances, and at the same time you’d have a good chance at preserving familial relations. Remember that you have no responsibility to explain to your brother in law your exact financial situation; you can just say that with upcoming college tuition, an approaching retirement, and possible healthcare bills you can’t afford anything else at this time. As long as he has food, heat, shelter, and necessary healthcare, and any children of his are safe and healthy, I don’t think you need to give this money in the same way you would need to if any of those things weren’t the case. </p>
<p>I should note that I have no personal experience in this, so take my advice with a grain of salt.</p>
<p>You’re angry about your BIL asking for a loan.</p>
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<p>Your husband doesn’t want to make a gift to his brother.</p>
<p>You think he’s unlikely you’ll be paid first among all the BIL’s creditors.</p>
<p>The message you’re getting here is the one you’re already hearing in your own head: not a good idea.</p>
<p>However, if you decide to help out, there are other sources of loans. Have your BIL look into peer-to-peer lending, for example. Also, I’ve read about other online sites that facilitate lending to family members, which might provide the legal layer your husband is looking for. That’s if you decide to go ahead. </p>
<p>About the home equity - I’m not sure how much he has mortgaged. I am sure that he has mortgaged as much as possible, but I am assuming that his low and unsteady income would limit what banks were willing to lend. I am pretty sure that he will not be able to get a bank loan now. </p>
<p>I would be very surprised if he did not have at least $1 million in equity, but if we decide to go ahead, I guess we should check on this. I am not even sure how to do it (as several of you have pointed out, we are not a bank!)</p>
<p>corranged, I like the idea of offering to help out with the house renovations, but this is not in the cards for us, given our situation. My husband has some physical limitations, and we both are very short on time - two demanding jobs, two kids, the house, etc. We hire people to do everything but minor repairs in our house because of these constraints. </p>
<p>vballmom, You’ve extracted the most important facts. Everything you say is true. Thank you so much for the links. I’m going to look into them now.</p>
<p>You’re right, Mr Payne, and I knew right away that this was a bad idea. But I’m not sure I can get my husband to see it. I will keep talking to him, armed with all the points you have all made. Maybe my BIL can solve his current problem using peer-to-peer lending.</p>
<p>You will lose 40K, it’s as simple as that. He has a proven track record of being a bad credit risk. This is purely an unemotional financial decision, nothing less.</p>
<p>With everybody’s finances taking a hit, this is the truth and he should be able to see it. You are not being a meany. </p>
<p>If I had to pick my kids or a brother in law, it would be kids every day. I would not risk money that I could use to send my kids to college on a relative with non-life threatening money problems.</p>
<p>If you’ve watched Judge Judy on TV, you’ll know–don’t make a loan to a family member that you couldn’t afford to outright gift to them. Because there’s a good chance that they won’t pay you back fully and you won’t want to bring the law down on them. In this situation where you would have to BORROW against your HOUSE to give him the money, the answer is a thousand times NO!</p>
<p>OP - You’ll sleep better at night if you assume the loan won’t be repaid. Yes I have first hand experience.</p>
<p>That said, there are some things you can do before entering into an agreement. First, you can check municipal records to see how much the BIL has borrowed through official channels. Those loans will appear as liens on the deed to the BILs residence. Second, you can ask that the loan be secured by the residence. And third, you can start a discussion with husband about how any subsequent requests for cash will be handled.</p>
<p>I’m sorry for this drag on your life. But as misfortune goes, it isn’t the worst.</p>