<p>Agree with NewHope, tell him you want it secured with his residence. That way if you don’t get it back now, you will when he sells, if he can sell to cover your position in line. If you don’t do this, consider it a gift. We have experience with relatives who have money problems. Unless it is short term employment or health related they do not/cannot repay. </p>
<p>There is the old saw about doing the same thing over and over and expecting the different results. If he constantly borrows money he cannot repay, and there is no evidence of actual change, then do not loan what you cannot consider a gift unless you secure it.</p>
<p>We’ve had a similar situation in our family, although not as large an amount as $40,000, several times with the same family member. This family member asked for the assistance, always, as a loan but we thought of it as a gift because we knew that we’d never see any of the money again. And we haven’t! Did your BIL ever pay his parents back when they bailed him out? My advice would be to only give/loan this money to him if you can live with the very real possibility that it will not be paid back.</p>
<p>The problem is lending money or giving money to a relative is it would upset up every time you see him spend money. My youngest brother has always spend more than his income. Every time he got in a jam he would call my other brother to bail him out. The interesting thing is he would never ask me for money because I would say no.</p>
<p>My other brother, the one that’s always helped out the baby brother, has fallen into a hard time because of economic down turn. He has recently asked to borrow 20K from me. I am going to do it with no string attached. I figure he will pay me back when he is able. He wouldn’t have asked unless he had to. It’s not going to be easy because of kids tuitions and lack of bonus this year, but when it’s your sibling it’s very hard to say no when they really need your help.</p>
<p>OP - he is not my BIL, but I would say no in this case. I think your H is afraid to say no, maybe he is hoping you would do it for him?</p>
<p>This happened between two of my sisters…the borrower was and still is very bad with managing her finances. The lender did so on more than one occasion…even paid for braces for our niece. When it came time for her to sell her house lender sister and her husband ( an attorney ) were there for the closing to make sure they got paid back what was owed…borrower sister was indignant.
Borrower sister also was given the gift of purchasing my parent’s then townhome for about half of it’s worth. Mom felt like if she didn’t help her out , she would have no place to live that she could afford. One year later, sister sold the property and made $100,000.00 profit. Never offered parents anything , and spent all the money on pretty much nothing…it caused some rifts that I am afraid will not be repaired ever.</p>
<p>If my BIL was an alcoholic I wouldn’t give him money for a bottle. Time for this guy to get a second job, be an adult and handle his own money.<br>
Just say no.</p>
<p>I would not lend him $40K. It sounds like this $1 million dollar (plus…since that’s only the equity) house is taking priority over common sense. </p>
<p>If there is an ESSENTIAL bill, you could consider paying directly to the payee…but NOT to the brother. A renovation of part of a house is NOT an essential bill. </p>
<p>I have never lent a relative or friend money. I DID, however, pay an essential bill directly to the vendor (it was health insurance…my check went to the health insurance company, not the relative) but I did this ONLY once. It was a loan that I didn’t expect to see repaid…but surprisingly it was.</p>
<p>Your family’s financial situation should not go for bailing out your brother. As hard as this might be, he needs to figure out his finances and how to balance his books without a loan from you. </p>
<p>You should draw up a loan agreement. You should charge interest. You should include in the contract that you will be repaid immediately upon re-financing or sale of his home. Prior to his doing either of those, you should receive monthly payments with interest.</p>
<p>From experience, I predict that even after doing the above, there is a 99% likelihood that the following will happen:</p>
<ol>
<li>He will repay regularly for a few months.</li>
<li>He will get behind in payments and stay behind.</li>
<li>He will stop paying entirely until you remind him. Which will be awkard and hard to do, so you will postpone doing so. When you remind him, he will make a payment or two.</li>
<li>He will continue to spend money on luxuries, travel, non-necessities and you will resent every time you see that happen.</li>
<li>You will never be paid back in full.</li>
</ol>
<p>If you actually go through the legal process to secure the note against his home and record that in the registry, you might get paid back when and if the house sells. Depending on how “mortgaged to the hilt” the home is and which place your mortgage stands in priority (you obviously won’t be the first mortgage; so depends on whether you are second, third… and what the house is worth compared to all outstanding mortgages).</p>
<p>A person who has $1 million in home equity and cannot get a $40,000 HELOC cannot or will not repay that loan. That is why he cannot obtain the loan in an arms-length transaction.</p>
<p>I agree with those who have said money given to family members has to be a gift not a loan. Been there and I never expect repayment. If it happens it is a pleasant surprise.</p>
<p>If you want to make it a loan use a note, with interest, signed by the borrower and notarized before he gets the cash. That way you can take it to court if he defaults on the repayment. There will be legal costs and sheriff’s fees but you will have a judgment against him enabling the loan to be satisfied if he sells the house. I wouldn’t advise you to give him the money outright. You have legitimate reasons why your family needs the cash so you should be businesslike and have him sign a legal document. If he balks then it is pretty clear he doesn’t expect to repay it.</p>
<p>I don’t want to give too many details, but the “pressing bills” I mention amount to over $20k, and if this is not paid within the next month my BIL will lose a position he has that pays him a significant fraction of his income. This will mean that he will not be able to cover his mortage(s), and DH believes that once he defaults, the bank will swoop in because he does have so much equity. They will be able to sell quickly for much less than the place is worth, get their money out, give my BIL what is left. This will represent a huge loss of his only asset. So there is a cascade of disasters about to take place if we don’t help.</p>
<p>DH said that a year ago his brother took out a “no-doc” mortgage. I’m not sure whether this was a re-financing or a 2nd mortgage. So he clearly is in the sub-prime category. These days no one is making these loans, so he cannot draw on his home equity.</p>
<p>I am wondering whether it would be better for him to sell the place himself as soon as possible, rather than renovate and rely on rental income. For one thing, the market may not recover in the next few years and may very well get worse. What worries me about renting out the place is that he will be relying on rental income from a single tenant, who may stop paying at any point if he/she has problems. It is very hard to evict people, and my BIL is not the kind of person who could kick someone out. </p>
<p>DH feels that we have to do this. I do have veto power, but I will then be responsible for the cascade of disasters. I know I am not really responsible, but this is how DH and I will both feel. </p>
<p>We have helped out before. BIL’s son called us quite a few years ago in desperation because his father had not paid his semester’s tuition at HYP. We paid this and did not expect to be repaid. At the time we were much younger, and not in the middle of a global financial meltdown.</p>
<p>DH’s employment goes in 2-year cycles. He was renewed 2 years ago, even though he was just at retirement age then. His paperwork is due in early December for the next cycle. He is highly valued and the department head fully expects the renewal to come through, but there is some chance that the institution as a whole may decide to trim budgets, and a highly-paid employee past retirement age is a prime candidate to be cut. I am thinking of insisting that nothing is done until this paperwork comes.</p>
<p>I’m going to say again…I would not give the BIL ONE DIME!! If you want to consider helping him with his bills…pay the folks he owes money to. Don’t give the money to him. Once you do that, you have no control over how or where he spends that money.</p>
<p>Personally, I think he should consider selling the house even at a loss. If he has $1 million in equity, that equity should not include any loans taken against the property. Those loans would REDUCE his home equity…as they are held against the home. So what is it??</p>
<p>This brother in law sounds like he is living way above his means. Does he have a family to support? Is there a wife who could possibly work? Any chance BIL could get a second job doing something? Does BIL have a repayment PLAN for his overextended debt (that does NOT include bailouts from the family)? What else does BIL have that he could sell (cars, vacation home, furniture, jewelry, etc)? Does BIL have any vacation plans…they should be nixed at this point? </p>
<p>Is it even within the planning and zoning guidelines for him to create a rental unit within his home? I know it is NOT here. That would be worth checking. </p>
<p>Any savings or other investments that could be cashed out to help pay the debt (BIL’s assets, not yours!!)?</p>
<p>When was the last time someone bailed him out? Recently? 10 years ago? 20 years ago? If it is recent and frequent, that is very different than once a long time ago.</p>
<p>I’ve loaned money to very good friends. One in particular had a good job, dressed well and lived well. He asked to borrow money to pay off an IRS debt. I “loaned” him the money and never saw it again. I’m not the type to nag someone about this. What I learned in that case is to give money away to a friend or relative but don’t do a loan.</p>
<p>That said, this particular case is a screaming no to me.</p>
<p>1) You have expenses, now and into the future. I don’t agree that a HELOC is an emergency fund. A savings account is an emergency fund.</p>
<p>2) What’s the difference between your BIL and AIG, Lehman, Bear Stearns, General Motors, Ford, Chrysler, General Electric and a bunch of other companies that want bailouts? In AIG’s case, they keep coming back for more. The Automakers want $25B to pay their expenses but they don’t have a viable business plan going forward so legislators are basically concerned that they will be back in three months for another handout.</p>
<p>3) A realistic solution would be for your BIL to sell his house and then go from there. If the house is underwater in the current market, then consider filing for bankruptcy and starting fresh. I think that it is totally unrealistic to be carrying large non-performing assets and expecting others to bail you out. If he needs a room to sleep in after it’s over, then offer him a room if you have it.</p>
<p>Don’t do it. You will lose $40K and the relationship. It’s better for him to sell now and figure his way out of this mess than for him to lose his relationship with his brother and sister-in-law. </p>
<p>Tell him you cannot afford it and that you are sorry and will be there for him as moral support. </p>
<p>Too many families have been destroyed by money issues. (My H’s family is one of them).</p>
<p>DH believes that the $1M in equity is after all loans. The property was worth over $2M, easily, a couple of years ago. </p>
<p>My BIL lives frugally, but he does not have a regular income. A couple of years ago he gave up his first career in the arts in an effort to increase his income. Now things have changed, and his new career is much less lucrative than it was. He does have a wife who works but does not have a high income. There is also a HS age child, as well as grown children from a previous marriage. </p>
<p>He is legally able to subdivide his home and rent. He does not have any other assets, although he will have an inheritance from his parents’ estate (and so will my husband) that should come through sometime in the next year. It is likely that he could pay us back from that, although if we are looking for collateral for a loan, his house is the only asset he has now. </p>
<p>He was bailed out by his parents a number of times, at intervals of 5-7 years. There was never any expectation that he would repay them, and I’m sure they never asked him to. </p>
<p>I don’t want to give details of the “pressing bills” - it’s a single obligation that will, if not paid soon, start the cascade of horrible events.</p>
<p>Bring DH over and show him the posts and, if he still wants to loan the money, he can discuss it with us. So it isn’t on your head but on the heads of a group of helpful strangers that collectively have hundreds of years of experience.</p>
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<p>I think that people here would generally help out a nephew or niece if we had the ability to do so. It isn’t their fault if a parent reneged on their their promise to pay. I would hope that the nephew or niece would show some sign of appreciation at some point.</p>
<p>Our son received a scholarship from a private source and his university has a formal thank-you note writing program where they come in and get a presentation on writing thank-you notes. I imagine that many students think that scholarships are free money but many are private and the founders are real people too.</p>
<p>It seems like he is living well above his means. He may spend little on non-housing expenses but he has to carry insurance and pay property taxes, pay for heating, cooling, water, etc. There are more expenses associated with more expensive home. It seems to me that he is living above his means just by living in a very expensive home. So selling the home should reduce his overall expenses now and into the future.</p>
<p>The child complicates the matter but having a million and two working adults should provide decent support living modestly.</p>
<p>Has he asked for help from his adult children? I presume that he has spent a lot of money on their educations in the past and it would seem to me that they would feel some obligation to him for educational expenses.</p>
<p>Another complication is that any amount you and your H gift that is over $24,000 can have a tax impact. Presumably you’d have to structure your gift so that the first $24,000 goes to the BIL and the rest to his wife. Otherwise you’d have to file a gift tax return if the amount exceeds the annual gift exclusion (currently $12,000 per person per gift). If it is a loan with a balance over $10,000 and you do not charge a market rate of interest, you can end up paying income tax on the imputed interest (the difference between the interest you did charge and the interest the IRS figures you should have charged). For very large loans or loans that have a long term to maturity, the failure to charge market interest can also cause gift tax problems.</p>
<p>On the “no-doc” loan, these are typically first mortgages and not necessarily sub prime. I have one myself despite the fact that my credit score is excellent.</p>
<p>And he needs a loan? This is becoming a bit absurd.</p>
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<p>In my opinion, he needs to FIND a regular income that does not include a periodic “bonus” from family members. </p>
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<p>Hmmm please tell me how he got a $2 million dollar home with a career in the arts so I can pass the info onto my son who is an arts major and lives in a VERY inexpensive apartment with no plans to buy a home in the near future…at any cost.</p>
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<p>Ah…and HE will get this inheritance to spend as he pleases (do you really think he’s going to use it to repay YOU?)…and YOU will use your inheritance to repay your HELOC…what’s wrong with THIS picture. He should sell something to pay his urgent debt and then hope that this inheritance comes through sooner than later.</p>
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<p>She could take a second job as well.</p>
<p>I hate to say it, but you need to look out for the welfare of YOUR immediate family…your husband, you and your kids. Financially, YOU will be taking out a loan to help this BIL. That is just not fiscally responsible for you to do given how close your DH is to retirement. Why should YOUR family be in debt because of your BIL’s financial irresponsibility?</p>
<p>I know there must be more to this story than is being posted on a message board. But no matter what the extenuating circumstance…a $40K loan from you that requires that YOU take out a loan is just not reasonable. It’s not extra money you HAVE…it’s money YOU will be borrowing against YOUR major asset, your home. Sorry…not worth it to risk your own home and future because of your BIL. This isn’t like paying a car payment so the car won’t be repossessed…or health insurance so the family coverage won’t lapse. THOSE are expenses that are reasonable…but renovating part of a $2million house so that some income can be generated? Nope.</p>
<p>He should sell the house and move into a cheaper apartment or rental unit. Don’t loan him money if if means YOU have to borrow it!!!
No way, nohow! :(</p>
<p>The reality checks that you all are providing are very helpful. I just had another conversation with DH in which I made some of these points. The valuable home is not the mansion you are imagining. It is in a very expensive area and many of you would consider it a dump. </p>
<p>Thumper, the reason he has ended up living in a $2M+ home is that he started out with help from his parents and he rode the real estate boom(s) for the past 30 years. The place where he is now has appreciated tremendously, because he bought it when the area was undesirable and this has changed. </p>