Q: We loaned my wife's brother $60,000 to buy a home. He was supposed to fix it up and pay us back after 2 years. It's 7 years later and we haven't seen a single payment since 1996. Any suggestions? D.D., Cinci.

A: Yes. Don't loan money to friends or family. But you've already figured that out, so I assume that your question is actually, "How do I get my money from my deadbeat brother-in law, but still sit down to Thanksgiving dinner with the wife's family?" Here, from friendliest to most drastic, are some ways to cure the problem.

Restructure the loan. When someone gets as far behind on payments as your brother-in-law, they often begin to engage in all-or-nothing thinking, like, "Man, I owe Joe $20,000. I've only got $500, which is didley compared to what I should be paying him. I'll just wait until I (save more money/am ready to refinance/win the lottery), then I'll get all caught up at once!"

One way to get him back on track is to offer to restructure the loan so he can get out from under that mountain of overdue payments. You might agree to add any late fees or penalties to the principal balance, raise the interest rate a bit, accept higher monthly payments for a year, then have a firm balloon date. If he's agreeable to this (and can afford the new payments!) put your new agreement in writing and record it at the courthouse just as you did the earlier mortgage. Also have him escrow a quit-claim deed with an attorney in case he doesn't perform, and/or be prepared to foreclose.

Get a deed in lieu of foreclosure. If brother-in-law simply can't afford the house, and you think it's worth as much or more than what he owes you, ask him to deed it over to you in order to erase his debt. But before accepting such a deed, get a title search. If he's a dyed-in-the-wool deadbeat, he may have multiple unpaid liens and judgments which will follow the deed. Since you don't want to take on responsibility for those debts, nor be the owner of a property that's encumbered for more than it's worth, only take the property back in this way if the title is clear.

Sell the loan. In all these scenarios, I'm working under the assumption that you have an actual written, recorded mortgage and note with your brother-in-law; if not, you're pretty much sunk. But if you do, and you're willing to take a loss on your original investment in order to keep the peace with the wife's family, you might consider selling the mortgage to a 3rd party and letting that party take further action. To put it mildly, say, this is a REALLY under-performing note, and the buyer would take this into account when setting a purchase price. However, if the property is worth more than the mortgage balance, I'm sure a local investor would be happy to purchase the debt at 50%-60% of face value. The new lien holder would then offer to restructure as in case #1, or foreclose as in case #4. Either way, he'd make a large profit in return for dealing with YOUR problem. You'll lose about half of your initial investment, but you'll always have the ability to say, "jeepers, I can't believe that jerk foreclosed on you!"

Source: www.regoddess.com

 

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