Coral Gables, FL · Member since 2015 · 19 posts · 0 votes
Hi,
My father lives in NJ. I would like to loan him money, paid monthly to help with his expenses. Unfortunately, he is not always financially responsible. I would like to loan it against his property which he owns free and clear. How can I do this legally in NJ?
The reason I want to loan it against his property is because he may take a reverse mortgage and waste the money, I want to prevent him from doing that and let him live in his place as long as he wants. Also, the reverse mortgage will pay very little. Secondly, I have a sibling who would also inherit but by me loaning the money, the inheritance would pay off the loan to me first.
I want to pay him monthly, not in a lump sum and I want to make sure his property taxes are paid first. I am not wealthy and loaning him this money is a sacrifice for me, but I am more than willing to do it with his property as collateral even if I don't see the money again until 20 years from now.
I get the altruistic intention behind your proposal but I just have this gnawing feeling that this may blow up in your face some way, some how.
One of my concern is the fact that he is sometimes irresponsible and may potentially waste the money you give him. Are you going to set aside some of the monthly payment to pay the property taxes yourself? You will have to; so as to make sure there is no lien against the house for lack of payment on his part.
Were you and your sibling both suppose to inherit the house or just your sibling? Because if its just your sibling then this is a shady way of stealing the property from him/her.
In my opinion, I would have a serious chat with all the parties that is going to be affected by this proposal: you, your father and your sibling. Make sure you all come to a complete understanding before you start drafting any documents.
Personally for me however, I would not go through with this. There are too many gray areas that will result in disagreements and arguments. I am a firm believer in never mixing business with family no matter the good intention behind it.
Thanks for your advice. Sibling inherits 1/3, I inherit two-thirds. If he does something irresponsible like reverse mortgage, then there won't be much of an inheritance. It would also make him unable to sell in the future in case he ever needs to move.
I think I can make a condition of the loan to pay prop tax.
The other option is that I will have to give him cash to pay his living expenses. Otherwise they will take his car (unfortunately he bought it on installments), and they will put a lien on his place due to non-payment of prop tax. His current income is not enough to support his expenses. It makes more sense to me to loan him the money against equity in his property. I won't charge him interest. (I understand the IRS will consider imputed interest).
He is in his mid-70s, so inheritance is a something to think about it. Also, considering his age, his medical expenses can only increase and he may need financial support for the next 10-20 yrs. He has been diagnosed with bipolar disorder which explains why he is financially irresponsible at times.
Ok, I understand. You right, the second option would suck if you don't have any collateral to pay yourself back for all the money you will be giving him over the years. Hopefully the house appreciates to a point where its worth more than total amount of the loan you gave him.
What if your sibling wants their 1/3 of the inheritance in cash? Are you willing to buy him out of the inheritance?
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
Yes, a delicate situation. You’d need a note and mortgage drawn up. Treat it like a line of credit, the amount will obviously be rising. Include a provision about paying taxes, insurance, repairs, etc. to become part of the balance. I assume you have discussed with your sibling and everyone is on board. I know that bipolar is a brutal disease, best of luck.
Thanks for the reply. Yes, it a delicate situation.
I would probably have to have a mortgage written up as you mentioned.
The sibling and inheritance is not really the issue at all. Its about waiting for my father to agree, when he is a dire financial situation, he will be stuck between either getting a reverse mortgage or having liens put on the property due to non-payment of prop. tax (has happened before, but was paid off). Once its clear to him that me loaning him the money is a lot better than other options, hopefully he'll agree.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
@Rayan Faris, sure, you'd get your loan back, but, that may well be the only thing you get out of it! Meanwhile, your non-helpful brother would get his portion of the property - scott free!
ie. The same way you're supposed to get your portion! [Nonetheless, best wishes to your family].
For some, "no good deed goes unpunished". Will you mind ending up being one of them?...
["Spending kids inheritance" has become an epidemic, whether of necessity, or, purposefully].
Investor · Dallas, TX · Member since 2014 · 177 posts · 213 votes
8y
I personally do not give money to family or friends unless I'm prepared to make it a gift. It really releases you from the resentment of constantly stressing about how *they* are spending *their* money i.e. --> Did he just buy new shoes? When he still owes me $X? Is he going out to eat AGAIN? etc. And if you can't afford to make it a gift, then you should find other ways to assist.
IF I were to ever make an exception to this rule it would be 100% conditional - learning about money management, meeting with me weekly to review your budget, etc.
Simply handing money over to someone who does not manage money well is not fixing the problem. My guess is now there will be two people struggling financially.