Giving a Private loan to family freind.

2 Replies

I have a family friend that bought his house cash.  Unfortunately he may not have paid tax for almost 5 of 8 years living there (my estimate) a collection company is in the process of foreclosing on him.  I was wondering if i could get some advice. To see if it's a wise decision to loan him the money. 

The Problem:

He owes about 45K at this point to collections.  The house is worth about upto 200k or 150k for a quick sell.  The Collection agency is foreclosing in about 7 days.

Proposed Solution:

I loan the man 45k + expenses for lawyer and any other expense to get a contract in line.  I'm thinking a 5 year term at 9%

Otherwise I'd like to just give him the loan short term for now and force a sale immediately maybe llc with him.  He bring the deed I bring the money and we split the profit and I'd just get15% or so above what I lend.

Questions

Can you run title in a week in conneticuit. Do you think this is a must?  The lawyer had someone check with the town already but I don't think that comes with any insurance. Just a lein search on the property. 

Should I put the my name on the deed?

I don't want to forclose on this guy but I don't think it's likely he will be able to pay promptly over the course of the loan. I'd like to force him to sell for his own good if it comes to it.  Are there any good ways to ensure this?

And can you think of anything I'm missing? 

I've been itching for an opportunity to invest.  This kind of fell in my lap but, I don't want to just do it without covering my bases.  I think the loan to value ratio should hoepfuly keep me protected from most oversight but I'm am completely new to this and I don't know what i dont know.  

Any advice that can be lent would be  greatly appreciated.

Thanks so much for your time sorry about the long read. 

- Neal

Originally posted by @Neal Clark :

I have a family friend that bought his house cash.  Unfortunately he may not have paid tax for almost 5 of 8 years living there (my estimate) a collection company is in the process of foreclosing on him.  I was wondering if i could get some advice. To see if it's a wise decision to loan him the money. 

The Problem:

He owes about 45K at this point to collections.  The house is worth about upto 200k or 150k for a quick sell.  The Collection agency is foreclosing in about 7 days.

Proposed Solution:

I loan the man 45k + expenses for lawyer and any other expense to get a contract in line.  I'm thinking a 5 year term at 9%

Otherwise I'd like to just give him the loan short term for now and force a sale immediately maybe llc with him.  He bring the deed I bring the money and we split the profit and I'd just get15% or so above what I lend.

Questions

Can you run title in a week in conneticuit. Do you think this is a must?  The lawyer had someone check with the town already but I don't think that comes with any insurance. Just a lein search on the property. 

Should I put the my name on the deed?

I don't want to forclose on this guy but I don't think it's likely he will be able to pay promptly over the course of the loan. I'd like to force him to sell for his own good if it comes to it.  Are there any good ways to ensure this?

And can you think of anything I'm missing? 

I've been itching for an opportunity to invest.  This kind of fell in my lap but, I don't want to just do it without covering my bases.  I think the loan to value ratio should hoepfuly keep me protected from most oversight but I'm am completely new to this and I don't know what i dont know.  

Any advice that can be lent would be  greatly appreciated.

Thanks so much for your time sorry about the long read. 

- Neal

 Have him talk to a bankruptcy attorney to see if filing would stop the foreclosure as a backup.

If he hasn't paid taxes, how do you know he has money to make a payment on your note?

Order a title report, set up escrow, write out the details of how you want the transaction to go and have an attorney put together the paperwork.

Another option is for you to buy the house for the amount owed with a carry back from him of the equity you want him to have. An attorney can help you with that, too.

@Account Closed Thanks! I didn't think of bankruptcy attorney i wonder if they can file in such short notice. I don't have high hopes of getting paid too consistently. He does have 2 units rented in the house now. So he should be getting 1600 a month going forward a shame he hadnt done so sooner. Do you think a good title search would return in time? Does that come with insurance if anything is missed? I kind of like the carry back option. I didn't know that term. Because I definitely don't trust him paying other bills like sewer and tax while he owes me the rest I don't want it getting re-forclosed on.