A great, very long-term borrow of ours had several projects going on when COVID hit. We’ve never had issues with him over many dozens of loans. He’s well-capitalized, bright, honorable, and all his projects were well above water. Another lender, on projects we weren’t associated with, apparently panicked and demanded immediate payment when a few of his loans matured.
Knowing she could foreclose, he stopped work on these while trying to get her to back off and let him just complete the projects so everyone could make money. She and her investors relented. Guess what? They now own a few homes that they have no idea what to do with, and will certainly lose a lot of money. All they needed were the patience to let him do what he’s proven he does well.
On the other hand, we waited as we always do, and have been getting paid back on his properties. We’ve also done more loans with him.
I’m always amazed at how some lenders are unwilling to cut anyone some slack but very willing to cut their nose off to spite their face. It’s not personal, it’s business, and all that rubbish. Giving your brother-in-law the benefit of the doubt, I bet all he wants is do is complete his project and pay you and everyone else off. Very likely, it’s not in your interest at this point to force the issue.
Consider; assuming you have a documented loan (at least a note and recorded mortgage), if you foreclose and obtain the property, what would be your plan? Perhaps those above who would jump on the FC bandwagon could offer an answer?
In all likelihood, you would own an incomplete 14-unit project now subject to a 1st position mortgage. Could you pay the 1st off? No? Then you’ll end up losing it to them and you will be wiped out. (Our borrower’s lender and her investors, above, were 110% convinced the homes would sell at the foreclosure sale and pay them off. I mean, who doesn’t want to pay a premium for a busted construction project at a foreclosure auction? They were wrong.)
If you don’t have a documented mortgage, first shame on you, Jan, but your recourse now would be suing in court and obtaining a judgment. Good luck collecting on that judgment.
Good luck with the family relations after any of this.
My advice:
1) I don’t know what, “… it was notarized on …,”
means. If there is no loan, or just an unsecured note, get your brother in law to sign complete loan docs prepared by an attorney who knows what he or she is doing. Though you provided no information to the contrary, if nothing else, this will make the loan real to him and perhaps he’ll take it seriously. It will also ensure you get paid back when he (hopefully) refinances. If not, all the refinance money will go to him and the 1st position lender.
2) As a lender, secured or not, you have a right to know the status of the project and of the financing. Even in the best of times things always take longer than anyone hopes. Patience is key here. We’ve waited long after some notes matured for projects to get completed but we’ve always followed their status. So long as things are moving forward, you’ll never have an issue.
3) I don’t know your relationship, but I’d meet privately with your brother in law at the property perhaps monthly, and discuss status at lunch. Make it clear and non-judgmental, that you are concerned but have no plans to take any legal action. He’s stressed enough. Once you threaten or pressure him, he’ll quit returning your calls.
4) Re-read @Kyle J.'s post above.
Good luck, Jan.
