Loaning a friend money

[LivingAlmostLarge]

I am in a conundrum. Can you tell me the pros and cons of loaning a friend money. She's a very good friend. She's pretty good with money. She is very responsible. I loaned her $5k 4years ago and she paid it back asap. But now it would be $35-40k. She has a reverse mortgage and it's $65k. She has $30k to pay it. I keep telling her to pay it. I believe she is about to get a tax refund of $5k.

I could loan her $35k and pay it off and she pays me instead of reverse mortgage. The problem is that it's such a small amount it's impossible for her to refinance especially since the house is in her mom's name. Her mom moved out into a small apartment and she is living there now with the kids. Her mom is dying. She is an only child. When her mom dies she will have enough to pay off the reverse mortgage from her mom's IRA.

Would you loan her the money? I want to and I do trust her. I want to offer but it's a lot of money. I'm just unsure what to do. Thoughts?

[scfr]

I don't understand. Are you saying your friend took a reverse mortgage on a home that belongs to someone else (her mother)? How is that possible?

[kork13]

Nope. Absolutely not. Loaning somebody that much money, especially when it's in the middle of an emotional situation like her mother's likely death, can only change the relationship for the negative. You're needlessly assuming risks for her. It's not your business, you aren't going to get any benefit out of it, and it's only enabling poor decisions. If something happens & she's unable to repay you, it'll sour your friendship. Would you draw up a contract? Take out a new lien against the house? If your friend dies without something proving the debt, you're out of luck.

Why not just help your friend sell her mother's home? That would resolve the reverse mortgage, and also provide for any end-of-life costs incurred for her mother.

If you feel that strongly about helping her, give her the money as a gift, and be done with it. If you aren't willing & prepared to do that, then I'd argue that you have no place loaning her that kind of money. Too much risk involved, both financially & relationship-wise.

[disneysteve]

Can you tell me the pros and cons of loaning a friend money.

There are no pros. Only cons.

Lending a friend $5 because they're short and you're all out to lunch together is one thing. Lending someone tens of thousands of dollars is something else. I wouldn't even consider that unless I had every intimate detail of their finances in front of me. And I'd want a written legal contract. And I'd have to be willing to sever that friendship forever if things went south.

You have to decide which is more important to you - the friendship or giving her that money, because it's distinctly possible that doing the latter will destroy the former.

[Thrif-t]

Yikes! I agree with the others, that would be too much money for me to loan to a friend. Murphy's law and all that...

[mumof2]

I don't think i would loan that much money to a friend...but if you write up a contract with her that you both sign with a plan on how she is going to pay it back then maybe that would cover you, not really sure...but doing things like this really can hurt friendships...and if she is so responsible and good with her money why is she needing to borrow money again??

[LivingAlmostLarge]

Okay I guess I suggested to get her out of a reverse mortgage. She can't afford to live anywhere else. The truth of the matter she can barely afford to live there but only with the mortgage paid off. What she really needs to do after her mom passes is take some of her EF and pay off reverse mortgage, and start cashing in her moms IRA then live debt free and she'll manage. Her mom had $7k left and 10 years ago was talked into a reverse mortgage. Worse idea ever.

[bjl584]

If your friend is good with money, then why does she need a loan from you?

From experience, there are no PROS to lending money to people.
At least in my experience.

[disneysteve]

She can't afford to live anywhere else. The truth of the matter she can barely afford to live there but only with the mortgage paid off.

Initially you said, "She's pretty good with money." Now you're saying she can barely afford her home. Those are two very different statements.

I would stay far far away from lending her tens of thousands of dollars.

[LivingAlmostLarge]

She has been very responsible in paying off bills. The issues is not making enough overall. She's paid off all the debts her ex ran up. She pays her car on time, utilities, etc.

[Like2Plan]

She has been very responsible in paying off bills. The issues is not making enough overall. She's paid off all the debts her ex ran up. She pays her car on time, utilities, etc.

She sounds like a good bet, but what gives me pause is the fact that the house is not in her name. A lot could happen (prior to an inheritance) that is out of her control- what if her Mom sold the house because she needed money for her future care? That is a lot of money for her to put up without owning the house. You would have no standing--except for a personal note--which might be difficult to collect on if the house got sold out from under her.

[Smallsteps]

I think Like2plan is spot on ... this is NOT her house ......things can happen..... maybe if she had her mom sign the house over to her.
Is the house bequeath in her WILL ? If her mom is dying she should discuss and work with her mom on the estate plan as a whole.
Many people think or were told when someone passes they get X Y or Z but after the death there are other plans or complications.

If the CONS to loaning to friend end up being , how would you go about collecting?
If her mom does not leave her enough to pay you back how long will you give her to pay back ?

[creditcardfree]

Explain more. You aren't giving enough details. It's a reverse mortgage. What are the terms? Is a payment currently being made, is that payment required? Is the reverse mortgage hers or her mothers?

How is she able to pay you back if she can't afford the reverse mortgage? Something just isn't adding up for me.

Honestly, it would be a no for me based on what you have written so far. Too risky, nothing for collateral. I know you have a good heart. I'd rather her stay with me than give out tens of thousands of dollars.

[Fishindude77]

If it's a real good friend that you trust and you have the excess funds laying around, I don't think it would be crazy.
One of the best uses of money is to help others occasionally. I would definitely dig into the details of that reverse mortgage, ownership transfer, etc. and do your best to see that nobody winds up getting screwed.

Also, when the money leaves your hands understand that you may never get repaid. If that's a deal breaker, then you probably shouldn't do it.

[riverwed070707]

There are no pros. You would be a better friend if you helped her get her moms estate settled and the home transferred to her name. If she can't afford to stay in the home, why not sell?