loaning a friend $50k, questions about how to do this properly

[Samuel]

I'm well aware of the negatives as well...and I would've been one of the most fervent anti-personal loan people that exists... but in this case I know my friend very well, and I trust him.  I rarely trust people... and in this case the trust is well deserved.

I just gotta say, as someone who highly values integrity I like that others still can recognize and value it too. I'm also super wary of loaning money (mostly because of the danger of changing relationships for the worse) but there are one or two people I would loan to because I know they would move heaven and earth to make sure I get paid back. They value their integrity the way I do mine and have demonstrated it consistently enough to earn my trust.

50k is way more than I would be comfortable risking (don't kid yourself, nothing is "risk free"...he could pass away, for example) but if it's not to you then I like that you're willing to do this. In an age of blowhards and scammers I like that a carefully built reputation of trustworthiness is still worth something.

[Valhalla]

I'm well aware of the negatives as well...and I would've been one of the most fervent anti-personal loan people that exists... but in this case I know my friend very well, and I trust him.  I rarely trust people... and in this case the trust is well deserved.

I just gotta say, as someone who highly values integrity I like that others still can recognize and value it too. I'm also super wary of loaning money (mostly because of the danger of changing relationships for the worse) but there are one or two people I would loan to because I know they would move heaven and earth to make sure I get paid back. They value their integrity the way I do mine and have demonstrated it consistently enough to earn my trust.

50k is way more than I would be comfortable risking (don't kid yourself, nothing is "risk free"...he could pass away, for example) but if it's not to you then I like that you're willing to do this. In an age of blowhards and scammers I like that a carefully built reputation of trustworthiness is still worth something.

Good point, I fully agree.

As to the risk of him passing we away, he has made me beneficiary of his life insurance for the amount of the loan as well, and it's also stipulated in the loan contract.  He has assets so in the worst case it would be handled in the estate liquidation.  I would add that the loss of a valuable friend like this would be 10000 times the blow of the loss of $50k.  I'd rather lose $5 million than lose a close trusted friend like this to some unfortunate accident. 

Nothing is risk free, not even leaving it in the bank, earning 0.01%.  Even winning the lottery has a risk. :)

[Fireball]

How does collateralizing cost money?   My friend offered to do it, and I said 'sure, to keep both of us honest'.  We are treating this as a business transaction.

I assume you're taking a first lien position.  Typically, those are recorded at the state or county level and it costs money to draw up and record those documents. Keep in mind, I have no idea what the assets are in this transaction, only how things are *usually* done when collateral is involved. 

As a matter of general principle, the borrower handling the lien filings is not necessarily the best practice. 

[Valhalla]

How does collateralizing cost money?   My friend offered to do it, and I said 'sure, to keep both of us honest'.  We are treating this as a business transaction.

I assume you're taking a first lien position.  Typically, those are recorded at the state or county level and it costs money to draw up and record those documents. Keep in mind, I have no idea what the assets are in this transaction, only how things are *usually* done when collateral is involved. 

As a matter of general principle, the borrower handling the lien filings is not necessarily the best practice.

Good point.  We are not recording liens.  I actually hold physical title to the assets named in the loan document, and the loan terms specifically spells out that I have the first rights to the assets, and no sale / disposition / transfer can occur without my approval or until the loan is paid off.  There are legal repercussions that are spelled out if this condition is violated.  I think that should be more than sufficient for a personal loan of this nature.  It would be overkill to go and actually record liens with the county.

[Fireball]

How does collateralizing cost money?   My friend offered to do it, and I said 'sure, to keep both of us honest'.  We are treating this as a business transaction.

I assume you're taking a first lien position.  Typically, those are recorded at the state or county level and it costs money to draw up and record those documents. Keep in mind, I have no idea what the assets are in this transaction, only how things are *usually* done when collateral is involved. 

As a matter of general principle, the borrower handling the lien filings is not necessarily the best practice.

Good point.  We are not recording liens.  I actually hold physical title to the assets named in the loan document, and the loan terms specifically spells out that I have the first rights to the assets, and no sale / disposition / transfer can occur without my approval or until the loan is paid off.  There are legal repercussions that are spelled out if this condition is violated.  I think that should be more than sufficient for a personal loan of this nature.  It would be overkill to go and actually record liens with the county.

Gotcha.  Probably OK.  Depends on the state and type of asset really. A UCC can be a cheap way to place a lien depending on the asset involved. Ultimately, it would come down to enforcing the loan agreement via the courts in order to take possession or enforce the repercussions you mention.  If it actually ever got that far, it might be cheaper to just not pursue.