Author Topic: A big, big BIG mistake.."carried paper" for family member, he's waaayyyy behind  (Read 5440 times)

JoJoP

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I am in a pickle.   My husband and I sold a ranch to my Brother In Law about 7 years ago.  We carried back a portion of the financing, and it's not going well.   I'd like to share this (long) story and get some input from ya'll. 

 Some history-- the sale was during the "boom" years, and we had several interested parties in this farm, but the BIL wanted it badly.  We sold it to him at a slightly discounted price of 850K.  We took 500K down, and carried the paper on roughly 350K, @ 7 percent, which was payable monthly, amortized over 30 years, payable in 5.  BIL and his wife sold a couple of properties (also at peak prices) for the down payment, and have great, well paying county jobs.   But they are not Mustachians, and concurrently bought a 1MM ranch home in need of TLC, and seem to always be stretched in the financial department.  But this bad financial acumen was not crystal clear at the time of the sale, which seemed like a good idea at the time <insert face punch>.

So, as we all know, the values of property have still not rebounded from the boom, and this big ranch will not have many takers in the best of times.   BIL is not the greatest rancher, so crop production is down from when we had it.   In other words, it isn't worth nearly as much now as it was when we sold it, and is more likely worth closer to what he owes than what he paid.  We tried to sell the note, but the numbers didn't work. 

The BIL is late basically every month, and has been since nearly the inception of the loan.  For instance, he currently owes us for May, June, July, August, and late fees amounting to $600.  If he continues at this rate, it will take him 30 years to pay it off.  And we would essentially be dealing with this for decades.    I know now just how terrible an idea this was/is, but it's a tricky situation to  extricate  from, not only because he is family, but my step son lives on the property as a ranch manager, too.  BIL has just retired with 100% pay, and it's harvest season...the money should be flowing... so the writing on the wall is even more clear than before.. we are very low on his list!


A couple of years ago, I switched the payment processing to a contract servicer, and this was a great idea, because the service now keeps track of the daily amortization, sends him a coupon book, allows for phone payments, etc.  It also insures that I get interest on the back due monies, and provided a neutral third party buffer between us and them.  BIL and his wife stopped returning my calls or emails years ago, so relations have been strained for a long time, but we're civil at family gatherings, etc. 

Twice we've extended the loan by 12 months... which was the main reason he has caught up on payments at least once in a 12 month period.   It's been our strongest leverage.  We also upped the late payment fee to $150 on the last go-round.   I threatened to raise the interest rate, but didn't end up doing it.    I think his credit is shot, and doubt he'd qualify for a loan.   It appears that a combination of bad luck (buying at the top of the market) and terrible financial habits has the BIL in poor fiscal shape.    A big property like that either needs a farm ( or commercial) loan or a land loan, both are more difficult to obtain than a conventional home loan. 

So, I am willing to foreclose on the SOB and sell the property for what ever we can get for it (likely about the same or less than he owes us in its current condition).   I don't want this headache, and the numbers are too big-- and interfering too much with our FI plans--for me to be happy just letting it work out however it does.  Obviously,  DH is not pleased with the foreclosure idea, but is tired of hearing me complain about it.  He feels that his brother will pay eventually, and doesn't want to take a loss on the sale.  DH is an easygoing guy and feels like we've got enough $$ rolling in that this won't make or break us.  Also, he is adamant about not wanting to go back and fix up that farm to make it ready to sell.    If the sale took a long time, the crop would die, the place could be vandalized, etc.  So, as near as I can tell, for many reasons the foreclosure idea is not really an option. 

What would you do if you were walking a mile in my moccasins?

 

escolegrove

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Family is beyond a tricky situation. I will start this out is at the end of the day this can't come between you and DH. So you too need to be happy with the decision.

That being said this would bother me immensely and I don't know if I could be "civil". Could you "foreclose on the note" reclaiming the entire property and hiring your step son to take care of it. Basically rent "re-own" the property and rent it out. This way you are not losing money but now have full control.

A second option is becoming foreful. We own 5 rentals and have done very well because we don't do late payments. I would suggest that at a minimum you at least follow through if they don't pay.

msilenus

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I see three options:
1) Foreclose.
2) Don't foreclose, continue to muddle through, and be miserable about the situation.
3) Don't foreclose, continue to muddle through, and try not to worry about it so much.

I suspect you're going to continue muddle through.  There're probably some tactical improvements you could make to how you're handling the situation which might help, but I don't think anything like that will fundamentally change the dynamic and make you happy on your own terms.

swestache

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I'd say: "Relax!"

Look, you're in a good spot if you look at it from the bright side.

Yes, you both fucked up pretty badly by doing business with family but on the bright side, he has been servicing his loan ( yes, even though he's late ) and he seems to be operating the farm reasonably well too.

And you do have legal papers which allow you to foreclose and get out! You're very lucky to have that legal option. Very lucky !

It sounds like you don't need the money soon so I vote for just letting it be as it is, with the middle-man handling the loan (so you can appear distant and remain cordial during interactions).

Best of luck.

I made the same mistake by the way, in the form of renting to inlaws. Big mistake there too.

former player

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You sold the ranch at the top of the market for a lot more than it is worth now, taking $500K out of the deal back then and still having a legal claim for most of its current value.  OK, you maybe could have squeezed a bit more out of the deal at the time, and the payments are slow on your loan, but you've done pretty well out of the deal, as far as I can see.  Your brother in law will be feeling a lot sorer about it than you are.

I see no advantage in foreclosure for you.  Even apart from the irreparable damage it will do to the family, you say that there will not be many takers, the ranch is not in the best shape and a foreclosure sale would make that worse, and you would be putting your stepson out of a job.

I wonder whether your best opportunity is in your brother in law's recent retirement.   If he is still getting 100% pay for no work, he has at least the same income plus more time and attention to pay to the ranch, so the financial picture there may improve.  I'd give it some time to see whether that is the case.  Alternatively, what is your relationship like with your stepson?  How good is he at running the place, bearing in mind that he is probably running it severely undercapitalised?  Could you do a deal to get your brother in law out of the day-to-day running and turn it over to your step-son, to see if he can do any better?   Even if you can't do that, can you offer your stepson some other help (additional training/consultant advice) that would enable him to be a better ranch/farm manager?

Apart from that, I think the advice from swestache to relax is good.    You have a better life than your brother-in-law and always will, so take pity on him, forget about him, and if you can turn the management of the whole issue over to your husband.  Don't make phone calls that won't be answered, forget increasing the interest and the late payment fees, say "yes" to any proposal to further extend the loan without even thinking about it.  The value to you in being able to live a good life and not making your husband choose between his wife and his brother far outweighs any cost to you of the late payments.

JoJoP

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I see three options:
1) Foreclose.
2) Don't foreclose, continue to muddle through, and be miserable about the situation.
3) Don't foreclose, continue to muddle through, and try not to worry about it so much.

I suspect you're going to continue muddle through.  There're probably some tactical improvements you could make to how you're handling the situation which might help, but I don't think anything like that will fundamentally change the dynamic and make you happy on your own terms.
Yup!  I guess I just need to change my outlook, since you are right, it's unlikely that I will really do anything like foreclose.

JoJoP

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Sweetstache and Former Player... you are correct, and thank you for your posts.   You both made me smile... I am, indeed, blessed in so many ways with a rich, happy life.  And, at the end of the day, the most important thing is to have harmony inside my home. As FP said, it's too much to expect my DH to choose one family member against another. 

 I need to look at the glass as half full... it's just so ANNOYING to be strung along.   Since BIL and SIL have such good government jobs, high pay, and that sweet retirement plan, it really rubs me wrong that they are so irresponsible to my DH, who works his tail off every day (he's a farmer-- they do not really get days off).    I overestimated their character by such a huge degree.

Since we all bought and sold at the peak of the market, it was pretty much a wash.   They sold high and bought high, and so did we.   Unfortunate, but that's how it worked out.   They had (not sure how it is now...) such fancy pants habits, such as an 80K live in horse trailer and pricey cars, horses, etc.    For a long time I just could not see where all the money was going, but I eventually had to conclude that it was going out faster than they were earning it, so their financial problems are real, even if self induced.

arebelspy

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I know you mentioned briefly trying to sell the note but the numbers didn't work out, but honestly, that's probably your best bet since you won't foreclose.

Dealing with this for 30 more years? Pass.

Sell the note at a discount, realize that even if you take a small loss on it, you still got near peak RE bubble prices overall (500k already + payments + what you get for the note) and that you didn't make out too bad.

Let the new note owner foreclose.
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Another Reader

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+1 to Arebelspy's suggestion.  Sell the note and tell the BIL it's out of your hands now. 

Goldielocks

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If you really don't want to force BIL, you might consider taking the long view and getting an agreement for the sum of money against another property of his too.  Especially if the ranch would be hard to foreclose and sell.

Eg he grants you 1\3 ownership of the separate house and you null the note on the ranch.  Then all you do is sit and wait until he sells the other property.  It could take decades and is not risk free, but better than hounding for payments, surely?
« Last Edit: September 01, 2014, 09:16:23 AM by goldielocks »

arebelspy

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Sell the note and tell the BIL it's out of your hands now.

Right.  You can easily come up wth an excuse for why you needed the money, and clearly they can't pay it off.  You can even offer it, like "we need 2xx,xxx right now, and will settle the note for that, otherwise we'll have to sell it and you'll have a new lienholder" and when they can't do it, you can sell it and it's now not your fault if they're foreclosed on, as long as they make the payments that won't happen.
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Another Reader

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Why create family drama and deal with the endless guilt trips from family members by issuing an ultimatum?  Just sell it and tell the family you simply could not have that interfering with family relationships.  It's in the hands of a third party, and you want no more to do with it.  Then change the subject and ask who is hosting Thanksgiving this year?  That's what I would do in your shoes.

electriceagle

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It sounds like BIL has the money (just barely), but you're last on the list every month.

Can you put him on automatic monthly payments from his checking account? No muss, no fuss and payments made unless the account is empty.

arebelspy

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Why create family drama and deal with the endless guilt trips from family members by issuing an ultimatum?  Just sell it and tell the family you simply could not have that interfering with family relationships.  It's in the hands of a third party, and you want no more to do with it.  Then change the subject and ask who is hosting Thanksgiving this year?  That's what I would do in your shoes.

I wasn't thinking of it like an ultimatum.

More like a "oh no, we need the money for XYZ and are going to sell the note, can you pay it off?  No? Okay, well we have to sell" - so they understand why you sold, and it's not out of the blue.  I feel like they're more likely to understand then, rather than when they suddenly find out they're being foreclosed on by a third party.

I could be wrong.
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Another Reader

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I would tell them right after the deal closed.  No pleas for forbearance, no invented crisis, the deal is done.  May be a few recriminations (Why didn't you offer it to US?) but the answer is well, you were not able to make payments, so we assumed you could not pay it off, and we sold the note to someone that could because we needed the money.  Please pass the pumpkin pie and the whipped cream. 

arebelspy

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I would tell them right after the deal closed.  No pleas for forbearance, no invented crisis, the deal is done.  May be a few recriminations (Why didn't you offer it to US?) but the answer is well, you were not able to make payments, so we assumed you could not pay it off, and we sold the note to someone that could because we needed the money.  Please pass the pumpkin pie and the whipped cream.

Yeah, that's probably better.
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SunshineGirl

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Is there a way for you to be the beneficiary of a life insurance policy on him to pay off the note in the event of his death? At least that way you know you'd be made whole eventually!

mooreprop

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I don't know about your family dynamics at all, but could any 3rd party be helpful?  All of the above ideas are great, but sometimes a less interested party can help smooth things over.  For example, in my family, my mother-in-law is the person most interested in family harmony.  If I were in this situation, I would tell her what was going on, how I felt about it, and what my options are. (foreclosure or selling the note)  She would talk to brother-in-law and keep him from getting all worked up about it.  She would find out what option is best for brother-in-law and let me know, and no one would feel like family harmony was disrupted.