By Robert Nislick
Before you lend money to someone, think about this. You may never see your money again. If that doesn’t scare you out of lending, then keep reading.
Someone needs money. You have money to lend. You negotiate a good rate. If all goes well, you can make a lot more in interest than if you stuffed your cash under the mattress, or put it in the bank.
The borrower has the noblest of intentions. He’s a good guy who would never want to screw you. Or maybe, he is a slimeball who has every intention of screwing you. You just don’t know. But in reality, it may not even matter. Even the nicest, most upstanding borrower can declare bankruptcy, and this can very likely leave you with no further ability to collect from him.
If that still doesn’t scare you out of lending, then let me explain what you can do to protect your interests. Your promissory note should require the borrower to put something of value up as collateral. It would be great if your borrower owned multiple pieces of real estate with no mortgages on them. Your borrower is more likely to own and occupy one house which already has a mortgage on it. If that is the case, it is unlikely that his real estate will provide you with enough security in the event that you are not paid back. Alternatively, you could try to take a security interest in goods that the borrower owns.
If the borrower defaults and you sue him, you will be incurring attorney’s fees to chase him. While you hoped this deal would make you money, now you’re spending money to try to protect your interests. Ideally, your promissory note will contain a contractual provision which requires him to pay your attorney’s fees if you sue him.
I may be able to get a hefty money judgment for you which may include an award of attorney’s fees. Sounds sweet, but the trick is to convert that piece of paper into money in your pocket.
You will want to record your execution against his real estate so that you will have a lien against his property. Hopefully, your borrower will own an expensive car free and clear. If that is the case, I may be able to seize it and get some cash for you.
Eventually, your borrower declares bankruptcy. Generally speaking, at this point, he wins, you lose. But not necessarily. There may still be things I can do to protect your interests, even after your borrower goes bankrupt.
If you have already lent money to someone and they have not paid you, I can let you know what your options are and assess your likelihood of recovering against them. Contact me for a free consultation.