Ask a lawyer a simple question like how much will he charge for drawing up a loan document to lend $50,000 to a friend and you would expect a simple $ figure answer. However, your lawyer is more likely to respond, “Are you crazy?”.
Please do not get us lawyers wrong, some of our best friends are, well, friends. However, our experience is that somehow the universe conspires to make it difficult to get repaid from friends promptly, easily, or in some cases, at all. They die, lose their jobs, get dementia, become bankrupt, their daughters get married or their pet develops an expensive medical condition. All sorts of things happen to make your insistance on repayment seem insensitive and a source of lifetime resentment between you and your friend.
Unlike in their dealings with their own children people expect their friends to repay loans and believe their sincere expressions of intent to do so.
But you explain to your lawyer that it was your friend who insisted that a legal document be prepared at his expense to protect you. Your lawyer will advise that for peace of mind the loan document should have security. For example, a mortgage against a property or charge against some other asset. Your friend is not keen on the additional expense and may be “mortgaged up to the hilt” in any event.
You go back to your lawyer and ask for a cheaper solution. He suggests that you obtain post dated cheques. This may make it easier to get a judgment against your friend but enforcement may require expensive bankruptcy proceedings and even then you cannot get blood out of a stone.
All in all, if you cannot control your generous nature towards friends, take a tip from your accountant, don’t have any.
(c) Paul Brennan 2009 author of eBook and CD the10 Greatest Legal Mistakes in Business…and how to avoid them”.
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