Dear Penny, My brother-in-law's home was being foreclosed on. I had money that I could access in an annuity account, so I paid the house off so they wouldn't lose it. We have a signed agreement that he will...

Dear Unlucky,

You did an extraordinarily kind thing by saving your brother-in-law’s home from foreclosure. In a perfect world, your brother-in-law would be motivated to repay you out of gratitude. But in reality, a lot of people who lend money to family get the exact same thanks you’ve gotten.

Think about it from the borrower’s perspective. Imagine if banks never sued anyone for failing to make payments. What if no matter how late you got, they’d never charge you a fee or interest on top of interest? How much debt do you think would go uncollected? 

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That’s often how the situation looks from the borrower’s perspective when a family member lends them money. There are no consequences if they don’t pay it back. On top of that, because you’re well-off enough to offer financial assistance, it’s easy for the borrower to tell themselves that you don’t really need the money.

The good news is that you had the foresight to make your brother-in-law agree in writing to pay you. But an agreement only has teeth if you’re willing to bite. If you have any hope of recouping this money, you need to flash your teeth. Your brother-in-law and his wife clearly don’t believe you’ll hold him to the agreement he signed. 

Present them both with a copy of the agreement. Tell them that you’ll have no choice but to take them to court unless they resume payments. If your brother-in-law is the sibling of someone you’re currently married to, your spouse needs to have this discussion with you. Hire an attorney to send a certified letter demanding payment if they still refuse to pay. 

I’m hoping you won’t actually have to sue here. But nothing in this situation will change unless your inlaws see potential consequences for not paying you back.

Taking your brother-in-law to court may be your only hope of getting that money back. You clearly care about your brother-in-law if you were willing to pay off his mortgage. If the relationship isn’t already damaged beyond repair, you’ll need to weigh how important the relationship is to you versus how much you want your money back. 

Unfortunately, you also need to prepare for family drama if a lawsuit is necessary. Hopefully, others will understand that this was not a gift, but rather, a loan that you were under no obligation to make. But some people will probably see you as the bad guy for suing your family, especially if your brother-in-law and his wife are still struggling.

I think you need to plan as if you won’t be getting this money back. Lawsuits can take a long time to resolve. Also, collecting on a judgment could be difficult if your inlaws are dead broke. Getting them to agree to pay something each month, even if it’s less than what you agreed to, may be a better outcome than taking them to court.

The classic rule for lending money to family and friends is don’t do it unless you can afford to make it a gift. You’re certainly not the first person to learn this lesson the hard way.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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