When the lender is a slave to the borrower

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You’ve probably heard Dave Ramsey say this many times before, “The borrower is a slave to the lender.” The quote was taken from the scriptures. That’s exactly what I had in mind when I decided to lend my sister $14,000 last summer. Finally, I can ‘enslave’ my annoying sister, who spends most of her free time bashing Obama on Facebook. At least that’s what I thought.

She and her husband, Abe were looking to buy a property near Texas Tech University in Lubbock where my nieces currently attend college. By buying the property, they were hoping to save money on room and board costs. But they were short of the 20% down payment required to avoid PMI (private mortgage insurance).

Love-hate relationship with my sister

No, I’m not really a big fan of Obama. I didn’t vote for him in 2008. Yet I told her I did, just to piss her off. You see, my sister hates the former president, and she’s not shy expressing it on social media. What crosses the line is when she continues to do so, three months into Trump’s presidency. That’s when I finally unfollowed her.

My sister and I have very little in common. She lives in the heartland, I live on the east coast. She’s a Republican, I’m a registered Democrat. She’s also a huge fan of G. W. Bush, which is not surprising because they live in Midland, Texas– the hometown of the Bushes.

Almost every other summer, our families would meet in Orlando and discussions always end up revolving around politics. The last meet turned ugly when she lost her cool–  I told her that the younger Bush is the worst president the U.S. ever had (again, just to piss her off) and that the only thing that I admire about him is his shoe-dodging skills. That was the day I learned that my shoe dodging skills weren’t as good.

So, it came as a surprise when I received a phone call from her, last summer, asking if she could borrow money.

How she negotiated the deal

The conversation went something like this (names were changed to protect those involved):

Sister: “Mark, can I ask you something? We are planning to buy a house in Lubbock and we’re looking to put down $30,000, which is 20% down.  Your nieces will both attend college there. But I’m not really borrowing the whole amount.”

Me: “Umm.. how much are you borrowing then?”

Sister: “Maybe, $10,000? Abe was thinking of applying for a personal loan but the 7 percent interest is too steep. Instead of paying enormous interest, we can just pay you more than the borrowed money. I really hate using our credit. Our three rental houses are paid off, though our residential house, not yet fully paid, but interest rate on that house was less than 3 percent. “

At this point, I was thinking that investing in real-estate supposed to provide you with increased cash flow. It’s clearly not the case for them.

The bright side is that they must have an excellent FICO score judging from the interest rate on their existing mortgage.

Sister: “The dormitory is so small plus they will have to share with other kids.  School officials don’t  want them to rent outside, other than if we have our own house there. Abe thinks it is not wise to throw $9,000 away.”

Apparently, she thinks it’s wiser to borrow from me, her brother 8 years her junior. Perhaps she’s right because I end up lending her the money anyway, without publishing her real name on this blog for the whole world to see.

The conversation continued partly in Taglish, which is a mixture of Tagalog (Filipino) and English languages:

Sister: “Baka naman, may extra ka diyan? I’ll make a promissory note. I’m sorry that I’m asking you. We have not found a house yet but every time we buy a house, we put at least 20 percent down.”

Sister: “I will pay in full within one year and may give extra for interest.”

Me: “OK, call me again later tonight.”

I end up writing her a $14,000 check. That’s the maximum amount that you can give to an individual in one year without having to pay a gift tax. Except that this is not exactly a gift, she offered to pay me $500 in interest or about 3.5%. In contrast, my savings account is offering next to zero.

 
Her promissory note

Loaning money to family or friends is often a bad idea

I was reluctant to lend her the money at first, not because I didn’t like her or because we disagreed over politics. Lending to family or friends is never a good idea. The relationship almost always ends up strained, or worst, destroyed. But when the one who is asking is your beloved sister, it is easier said than done.

Almost all of us have had bad experiences with loaning people we have good relationships with at some point in our lives. When I was 19,  I sold my Hypercolor T-shirt to someone whom I thought was my friend. He promised to pay me back on payday. Payday came, and went, he was nowhere to be found. It became clear that he has been avoiding me. I’m glad I lost that %$#%# friend of mine, but I regret losing my shirt, literally speaking.

In the end, I’ve set the bad experience aside and relented to her request for the following reasons: (1) that’s what my late mom would do, (2) she’s my sister– blood is thicker than water, (3) I have extra cash sitting in the bank.

One year later, when the loan matures

She called me up with a barrage of excuses, which I’m sure was genuine. But this time, the conversation was one-way. I barely said anything.

Sister: Mark, I’m sorry I can’t pay you in full. We have so many expenses. We just had our air-conditioner unit system changed last September. One of our rentals got vacant for 5 months. We have so many expenses. We’re scared we may not have enough money to pay for 5 property taxes. We were planning to take a loan to pay you immediately ‘coz we said we pay it all this June. Kaya lang baka malaki yung interest.Me (thinking): I’d sell all your rentals if I were you.

Sister: “But if you need it quick tell us. I really appreciate your understanding. We have money in stocks and retirement. But we don’t want to take it out because of the huge penalty.”Me (thinking): Yeah right, like I didn’t know.

Sister: “Instead, I will send the $5,000 tomorrow. I’ll send another $5,000 in 3 months. And $4,500 before the end of the year.”

Me: “That’s fine. I understand.” (hanged-up the phone)


Now she’s dictating the terms of the loan. I stayed quiet. I was disappointed that she didn’t keep her word. But I wasn’t in the mood to negotiate. I don’t need the money yet anyway.What am I supposed to do, sue my own sister? Easier said than done.I’d rather obey the new contract and be her slave.

When we borrow to our family members we all know exactly how it's going to end. It's either the loan will be paid off in full early, or you'll become a slave to your borrower.

Sad to read about this.
P.S. Sometimes I speak RuGlish (Russian + English) with my brother who doesn't speak English. I don't know why

Lending to a family member, relative or even to friends is never a good idea but it's a tough decision always when you're in that predicament. I'm an OFW and my family, relatives and friends back home (Philippines) would sometimes over Facebook ask money for a variety of reasons. We'll although I have a job, and is just beginning my path towards financial independence (I just recently learned about Dave Ramsey), after me and my wife do our budget at the beginning of the month, there's not much extra left for me to give, so I have to give them my "I'm so sorry, I don't have the money" speech. But if I have something extra (e.g. saved from previous month's grocery budget for example), I would rather give them the money and expect nothing in return. I have friends before who ask for money because they can't pay their mortgage on the brand new condo they bought, well tough luck, sell off that condo or sell everything in sight first because they ask other people money for the lifestyle they can't afford. What breaks my heart sometimes is that when family or friends ask for money because of their loved ones in a hospital and can't pay their bills, or don't have enough money to bury their loved ones (happens to few of my acquaintances back home). I would rather give intentionally/cheerfully than give reluctantly.

Agreed. BTW, I just visited your site, Stanley. Thanks for featuring me. I'm really impressed how quickly you learned how to speak the language in such a short time (not to mention starting a blog in English!).

The pain is missing that really cool shirt– it changes color depending on the room temperature. I'm guessing you weren't born yet when Hypercolor T-shirts became a fad in the U.S. 🙂

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