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Kathy Rodriguez

Kathy Rodriguez, Real Estate Broker

Should You Loan Money to a Family Member Facing Foreclosure?





When a family member is in crisis, it’s only natural to want to help. If a relative is in danger of losing a home to foreclosure, things are complicated. Even if you want to help by loaning a loved one money, it might not be the best course of action.

What’s the Source of the Problem?
Before you think about giving a relative a loan to avoid foreclosure, be sure that you understand the situation and how your family member got there. If a loved one lost a job, went through a divorce or a spouse’s death, or had unforeseen medical expenses, it might make sense for you to help financially if you can. Everyone goes through tough times, and often circumstances are out of our control. A loan from you could set your loved one back on solid financial footing.

If, on the other hand, your family member is facing foreclosure because he or she bought a house that was too expensive or spent money frivolously instead of focusing on necessities, loaning that person money would be a bad idea. A loan from you wouldn’t solve the real problem, which is irresponsibility. After you bailed out your relative, he or she would likely continue with the same habits that led to financial problems and wind up stuck again. You don’t want to get in the habit of rushing in to rescue someone who keeps repeating the same mistakes.

Can You Afford to Help?
Maybe your loved one is in trouble because of circumstances beyond his or her control and you would like to help, but a large sum of money would be required to prevent foreclosure. Perhaps you could come up with the amount needed, but doing so would require you to wipe out your emergency fund, tap into your retirement account, or raid your children’s college savings.

In that case, as much as you’d like to help your loved one, offering a loan would be too risky for you and your immediate family. Using your emergency fund to cover a relative’s mortgage could leave you unable to afford an emergency repair to your own home or car or an unexpected medical bill, and withdrawing a large sum from retirement or college savings could jeopardize your or your children’s future plans and financial security. You can suggest that your relative explore other options, such as a short sale or deed in lieu of foreclosure.

Make the Right Decision
Wanting to help a family member facing financial problems is admirable, but you should consider things carefully. If your relative is at risk of foreclosure because of a one-time hardship and you want to–and can afford to–help, you should. On the other hand, if your family member is irresponsible or needs so much money that providing a loan would put your own financial health at risk, you’d be better off advising your relative to consider other options.