AIBU to object to my husband taking a large loan for a friend?

[Sefal]

My husband has had a friend for some 40 years, it is probably more accurate to describe his friend as being like a brother to him.

His friend has recently got into some financial difficulties due to a building project costing more than expected. His friend has no way of obtaining money to finish the building project, and without money to finish it, the whole project will need to be ‘written off’, essentially throwing tens if not hundreds of thousands of pounds away and facing bankruptcy. My husband then offered to get a loan out for a lot of money (tens of thousands), to give to his friend on the promise his friend pays it back (plus the interest) when the project is completed. His friend has leant him money in the past, but it has always been from his savings never anything like this. It’s also been small amounts - a couple of grand here and there.

I think this is absolutely insane. Me and my husband both earn very well, but we do not have any savings and have loans and debts ourselves. We have also committed to some very high expenses ourselves for the next few years, and my husband in particular has been very anxious about money, which has in turn made me very anxious and I have been trying to find ways to increase our income. This loan would be hundreds of pounds a month, which as I pointed out, why are we worrying about money when my husband can afford an additional hundreds of pounds on a loan?

I also pointed out things such as:

what if your friend can’t pay you back
what if the project costs more
what if you need it paid off and your friend wants more time
what if your friend falls ill
what if you lose your job
what if you fall out with your friend

Essentially pointing out all the reasons why this is nuts. I also told him that if he chooses to do this, I won’t be supporting him nor will I be taking any notice of his fretting about money or wanting to live frugally. I’ve told him if it affects our lives e.g him saying we can’t afford something, I’ll be reminding him of his ridiculous loan. We’ve had a massive argument because of it.

AIBU?

Ok so when mate doesn't pay it back & the house has to be sold, what then?

Or they get divorced, the debts will be taken into account for both just as the assets will.

The world economy is in enormous crisis.

The loan would be fraudulent if not declared for exact use reasons. The bare minimum would be legal agreements to repay but how you could enforce that on a fraudulently obtained loan??

The debts that were taken on for the family will be taken into account. OP will state that the loan was taken out for a friend and a forensic accountant will be able to confirm this so....his problem not hers.

If the house needs to be sold then again, same thing because I am certain that the OP will divorce him in those circumstances, and the loan will be disregarded in his share of equity. He wont get more because of the loan.

Me and my husband both earn very well, but we do not have any savings and have loans and debts ourselves. We have also committed to some very high expenses ourselves for the next few years,

This is batshit insane and will end badly for you. No savings, you're already in debt, and he's going to take out a 5 figure loan for his bestie on a build gone bad? Bestie's under capitalized and has no end date in sight? WTF?

Sorry, I would divorce over this. Your husband's friend is in way over his head and drowning and he's going to drag your husband down with him and you too if you're not careful.

I'd be very clear this is a marriage ender and getting a lawyer consult with divorce papers asap. While you're at it, find a financial adviser who's got fiduciary duty and get your financial house in order. I have a low tolerance for financial risk but this is nuts.

DH may have best intentions & a verbal agreement with his friend but he needs professional documentation to protect the money & friendship.

@Sefal I cant help wondering why, given that you have no savings and have loans and debts, you have committed to a high expense commitment for the next few years.

How come you are in this situation when, in your words, you both earn very well?

This needs a legal contract drawn up. Your DH might want to reserve a part of the project as his stake in case things go belly up. But I would advise against it. A bridging loan or angel investor might be interested. His friend should try a broker to help him. Also, it's not likely he'll lose money, he just won't make as much, sometimes it's best to cut your losses versus throw good money after bad.
Finally as his wife, pls check if you ar risk of being jointly and severely responsible for the loan if anything happened.

But if there is a contract and the friend ends up bankrupt then the DH will get nothing (or almost nothing) back. If he takes part ownership of the project then he will be chased for the debts of the build. So either way he loses.

Literally the only way he will see his money back is if the friend finishes the build, sells at a profit AND pays all of his debts off. Which, lets face it, is vanishingly unlikely given that the house market is on its arse and he clearly owes the bank £££££, so the DH will come last if he pays anyone at all!

I work in finance.

Your husband is beyond ridiculous.

Firstly, if a mainstream bank won't lend, his friend is high risk. (Banks want to lend it's how they make money!).

Secondly, if an alternative lender, who take higher risks and charge more and often defer interest won't lend, then the project 8s clearly unviable.

Your husband shouldn't do this.
If he does thrn an unsecured personal loan is the most ridicilous way to even go about it.

Being blunt, if your husband is the only way of funding this, it's a loss maker and he'll neber get his money back.

As you obviously are aware, there is a lot of conditionality here: if it gets completed to budget, if it gets sold any time soon in the current property climate and if there is a profit.

IMO, your DH is on an ego trip to look like the big man and is totally disregarding the financial security of his own family to do so.

The fact that the friend as maxed out his ability to borrow is a red flag. That means professional lenders do not think he is a good risk. What makes your husband think he is a good risk and he knows better than professionals with experience in the field?

I suspect the friend's business may be in a death spiral. There is a a point of no return and even a large amount loaned to the friend may not be enough to save the business. We are also talking of a fairly long time frame here from the sound of it. People desperate to save their business may not be entirely rational or even concerned that they can drag somebody else down with them.

I mean has your husband gone through the books or paid somebody to do that to see what the true situation is.

No, I wouldn't think having an ownership interest in the property or venture. That would likely make you liable for even more possible shortfalls.

If he is an utter fool and cannot be dissuaded, at least get this properly drawn up by a lawyer.

If he’s a good friend, I’d message him asking him not to accept your DH’s offer as it’s already putting pressure on your marriage.

My parents always taught me that you never lend money unless you can afford to never see it again. As everyone here is saying it is madness for many reasons. It will presumably also have an affect on your credit rating(?) and therefore if you're remortgaging or needing a loan for yourselves any time soon will have a direct impact on you. I hope you don't have any children.

I really sympathise with the friend. Building projects are so intensive, so many moving parts, so many different kinds of decisions, so much sweat and toil, that they easily become part of who you are. The greater your personal investment, the greater your emotional involvement.

Having always done refurbs instead of buying 'ready to move in', that's what I did after my divorce. It felt like my opportunity to be fully myself and create a home I could truly love. A lot of other bad things happened in my life all at once. Anyone with just a metre of detachment could see my project was becoming unsustainable - but, like someone clinging to a bad relationship thinking it'll get better if I try harder, I let my involvement override logic.

I switched to a 'sub-prime' mortgage lender offering 130% of an already inflated value. I maxed out all credit lines including store cards. I ran out of money and had to sell my beautiful, almost finished home for the exact amount the mortgage company now reckoned I owed them. I was bankrupt, heartbroken, and felt like a terrible failure.

Fortunately (I suppose), I faced facts before asking friends & family for continuing funds. This was because I'd have to ask for so much to cover ongoing loan repayments, I was vanishingly unlikely to be able to make enough profit on the property to pay them back within ten years.

All of which is a deeply personal way of agreeing that, if the banks won't lend it, neither should a friend! I'm very sorry for all three of you in this predicament but, if DH can't afford to hand over the money and count it a potential cost of friendship, then he can't afford to help his friend. The fact that he'll have to borrow the funds - while already stretched by other commitments - only reinforces the unwisdom of doing so.

Does this friend have some hold over your DH or something? I’m trying to think how on earth someone would ever agree to this. The friend having loaned smaller amounts to your DH over the years is irrelevant, it doesn’t mean DH now has to loan back many times the value of those loans (or indeed anything!) I can only think he’s blackmailing your DH with some information he doesn’t want to come out, I can’t see how someone could be stupid enough to agree to this. I hope DH sees sense OP.

This will end the friendship anyway when either the loan doesn’t get paid back or the friend starts resenting paying. Can’t he just say sorry my wife’s vetoed this and won’t sign against house, if he’s not brave enough to say no

Me and my husband both earn very well, but we do not have any savings and have loans and debts ourselves

Of course taking out a loan for someone else who has already overextended themselves has a high probability that it's going to go wrong but in your financial position you're probably not going to be able to borrow 'tens of thousands of pounds' at a sensible interest rate.

Surely you need to be concentrating on getting out of your own debt not taking on more for someone else?

He needs a legal agreement for the friend to repay AT THE BARE MINIMUM. I agree I’d say I will not accept any comments about our spending. I’ve been stressing about finding ways to bring in more money and I won’t be doing that anymore. If this goes south so does our marriage, and if you cant make our own finances work then our marriage is in the toilet. You’ve been a misery about money and turns out you have it to spare for things you care about, which is clearly not us. I don’t accept this life with you anymore.

If my DH said this I would tell him I will divorce him if he goes through with it - and I’d mean it. So he knew how serious I was. He could ruin both your financial futures. If your friend can’t borrow commercially there is probably a good reason. You need to look after your own family first.

Would be surprised if DH fully discloses that the loan will be obtained

You’ve been a misery about money and turns out you have it to spare for things you care about, which is clearly not us.

This is a very big thing. Sorry, OP.

This is mental. You said you don’t have savings and have debts of your own and now your DH wants to take on debts for his friend. Friend has already shown he failed with this build, who’s to say adding tens of thousands more will fix the issues or be enough to complete the build?

But any legal agreement? Yes a court would agree he has to repay..

But probably 1p in £1....

It is utterly pointless thinking of taking an almost bankrupt person to court...

A whole load of stress for you...

You WILL NOT GET THE MONEY BACK... THERE IS A REASON BANKS WON'T LOAN HIM ANY MORE MONEY!!

It’s one thing loaning the friend from your savings, but to take out a loan for the friend - absolutely not.

Sheer lunacy on what the DH is going to embark on.
If he does it this will not end well.
And if the project over runs on time and money ..what then.