Let the Lender Beware
Your friend calls you and says he needs to speak to you right away. After a few minutes he tells you that unless he pays his landlord the rent by 5:00 p.m. he and his family will be evicted. He states that if you will just lend him $800.00 for a short time he will definitely pay you back. You reach into your wallet and count out eight one hundred dollar bills. You slide the money into your friends hand and he thanks you and waves good bye. Fast forward one year and you have yet to see a penny of the money. Sound familiar? Unfortunately this scenario plays out all too often. However, while you can never guarantee yourself that you will be repaid there are things that can be done to protect yourself.
First every agreement should be in writing. It should specify how much is being borrowed and when the money will be repaid. All too often the lender and borrower are friends and it is somewhat uncomfortable to discuss the signing of a formal agreement. If you friend seems surprised or annoyed by being asked to sign an agreement than do not lend him the money. Ask yourself why would they resist signing an agreement if they intended to repay the money. A formal agreement is the only way that everyone can be assured of no misunderstanding as to the terms of the agreement. Another way to protect yourself is to loan the money in the form of a check so that there is additional written confirmation of the obligation. Additional means include retaining some personal property as collateral or if the buyer owns a house, obtaining a mortgage on the house. The later methods are generally reserved for more significant loans.
Sometimes the question of interest on the money comes up. Unless there is an agreement that the money will be paid back with interest than you will only be entitled to the return of the principle. If the money is to be repaid with interest the interest rate should be specified along with an amortization schedule indicating how much is to be repaid and when.
What if the borrower fails to repay the loan? You can institute suit in the appropriate Court of Law for the amount due and owing. If the amount is less than or equal to $3,000.00 suit can be filed in the small claims court. Amounts over $3,000.00 and no more than $15,000.00 should be filed in the special civil part. Generally, suit must be filed in the county where the defendant/borrower resides.
Even if you are successful in court the is no guarantee that you will actually recover the money you loaned. A successful litigant merely gets a judgment for the amount found to be due and owing. It is than incumbent upon the lender to try and collect on the judgment. Once a judgment is entered the lender may be entitled to post judgment interest.
In short lending money even to friends can be a risky proposition. In my humble opinion you should not lend money that you are not prepared to never see again. If you never see the money again chances are you will never see your friend again either.
The information contained in this article is intended for general informational purposes only. The facts of every case can vary. There is no substitute for a consultation with an attorney. Please visit a New Jersey Personal Attorney to understand more.
