Here’s a recent email I received from Linda in St. Louis (not her real name or homeland, of course):
I bought your book last month and have given it to a friend, who will share it with her sister. My best friend could have used it ten years ago. Amazing how many stories there are.
She shared her own tale and later we spoke at length about how her close family relationships were destroyed by money.
Linda and her husband Lyle lived frugally yet were generous when extended family hit them up for financial assistance. A few years ago, they helped out Lyle’s step-brother Dan and his wife Debbie when they needed a $6,000 loan. The two couples were close friends, not just family members by default, she told me.
Livin’ life to the max
Dan and Debbie lived life to the max. That is, credit card max and mortgage max. They used their home equity line of credit to buy a condo in Florida where they planned to retire. However, retirement was elusive because they were mired in debt. Linda and Lyle knew their siblings-in-law were livin’ large, but didn’t know the extent of their financial problems.
Bad became worse. Dan lost his job and at age 62, he was considered unemployable in his profession. By then, their home that carried $420,000 in debt was worth only about $275,000. The next step was inevitable: Foreclosure.
Dan and Debbie thought they had one last card up their sleeves. The Florida condo was owned by Debbie’s family trust. They hoped the bank wouldn’t uncover this asset and force them to sell it to cover the debt on their home.
Few options remained.
Linda and Lyle didn’t find out the complete backstory until they were invited to dinner “to discuss something important.” They both had the same initial reaction: their family had financial troubles and needed help. Again. Most of the previous $6,000 loan was still outstanding.
Dan fixed drinks for everyone and laughed nervously, “Relax, we aren’t asking you for money.”
OK, then what? An organ transplant?
Illegal short sale.
“We thought you might buy our house in a short sale for about $250,000 and rent it back to us for two years until we move to Florida. It’s a good deal for all of us. You’ll get an investment at a good price by paying less than the outstanding debt. We’ll have a place to live until we get back on our feet.”
Lyle was savvy enough to know instantly that this scheme would be illegal. He explained that a short sale must be an “arms-length” transaction — not between relatives — or else it might be fraudulent.
Lie about it.
Dan cavalierly said, “So, lie about it.”
He and Lyle were step-brothers with different last names. Easy. The bank might never know, right? It’s possible Dan and Debbie wouldn’t get a better offer on the open real estate market. Was it fraud if no one got hurt?
Linda told me, “Lyle questioned Dan and Debbie about their personal finances, which clearly annoyed them. And he gently tried to dole out some practical advice, which really pissed them off.”
Linda and her husband carefully considered the deal for a week.
Helping out close family members might save them from financial collapse. However, they thought Dan and Debbie were so mired in the immediate crisis that they weren’t looking at the bigger, uglier picture. They might incur tax liabilities on the forgiven mortgage debt. Perhaps bankruptcy. The couple probably never stopped to consider the myriad ways this arrangement might affect their social relationships with Linda and Lyle.
And there were practical considerations. Linda and Lyle weren’t the types to rush into an investment, no matter how good it looked. They were renovating their own house and didn’t have that kind of cash on hand.
Ultimately, Linda and her husband couldn’t get past that part of the scheme that implicated all of them in an illegal transaction.
Dan and Debbie became furious and said they didn’t want to have anything more to do with them. Abruptly they cut off all contact.
It felt like a divorce.
Linda and I spoke just a few weeks after the blow up. She was still in shock and said it felt like a divorce. Linda thought she and her husband made the right decision, she told me. But she was devastated by the loss of the relationships. “And I’m sure, even if we had caved, they would have stopped talking to us later,” she reasoned.
I’ll check in with Linda later to find out if it was truly the end of the road for the two couples, and how Dan and Debbie dealt with their predicament.
Would you lie if a close relative begged you to help them out of a desperate situation?
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