How to Avoid Problems When Lending Money to Friends or Family in New Jersey

There have been many times that I have consulted with clients who have lent money to family and friends (or their former significant other) and are now trying to collect. Unfortunately, there is often no writing to memorialize the loan and, even if there is, it doesn't set forth payment terms or define breach. So, if you are thinking about lending money to friends, family, or significant others, please consider the following, so you won't have a problem later, should you have to collect.

First and foremost, get it in writing! Set forth how much money is being lent, what the interest rate is (if there is one), what the payment terms are, and when the borrower is considered to be in breach. You do not want to part with the money, only to be told later by the borrower:

It wasn't a loan, it was a gift.
You said I could pay it back when I could, and I can't right now.
No, it was payable in five years, not three.
Interest? What interest?

Second, see if you can get the borrower to put up collateral for the loan, especially if the money is being lent to buy something. If it is for a car, be sure to file lien paperwork with the New Jersey Motor Vehicle Commission. If it is a home, have the borrower sign a mortgage document and record it with the county clerk. For anything else, get a detailed description of the collateral, including serial numbers if available. Anything that helps identify the collateral later is required. Then file a form called a UCC-1 . Not only will this give you some recourse in the event of breach, it will also protect you should the borrower file bankruptcy.

Third, and finally, talk to a lawyer! The above advice is good, but if done wrong may not help you. Be sure to have it prepared by a professional so that it is done properly. The fee will be money well invested, and you will thank yourself later if things go south.

The Law Office of Steven J. Richardson serves New Jersey, including: Gloucester, Camden, Burlington, Salem, Cumberland and Atlantic Counties and surrounding New Jersey communities, including Woodbury, Colonial Manor, North Woodbury, Woodbury Heights, Deptford, Thorofare, Gloucester City, Washington Township, Blackwood, Brooklawn, Westville and Pitman.

Richardson Law Offices
40 Newton Avenue
Woodbury, NJ 08096
Phone: (856) 686-9910
Fax: (856) 686-9911