Silent Investor Owed Lots of Money

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athan
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Silent Investor Owed Lots of Money

Post by athan » Tue Feb 02, 2016 2:32 pm

My father-in-law has invested a lot of money (not sure the exact amount but enough to buy a house) with his neighbor, who he is close with. The neighbor owns restaurants around the city and is trying to open new locations currently. The neighbor has run out of cash and cannot finish the new restaurant he is currently building. He has asked my FIL to lend him another $60,000 to help finish the new restaurant, but my FIL turned him down because he doesn't have more money to invest. FIL is not being paid back on the loan currently.

It is frustrating for my wife and I to watch from the outside, because the neighbor lives in a mansion and has a second vacation house. They drive expensive cars and belong to a country club. The kids go to private schools and the parents act like they are rich, even though they cannot pay on their loans. My guess is he owes money to the bank on his houses, cars, and business. This means my FIL is low on the list for repayment.

FIL worked very hard over the years and saved vigorously, but now is retired and wants to move to Florida. He cannot afford to do this due to the loan not being repaid. They are currently friends and my FIL looks at the guy like a son. I am obviously not getting involved because it is none of my business. I'm just curious what bogleheads would do in this situation.

I think I would confront the neighbor (and his wife) and explain that you need your money back. You do not want to get a lawyer involved, but see that the kids are going to private school and they belong to Country Club. I would tell them you no longer will pay for these luxuries.

What does everybody think?

barnaclebob
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Re: Silent Investor Owed Lots of Money

Post by barnaclebob » Tue Feb 02, 2016 2:35 pm

Your FIL is likely screwed. The money is gone and he will not be repayed in all likihood. Hopefully he has other retirement savings or he will have to take a reduction in lifestyle. You also need to come to terms with the amount of help you are or aren't willing to give him.

The first thing to do would be to find out what is in writing, but you don't want to get involved so there isn't much you can do besides watching and waiting for him to ask for help.

betterfinances
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Re: Silent Investor Owed Lots of Money

Post by betterfinances » Tue Feb 02, 2016 2:40 pm

On the Boglehead forums, posts are required to be actionable. I'm not sure what action you are interested in taking because you say you don't want to get involved.

supersharpie
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Re: Silent Investor Owed Lots of Money

Post by supersharpie » Tue Feb 02, 2016 2:46 pm

Sounds like a storyline to an episode of American Greed.

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Re: Silent Investor Owed Lots of Money

Post by adamthesmythe » Tue Feb 02, 2016 2:53 pm

> Sounds like a storyline to an episode of American Greed.

Sure does.

There is a possibility that a repayment could be obtained by being sufficiently unpleasant and threatening. You would be trying to get ahead of all the other sources of money for what might turn out to have been a pyramid scheme.

denovo
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Re: Silent Investor Owed Lots of Money

Post by denovo » Tue Feb 02, 2016 2:56 pm

It's hard to know what his recourse unless we know a way lot more, such as whether this was a partnership, a loan, etc, what are the terms and so forth? Given you said FIL views this person as a son, maybe it's all informal. There's no way anyone here can tell you anything meaningful. Since these are your in-laws, I would let your spouse deal with it, if your FIL wants assistance. But he's likely in for a world of hurt.
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SouthernCPA
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Re: Silent Investor Owed Lots of Money

Post by SouthernCPA » Tue Feb 02, 2016 2:57 pm

I hate to be the bearer of bad news, but if the banks wouldn't lend him the money, that should have been a red flag to walk away. The main reason people hit up outside lenders (like your FIL) is because they are unbankable usually due to overleverage and the banks cut them off.

Banks are infinitely better at determining default risk than a layman. Looks like your FIL is going to take a bath on this one.

joebh
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Re: Silent Investor Owed Lots of Money

Post by joebh » Tue Feb 02, 2016 3:01 pm

athan wrote:I think I would confront the neighbor (and his wife) and explain that you need your money back. You do not want to get a lawyer involved, but see that the kids are going to private school and they belong to Country Club. I would tell them you no longer will pay for these luxuries.
Unless he has a solid contract, most likely this will just antagonize the neighbor, rather than get him to fork over the money. He might be better off suggesting a payment schedule, where he could recoup his money over time.

I'm guessing there is no contract. And I'm guessing your father in law is unfortunately screwed.

Polymath
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Re: Silent Investor Owed Lots of Money

Post by Polymath » Tue Feb 02, 2016 3:02 pm

Eek.

I would work carefully to get mutually recognized documentation in place of what was loaned and when. Only then do you have a starting point to take any real action for the future.
Last edited by Polymath on Tue Feb 02, 2016 4:52 pm, edited 1 time in total.

athan
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Re: Silent Investor Owed Lots of Money

Post by athan » Tue Feb 02, 2016 3:09 pm

I do not know details of loan but it is in writing. Also, FIL said something about a lien connected to his liquor license.

joebh
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Re: Silent Investor Owed Lots of Money

Post by joebh » Tue Feb 02, 2016 3:11 pm

athan wrote:I do not know details of loan but it is in writing. Also, FIL said something about a lien connected to his liquor license.
Dad needs legal advice.

He should get a competent attorney to hear his story, read through this documentation, tell him what he has actually signed up for, and advise him of his options.

The size of the the neighbor's home, where the neighbor's children attend school, how many cars and vacation homes he owns, and what clubs he belongs to - all that is irrelevant. The only thing that matters is on the documentation.

He should contact his attorney without delay. Needless to say, no more money should go from Dad to this neighbor/son/shady businessman.

Rupert
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Re: Silent Investor Owed Lots of Money

Post by Rupert » Tue Feb 02, 2016 3:19 pm

joebh wrote:
athan wrote:I do not know details of loan but it is in writing. Also, FIL said something about a lien connected to his liquor license.
Dad needs legal advice.

He should get a competent attorney to hear his story, read through this documentation, tell him what he has actually signed up for, and advise him of his options.

He should do it without delay.
+10. He needs a lawyer who practices business contract law. Don't go to the family estate planning attorney. My biggest fear would be that the bozo neighbor declares bankruptcy while your FIL is still trying to figure out what to do.

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Re: Silent Investor Owed Lots of Money

Post by randomguy » Tue Feb 02, 2016 3:37 pm

athan wrote: FIL worked very hard over the years and saved vigorously, but now is retired and wants to move to Florida. He cannot afford to do this due to the loan not being repaid. They are currently friends and my FIL looks at the guy like a son. I am obviously not getting involved because it is none of my business. I'm just curious what bogleheads would do in this situation.
No he can't go to Florida because he made a high risk investment that hasn't paid off. That is a know risk of making high risk investments. The fact the the person has house, sends his kid to private school and so on is just noise. FIL should see the lawyer that advised him on the agreement and ask what the next step is if the loan is in default.

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greg24
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Re: Silent Investor Owed Lots of Money

Post by greg24 » Tue Feb 02, 2016 3:42 pm

Has your FIL asked for your advice on the matter?

athan
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Re: Silent Investor Owed Lots of Money

Post by athan » Tue Feb 02, 2016 4:42 pm

greg24 wrote:Has your FIL asked for your advice on the matter?
No...he just brought it up to us for the first time today. We didn't know there was an issue. He said he doesn't want to involve a lawyer yet because he doesn't want to pay for a lawyer. He didn't seem overly concerned about the situation, so my wife and I changed the subject after a few minutes. The neighbor is still paying him a little each month, just nowhere near the original amount agreed upon. The loan should have been paid off by now.

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VictoriaF
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Re: Silent Investor Owed Lots of Money

Post by VictoriaF » Tue Feb 02, 2016 4:48 pm

supersharpie wrote:Sounds like a storyline to an episode of American Greed.
It's not uniquely American. Recently, a friend told me about his 80-year old relative in a different country who's spent tens of thousands of dollars on his girlfriend's breast enlargement.

Victoria
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Re: Silent Investor Owed Lots of Money

Post by Levett » Tue Feb 02, 2016 4:59 pm

Under the circumstances, I would consider hiring a private investigator to examine the neighbor's finances.

If the investigator finds what appears to be your suspicion (unpayable loans), I would show the report to your FIL.

Your FIL can then decide on his own how to proceed, especially if he has the mistaken expectation of being paid back voluntarily.

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Guest9876
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Re: Silent Investor Owed Lots of Money

Post by Guest9876 » Tue Feb 02, 2016 5:05 pm

Even if he has nothing in writing---and I hate to say this but it's why he needs a lawyer--- a new loan of whatever size could include a statement of repayment terms on a previous loan, which would "prove" the original loan. All of this depends on an independent assessment of the guy's creditworthiness, etc.

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cheese_breath
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Re: Silent Investor Owed Lots of Money

Post by cheese_breath » Tue Feb 02, 2016 5:07 pm

VictoriaF wrote:
supersharpie wrote:Sounds like a storyline to an episode of American Greed.
It's not uniquely American. Recently, a friend told me about his 80-year old relative in a different country who's spent tens of thousands of dollars on his girlfriend's breast enlargement.

Victoria
Did you mean that to be singular?
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VictoriaF
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Re: Silent Investor Owed Lots of Money

Post by VictoriaF » Tue Feb 02, 2016 5:10 pm

cheese_breath wrote:
VictoriaF wrote:
supersharpie wrote:Sounds like a storyline to an episode of American Greed.
It's not uniquely American. Recently, a friend told me about his 80-year old relative in a different country who's spent tens of thousands of dollars on his girlfriend's breast enlargement.

Victoria
Did you mean that to be singular?
I assume there are at least two breasts. But I think grammatically, in the statement above, a singular breast is appropriate?

Victoria
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fposte
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Re: Silent Investor Owed Lots of Money

Post by fposte » Tue Feb 02, 2016 5:14 pm

I'm just curious what bogleheads would do in this situation.
I kind of am in this situation. My dad did something like this, with a colleague who similarly has a mansion and lots of foreign travel and underneath it debts to the IRS and heaven knows who else. The money never came back, and a legally drafted promissory note was part of my father's estate. Guess how much we've gotten on it?

One difference is that it didn't affect my father's retirement plans, so it wasn't quite as unfair. But I don't think it would have changed anything for the debtor if it did. Not that the debtor is a horrible villain; worse, he's a nice guy in decent standing who somehow thinks he's more entitled to spend the money he owes than repay it.

And from my experience, I think confronting this guy will do nothing. He knows he owes this money, and he's rationalized his decision not to repay as righteous. I think the choices are to sue, recognizing that winning and collecting are two different things; shrug it off entirely; or, if it's eligible, write it off as a bad debt and let the debtor deal with the taxes.

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Watty
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Re: Silent Investor Owed Lots of Money

Post by Watty » Tue Feb 02, 2016 5:19 pm

supersharpie wrote:Sounds like a storyline to an episode of American Greed.
+1
But with third hand information things often get garbled.

Sad to say but what you FIL will may find out is that the loans were technically made to Bupkis Incorporated and not directly to his neighbor. The neighbor could have been drawing a large salary from Bupkis Incorporated and have little of his own money invested in it. Eventually if Bupkis Incorporated fails and goes into bankruptcy he may have little recourse against the neighbor.

It is important to have a lawyer review all the paperwork he has since there is also a chance that he was somehow set up as a part owner or partner in Bupkis Incorporated and in that case there is a chance that creditors, or the IRS, will try to collect debt from him if Bupkis Incorporated fails.

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Re: Silent Investor Owed Lots of Money

Post by retiredjg » Tue Feb 02, 2016 5:24 pm

At this point, I think you should be supportive and stay out of it. If you get involved, it is the same thing as saying to your FIL "I don't think you can handle your financial affairs". Even if it is true, do you really want to imply that?

Your FIL may not need your help. Let him fix this in his own time and in his own way. It is his and your MIL's problem. Assume, at least for now, that they can fix it. If you found yourself in a pickle, would your want your upstart SIL telling you what to do?

It is highly unlikely that he needs instructions from you. It is pretty certain that he needs your support. If you must do something, do that.

athan
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Re: Silent Investor Owed Lots of Money

Post by athan » Tue Feb 02, 2016 5:43 pm

retiredjg wrote:At this point, I think you should be supportive and stay out of it. If you get involved, it is the same thing as saying to your FIL "I don't think you can handle your financial affairs". Even if it is true, do you really want to imply that?

Your FIL may not need your help. Let him fix this in his own time and in his own way. It is his and your MIL's problem. Assume, at least for now, that they can fix it. If you found yourself in a pickle, would your want your upstart SIL telling you what to do?

It is highly unlikely that he needs instructions from you. It is pretty certain that he needs your support. If you must do something, do that.

I totally agree and am not planning on interfering. My FIL is a smart guy who has saved well over the years. My wife's parents are the reason she is so good with saving money. I am very fortunate that he taught her from a young age the values of hard work and money management. I think he is just upset because this money could help him in retirement and also help the grandkids go to college.

From my point of view I don't care, nor was I expecting to get any money from either her parents or mine. It is just upsetting to my wife and I that someone so close to her dad seems to be taking advantage of him.

Also, I think the neighbor just got in over his head and is not trying to maliciously screw people out of money like you would see on American Greed. He does run a handful of seemingly healthy restaurants. He just tried to expand too quickly, along with living an unsustainable lifestyle with his family. Who knows, maybe he can turn it around and get funding for the new restaurant/bar. He does have a great location for the project in one of the best areas of the city.

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Re: Silent Investor Owed Lots of Money

Post by GoldenFinch » Tue Feb 02, 2016 5:49 pm

This reminds me of a sad situation. Several years ago my husband knew a restaurant owner (it was someone he knew from childhood). The guy lived in a million dollar house and sent his kids to expensive private schools. A few of his restaurants were failing and he ended up with only one, which was going down the sewer. My husband met with the guy for lunch and told him he was going to buy me a ring. The guy told him not to buy any jewelry because it was a waste of money. Then, at the end of the lunch, he asked my husband (we had a house full of little kids at the time) FOR 20,000 DOLLARS as an investment to open a new restaurant. My husband, of course, said no.

Rest of the story:

The guy lost his one remaining restaurant and was trying to open up a new one when his life fell apart. His extravagant home that he had built and owned for years was foreclosed. He was in the process of opening up a new restaurant when he had a heart attack and died (50 years old). When my husband talked to the guy's brother the brother said the guy owed him 500,000 dollars. There was no money in the estate.

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Re: Silent Investor Owed Lots of Money

Post by Fallible » Tue Feb 02, 2016 5:50 pm

athan wrote:
greg24 wrote:Has your FIL asked for your advice on the matter?
No...he just brought it up to us for the first time today. We didn't know there was an issue. He said he doesn't want to involve a lawyer yet because he doesn't want to pay for a lawyer. He didn't seem overly concerned about the situation, so my wife and I changed the subject after a few minutes. The neighbor is still paying him a little each month, just nowhere near the original amount agreed upon. The loan should have been paid off by now.
If he hasn't asked for your advice and you don't want to get involved, that kind of ends the matter doesn't it?
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Re: Silent Investor Owed Lots of Money

Post by Toons » Tue Feb 02, 2016 5:59 pm

"My father-in-law has invested a lot of money (not sure the exact amount but enough to buy a house) with his neighbor, who he is close with. "

Above is a Mistake.
Experience is Applied Failure.
He may never see his money again.
If Not ,lesson learned.
Whatever,keep smiling
:happy
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Toons
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Re: Silent Investor Owed Lots of Money

Post by Toons » Tue Feb 02, 2016 6:00 pm

"My father-in-law has invested a lot of money (not sure the exact amount but enough to buy a house) with his neighbor, who he is close with. "

Above is a Mistake.
Experience is Applied Failure.
He may never see his money again.
If Not ,lesson learned.
Whatever,keep smiling
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

SGM
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Re: Silent Investor Owed Lots of Money

Post by SGM » Tue Feb 02, 2016 6:00 pm

This may be a Ponzi scheme and there may be other suckers.

Get an attorney involved and the sooner the better.

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Re: Silent Investor Owed Lots of Money

Post by retiredjg » Tue Feb 02, 2016 6:18 pm

athan wrote:I totally agree and am not planning on interfering.
Ok. I assumed from the last part of your original post that you intended to try to help your FIL/MIL along with advice. Perhaps you are just blowing off steam.

I suspect your FIL was blowing off steam as well. Good that he has enough trust in you two to be able to do that.

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Re: Silent Investor Owed Lots of Money

Post by mhalley » Tue Feb 02, 2016 6:25 pm

"Enough to buy a house" is awfully vague. You can buy a house for 25k, 250k, 2.5 million. Which is it? Did FIL put ALL of his retirement into this? I just got off jury duty today, and as much as I hate to say it, sounds like lawyer time.

athan
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Re: Silent Investor Owed Lots of Money

Post by athan » Tue Feb 02, 2016 7:01 pm

mhalley wrote:"Enough to buy a house" is awfully vague. You can buy a house for 25k, 250k, 2.5 million. Which is it? Did FIL put ALL of his retirement into this? I just got off jury duty today, and as much as I hate to say it, sounds like lawyer time.
I don't know the exact number and didn't ask. It isn't all of his money but a solid chunk. I would say somewhere in the neighborhood of 250k

mhalley
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Re: Silent Investor Owed Lots of Money

Post by mhalley » Tue Feb 02, 2016 7:30 pm

Wow that is a lot. From watching some of the reality tv shows I know that the restaurant business is very tough with many closing. A new restaurant up the road a ways just failed after opening, closing for a month to try to revamp its menu and other things to try to attract customers. You couldn't pay me to invest in a non chain restaurant.

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Re: Silent Investor Owed Lots of Money

Post by LadyGeek » Tue Feb 02, 2016 7:34 pm

The OP is describing a situation with his Father-In-Law, but is not getting involved. Since nothing will be done, the discussion is hypothetical (not actionable) and can have no clear resolution. Based on past experience, the discussion cannot be productive and will soon devolve into contentious disagreements.

This thread has run its course and is locked (not actionable). See: A reminder that non-investing general comment threads are OT
- It must be personal. In other words, you must be asking about your own situation. You can also ask on behalf of someone specific, such as a family member.

- It must be actionable. You must be able to do something specific with the replies that will make a difference in your situation.
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