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It’s very common for people to loan out money to family or friends. Although they never really take consideration of the security of these loans.
Documenting family loans and taking security is important. Security can be provided in the form of a mortgage of real estate or a charge over a property.
Documentation gives the lender the right to recover debt from those assets in priority to other creditors.
If you don’t take security and your borrower goes bankrupt, you may find that your borrower has many other creditors with whom you have to share their assets, resulting in the tragic loss of family money.
This situation can be avoided by filling out relevant documentation upfront and registering it in the appropriate places. It’s in the interest of all parties entering family loans family loans to make sure this happens.
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