Bailing relatives out of an underwater home

by JEANNE FLEMING, PH.D. and LEONARD SCHWARZ

Question: My brother-in-law recently asked me to lend him $10,000 to tide him over till he finds a new job. He’s offered me a second mortgage as security, but I doubt there’s ten grand of equity left in his house, plus it’s a trophy property they never really could afford. Still, I don’t want my sister to lose her home. What should I do?

Answer: The first rule of family finance: Never allow your siblings and their spouses to buy houses they can’t afford. Now if only it were enforceable.

From what you say, it sounds as if your sister and her husband were living beyond their means before he lost his job. So regardless of whether the economy turns around and regardless of when your brother-in-law is able to find work, it’s hard to believe that the probability of his being able to repay you isn’t a whole lot lower than the probability that he’s going to need to borrow more money in order to stay in that home.

The bottom line? If your sister and her husband own a place they can’t afford, lending them money isn’t bailing them out, it’s only postponing the inevitable. So unless you can afford to subsidize them indefinitely while they live in their trophy property —- and unless you and your family are happy to do so -— don’t lend them the dough.

We know, it’s your sister. But that’s why you need to hang on to your money: to help her and her husband get back on their feet once they move to a home they can actually afford.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.