If you borrow from Peter to pay Paul you still owe Peter. Borrowing from family is touchy.
I know someone who was moving from a house to a seniors apartment, expecting to cash out and buy a new car with the proceeds. They wrecked their car during the move-out and the settlement was minimal, only giving them about six months rental.
A friend loaned them the money to buy a new vehicle $40K?? to be repaid upon sale of the house. The house has been sitting for ten months with little interest. Tax, insurance and heat for the house is ~$1,000 a month. Price has been dropped 20% and no action.
If I was the lender I would be extremely annoyed, expecting a faster return.
What if you lent someone $100K as a bail out and things got worse?
Using the Parliament condo as an example, If a person was using the pre-build buy to move up and got caught in this melt down what if it unfolds again further down the line.
1) Write off the $100K deposit
2) Sell the condo at a $200K loss
3) Borrow $200K from dad to avoid bankruptcy and losing the existing home.
Surprise
A year later the market is still in chaos and the mortgage on the original home comes due. Values are down and rates up. Dad, can I borrow another $100K? The bank won't talk to me. I you don't I'll never be able to pay you back the $100K.
The family is out $400K with no rescue in sight.
Dad had to take the $300K out of his RRSPs so owes CRA $300K.
Dad decides to sell the cottage in a down market to refinance the mess and gets hit with cap gains.
Other siblings are Pi***d over the decline in the estate.
Sometimes bankruptcy isn't all bad.
