Question:

My husband is applying for a mortgage loan and is using a piece of land he inherited from his father as collateral. We do not actually need the money. But we want to dispose of the land as soon as possible because there are already other people occupying it and we could not eject them from our land. Because of this the value of the land has already depreciated significantly. There is also the big threat that there will be more people who will follow suit and occupy our land. We are helpless in preventing these people from occupying our land.

We were advised by a Christian brother that we can get a loan for the land but will not have to pay it since we have a collateral for the loan. Is this right? I have had arguments with my husband regarding this. I insist that if we borrow money, we should pay it even though we have a collateral. But he also insists that the land is the payment for the loan. The bank will not bear any loss because they would now own the land. He also says that there is no other way for us to sell the land.

Is my husband correct? If our pastor approves of it, does it make it altogether right? We will most likely get the loan since my husband has a good monthly income and a very good credit standing. There is also someone who is helping us get the loan.

Can you enlighten me on this? I am not comfortable with applying for a loan when we do not have any intention of it paying back. But I cannot argue with my husband.


Answer:

Whether you find someone who agrees with your husband's position or not, that agreement does not make the position right or wrong.

When you and your husband sign a loan agreement, you will find wording something on the order of:

"For value received, borrower promise to pay lender, the sum of $_____ together with interest thereon at a rate of ___ percent per annum on the unpaid balance with interest compounded annually."

Therefore, if you do not make the payments you have broken your promise. "The wicked borrows and does not repay" (Psalms 37:21). Worse, you planned to break it even before you start. Your "yes" is no longer "yes." "But let your 'Yes' be 'Yes,' and your 'No,' 'No.' For whatever is more than these is from the evil one" (Matthew 5:37).

By not making payments, you will be in default on the loan. In your agreement you will find wording that states that a default includes:

"Borrower's failure to pay any amount due as principal or interest on the date required under this loan agreement."

In default, the lender will attempt to collect on the money owed. Additional fees and law costs will be added to what you owe. Eventually the collateral will be sold in an attempt to regain the funds owed. Usually the sale will be a distressed sale; that is, it will be done rapidly to get repayment as quickly as possible. As a result, the lender will end up selling the collateral at a far lower price than it is worth. And since you expect the property will be worth less in the future, they probably won't get much. In your loan agreement, you will find that you will still owe whatever was not collected and that will include the cost the lender went through to sell the collateral. To insure payment, the lender will get a court order to garnish you and your husband's wages until all costs, principal, and interest are covered. Until the money is collected, you are wrong that the lender will not bear any costs. Every step taken to collect for non-payment costs the lender money.

Meanwhile, the lender will report the problem to credit agencies so that other lenders are warned that you and your husband do not keep your word. Thus, if a loan is needed later, you won't get it because your credit standing will be ruined. If you have someone else as a co-signer on the loan in order to get it, you are also costing them money and ruining their credit. "A man devoid of understanding shakes hands in a pledge, and becomes surety for his friend" (Proverbs 17:18).

Rather than lie to get money from what you consider to be a worthless piece of property, it would make better sense to simply sell it for what you can get for it. Evicting squatters on a property can be difficult, but not undoable. You will need professional help, however. It isn't something most people can do accurately and legally. See "Evicting Squatters -- Knowing Your Rights" and "Squatters: The latest real-estate menace" for details. Depending on who is squatting on your land, one option is to offer to sell the land to the squatters at a reduced price.

Thank you very much. I will be sharing this with my husband, and hopefully he will be enlightened.