We have time and again encountered clients who lend money to colleagues, friends, family and other acquaintances on the basis of a trust relationship and in most cases by a way of an oral gentleman’s agreement. It has however become evident that many of this debts are never paid the end result of such informal transactions being broken relationships, broken trust and losses made.
If you want to safely lend money to somebody who is personally known to you it is always advisable get a qualified advocate to prepare a legally binding loan agreement between you and the borrower. Where such an agreement specifically provides for the provision of security for the loan advanced.
It is always important therefore to demand for security where you are lending someone a huge amount of money that you cannot afford to write off. A security can be in the form of the following:
Chattels mortgage- this is a term used to describe a loan arrangement in which an item of movable personal property is used as security for the loan. A chattel mortgage is a loan that is secured by chattel rather than by real property. Where movable property will include cars, household items, form produce e.t.c. With a chattel mortgage, the lender holds a lien against the movable property (chattel) until the loan has been satisfied, at which point the borrower resumes full control of the chattel. In case of default the lender can exercise their right of repossession in respect to the chattel.
Another way in which a lender can secure a debt is by way of transfers, in this regard a loan agreement provides for the depositing of ownership documents of the security e.g. a log book, the loan agreement thereafter specifically provides for the execution of post dated transfer documents between the parties and where the borrower defaults then the lender through his lawyers will be at liberty to lodge the said transfer for registration and thereafter repossess the security.
A loan agreement can provide for the borrower to do a power of attorney in respect of the security in favor of the lender, and thus where the borrower defaults the executed power of attorney is registered in favor of the lender and the lender gets the power to deal with the security as they please.
A loan agreement can also have guarantors who pledge to fulfil the borrower’s obligation should the borrower default.
In conclusion it is always important to visit an advocate for proper guidance on how to safely lend money.
Mweresa Eugene Sudi
SUDI & ASSOCIATES