When Steve Replin's cousin asked him for a $45,000 loan about seven years ago, he reluctantly acquiesced. Replin says his cousin, who was about 58 at the time, had always been a schemer, trying to make a quick buck, but he was going to put up stock in a small public company as collateral, so Replin figured he was protected. And he obtained a promissory note. Otherwise, the loan could have been perceived as a gift.

"He's a relative," says Replin, an entertainment lawyer in Denver. "I thought, 'Who's going to let down a relative?'"
Well, Replin's cousin did let him down. He refused to repay the loan.

"I called him up and said, 'Hey, Bob. Do you remember me? You owe me money.' He said, "To hell with it. I'm never going to pay you back.' And then he said, 'You can't sue me. I'm a relative.'"

But Replin did sue. And after nine months of aggravation and attorney's fees, he received a judgment against his cousin. When he went to sell the collateral, though, it was almost worthless. Fortunately, he found a man willing to pay $45,000 for the shares, given that he already owned a big part of the company anyway.

Replin says he sometimes sees his cousin around Denver, and he acts like nothing happened. A few years later, Replin's uncle, who owed $450,000 in taxes on various properties, also asked if he could borrow some money. This time Replin declined. If the uncle had defaulted, Replin would have had to foreclose on his properties, which he didn't want to do.
"He told my father, who got really perturbed," Replin says. "But he got over it."

Loans among family members are nothing new. But with the recession in full swing, some advisors say they have seen an uptick in family borrowing as people lose their jobs and find it hard to make payments on loans they took out when times were better.

Rebecca Schreiber, a certified financial planner in Silver Spring, Md., says a lot of her clients are young professionals who have been hit hard by the recession, and she's seen some of them borrowing money from their siblings. "Younger people are statistically the hardest hit in terms of unemployment, and they're turning to each other for help instead of to their parents because they are more worried about their parents than their siblings," Schreiber says. "I've been doing this five years, and that's something I've never seen before."

Schreiber says she has at least one client who receives periodic calls from her siblings, so much so that it's become part of the client's financial plan: setting aside money to lend to family members. "For a lot of siblings, it isn't really lending, it's giving. It's a way to keep them in your life," she says.

Of course, that's one of the biggest problems with lending to family members. Relatives feel less obligated to pay the money back. The threat of foreclosure or credit being damaged isn't usually there, and when it's a parent lending to a child-a relationship in which the money used to flow freely-it's easy to see the loan as a gift, even if the child has every intention of repaying it. Sometimes children are even surprised when their parents demand repayment.

Andrew Seidenfeld, for instance, was a publicist in the music industry in better times, but his business dried up and now he drives a limousine. Even that business has fallen on hard times, though, and his employer recently cut everyone's hours significantly. Seidenfeld, 47, says he makes about 30% less than he did last year, making it hard to pay his mortgage. When he mentioned the problem to his father, he was offered a $500 loan, but his father asked to be repaid in three months' time.

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