Home' Trinidad and Tobago Guardian : August 24th 2014 Contents AUGUST 24 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
PERSONAL FINANCE | SBG9
Tri level building Approx. 11,500 sf
Call for details
Kathryn (Kathy) a 35-
year-old single mother
of three earns a good
salary but has found
herself in financial dire
straits. One year ago,
she signed an agreement with a relative
to improve a dilapidated two-storey
commercial building and use it as she
wishes, rent-free for seven years. After
that time, she has the first right of
refusal to purchase or pay a reduced
rent of 50 per cent of the market rate
for the following three years.
To date, Kathy has invested over
$300,000 in renovations and the job
is still incomplete---she needs an addi-
tional $75,000 to finish the project.
When completed, she can sublet the
space for at least $10,000 per month.
Kathy has used up her entire savings
of $60,000 and borrowed from every-
one she knows to finance the invest-
ment. All of her loans are up to date
except the largest one for $150,000---
unsecured and now in the hands of a
debt collector. Six months ago, she
offered an arrangement to them for
$3,000 per month but they refused
and insisted that she pay the regular
instalment of $5,000 plus $1,000
toward the arrears---or else...
She tried to consolidate but no one
was willing to lend because of her credit
rating and lack of collateral. She is
tempted to sell her car for $50,000 and
pay down this debt but has no idea
how to operate without transport plus
three young children. She would love
to purchase the property but cannot
see a way out of her present quagmire.
Worst Case Scenario
It is instructive to first follow the
rabbit hole and see where it goes, asking
ourselves: what is the worst that can
happen? We then work our way back
Always keep in regular
contact with debt collectors
up until we find the best-case scenario(s).
Certainly Kathy could sell her car and get the bad
dogs off of her back temporarily---but she still has
a shortfall of $10,000 to deal with ($5,000 x 12 =
$60,000 less $50,000). She also has to continue
paying the $5,000 "or else..." Not to mention the
Dealing with Debt Collectors
So what does "or else..." mean? Well, Kathy is
legally in breach of her loan contract and the lender
has every right to use whatever legal means to recover
their funds. It is a known fact that the longer the
debt remains unpaid the harder it is to collect---as
such, agents move quickly and assiduously to ensure
they are first in line.
The ultimate recourse is legal action, which means
if they pick up a court judgment against her, they
can move to levy on her personal assets, including
her car. Of course, when such belongings are auctioned
they are disposed at a fraction of what they are worth.
If there is a further shortfall the collector can involve
the debtor s employers to provide evidence of income
so that they can fix a court-ordered arrangement.
If Kathy sells the car on her own she may be able
to extract the maximum value from the asset to offset
her debt---if this is her last resort.
Note: It is safe to assume that lenders will not
want to exercise their legal rights as this is expensive,
long and drawn out. Because of this, some collectors
employ moral suasion or intimidation tactics to create
urgency to achieve their objective---the squeakiest
wheel gets the grease.
Tip: It is always a good idea to keep in regular
contact with debt collectors even when there is noth-
ing to pay---keeping in touch goes a long way. It is
also a good idea to have all proposals submitted in
writing and seek signed acknowledgements of receipt
from the lender or their agents. Keeping promises
builds credibility and could pave the way for a
favourable negotiated settlement---the key is "under
promise and over deliver."
Kathy s debt of $150,000 is unsecured and could
be racking up interest over 13 per cent per annum,
which translates to more than $1,600 per month.
Leaving the debt unpaid only makes things worse
pushing up the balance---as the balance increases the
monthly interest compounds.
As far as I know: No financial institution will refuse
an over-the-counter payment to any outstanding
debt---they can, however, indicate that the payment
is received "without prejudice to their rights of recov-
ery." In spite of this, regular payments augur well
when negotiating. Further, as Kathy s other debts
are repaid she can increase the amounts to this debt
and fast track its repayment.
The deal that she got was great but as with many
investments of this nature what happens in reality
often turns out very different from was planned.
Kathy has already sunk over $300,000 in the building
and has to cough up an additional $75,000 to get
the place market ready.
There are many ways to finance some projects and
not all of them have to be in the form of a bank loan
or equity investment. Even though Kathy does not
own the building and cannot secure a mortgage, she
can put the space on the market "as is" and engage
a commercial tenant at a reduced rent that compen-
sates them for the inconvenience. Some businessper-
sons may jump at the opportunity to make their own
alterations and modifications to a prospective space.
Kathy can forego half of the full monthly rent of
$10,000 in lieu of the outstanding work and still
collect $5,000 for 15 months ($75,000 divided by
$5,000 = 15 months). She can direct this surplus cash
of $5,000 to the debt problem. Once the 15 months
have elapsed, the rent rebounds to $10,000 and could
potentially increase from year to year. She can now
think about setting aside money for the purchase of
Nicholas Dean (Cer-Fa) is a financial coach and
mentor who is the managing director of the Finan-
cial Coaching Centre. He can be contacted at:
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