Expert: Timmy Chou - 12/17/2003

Question
I received a no interest, no pay on demand loan thru my employer 6 yrs ago for the purchase of my home. I repay thru payroll deductions. The loan was with the CEO, who is now in the process of selling the company to someone else. The loan agreement states the terms can only be changed thru mutual agreement of both parties. I am leaving that employer. The new owner (who buys the company over a 5yr period) wants me to sign a new agreement, which I have no intention of doing.
Is the loan debt transferrable to the new owner?
Is it true that as long as I continue to make any payments there is nothing they can do to me litigation-wise?
Thank you for your help

Answer
Thank you for your question!

Mediators act as neutral third parties to disputes and never "get involved" in judging the merits of conflict, but merely use special techniques to help the parties decide how to negotiate their own settlement.

The case you describe here is unfortunately very typical.  I am not a lawyer, nor can I mediate your dispute with just you alone but I can respond to your question from my business consulting experience.  Note that this dispute will likely continue to have legal implications and you may wish to consult an attorney.

Obviously this issue will turn on the quality of the contract documents but this is not the only consideration here to be concerned about.  

I am most concerned about who is on TITLE for this home.  If you are on title as the owner you are in the best possible position as you have no third party who may be harmed, and as long as you keep your end of the agreement (assuming there are no provisions to accelerate the loan involuntarily) you are in the clear.

If you are NOT on title, you have a problem.  If the home is actually owned by the COMPANY, who is servicing a mortgage to a third party, and you have a private purchase agreement with the company, you could be set up for trouble.  Here's why.

If the company decides to quit paying the loan, the mortgage company could begin to foreclose on the home and kick you out.  You would have no ability to get in the middle as you have no direct financial relationship with the actual lender.  Your only recourse would be to sue the company or its successor with all the attendent costs and delays.  It would cost a fortune and you may not ever get the home back, only a judgement in your favor for XX dollars making you whole--which you would then have to go out and try to enforce.  

If he home is not in your name and is owned outright by the company, you should be looking to get a quit-claim or other evidence of your ownership and get it recorded so you can be on title.

In any case, I think you should be happy to sign a new agreement, on exactly the same terms, as the previous agreement OR ON MORE FAVORABLE TERMS.  See if you can get a better deal than the one you have.  If you can get them to pay for the costs, refinance with a traditional lender and get the company out of the loop.  

It is wise to observe however that anyone can do what they like, right or not, and your only recourse is to sue--IF YOU CAN AFFORD IT--which most of us can't.  I would rest easier if I was on title and had a traditional loan, even if I had to pay interest.  It's a good time to get a cheap loan.  Perhaps you can get the company to pay some "points" for you (equal to the loss of the "interest free" benefit you have been promised) and you could end up with a 2 or 3 percent loan.

Be sure to have an attorney look over any agreement you are considering signing.

These are some ideas.  Feel free to follow up with additional questions.

For your information, the pros and cons of the types of dispute resolution methods follows.

GOOD LUCK!

Arbitration, Mediation, and Litigation

Arbitration: the referral of a dispute to one or more impartial persons for final and binding determination outside of the judicial system

Benefits of Arbitration:

    Confidential, no public record
    Limited exchange of documentation, information
    Quick, don't have to wait for a court date
    Arbitrators have expertise in the subject matter and are trained in conflict resolution
    Cheaper than litigation
    Preserves business relationships

Negatives of Arbitration

    It's a compromise, no %100 winner
    Complex arbitration can be costly
    If not satisfied, may litigate the arbitration procedure
    Poor results with an unskilled arbitrator
    Both parties must agree to cooperate in the process

Mediation: the process by which parties submit their dispute to a neutral third party (the mediator) who works with the parties to reach a settlement of their dispute.

Benefits of Mediation:

    Neutral mediator can objectively suggest alternatives not considered before
    Parties are directly engaged in negotiating the settlement
    Can be quicker than litigation
    Less costly than litigation
    Preserves business relationships
    85% of American Arbitration Association cases mediated find successful solutions

Negatives of Mediation

    may not reach a binding decision
    unskilled mediator

Litigation: using the judicial system to resolve disputes

Benefits of litigation:

    a clear winner and loser
    uses a prescribed set of procedures
    more predictable outcomes
    is final

Negatives of Litigation:

    waiting for court dates can do more hare
    usually more expensive than mediation and arbitration
    part of the public record