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  1. #1
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    May 2009
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    Default Am I Entitled to My Share of the "Gifted" Down Payment

    My question is about a real estate sale in: Washington State

    My ex girlfriend (meretricious relationship) and I bought a home together a few years back. Her parents "gifted" her $50,000 for the down payment. The gift document says it is being gifted to her as a down payment and then I am also shown and signed on the document. All four of us are on the title to the home.

    They claim that the home has negative equity because they should get back all of their $50,000 - then the home's value is calculated.

    My question is this: If the home is sold, can her parents or she LEGALLY reclaim the gifted portion before proceeds are divided, or am I due 25% of the remaining balance after the mortgage is paid regardless of any gifted $$?

  2. #2
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    Default Re: Am I Entitled to My Share of the "Gifted" Down Payment

    what don't the parents understand about the term "GIFT". Gifts don't get repaid.

  3. #3
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    Default Re: Am I Entitled to My Share of the "Gifted" Down Payment

    Quote Quoting partenr
    View Post
    My question is about a real estate sale in: Washington State

    My ex girlfriend (meretricious relationship) and I bought a home together a few years back. Her parents "gifted" her $50,000 for the down payment. The gift document says it is being gifted to her as a down payment and then I am also shown and signed on the document. All four of us are on the title to the home.

    They claim that the home has negative equity because they should get back all of their $50,000 - then the home's value is calculated.

    My question is this: If the home is sold, can her parents or she LEGALLY reclaim the gifted portion before proceeds are divided, or am I due 25% of the remaining balance after the mortgage is paid regardless of any gifted $$?
    Tough situation.

    I know this, because my mom in law helped some of her children buy their first homes. The banks will look at a LOAN from a parent negatively, and they would only consider a GIFT LETTER. So mom has to say to the kids, "hey, this is a loan, but I'm signing this GIFT LETTER because you're telling me that is what the bank wants".

    In fact, MIL was in the process of helping her son buy his first home when his first marriage broke up after a year. He remarried a few years later, and she had lawyers going back and forth on the matter because she did not want to drop money into the house, I recall about $100,000, call it a gift, and then have this second wife walk away with a big windfall after another year of living together.

    I see they put their names on the deed, which is what my MIL did, pretty much signifying it is not really a gift. However, with the negative equity, looks like technically, they're screwed. If it was really a gift, they would not insist on having their names on the deed.

    I did a similar deal with my sister, she needed a gift to buy her condo. I also had my name on the deed, and in order to keep things straight with the bank, she gave me a private note, separately. This signifies that morally, it's a loan, in the event she later claims "how could it be a loan if he signed a gift letter". One thing your ex-girlfriend's parents did not do was get a note from you guys.

    While JK is technically right, in most of the cases I've seen, it's a gift as far as the bank is concerned, but it is a loan as far as the family is concerned.

    The way I see it, morally, your ex owes her family the $50,000, though legally they told the bank it was a gift. And if you ex have any sibliings, the siblings are screwed if they need a "gift" to buy their first home, since it was blown away on this one.

    My MIL's big issue was not whether it is really a loan or not, but an issue that if she really really gifted her son $100,000, she would also have to gift her two daughters $100,000 each.

    And morally, the way my MIL and her son sees it, it was a loan, no matter what the bank calls it. Many years later, as part of her estate planning, and after her son was married for over 15 years, she "quit claimed" her part to her son, signifying she finally made it a gift. In their minds, it was NOT A GIFT when they originally said to the bank that it was a gift. If was a gift after it was "quit claimed", 15 years later.

    And with my sister, a number of years later, I did financially well, and offered to forgive the note, a note no one else knows about, except between ourselves, officially making it a gift. However, she insisted on repaying it, because she felt that if we agreed it's a loan, it's a loan. She felt her word is her bond.

    Finally, from a moral standpoint, we don't know what was said amongst you, your ex-girl friend, and her parents when the gift was made. Legally, looks like you're in the clear.

    You have to decide if your word is your bond.

  4. #4
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    Default Re: Am I Entitled to My Share of the "Gifted" Down Payment

    the problem is: it is illegal to accept the money as a loan when you signed paperwork with the bank that it was not a loan. I don't know if a bank would do anything unless they might get screwed over it but when you sign all those papers concerning the loan, they are legally binding.

    If the repayment of the $50k loan/gift would put the house in a negative equity situation, I think the bank is going to insist it was a gift and not a loan.

    After the bank gets all of their money, they aren't going to care what you do.

  5. #5
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    May 2009
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    Default Re: Am I Entitled to My Share of the "Gifted" Down Payment

    I guess it's a little more complicated than that. We are "Dissolving a Meretricious Relationship" - which is a divorce for people who aren't married. We parted because of indiscretions on her part, and she is asking me to simply sign the house over to her free and clear. I guess I would do that, except that I spent a year taking a house that was a dump, and made it gorgeous. I spent A LOT of effort and time and money on the thing. Current market value is about $265,000. I kinda feel that if she gets to keep the asset and realize the eventual financial gain from the renovations, that I should get at least SOMETHING for all that I put into it.

    Because of the depressed housing market, the only current equity in it is the money that was gifted. Although the house itself did not LOSE value despite the market crash - because of the renovations. So I'm just wondering... if I contest her demands, if a judge will award her the house altogether, or if he/she will say that they LEGALLY need to buy out my portion of the equity.

  6. #6
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    Default Re: Am I Entitled to My Share of the "Gifted" Down Payment

    Quote Quoting jk
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    the problem is: it is illegal to accept the money as a loan when you signed paperwork with the bank that it was not a loan. I don't know if a bank would do anything unless they might get screwed over it but when you sign all those papers concerning the loan, they are legally binding.

    If the repayment of the $50k loan/gift would put the house in a negative equity situation, I think the bank is going to insist it was a gift and not a loan.

    After the bank gets all of their money, they aren't going to care what you do.
    I can see from the further explanation they don't plan to rook the bank out of any money. It is a sqaubble over how the remaining equity is going to be divided.

    And if there's only $50,000 equity in the place, that's what will be paid out at closing, and with no written agreement, each person on the deed would be paid off at 25%, meaning mom and dad gets $25,000 back already. The only question is, "is it fair to screw them out of the other half"??

    Generally, people I know who, usually with one child simply make a gift, they do not include themselves in the deed. Most of our relatives and friends who gifted, but look at it as a loan, would include themselves in the deed.

    Just ask yourself if the monies was given as a gift, why be on the deed in the first place?? It's redundant.

    As I said, legally, he can worm his way out, simply insisting that an affadavitt of gifting was signed. However, if this is "mom and dad" we're talking about, I don't think most people would have the nerve to go up to them, point out "how stupid of you to give me a loan, and then lie to the bank"!!

    I think the fair way is to have the daughter agree to repay her parents, make them whole, and work something out for the work done on the house.

    The other way of looking at the situation is to say "yeh, mom and dad gave me a gift, but we agreed we were to sell this place, I just want to give the gift back. There's nothing written, and as far as I know, nothing illegal about promising something back if I don't need it any more.

    I don't think the banks gives a hoot on what you do after you sell the place, and they got paid.

  7. #7
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    Default Re: Am I Entitled to My Share of the "Gifted" Down Payment

    I can see from the further explanation they don't plan to rook the bank out of any money. It is a sqaubble over how the remaining equity is going to be divided.
    but they are claiming there is a negative equity when you consider the repayment of the "gift" and since the OP is involved in a court action involving the "gift" I suggest it will continue to be seen as a gift through the courts.

    Now,where I differ from the OP as to what he has a right to of the house;

    was the gift a gift to the daughter or to both parties. If the daughter only, that $50k will still be seen as the "wifes" money when trying to establish a fair division of the house. If there is $50k equity in the house and the "wife" paid the $50k down payment, that is going to be credited to her and that would make the OP's share of value $0.

    Her parents "gifted" her $50,000 for the down payment.
    I doubt the OP is going to be credited any value in the home in their action.

    so even without it being a loan, the wife put in the $50k and would be entitled to that share before the remaining equity is divided.

  8. #8
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    Default Re: Am I Entitled to My Share of the "Gifted" Down Payment

    I've been involved in RE deals with relatives, partners, and I've been involved in the sale of some of them, and situations with fund disbursements, and taxation had arise. There's two ways of looking at these situations, absent any detailed partnership agreement, that I was told.

    First, you look at the deed, in this case, there's four names on it. From this standpoint, absent an agreement, funds should be distributed equally, and taxes should be reported as if everyone owns an equal share. Based on OP's narrative, this appears not to be the agreement.

    Second, one can look at the funding of the deal, where does the money come from?? From this standpoint, it came from a gift from the parents to the daughter, preumbaly by a check. It is doubtful that the check represents a gift to the BOTH of them, with both names on that check. When my MIL did the gift to her son to buy a new home for him and his new wife, it was a gift to the son, in his name only, NOT to the son and daughter both.

    Taking this a step further, the daughter took this money, invested the entire $50,000 into the house. In answer to the question, "who is the investor"?? The answer is it is 100% the daughter's investment with this gift.

    And where does the OP fit into all of this??

    He is claiming that he invested monies and labor into a "dump", made it valuable, and ought to be reimbursed. Now, there appears to be no written agreement as to how his investment of time and effort ought to be compensated.

    Under the second theory, the daughter should be paid the proceeds, based on her 100% investment, and:

    - Decide how this gift of money is to be handled, and whether she is to return this gift to her parents.

    - Work something out as to what OP's time and effort is worth.

    I don't think at this point, even the OP know how much his contribution is worth, or know how big of a hit the parents should take.

    The way I see this play out is either:

    - Say there's four names on the deed, each is to be paid 25% absent any agreement. OP takes his 25% share for his efforts, $12,500. The parents take their $25,000 share, and with the daughter returing her $12,500 share, the parents take a hit for $12,500 on the gift.

    Normally, from a tax standpoint, it may not play out well for the parents. But in this case, if a tax loss can be made, then, there is NO negative taxation issue I can see. If it is a big gian though, then it is a definite plus to report it as a homeowner sale. However, if there was a big gain, the parents wouk take out their $50,000, and the OP wouldn't be complaining.

    - The daugher takes the whole $50,000, returns it to her parents, and work something out with the OP on his time and effort.

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