Bob Aaron email@example.com
When parents assist with a down payment, it’s important to clarify in writing whether it is a gift or a loan before families fall apart.
With the high price of housing these days, more buyers are turning to the Bank of Mom and Dad for help in acquiring a new home. Often, this takes the form of the parent advancing funds for a down payment.
Typically, banks will require confirmation that the parental assistance is a gift and not a loan. But when the family agrees otherwise, problems can arise. In at least one case it led to litigation.
In 2008, Nickolas Crepeau wanted to buy a house on Trailside Dr. in Sudbury, Ont., and asked his mother, Kathleen Crepeau, if she would provide the down payment the bank required in order to arrange mortgage financing on the property.
Kathleen agreed and in October 2008, she gave Nickolas a cheque for $30,000 for the down payment and some planned renovations. It was deposited into the joint account of Nickolas and his wife, Sarah-Jane.
After Kathleen's cheque was cashed, Scotiabank issued a commitment letter for a mortgage loan of $368,910. Among other things, the commitment was conditional on the borrowers providing a gift letter from an immediate family member verifying the down payment.
Shortly afterward, all three parties signed a gift letter which provided:
"This is to confirm that a financial gift in the amount of $30,000 has been made to Nickolas Crepeau to assist in the purchase of a home. These funds are being provided as a gift and will not ever have to be repaid."
Without this gift letter, Scotiabank would not have given the couple a mortgage so they could buy the property on Trailside Dr.
The transaction closed on November 17, 2008. Six months later, Kathleen wrote a demand letter to Nickolas requesting repayment of the $30,000.
The situation escalated, with Kathleen's common-law spouse, Andy Racine, being drawn in to the claim, and the police were called in to mediate several times.
In the fall of 2009, Nick left messages on Kathleen's answering machine. In part, he said:
"Mom, it's Nick, I got your letter in the mail and ah, your (sic) gonna get your money whenever I feel like giving it to you, so just ah leave us alone OK like I don't know what the f— you, you don't understand so I don't know what to tell you OK. Love you, bye, bye."
And later, in a message for Andy, he said:
"I'm just calling to say that ah . . . whatever you want to do, do what you got to do, Andy, cause you know what, your threats don't f—– scare me one bit and ah, and ah I'm not dropping f— all off, my mother already knows when I have to pay her back so it's as simple as that."
So much for a child's gratitude.
Kathleen retained a lawyer who demanded repayment. Nick responded that he would not be repaying the $30,000 as it was a gift and not a loan.
Kathleen eventually sued her son and daughter-in-law. The trial took place in January 2012 before Justice Louise Gauthier. In their evidence, the parties disagreed on whether or not there was a signed side letter which confirmed that the $30,000 was a loan and not a gift.
In his evidence, Nickolas was unable to explain the voicemail message, "my mother already knows when I have to pay her back."
The law applicable to this situation presumes that the money was a loan and not a gift, and it is up to the defendants to prove otherwise. After hearing the evidence of the parties, Justice Gauthier concluded that neither Nickolas nor Sarah was able to prove it was a gift.
Since the money was deposited into a joint account, the court ruled that Sarah and Nickolas were jointly responsible for repayment, despite Kathleen's letter to the bank saying it was a gift.
The lesson of the case is when a parent assists a child with a down payment, the terms of the arrangement should always be put in writing. Failing to do so can tear families apart.