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.