My parents received money from my grandmother to put a down payment for a house. After my parents purchased the home and put the house under their names, my grandmother moved in and eventually after 3 years she moved out. Now she wants her money back which my parents can't pay for. She suggested refinancing the house, but my dad doesn't want to do that. He also fears that she might try and sue for ownership of the house. If she tried to sue, can she win the house even if we have proof that she authorized the fund transfer and that the title is under my parents name and not hers?
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30What country? Is there any written agreement? How much money is it?– littleadvMay 10 at 23:24
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25This is the sort of thing to take to a family counseling specialist, rather than focusing on the legalities. Presuming that you care about your relationship with your grandmother's side of the family, you need to find a consensus that everyone can support, whether it's formally correct or not. (And what's formally correct depends on exactly what the original agreement was, which may never have been made explicit and written down.)– keshlamMay 10 at 23:30
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19And in the US, the almost universal answer to "can they sue" is "yes". The questions are whether they will win, and how much of your/their money and time it will consume either way.– keshlamMay 11 at 2:59
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6Well, if we're generalizing, in most jurisdictions real estate contracts must be in writing to be enforceable. So yes, she can sue, but no, she cannot demand ownership if there's no explicit written contract. In any case, when there's a threat of a legal action - better to discuss the matter with an attorney.– littleadvMay 11 at 4:45
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5Deduct market-rate rent for the past 3 years from the money "owed".– MonkeyZeusMay 11 at 15:41
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4 Answers
In the US (and I'd imagine elsewhere), before the bank gave your parents a loan to buy the house, they need to underwrite that loan. Underwriters are (generally) required to document the source of down payment funds. If there was a large transfer from your grandmother to your parents, that would have shown up on the bank statements your parents submitted as part of the loan application. The underwriter would then have required your grandmother to provide a letter indicating that the funds was a gift or to provide some documentation for the loan so that the additional debt could be counted properly when qualifying your parents for the loan (if it was a loan, the repayment of that loan would be part of the total debt load the bank had to consider to ensure the mortgage could be repaid). Assuming this happened, there should be something in the paperwork from your parents' loan application that would specify whether this was a loan or a gift.
If your grandmother signed the letter indicating that this was a gift (which is normally how this sort of thing happens), she can't legally sue now to recover the gift (well... she can sue, she just won't win).
Practically, if this was really a gift with the understanding that grandma would live in the house and that is no longer a reasonable option, your parents may want to pay back some or all of the money in order to maintain family peace and relationships. But legally, a gift comes without strings.
Note: If your parents got their mortgage back in the 2006-2007 time frame, it is possible that they got one of the NINJA (no income, no job, no assets) that were frighteningly common so no underwriter bothered to ask. But if they took out a loan in the US after 2008, they almost certainly went through the underwriting process and the underwriter almost certainly documented the source of funds.
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3Perhaps you could clarify what an underwriter is, whether it is required there is one, and why they would have access to bank records extensive enough to know whether someone recently received a large gift. I understand that the lender will likely want to have some insight in the finances of the debtor but would this include a history as well?– KvotheMay 11 at 13:14
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3@Kvothe - Added some context. As part of the loan application process, you'd normally submit several months worth of bank records. The bank's underwriter would then make sure that the bank statements match other documentation (i.e. deposits in the bank match the amounts from pay stubs) and flag anything that might indicate undisclosed debt (i.e. regular payments to a credit card that wasn't listed under debts) or that requires additional documentation (i.e. large deposits like this one). May 11 at 13:30
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4This is correct. I had my mother help me with my first house and the bank wanted a letter that indicated this was a gift. Remember, the bank has a vested interest here and if they lost the collateral in a lawsuit for the loan they might face a default by the borrower. May 11 at 19:03
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2Same as Machavity — when I got my first home, my parents contributed $11K to the down payment... the bank required a letter from my mom stating that the $11K was a gift before granting my mortgage. Here were their requirements, and here's the letter itself. Hopefully OPs parents have something like this filed somewhere.– Doktor JMay 12 at 15:26
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@DoktorJ Yeah, this was also brought up when I purchased my house. There was briefly even a question of whether I might have to write such a letter explaining a payment from myself (I had sold some stock and moved funds from trading account to checking for the down payment,) but, as I recall, it was determined that it had happened far enough in the past that it didn't require a letter.– reirabMay 12 at 20:24
My parents received money from my grandmother to put a down payment for a house.
This sounds as if it was supposed to be a gift. Or was it only loaned?
Now [grandmother] wants her money back which my parents can't pay for.
On what grounds does she want the money back?
She suggested refinancing the house, but my dad doesn't want to do that.
If it was a loan, she can request it back. Then your dad might have to get a loan or to sell in order to pay her out.
He also fears that she might try and sue for ownership of the house.
She can try to get a lien on it and then eventually seize it, but that would be a dick move.
If she tried to sue, can she win the house even if we have proof that she authorized the fund transfer and that the title is under my parents name and not hers?
That completely depends - in the first step, a court might decide whether the money was a gift or a loan.
If it was a gift, you win.
If it was a loan, your dad has to pay it back under the defined conditions. Or, if no conditions were defined, under conditions which might be set by the court.
If he has to get a loan from the bank, he should do so. If he can't, or doesn't, grandma might want to have the house seized, but that might be hard or even impossible.
Disclaimer: IANAL and laws might be different.
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4Also, "my grandmother moved in and eventually after 3 years she moved out"; was the money (either as gift or as a loan) conditional, dependent on her living there?– SQBMay 11 at 9:32
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7I think the suggestion was that the dad would be best off refinancing, as the alternative would be to sell the house to repay the loan. Assuming a reasonable repayment term couldn't be agreed upon. May 11 at 9:56
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1@deep64blue I don't think a court would do that. But a court could decide that the loan has to be repaid immediately (or within X weeks/months). Then it is up to "dad" how to do that (get a loan from the bank, sell the house). If he does nothing, "grandma" could have a court officer collect the debt, and if there is no way to have the money back, have the house foreclosed (as a last resort).– glglglMay 11 at 10:00
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10@SQB I'd also ask if grandma was paying rent or living for free during those 3 years. Did she buy her own food or eat with the family? Those sort of questions would be looked at in any court case, worst case I would see an award of total she put for down payment minus 3 years of expenses.– rtaftMay 11 at 12:42
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1@deep64blue Exactly. He might be ordered to pay the amount back. From which means is up to him, of course. I slighly edited the answer, hopefully making my point clear.– glglglMay 11 at 14:28
He also fears that she might try and sue for ownership of the house. If she tried to sue, can she win the house even if we have proof that she authorized the fund transfer and that the title is under my parents name and not hers?
This skews more towards the legal side, but generally she's not going to be suing for ownership of the house. The legal term here is lien. If you buy a car and finance it, both you and the lender will get a car title so they can repossess the car legally. Most states even have slots for multiple lien holders on them by default. Houses are quite a bit more complicated than that, but they generally work the same way. If someone has a vested interest in the property itself, they'll have some sort of legal document showing their lien and will file court briefings indicating why they need repayment or ownership (i.e. the borrower defaulted).
If your grandmother wanted to pursue legal action, she will almost certainly sue your parents directly for the money she gave them (which is something she, in theory, has legal standing to do). If your parents lost that that lawsuit they could sell the house to pay any legal settlements made against them. In other words, nobody gets the house, only money.
There is not much to add to Justin Cave's answer but I did have an additional question. Did grandma pay rent during the three years she lived with them? If not, or it was below market your parents could make the argument that the rent counted against that loan.
So really this is a long uphill battle for Grandma. She has no documentation for a loan and even if there was documentation, she potentially received room and board in lieu of payments to that loan.
Most lawyers would consider this a waste of time, so perhaps the only recourse is small claims.
