Whose house is it anyway?
(NC) -- If you're planning to financially assist your children or other loved ones so they can purchase their own home, be careful. What may start off as a helpful gesture can lead to significant confusion about who has an ownership interest in the new property.
A recent Supreme Court of Canada case confirmed that whoever provides money to purchase real estate has an ownership interest in the property, unless it can be proven that the funds were a gift. This raises some important questions: Are the young couple the sole homeowners or do the parents who contributed to the purchase price have an ownership interest? Also, could siblings make a claim for a share of the home upon their parents' death?
Financial institutions will typically insist that all owners be registered on the title of the house and sign or guarantee the mortgage – this means all are responsible for paying back this often substantial loan. Alternatively, financial institutions may ask parents or others who contributed to the down payment on a house to provide a gift letter as evidence that they have waived any rights in the property.
”Additional complications may arise if funds were provided as a goodwill gesture to assist a young couple purchasing a home, and the couple separates or one dies unexpectedly,” says Ray Leclair, the vice president of public affairs at LAWPRO. “Although parents may intend the funds to be their child's asset, Ontario law provides that any money put into the matrimonial home is a family asset and is equally split on divorce.” Expectations that the gift of money will be returned with the dissolution of the relationship or death of the child may not be met, and can lead to further legal and financial issues.
While the intentions on both sides may seem clear at first, financial situations can change, and what started off as a gift of money may later be interpreted as a loan. Speaking with a real estate lawyer about a prospective home purchase and disclosing loaned or gifted funds can help save you from a number of legal and financial pitfalls down the road.