Bank of Mum and Dad Nightmare: Lady Loses $50k

While a very sad story that relates to family relationship breakdown, it also signifies the importance of drawing up clearly defined legal expectations when it comes to gifting or lending to family members.

In this instance an elderly woman (79) in New Zealand lent $50,000 to her daughter to purchase a property they planned to live in together. This was close to a hospital for the elderly woman’s critically ill husband. Following the death of her husband the woman decided to sell the property. Through the sale of the property she distributed $100,000 to each of her children to put towards a house deposit.

While the $100,000 was gifted to her daughter, an additional $50,000 was agreed to be lent on the basis of her daughter paying it off when she had enough money to pay it back.

The mother had engaged a mortgage broker to secure a home loan. The mortgage broker advised that the lender would not accept a loan arrangement for the additional $50,000 and that the mother had to sign a deed of gift for the full $150,000 to qualify for the home loan. The broker then allegedly misled her into thinking a Deed of Family Affairs (DOFA) would be prepared to prove that the $50,000 payment was a loan. When the mother later sought to use the $50,000 for a new home, the broker denied having ever discussed the DOFA.

After the relationship broke down, the mother claimed negligence, seeking compensation for the lost $50,000, while the broker argued that arranging family affairs and seeking legal advice was the mother’s responsibility to protect her loan.

This example serves as an important reminder of the importance of good legal advice. While best intentions are important when it comes to family, having clearly defined legal expectations should always be set up from the start to avoid problems down the track.

Link to definition of a deed

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