The good intentions of family, even when it may be misguided, has to deal with the hurdle of mortgage underwriting. Image: Fotolia.
The good intentions of family, even when it may be misguided, has to deal with the hurdle of mortgage underwriting. Image: Fotolia.

The Bank of Mom and Dad

OCT 17, 2013 3:23pm ET
Comment (1)

WE’RE HEARING about good old mom and dad trying to help out their grown kids buy a home for a variety of reasons. I find that it is becoming more and more common and the fun starts when the financial assistance from parents is attempted to be combined with a traditional mortgage. The good intentions of family, even when it may be misguided, has to deal with the hurdle of mortgage underwriting.

I am seeing parental money being used by all segments of the social strata—low income, middle income and even the so-called 1%. As to the 1% the recent deal I came across was in New York where a family was looking to have their cake and eat it. The parents wanted to “loan” $150,000 to their kid to buy a home. This was the downpayment. Wells Fargo was the proposed lender. The parents were trying to structure the “loan” to avoid both a future estate tax and current gift tax exposure. Basically the parents were going to forgive a large portion of the “loan” each year.

Wells saw through this charade and wanted a gift letter from the parents. This upset the parents. The parent’s lawyer was trying to structure a compromise to make everyone happy. Good luck with that. Next thing the parents will want is to negotiate the terms of the loan documents. Oddly what I heard was a lot of misunderstanding about debt to income ratios buried in the misguided sentiment of “what does the bank care?”

Meanwhile in New York in case you missed it the attorney general is suing Wells Fargo in Federal Court for not complying with the national mortgage settlement. This was on the heels of New York reaching a settlement with B of A about similar issues. The last topic of the day from New York is the buzz about real estate appraisers among some attorneys.

Appraisers now asking to see copies of sales contracts on purchases is the scuttlebutt being discussed by some attorneys. I understand that this is a requirement under Dodd-Frank. What probably is not part of Dodd-Frank is when appraisers are telling attorneys that the appraiser is objecting to certain terms in the contract. By objection I mean the appraiser wants the provision removed from the contract. As you might imagine an appraiser’s objection to certain terms of a contract prepared and negotiated by an attorney are not being warmly received.

Speaking of warmth I saw some recent foreclosure statistics which show that the Sunshine State of Florida is still suffering in a few areas. The statistics related to new first notices of default. Well if you are looking for a good deal in a warm climate you may still have time to act.

Finally we end in Connecticut where there is going to be a mortgage assistance event next week in Hartford. Sponsored by the state banking department, the governor and the AG the event allows homeowners behind on mortgage payments to meet face-to-face with lenders and loan servicers. This is the sixth such event in Connecticut over the last two years. The banking department says so far 5,000 people have attended these events but there are no numbers of how many of these folks had their loans modified.

Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at jamcd@comcast.net.

Comments (1)
I have to laugh at the New York stories.....hey if the parents don't like the banks guidelines then go somewhere else. Ooops....it's the same there to....the guidelines are what they are so if parents want to help their kids or family members then follow the bank guidelines. No more exceptions, no more compensating factors....hey this is the new lending world....we all play by the same rules.

Now as for the appraisers.....give me a break. Their job is to just appraise a home and not get involved with the contract. If they don't like it then just make an adjustment in their evaluation of the property. I never liked attorney's negotiating real estate contracts in the first place but that's the way New York likes to do things. I deal mainly with real estate agents and title companies but I have had some transactions where attorney's were involved and they do tend to drag things out....maybe it's because they feel the need to try and justify their fees.

Finally for Florida, it's a shame that the foreclosure filings are still so high in some areas. I'm from Florida but live in AZ now and our foreclosures and short sales are way down and our residential real estate market is doing much better. Maybe that's because we're not a deficiency judgment state like Florida is. I hate to say it but the sooner that those Florida market areas can burn through all those foreclosures and short sales the sooner they can return to a more traditional market. Arizona, Las Vegas and CA have pretty much done just that. Maybe if the banks offered primary resident homeowners in Florida the chance to sell their homes without the threat of a deficiency judgment they could get back to normal. The REO's would move quickly once it becomes a sellers market...that's exactly what happened in Arizona. Don't worry about the investors...you want the majority of the sales to be to primary residents anyway.
Posted by stephen s | Sunday, October 20 2013 at 5:44PM ET
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