Ernie Klein <eckl...[at]pacbell.net> wrote:
- quote -

thank you for responding. This whole thing is per suggestion
of my daughter and son-in-law's lender. The lender will be
handling the 1st and 2nd mortgages. My wife and I filled
out a "gift of equity" letter to the lender. I agree this
is not a true "gift" by definition.

Thank you

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<mroterdam[at]gmail.com> wrote:

- quote -

Why are they doing that? They don't owe you anything, you
gave them a gift.

- quote -

It sounds to me like fraud against the lender; however, if
the lender suggested it, then it might be OK (but see an
attorney: the person who suggested it might not be
sufficiently placed at the lender to protect you from the
fraud charge).

- quote -

If you've also owned it that long, then your profit isn't
taxable.

Seth

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mroterdam[at]gmail.com wrote:

- quote -

Then it is not a gift at all, but a temporary (1 week) loan.

Does lender #1 know about loan #2, or are their rates based
on the 'new' selling price of $112K?

I don't see how this is any different than if they were
buying a home from a 3rd party and you gave them a 'gift' of
$28K for their down payment as I did when my daughter bought
a home. The lender, of course, wanted to know the source of
the down payment (about 50K in my case). I had to provide a
letter to the lender stating that I was the source of the
down payment and that it was a gift.

Note, that 'gift' means no strings attached, no expectation
of being paid back _ever_. If my gift had conditions, such
as my being paid back some time in the future, and the
purpose of it was to get more favorable loan rates, then it
wouldn't have been a gift at all, but rather a fraud on the
lender, which is a crime.

I don't know if that is what you are doing or not - it
sounds like it - so be careful.

--
-Ernie-

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my daughter and son-in-law will be purchasing our (wife and
I) investment home. They currently rent it with option to
buy. I wanted to run the following scenario by you regarding
their loan. The purchase price is $140,000.

The lender is splitting up the $140,000 loan as follows:

1st Mortgage: $112,000 (80%)
2nd Mortgage: $28,000 (20%).

On closing day we will receive $112,000 (instead of
$140,000) and offer them a "gift of equity" of $28,000. Then
1 week later, the kids will take out a 2nd mortgage for
$28,000 and turn around paying us the remaining equity of
$28,000. By doing this, they will get favorable rates on the
1st mortgage and not have to pay PMI. For us, it seems to be
a wash whether it is done this way in parts, or one shot.
However, there might be tax consequences.

What might these be? Is this practice legitimate? BTW, we
will have lived in this house 2 out of the past 5 years.

I look forward to your response.

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