Gift deed for a house deposit: how a mum lost the $50,000 she lent her daughter

The setup

The mum and her husband had bought a place close to their local hospital. He was critically ill.

A few months later he died. She decided to sell.

From the sale she gave each of her children $100,000 towards a house deposit. That part was always a gift.

She also had a plan for her own life. She wanted to travel overseas. When she was back in New Zealand she would live with her daughter in the house they were buying.

The handshake

Her daughter couldn't pull together her own share of the deposit.

So Mum agreed to go further. She would gift the $100,000 as planned. On top of that she would lend her daughter another $50,000.

The deal was simple. The daughter would pay the $50,000 back when she was earning enough.

Nothing about that is unusual. Plenty of Kiwi parents do exactly this.

What a gift deed for a house deposit actually says

Then the mortgage broker got involved.

The broker explained that the bank wouldn't accept a loan arrangement for the extra $50,000. To get the home loan the mum had to sign a deed of gift for the full $150,000.

She had doubts. According to her, the broker said they'd prepare a separate document recording that the $50,000 had to be repaid.

That second document never turned up.

So the paperwork told one story. A signed deed said $150,000 was a gift. The loan lived only in the conversation between a mum and her daughter.

The drift

For a while it didn't matter. The house got bought and the family got on with it.

Nobody was lying at this point. Everyone just remembered the deal from where they stood.

The trigger

Then the relationship between mother and daughter broke down.

The mum wanted to buy a new home of her own. She needed the $50,000 to do it.

Her daughter didn't pay it back. The daughter's lawyer said there was no loan. The deed of gift proved the whole $150,000 was a gift.

She went back to the broker. The broker said they didn't recall agreeing to prepare any loan document. There wasn't one on file.

The claim

The mum took a complaint to FSCL. She said the broker had misled her into thinking the loan would be written down. She wanted the broker to cover the $50,000.

The broker's answer was that it was her job to sort her family affairs and get her own legal advice.

Her own lawyer added a twist. The document the broker had talked about wasn't even the right kind for a loan. It's normally used to settle disputes over who gets what from an estate. It would still have been written proof though.

What NZ law does here

In New Zealand, money a parent gives an adult child counts as a gift unless you wrote down that it wasn't.

In this case it was worse than nothing being written down. Something was written down. It just said the wrong thing.

What FSCL decided

FSCL sided with the broker.

It found the mum had received enough legal advice when buying the house to know a loan agreement mattered. She chose not to have one drawn up.

It said the loss came from her daughter refusing to accept that part of the "gift" was a loan. It wasn't fair to make the broker pay for that.

So the broker owed her nothing. And the only signed paper still said gift.

Financial Services Ombudsman Susan Taylor summed it up: "This was a sad case highlighting the risk of parents lending their children money on the mutual understanding the loan would be repaid."

Why this one stings

She didn't do anything strange. She gave generously and lent on top of that.

She trusted her daughter. She trusted the broker to look after the paperwork. That's normal.

The failure was one missing document. The gift was in writing and the loan wasn't. When the family fell out the paper decided it.

The question that mattered was simple. Which part is a gift and which part comes back?

The fix, before the money moves

If you're about to put money towards a son's or daughter's house, there are usually two different things going on. Some of it is a gift. Some of it is a loan.

They need two different pieces of paper.

The gift part gets a gift deed. The bank will often ask for one.

The loan part gets a Friends & Family Loan Agreement. It records the amount and says in plain words that it's a loan and not a gift. It records when it comes back. It also records what happens if things change.

The AgreePro template also notes that a family loan may need to be disclosed to a bank when anyone applies for a mortgage. That matters here.

In this case the bank wouldn't lend with the $50,000 treated as a loan. That's a real constraint. It's also something a family can find out before the money moves rather than years later in a complaints process.

Once a gift deed covers the lot, the loan is gone on paper.

We wrote about a smaller version of the same problem with a dad, his daughter and $5,000 for an overseas trip. Same shape. Nothing written down about the loan, and the money stayed where it landed.

Write it down while everyone is still on good terms.

Source: Stuff, "Elderly woman loses $50,000 loan to daughter after agreement was not put in writing".