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Parents suing their children for repayment of loans to buy property

The bank of mum and dad – now Australia’s fastest growing mortgage lender. Photo: iStock

A Melbourne woman has sued her architect son over a $500,000 house loan, the latest case in what experts say is a rising trend as more parents aim to help their children climb the property ladder.
In the past two months, County Court judges have handed down two judgments in favour of parents in disputes with their children over whether money for a property purchase was a loan or a gift.
Legal experts say it is becoming more common for well-meaning loans from “the bank of mum and dad” to descend into messy legal disputes in fractured families.

Parents lending children money to buy a home can be fraught with legal risk. Photo: Jim Rice

“Five years ago, you’d get maybe one a year,” said David McKenzie, co-chair of the Law Institute of Victoria’s property law committee. “This year, I would have handled at least three or four — and we’re only in March.”
In a judgment last week, retired mother of three Lalanah Brujah took her eldest son, Taras Wolf, to court to recover $289,800, which she claimed was the outstanding balance of a loan.
The court heard Ms Brujah wrote cheques to cover the deposit, settlement and stamp duty for a Collingwood property Mr Wolf purchased for $500,000 in 2001, when he was aged in his late 20s.

It is estimated one-third of first-home buyers get some sort of financial assistance from their parents. Photo: Peter Braig

“I said to him that I could lend him the money for the property and he could pay me back,” Ms Brujah testified, adding that she had expected the loan to be repaid in five to seven years.
She told the court she did not document the deal at the time because she trusted her son. “You know, I expected that he would do the right thing,” she said. “I never expected to be here.”
Mr Wolf claimed the money was a gift, and insisted “there was no loan” and “no discussion of payments”. He sold the Collingwood property 18 months later and bought in Chadstone, where he designed and renovated an award-winning luxurious five-bedroom property for his family.
Judge Ted Woodward said the mother and son had fallen out in 2014 and it was “a case involving a fractured family and serious allegations of dishonesty and fraud”. In handing down his findings last week, Judge Woodward ordered Mr Wolf to pay his mother $289,800 plus interest and legal costs, to be calculated at a later date.
Mr McKenzie warned families against entering into informal agreements but conceded many parents did because they trusted their children. “At the end of the day, parents have a natural desire to help their kids.”
Even with a formal agreement, recovering loan money could prove tricky because a registered mortgage (with a bank or lender) would take legal priority, Mr McKenzie said.
“The terrible thing about these things is if mum and dad are getting on and are near the retirement phase, they will effectively be putting money out of their pension pool into this property,” he said. “The idea that that could be at risk and affect the parents later on is also a pretty horrifying prospect.”
He recommended drawing up a mortgage or caveat to place over a property, or setting up a discretionary trust. “But none of this is cheap,” he added.
Ethics Centre executive director Simon Longstaff said disputes were more likely to arise when families failed to plan for medical emergencies or unexpected financial issues.
“All decisions involving one’s children or relatives need to be both emotionally grounded but also rationally grounded in terms of making an informed decision,” Dr Longstaff said. “Everybody wants to help their children. Paradoxically the best help you can give your child is to go through a robust process instead of just going ‘OK darling, I’ll give you this’.”
Source: Allison