Family Help With House Purchase Can Backfire

Sky-high house prices in parts of B.C. mean young couples sometimes need help from the “bank of mom and dad” to buy a house. The parents may want to assist financially. But to save legal fees, they too often do this by an informal family arrangement that’s not thought out or written down, which different family members see differently. This can backfire badly, with the two generations at loggerheads, ending up in court, and spending way more legal dollars. A recent court case offers an example.

Here, the mom wanted to help out her daughter and son-in-law. The young couple bought a house in 2005, with a basement suite for the aging mom and her husband to move into and live in. The mom contributed $150,000 (about 29%) of the purchase price. The step-dad, who had a long- standing alcohol problem, passed away several years later, and the mom continued to live in the basement suite alone. She also chipped in for house-related expenses over the years.

In March, 2014, her son (who had a criminal record) moved in with mom. Initially this was intended to be for just a short time. But it ended up continuing for many months, to the distress of the young house-owning couple. By year end, they had a major falling-out with the mom over this. When asked once again in November when he would leave, her son felt insulted and moved out. The mom also took offence and decided to move out in early 2015.

Result? A court case in which the two sides made wildly different claims. The daughter and son-in-law said the initial $150,000 from mom was prepayment of rent for the basement suite for 10 years. Mom, who never went on title or documented anything about the arrangement, said she was entitled to 29% of the house, which had gone up in value by 2017 when this went to court.

The trial court had to try and figure out what the arrangement really was to begin with. It then had to see if complex legal concepts like the “presumption of resulting trust” or “unjust enrichment” allowed the mother to get back some of her financial contribution. (Apart from the initial $150,000, she’d also paid some $28,500 toward house insurance, taxes and utilities). The court decided she could only recover the $28,500. She couldn’t get an ownership interest in the house (since she’d gotten the benefit of living in the basement suite for free for nine years, until she moved out).

The mom felt this decision was wrong and appealed. The appeal court agreed that in the particular circumstances, she should get additional compensation based on a complicated formula, though not an ownership interest in the house. The compensation amount was to be determined by the trial court if the parties couldn’t agree on it.

To avoid this kind of unhappy (and expensive) situation, best get legal help up front with any planned family financial arrangement.

Written by Janice and George Mucalov, LL.B.s with contribution by COBBETT & COTTON. This column provides information only and must not be relied on for legal advice. Please contact COBBETT & COTTON for legal advice concerning your particular case. Names of the parties in reported cases have been changed or removed to protect their identity. Lawyer Janice Mucalov is an award-winning legal writer. “You and the Law” is a registered trade-mark. ©Janice and George Mucalov.

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