16th Mar 2018
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Loans leading to legal disputes and fractured families
Author: Janelle Ward
parents lending money

Are cracks appearing in the ‘Bank of Mum and Dad’?

A Melbourne mother has sued her son over what she said was an unpaid home loan and legal experts say the frequency of such actions are becoming far more common.

As well-meaning parents seek to help their adult children enter competitive property markets, what can be overlooked is what happens when they need that money and the child is not in a situation to repay it.

The financial services royal commission in Melbourne last week also heard how older Australians were being adversely affected by irresponsible lending.

In the Melbourne Magistrate’s Court last week, Lalanah Brujah was seeking $289,800, which she claimed was the outstanding balance of a loan to her architect son Taras Wolf to buy a house in Collingwood in 2001.

Mr Wolf claimed the money was a gift. However, the court ordered him to repay the full amount sought.

David McKenzie, co-chair of the Law Institute of Victoria’s property law committee, told domain.com.au that parents contemplating loaning money to children should draw up a mortgage or caveat to place over a property, or set up a discretionary trust, though he conceded that could be an expensive process.

“At the end of the day, parents have a natural desire to help their kids,” he told the website, but warned that even with a formal agreement, recovering loan money could prove tricky because a registered mortgage (with a bank or lender) would take legal priority.

“Five years ago, you’d get maybe one (court action) a year,” he said. “This year, I would have handled at least three or four – and we’re only in March.

“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. The idea that that could be at risk and affect the parents later on is also a pretty horrifying prospect.”

Karen Cox, of the Financial Rights Legal Centre, noted at the royal commission last week that such loans are: “Outright exploitative … elderly persons [are] left in dire circumstances as a result of a loan for which they've seen absolutely no benefit.”

Eileen Webb, a professor at Curtin Law School at Curtin University, told The Conversation that in extreme cases, older people had been told they would be unable to see their grandchildren if they did not enter into loans.

She said elderly people should be fully informed of their obligations and the potential consequences should a transaction go wrong and that the banks could lead the way on this.

“One initiative would be for the banks to contribute to legal and financial advice for older people, or subsidise the provision of such advice at community legal centres,” she said.

“Loan assessors and brokers must also be made aware of the risks of such transactions.”

She said that the Australian Bankers Association was introducing enhanced measures to address elder financial abuse and the risks associated with such loans. But she added that the Government should consider tougher penalties against credit providers who disregarded responsible lending obligations.

Have you lent children money to buy housing? Did you have a formal legal arrangement?

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    COMMENTS

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    almost a grey hair
    20th Mar 2018
    9:36am
    I think the worst part of this for parents nearing the retirement phase in life is the fact that Centrelink may see these loans as deprived assets
    MICK
    21st Mar 2018
    8:24am
    That is one aspect but I would like to believe that the worst thing is the betrayal of parents by their children. Quite sickening but the noises I have been hearing from genY for quite a while is that they are owed and mum and dad need to pay up. The result of meida BS for decades and parents who gave these little creatures everything they ever wanted.
    Of course some turned out good. Well done to the parents of these children.
    Tib
    20th Mar 2018
    11:15am
    Lending money to family members can tear families apart.
    john
    20th Mar 2018
    11:32am
    I have done it and helped out, but it would never ever tear my family apart. I have had situations where there was no other way.
    I would do it all again if I had too. I am far from wealthy ,but you get by and eventually it sorts out.
    If you've had a terrible situation and your family has done wrong by you, then your family in itself needs to have a good look at what really being a family is all about???.
    Personally I could never see a situation where I would be suing a child , it just won't happen. If it came to that may as well be dead.
    MjP
    20th Mar 2018
    11:35am
    Spot on Tib
    KSS
    20th Mar 2018
    12:24pm
    John I have no doubt that everyone starts out think as you do. Unfortunately things don't always go according to plan and the worst of people comes to the fore. Much like STDs (sexually transmitted debts) where money is concerned, know what you are getting into. Have everything formally written down and don't sign anything you haven't read and fully understood.
    Anonymous
    20th Mar 2018
    3:39pm
    In some families money is thicker than blood , beware!
    Pablo
    20th Mar 2018
    11:33am
    Never, never, never employ family members and don't ever loan money to family members!
    Rosret
    20th Mar 2018
    11:40am
    Put it in writing. If its a loan do it officially.
    Any lawyer will tell you that most money disputes are between family members whether it be companies, inheritance, guarantors or gift/loans.
    Family think that it can be "paid later" or he/she won't mind.
    KSS
    20th Mar 2018
    12:25pm
    Or worse, "they will die soon and it will be mine then anyway!".
    Julian
    20th Mar 2018
    12:47pm
    Feature story is obviously another case of this generation's "entitlement"
    jackie
    20th Mar 2018
    2:51pm
    Julian....This has been gone on through out history. People have murdered their family members for money too. It's greed not a generational thing.
    Tib
    20th Mar 2018
    1:57pm
    I also believe there are problems with signing as guarantor for family members with the bank. I believe the guarantee can be used to cover all of their loans not just the one you have discussed. Which is a great way to go broke. This may have changed but best make sure.
    Garry
    20th Mar 2018
    2:46pm
    My wife and I have helped our children in their purchase of a home, by way of guarantee.
    However, I worked in the Lending area of a bank for over 30 years, and was fully aware
    as to the pros and cons of doing this.
    We also were very careful in not overcommitting ourselves in the amount we helped secure for the purchases.
    The children all had very secure jobs, however it was a number of years before we were able to have the guarantees released.
    Hairy
    20th Mar 2018
    6:25pm
    Yes once it’s in there hot little hands, kids or wife’s the demon arises. The only way is lawyers and courts . So best to say sorry no because the end result is the same if they are non family minded.
    Anonymous
    21st Mar 2018
    3:09am
    Yes better to give it to the kids than to the demon wife


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