borrowing money to buy house with cash

[jodi]

Just a scenario here to get some input on...an acquaintance of mine is planning to sell her house and buy a new one. Her house is not on the market yet, but will be within a month. She started to look for new houses to get a feel for the market and found a perfect one in the second house she looked at. Instead of writing an offer contingent on selling her house (which may be a tough sell, although she is willing to drop the price as much as needed for a quick sale), she decided to borrow the money ($55k) from her mother, who lives in a nursing home, and pay it back when her house sells (she will hopefully net $10k+ from her house and get a mortgage for the rest - she is already approved by the bank and has informed her lender of the plan). She asked all of her siblings if they would have a problem with this - no one did, and as a matter of fact, they are all very happy to help as she needs a better house with less upkeep and cheaper monthly bills.

A little more background: the mother's investment income pays for her nursing home care, so her assets remain steady - at well over $500,000, if I had to guess, in liquid assets alone. She could easily pay for her care out of pocket for 5-10 more years. Therefore, lending this money does not jeopardze her care in any way. It will be paid back within 6 months or so.

My acquaintance has recently gotten a lot of grief from a family member (NOT a sibling - not even a blood relative) who told her that what she is doing is illegal since the mother is in a nursing home. I don't see how it is since the mother is not getting any government aid, is paying her own way, and is not attempting to hide any assets. But, nevertheless, she is now very nervous about borrowing the money. Are we missing anything??? Thanks-

[InDebtInDC]

My acquaintance has recently gotten a lot of grief from a family member (NOT a sibling - not even a blood relative) who told her that what she is doing is illegal since the mother is in a nursing home. I don't see how it is since the mother is not getting any government aid, is paying her own way, and is not attempting to hide any assets. But, nevertheless, she is now very nervous about borrowing the money. Are we missing anything??? Thanks-

As a matter of semantics, laypeople with no statutory authority, including lawyers, law enforcements, and even prosecutors, have no basis to give a legal opinion of legal compliance. That decision is reserved for judges.

All that a common person can do is say that X is legal, what you're doing appears to be X, so therefore you may be doing something illegal. It's up to the courts to decide if what you're doing constitutes X.

If that person is insisting, ask them to cite the statute that your acquaintance is allegedly violating. In order to do something ilegal, you must be violating a law. If you can't find a law to violate, there's no illegal activity.


Because we don't know all the facts, no one can say if there is something illegal going on. And in truth, nobody knows if something may be illegal until a judge calls it.

If you have some concern, I suggest consulting an estate planning attorney.

[disneysteve]

I know a senior citizen cannot give away assets in order to qualify for Medicaid to cover nursing home costs. However, if the mother is paying her own way at the nursing home, I'm not sure that rule applies. The easiest way to get an answer would be to speak to the financial person at the nursing home. They deal with this stuff every day and know the rules inside and out. Plus, they'll answer you for free which beats paying an attorney $400/hour.

[jodi]

I know that no one here can give a definitive answer - I'm just wondering if we were overlooking anything obvious. Since the mother is clearly paying her own way and will continue to do so indefinitely, and since all money will be paid back, I couldn't see anything glaring. Just wondering if we couldn't see the forest for the trees.

My acquaintance works with a real estate agent, bank, and attorney for the purchase of the house. While the first two clearly cannot give a legal answer, neither has raised any issues with the plan. I'll tell her to run it by her closing attorney in the purchase of the house if she really wants to be sure. I'm not sure whether she has run it by the nursing home yet or not, but I really can't see how it would matter to them since the mother is priavte-pay and nowhere near qualifying for Medicaid (nor will she be likely to in her lifetime at age 87 in failing health). Just wondering if anyone else saw something that we were missing.

[mom-from-missouri]

I think Steve is correct. In fact, my while my grandma was in a nursing home under private care, she helped buy a single level handicap friendly home with my aunt. This was so my aunt could take her out of nursing home to care for her. My aunt then paid her back after her 2 story home sold a few months later. This arrangement worked for them until my grandmas death years later.
Had she been medicaid, it would have been a different story.

[Seeker]

My acquaintance has recently gotten a lot of grief from a family member (NOT a sibling - not even a blood relative) who told her that what she is doing is illegal since the mother is in a nursing home. I don't see how it is since the mother is not getting any government aid, is paying her own way, and is not attempting to hide any assets. But, nevertheless, she is now very nervous about borrowing the money. Are we missing anything??? Thanks-

Interesting. Wonder what relationship this "family" member is? And what job they have or where they get their information that this would be illegal?

Ultimately, if the mother in the nursing home is cognizant of what is happening and agreeable to the borrowing, and none of the other blood relatives, brothers/sisters are disagreeing, it does not sound as if there should be any legal issue. The mother is the person in charge of the money legally unless there's some other legal document in effect.

If someone held a Power of Attorney or other legal documents to speak on behalf og the mother, it might be different. But without that document and if the mother in the nursing home understands and agrees, then there's no wrongdoing here.

[InDebtInDC]

My acquaintance works with a real estate agent, bank, and attorney for the purchase of the house. While the first two clearly cannot give a legal answer, neither has raised any issues with the plan. I'll tell her to run it by her closing attorney in the purchase of the house if she really wants to be sure.

I do not think this is wise. The closing attorney DOES NOT represent the buyer, and cannot do so due to conflict of interest. The closing attorney's only interest is to make the transaction legally compliant.

You need your own attorney who represents you.

[maat55]

I think she should sell her house then buy the new house the way most everyone does. The friend needs to be patient, use the contingency as motivation to wrap this up. You hear to many stories where someone dies in the middle of one of these strange financial deals.

[jodi]

I do not think this is wise. The closing attorney DOES NOT represent the buyer, and cannot do so due to conflict of interest. The closing attorney's only interest is to make the transaction legally compliant.

You need your own attorney who represents you.

It's a cash deal, so there is no "closing" (or bank) attorney. Both the buyer and seller have retained an attorney to represent themselves.

[jodi]

I think she should sell her house then buy the new house the way most everyone does. The friend needs to be patient, use the contingency as motivation to wrap this up. You hear to many stories where someone dies in the middle of one of these strange financial deals.

I appreciate all the advice, but it has already been determined that this is the way it's being done. My only question was were we overlooking anything glaringly wrong? My acquaintance will inherit much, much more than the cost of the house, so worst case scenario (which the siblings are all on board with), she will receive less of an inheritance.

[jodi]

Interesting. Wonder what relationship this "family" member is? And what job they have or where they get their information that this would be illegal?

Daughter-in-law. And she seems to LOVE to get everyone hopping! Apparently, she got this information from her father, who is a banker. But I just cannot see any basis for it considering the circumstances, unless she didn't tell her father that the grandmother still pays for all her own care.

[maat55]

I appreciate all the advice, but it has already been determined that this is the way it's being done. My only question was were we overlooking anything glaringly wrong? My acquaintance will inherit much, much more than the cost of the house, so worst case scenario (which the siblings are all on board with), she will receive less of an inheritance.

I thought about borrowing money from family before, but didn't because I felt it was cheating in the big scheme of things. I see nothing wrong with your friends plan. She might ought to seek advice from an CPA. In my family, I've seen those who use family as a crutch instead of building their own strong foundation. Not that this applies in your friends case.

[jodi]

Thanks! She's actually come very, very far in the past year. Her husband used to pay all the bills (late), but they split up and she took control of everything, raising her credit score dramatically (current mortgage is over 10% - new mortgage will be 6.25%!), paying ALL her bills on time, and setting aside a big chunk of money in a CD for future needs. She is adamant about not taking a "mortgage" from her mother, but just a short-term loan in order to get one house before the other sells.

[InDebtInDC]

My acquaintance works with a real estate agent, bank, and attorney for the purchase of the house. While the first two clearly cannot give a legal answer, neither has raised any issues with the plan. I'll tell her to run it by her closing attorney in the purchase of the house if she really wants to be sure.

It's a cash deal, so there is no "closing" (or bank) attorney. Both the buyer and seller have retained an attorney to represent themselves.

Because we don't know all the facts, no one can say if there is something illegal going on. And in truth, nobody knows if something may be illegal until a judge calls it.

If you have some concern, I suggest consulting an estate planning attorney.

Keep in mind that we don't ask neurologists to do heart surgery, and vice versa with cardiologists. Both may be board certified, but they're not interchangeable. Attorneys have specialties as well. Make sure you consult the appropriate one.

It's also hard to piecemeal together the fact patterns of a situation without being involved.