(Last Updated On: November 2, 2017)
The Road to Hell is Paved with Good Intentions.[i]
In 1997, Harry was 57 years old. He had married (for the second time) in 1985.
He wanted to buy a property. The property would cost $80,000 to buy. Because of his age and the fact he was then unemployed, it was difficult for him to borrow money. However, Harry had 30 year old son (from his first marriage), Rene, who was living in Sydney. A mortgagor broker told them that he could organise a loan if Rene would assist.
Arrangements were put in place whereby the property was purchased in Rene's name for Harry and his wife to live in. Harry paid the deposit ($16,000) and a loan of $64,000 (in Renee's name) was obtained. Harald met all the repayments on the loan and by January 2013 had paid off all the loan.
By this time, Harry was 73 years old. In February 2013, Rene redrew funds down on the loan (something he could do as both the property and the loan were in his name after all).
Around this time, Harry saw a lawyer. He was apparently advised that he should lodge a caveat over the property claiming that, since he had paid the entire purchase price of the property (including the loan repayments) he was really the owner of the property.[ii]
Did the Court agree?
It all came down to what was agreed to in 1997 when the arrangements were put in place. Unfortunately, the ‘agreement' was really just a series of conversations made between Harry and his son.
Harry's understanding of the arrangements was that once he had paid all the loan off, Rene would transfer the property to him.[iii]
Rene's understanding was that Harry would meet all the loan repayments (and other expenses on the property) and that Harry (and his wife) could live in the property for the rest of their lives. Rene said that it was always understood that ‘one day the property would be mine'.[iv]
The judge decided that Rene's version of events was preferable. Harry's claim was dismissed. Note, however, that pursuant to Rene's version, Harry had a life interest in the property.
The Moral of the Story?
Whenever arrangements are made between family members, whether that is simply for an advance of money (a gift or a loan) or more complicated arrangements such as those in this case, the arrangement should be put in writing and signed by all parties. Better still, get a lawyer to write up the agreement.
[ii] The legal claim was on the basis that there was a resulting or constructive trust.
[iii] “Although I cannot remember the exact words we both used I put it to Rene that I would pay everything for the house and when it was paid off Rene would transfer the title to me.”
[iv] “He asked me whether I would agree to provide a Guarantee to a Bank, in respect of a loan that he, himself was seeking, to facilitate the purchase of the Wanneroo Property. I told him that I did not want to be a Guarantor. I said that I could obtain a Loan in my name alone, and purchase the Property. I also told him that he could live in the home until he died or no longer wanted to live there, and pay rent to me on a monthly basis. I said the amount of rent would be equal to the monthly mortgage repayments, and that I would use the monies that he paid to me as rent, to repay the loan. He told me that the Wanneroo Property would be mine anyway. He also said he'd pay a large enough deposit to ensure that I would not have to take out Mortgage Insurance. He also said he would pay for all of the other costs associated with the purchasing the property.”