Bulletin: FL000116

Dear Associates:

Occasionally, a buyer will provide a "gift letter" stating the down payment was furnished outside of closing from a donor. For example, a young adult's parents may provide a down payment. This is perfectly legitimate provided the agent verifies the seller received the funds.

On the other hand, the lender may direct a third party to provide "gift funds" to assist the buyer. The third party will typically wire funds into the agent's escrow account. The third party will provide instructions to wire or overnight the funds back to the third party after the closing along with a sizeable service fee.

Although these returnable "gift funds" may arise in any transaction, they particularly occur in a mobile home purchase. They are not paid toward land acquisition costs, closing costs, or toward the mobile home price and set-up costs, but are added into the loan amount.

These "gift funds" may be a disguised lender's fee. Such a disguised fee may be in violation of the Truth in Lending Act or other consumer protection laws, and may constitute usury. Agents should avoid transactions in which "gift funds" are to be returned to the donor after the closing. Instead, it is the agent's responsibility to collect these funds and disburse them to the seller, or to verify that the funds were paid to the seller outside of the closing.