AS some New Yorkers try to take advantage of a slowing real estate market, they’re seeking loans from lenders whom they haven’t borrowed from in years: their parents and other relatives. These buyers aren’t people who lean on rich relatives every time they need cash; in fact, most of them said they had never asked for help in their adult lives.
But banks have tightened lending standards so much that if the would-be buyers don’t ask for help, they will either have no chance to buy, or stand to lose down payments already made or mortgages already negotiated.
Financial advisers say they are fielding many more calls than usual from clients asking which investments to tap into to help their sons and daughters and what the tax implications will be. Mortgage brokers, too, are spending hours talking to their clients’ relatives about lending money and becoming guarantors.
“It’s happening more and more often, especially because banks have tightened their restrictions,” said Ross Weinstein, a managing partner of the Union Square Mortgage Group.
Right now, Mr. Weinstein said, he is advising five clients who are in contract to buy apartments with help from families, and he says half of his upcoming deals involve buyers getting money from relatives. “The only people they can turn to is their family,” he said.
Christian Wagner, 33, and Kristen Grossholtz, 35, asked their parents for help last summer. The couple had saved about $100,000 and started shopping for co-ops that cost less than $500,000.
With help from their broker, Debby Klein of Bellmarc Realty, they found a $380,000 one-bedroom co-op at 1270 Fifth Avenue, at 108th Street, that needed about $60,000 in renovations. They felt they had found a bargain that would survive a more troubled market, because comparable renovated units had sold for about $500,000. Mr. Wagner also decided to do some of the renovations himself to trim costs.
But they used up their savings, putting them toward closing costs and the co-op’s required 20 percent down payment. They asked their parents to give them a total of $60,000, to meet the co-op’s requirement for the equivalent of two years in mortgage and maintenance payments. They closed on July 31, and are using the remaining money toward renovations and their small wedding in Hawaii.
Mr. Wagner’s parents are not wealthy, but they said they wanted to help. His father, Stephen Wagner, a retired carpenter and building inspector who lives in Apple Valley, Calif., is quick to acknowledge that he’s a “worrywart” about the state of the economy. But Mr. Wagner said his own parents had helped him and his wife, Virginia, who runs a preschool, in buying their home 30 years ago. They want to do the same.
“Everything is kind of a gamble,” Mr. Wagner said. “Life is short. We had two boys, and our other son died two years ago. You just try to help people when you can.”
While the money was given to the couple as a gift, and confirmed as a gift in letters submitted to the co-op board, Christian said he hoped to repay his parents one day.
Typically, a relative can give up to $12,000 each year to a family member without paying taxes on the gift.
The help from family members is taking many forms. Some people offer to pay debts like car loans to improve their children’s credit scores. Others place money — up to hundreds of thousands of dollars in some cases — in relatives’ bank accounts so that they can meet co-ops’ new, stricter requirements for post-closing reserves. Co-ops often ask families to document that this money is a gift and not a loan.
Some buyers don’t actually need cash, but they have asked financially stable relatives to act as guarantors, agreeing to make payments on the mortgage if the buyers default.
Stefani Pace, an associate broker at Prudential Douglas Elliman, is representing two different buyers who work in the banking industry and who, based on their salaries, could easily afford the apartments they are trying to buy. But they asked their parents to be guarantors to satisfy the demands of their co-op boards.
These loans and monetary gifts are alarming some financial planners, who fear that the givers are jeopardizing their own long-term financial security.
David Bendix, the founder of the Bendix Financial Group in Garden City, N.Y., said that in the last two months, he had fielded nearly double the usual number of calls from clients who wanted to know what investments to cash out of to help relatives, often to buy real estate. If a client had large cash savings, he said, he would be more likely to advise making a loan. But it would be another matter if a client needed to sell stocks. “To ask someone to get out of the equity market or borrow against their retirement plans is not realistic or practical,” he said.
(Reprinted from www.nytimes.com)
