Is a Promissory Note binding with Gift Letter
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Is a Promissory Note binding with Gift Letter
My husband purchased a home with gift funds 75K from his parents for down payment. Two months after the loan closed, although I am not on title on the home, his parents had him and I sign a Promissory Note to pay back the 75K interest payments only. I was hesitate to sign but to prevent family turmoil, I agreed. My husband never made any payments nor did his parents demand it. My husband has died and due to financial reasons, I was forced to sell the home. His parents now are requesting that I pay back the money or they will take legal action. There was not sufficient proceeds from the sale to pay them. Being they did sign a Gift Letter in order for my husband to obtain lender’s loan approval, can I use it to void the Promissory Note?
Asked on August 2, 2017 under Real Estate Law, Colorado
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 6 years ago | Contributor
There is a good chance you can void the note. It's not merely that they gave him a gift letter, though that certainly helps; that is evidence that when made, the money was a gift, not a loan. It's also that they did not get him to sign the promissory note until months after they had already given him the money. If he already had the money, he was not receiving anything for signing the promisory note. If he did not get anything to sign it, he did not receive "consideration" for his agreement to pay; and since a binding contract (which is what a promissory note essentially is) requires consideration, without him getting anything new in exchange for his promise to pay, that promise is not binding. IF he had signed the note, even after first getting a gift letter, *before* receiving the money, so that he only got the money because he signed, the money would be a loan; but you can't retroactively convert a gift into a loan after the recipient already received the money.
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