Allow me to explain how this works and why they are asking for this.
Also, a mortgage situation can have a party in two positions:
1) As a deed-holder (one who holds the deed but has no duty to pay); and
2) As a mortgagee (one who holds no interest in the deed but has the contractual obligation to pay the mortgage).
Often, the party holds both positions, but, this is not true 100% of the time. For example, a rich uncle wants to spoil his niece and purchases her a home, but, he keeps himself as a the mortgagee but she receives the deed. OR, as in her case, a spouse who is qualifying for the mortgage as a mortgagee because only he can, but, she will also be a deed-holder.SO WHY IS THE LENDER DOING THIS?
Now, because they are fianced, they are expected to get married. But, they may not. If not, then she can always go to Court and claim that part of the home belongs to her
in equity. The home can become the subject of extensive litigation between them.
The lender has an interest in the property - they do not want it to be the subject of litigation by any means. Ergo, they WANT her to sign a document stating this was a gift because by doing so, if they never marry but she fights for the home, that document will state that it was a gift, and as such, she has no interest to the property, thus reducing the chances of ongoing litigation.
Now of course if they get married, he will put her name on the deed and then she will automatically have this viewed as community property
if they divorce
But, the lender is simply trying to minimize litigation for a property in which they will have an interest, and is attempting to do so if they never marry. Of course, she does not have to sign the document, but then, the lender can deny the loan.
PAPER TRAIL FOR FINANCES
The underwriter has to have all his income recorded to ensure that if they are audited, no red flags appear. Ergo, if he is receiving a hefty downpayment on the home, then that money needs to be recorded. As such, a gift letter is standard. See here
I am afraid that here, she really has little choice - she can either sign, or not sign, but the lender can make this request.
I hope this helps and clarifies.
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