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HiCustomer Thank you for asking your question on Just Answer. The other Experts and I are working on your answer. By the way, it would help us to know:-What city and state do you live in?-What country do you live in?-What have you already tried?
-WHO is borrowing the money from a friend, your mother or your sister?
-WHY does your sister want this letter, what is she trying to accomplish, what will she use it for?Thank you again for trusting us with your problem. Please reply as soon as possible so that we can finish answering your question.
My sister is borrowing money from a friend
My sister will use the money for the down payment on a home
The bank says it must be a gift
My sister wants my mother to sign a gift letter
It is a lie
What is the penalty if my mother is found out?
This would be mortgage fraud and bank fraud and could expose your mother AND sister to potential prison time. The bank says it must be a gift because they want to have a first mortgage. What your sister needs to do is tell the bank it is not a gift, that she is borrowing from a friend and ask if they will accept it if the friend signs a subordination agreement. A subordination agreement would be an agreement wherein the friend would sign something agreeing that the bank can still have a first mortgage and that her interest, if any in the property will be "subordinated" to the bank, or reduced below that of the bank or mortgage company. More detailed information on subordination of debt may be found here: http://en.wikipedia.org/wiki/Subordination_(finance)
I hope this helps.