[mdunker]

I am trying to determine if the borrower is receiving gift funds from their parents for a purchase does the gift funds need to be shown on the LE or the CD. I have heard they only need to be shown if the gift funds are being sent directly to the title company or given to the bank directly.

[rcooper]

A gift from a family member would need to be shown under Adjustments and other credits of the Calculating Cash to Close table on the LE based on what 37(h)(1)(vii) and its commentary says and then disclosed as “paid by other” (if a specific credit) or disclosed under L of the Summary of Transaction table (if a general credit) of the CD.

I’m not aware of the regulation or commentary stating the gift must be given directly to the title company or the bank in order to be disclosed. If you want to let us know where you found this information (preamble, other guidance, etc.) we’ll be happy to review it and let you know our thoughts.

[mdunker]

in looking at the regulation under 1026.37(h)(1)(vii), where it says pursuant to a purchase and sale contract what exactly do they mean there. does the gift funds have to be outlined in the purchase or sales contract in order for us to have to list them on the LE or the CD?

[rcooper]

Page 98 of the proposal clarifies that you will only include gifted funds if they are paid at consummation. If they are paid to the consumer prior to consummation they are not disclosed on the LE. See the proposed clarification below. Although it is only proposed it is a good indication of what the regulators expect. Also see below the explanation of the “purchase and sales contract” language.

Proposal:
Comment 37(h)(1)(vii)-1 clarifies that amounts expected to be paid by third parties not involved in the transaction, such as gifts from family members, and not otherwise identified under § 1026.37(h)(1) are included in the amount disclosed under § 1026.37(h)(1)(vii), but the comment does not specify whether amounts received by the consumer prior to consummation must be included in the calculation. The Bureau is proposing to revise comment 37(h)(1)(vii)-1 to distinguish between amounts paid by third parties at consummation and amounts given to consumers in advance of consummation. As proposed, the revision to comment 37(h)(1)(vii)-1 would state that amounts expected to be paid at consummation by third parties not involved in the transaction, such as gifts from family members, and not otherwise identified under § 1026.37(h)(1), are included in the amount disclosed under § 1026.37(h)(1)(vii), although amounts expected to be provided to consumers in advance of consummation by third parties not otherwise involved in the transaction, including gifts from family members, are not required to be disclosed under § 1026.37(h)(1)(vii).
________

I believe the specific reference to the purchase or sales contract that you asked about where it says:

(vii) Adjustments and other credits. The amount of all loan costs determined pursuant to paragraph (f) and other costs determined pursuant to paragraph (g) that are paid by persons other than the loan originator, creditor, consumer, or seller, together with any other amounts that are required to be paid by the consumer at closing pursuant to a purchase and sale contract, disclosed as a negative number, labeled “Adjustments and Other Credits”;

Is talking about amounts that are described in the comment below:

6. Reduction in amounts for adjustments. Adjustments that require additional funds from the consumer pursuant to the real estate purchase and sale contract, such as for additional personal property that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) or adjustments that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(v) can be included in the amount disclosed under § 1026.37(h)(1)(vii), and because the amount disclosed is a sum of adjustments and other credits, such amount would reduce the total amount disclosed. Additional examples of such adjustments for additional funds from the consumer include prorations for property taxes and homeowner’s association dues.

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