Tuesday, October 3, 2023


             Stephanie Shields and Timothy Wilkinson decided to cohabitate in 2017. At that time Tim lived in a home owned by his grandmother, Ida Mae Clark. The three determined it would be best for all of them to live together, so Stephanie engaged a Realtor to both purchase a new home and sell Ida Mae’s property. 

            Since Stephanie’s credit scores were better than Tim’s, Stephanie applied for a VA mortgage. Ida Mae sold her property to provide equity for the new home, to be occupied by Stephanie, Tim, and Ida Mae. 

            Stephanie took Ida Mae to the office of the mortgage lender, where Ida Mae was furnished a form titled “Gift Letter.” The form stated: “I have made a gift of $111,213.14 to Stephanie Shields,” who was incorrectly identified in the letter as Ida Mae’s granddaughter. The form also provided that “No repayment of the gift is expected or implied . . .” 

            When Tim learned of the gift letter, he contacted an attorney. The attorney drafted a Memorandum Agreement for Tim and Stephanie. The Agreement acknowledged that Tim and Stephanie used substantially all of the gift proceeds from Tim’s grandmother to purchase the new property. Further, the Memorandum Agreement stated that if either Stephanie or Tim “failed to pay [their] half of the bills, then [Ida Mae’s gift] amount [would] be made good at the time of payout.” 

            Ida Mae was not a party to the Memorandum Agreement. 

            The property purchase closed in July 2017. The Memorandum Agreement was not signed until February 2018. Presumably at the time of the purchase the mortgage lender received a title policy insuring its first lien position. 

            When the relationship between Stephanie and Tim deteriorated in 2018, Stephanie posted an eviction notice on Ida Mae’s door, requiring that both Tim and Ida Mae vacate within 30 days. So Ida Mae engaged an attorney, who filed a lawsuit against Stephanie in 2019. 

            A trial was convened in 2021. The court determined that Ida Mae and Stephanie had a valid agreement to jointly purchase the property, and entered an Order requiring that Stephanie reimburse Ida Mae for substantially all of the “gift” funds. 

            Stephanie appealed. 

            On appeal, Stephanie argued that Ida Mae disclaimed any interest in the property when she signed the Gift Letter. Ida Mae responded by claiming that Stephanie admitted the money was not a gift when Stephanie signed the Memorandum Agreement. 

            The Appellate Court considered the mortgage broker’s testimony that the Gift Letter was required for Stephanie to qualify for a mortgage loan. Conversely, the Court noted that Stephanie signed the Memorandum Agreement requiring her to repay Ida Mae’s gift amount from the proceeds available at the time of sale. 

            Thus negating the concept of a gift. 

            These competing facts led the Appellate Court to reconsider the relationship between the parties. Evidently monies described in a gift letter may not be a gift, depending on the intent of the parties. Rebuttal testimony is permitted to challenge the presumption that the monies paid were actually a gift with no expectation of repayment, even though the Gift Letter is unambiguous. 

            Further, the High Court did not find it particularly relevant that the Memorandum Agreement was signed eight months after closing, since the Court determined that the true agreement of the parties preceded the purchase of the property. Not stated in the Opinion is the reasoning to allow the Memorandum Agreement to controvert the Gift Letter, as typically extrinsic evidence is not allowed to be considered as evidence unless required to support or contest an ambiguous document. 

            Ida Mae wins again; Stephanie must repay the “gift” funds. See Shields v. Clark; Supreme Court of Alaska; Case No. S-18325; August 18, 2023: https://cases.justia.com/alaska/supreme-court/2023-s-18325.pdf?ts=1692378023. 

Questions / Issue: 

1.      Our judicial system is composed of people with parents, children, grandparents, and grandchildren. From purely a legal perspective and without the overlay of a grandma trying to do something nice for her grandson, this is an absurd result. But given the context of this claim, both the superior court and Supreme Court delivered results that were likely anticipated. 

2.      And yet, what if the State where this was litigated has a theory of equitable liens and constructive trusts? And what if a Judgment is entered that allows grandma to enjoy the position of a first lienholder, priming the mortgage lender and VA, allowing grandma to foreclose and eradicate the secured position of the mortgage lender? Then the lender would seek recourse against the title company that insured its lien position, who, in turn, would look for indemnity from the mortgagors.

3.      In law school we learn that ‘bad facts make bad laws.’ Perhaps that should be supplemented with this appendix: ‘Also, Gift Letters mean nothing. At least not in Alaska. 

                                                                        Stuart A. Lautin, Esq.*


Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

No comments:

Post a Comment