Am I required to divulge the fact that I have a loan from a private lender when filling out a loan application?

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Am I required to divulge the fact that I have a loan from a private lender when filling out a loan application?

I am a pastor of a church and my church wanted to gift me a house that they owned and that I lived in. Instead of just transferring it over to me, they did not want me to have to pay the taxes on that in one lump sum so they are gifting it to me little by little. They have increased my salary to pay the church back for

the house. I pay taxes on the increased salary and turn around and write a check back to the church for the amount of increase and that is considered a house payment. I have been doing this for 2 years and have 6 left until this process is over. Do I have to disclose this usual private lender set up when applying for a loan at a local bank? I have disclosed in the past and the bank did not know what to do with it and so I was turned down for the loan because they were scratching their heads over the whole thing. I want to do whatever is right and I would like to get a loan at the same time.

Asked on July 6, 2018 under Real Estate Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

It depends on whether you have an actual contractual obligation to pay them for the home or not. Say that they total price is $120k, $40k has been paid to date, and you have a written contract that you will pay $1k per month for the next 80 months. Even if they increased your salary to let you pay that $1k without taking an financial hit, the fact is that you have an enforceable obligation to pay $1k/month, have a remaining enforceable debt of $80k, and since those factors affect credit-worthiness and monthly cash flow, you must disclose it when seeking a loan; a failure to disclose such "material" or important facts would be fraud.
On the other hand, say there is no contract obligating you to pay a certain amount or make certain monthly payments; there is simply an oral understanding that whatever additional pay the church gives you, you will turn around and return to them. Since an oral agreement may be modified at will (or at most on a month's notice), there is no binding obligation to make the payments--in this way, it is similar to you being a member of a gym or health club that has no contracts, but you pay for sessions or classes you take as you take them, and so your payment obligations could stop whenever you wanted. As such, you are not "on the hook" or obligated for a fixed amount and so, with there being no legal obligation to pay, you would not have to disclose.


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