Legal Question in Real Estate Law in California

A general principle to keep in mind is that mortgages and ownership are separate concepts, with only a loose relationship.

If someone owns a house and has a loan against it - usually a promissory note secured by a deed of trust, and together commonly referred to as a "mortgage" - and the owner transfers a part interest to someone else, as you describe, the following things usually happen:

(1) The owner remains solely liable as the person obligated on the mortgage;

(2) The transfer of the part interest probably triggers a "due on sale" clause in the promissory note, making the full remaining balance of the mortgage immediately due and payable at the lender's option;

(3) The grantee acquires the interest described in the quitclaim deed, typically a 1/2 interest as a tenant in common, or a joint tenancy interest (and note that drafting deeds requires some knowledge of what you're doing, or a mess will result);

(4) The interest transferred will be re-appraised for property tax purposes unless the transfer is exempt due to the relationship of the parties (parent-child, etc.); and

(5) There may be income-tax type impacts such as gift, future capital gains tax consequences, etc., depending on many factors including the price paid (if any), whether gains result in a future sale, and so on.

When the co-owner of a property dies, it becomes very important whether the co-ownership was as tenants in common or as joint tenants. If the former, the decedent's interest passes according to her will, trust, or if none, by the rules of intestate succession to her kinfolk. If, however, the property were in joint tenancy, ownership would pass to the surviving joint tenant without probate and without regard to wills, trusts or succession rules.

The death of the borrower/owner does not discharge the loan obligation, nor does it pass the obligation to the co-owner. Actually, the borrower's estate becomes liable for the loan. Of even greater significance, the entire property continues all the while to be collateral for the loan, and if it isn't paid, the lender will foreclose and the property will be sold regardless of who is then on title.

Also, keep in mind #2 above; if a "due on sale" clause is triggered (as is likely) and the lender elects to enforce the clause, the loan will have to be paid (probably refinanced) or the lender can then declare a default and foreclose even if the monthly payments are being made on schedule.