Legal Question in Real Estate Law in California

Re: Buying Partner out of her portion of the house

Simply transferring title to the house to yourself alone, does not relieve the other person for responsibility for any loan secured by the property, and which they signed for as a borrower. In order to relieve the other person of the responsibilty for that loan, it must either be paid off, or the lender must allow someone else to assume that other person's obligations on the loan (RARE). The easiest way is to refinance,thereby paying off the old loan and getting a new loan with sufficient excess proceeds to pay that person what they are owed, and with the new loan not having them as borrower.

Re: Buying Partner out of her portion of the house

I suggest you consider refinancing. I assume without knowing that you are not married to each other, that you own the house as equal tenants in common (or possibly as joint tenants), and that you have an existing first deed of trust on which you are both liable.

If the numbers work out, consider getting a new first in an amount big enough to pay off the existing first (and any other liens) and to pay the co-owner her 1/2 of the equity. For example:

House market value......$500,000

Current first deed of trust.......$300,000

Owners' equity......$200,000 ($100,000 each).

Borrow $400,000 and use the proceeds to pay off the $300,000 existing first and $100,000 to the bought-out co-owner. Handle all the borrowing, pay-off, buy-out and re-deeding in a single escrow.

The upside is it gets all the documentation cleaned up. The monthly payment on a $400K first will be less than the combined payments on a $300K first and a $100K second (probably, at least, depends to some extent on when the existing financing was done and other details).

The downside of this whole deal is that the remaining owner will have a bigger payment than before and only one person to pay it, but it looks like this result is inevitable....and at least you have the use of the entire place, plus all the future appreciation.