Legal Question in Real Estate Law in California
I co-own a home with a friend in California. The friend is currently quitclaiming her portion of the property over to me. This is being done to increase the likelihood of a loan modification being accepted (based on conversations with the lender that in our situation it improves our chances of getting a loan mod if only I am on the loan mod app). This is a last ditch effort to save the home as the Trustee Sale date is this Friday. What are the ramifications to me holding 100% of the title if the loan modification fails and it is sold in a Trustee Sale? What are the tax/financial implications for my friend if they are still on the loan but not on the title at the time of sale? Both of us have lived on the property over the course of owning it but not the entire time. Does anything change if we're not living in the property at the time of sale?
1 Answer from Attorneys
First, I think the chances of a loan modificationapplication being approved in time to stop a foreclosure now scheduled for March 2nd are less than one in 1,000, and you don't even have the quitclaim recorded yet. Second, keep in mind that the foreclosure process involves an entirely different track of people and departments within a bank than does the loan-modification process. Typically, borrowers think their loan modifications are progressing nicely, only to find that the foreclosure sale was held yesterday.
There is also the possibility that quitclaiming an interest would trigger the "due on sale" clause that's in almost every note secured by deed of trust.......although a further violation when you're already in default may not be terribly significant.
Without knowing a whole lot more about your situation (even though we talked on the phone before I began this answer), I think your safer course is to let the foreclosure take place, and let the lender take its loss. In a foreclosure by trustee sale, you are reasonably safe from any further actions by the lender. Unless this property is cross-defaulted and/or cross-collateralized with the other property you mentioned, they can't come after it, or you, for any deficiency at the trustee's sale. Both of your credit ratings will take a hit, but they probably aren't stellar at this point anyway.
A lender can, outside of the antideficiency laws that protect borrowers in routine foreclosures, conceivably sue a borrower on separate grounds for things other than the unpaid loan balance itself. For example, if you logged off the landscape trees tomorrow and sold them to the sawmill, you could be sued for waste. If you lied on your loan application, you could be sued for fraud. Even the proposed quitclaim from the friend to you MIGHT be suspect as a fraudulent transfer, see Civil Code sections 3439 -3439.12. Otherwise, the lender
Please feel free to call me if you have any additional questions, of it I've failed to clarify all the questions you put forward.
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