Legal Question in Real Estate Law in California

With 99.9% of the lenders out there you will need to refinance into a loan in both your names if you become half owner. Otherwise the lender will call the loan due immediately, and in any case you cannot be added to an existing deed of trust. Every deed of trust relates to a particular loan, and the existing deed of trust relates to his existing loan. You can't go back and change that.

Step one here is to determine how the business will be, or should be, organized. Most business lawyers are urging their clients not to do business as a general partnership, and this is for many reasons including unlimited personal liability. I strongly recommend that the two of you consider incorporation or formation of an LLC. You didn't mention the form of organization and the law will treat your business as a partnership, whether you have a partnership agreement or not, and irrespective of your intentions, unless it is an LLC or corporation.

Now, as to the land. I suggest that rather than paying your investment to your associate to become half owner of the land, that you consider using the funds to pay off the remaining balance of the mortgage, or to allow the land to be refinanced. This may facilitate handling the deed of trust problem if the lender is not eager to modify the loan. A lot will depends upon the amount owed, the value of the land, the interest rate then and now, and so forth, but at least be open-minded.

You may learn a lot by discussing the proposed ownership change with the lender. Many are not eager to modify loan terms in midstream, and may want a new title report and insurance, or at least a modification fee.

Has your friend considered leasing the land to the business? This might have tax benefits as well as representing a lighter commitment than becoming co-owners.

This situation presents many structuring possibilities that could be pointed out to you by an experienced business lawyer. However, doing so requires knowing a lot more about the business or proposed business, and the dollar amounts of the land value, the loan balance, and business cash flows, and the proposed new investment, among other things.