Legal Question in Real Estate Law in California

Re: Grant Deed from co-signer

Mortgagor = borrower

Mortgagee = lender

Deeds are between a grantor (the seller) and a grantee (the buyer). It isn't impossible for the seller to also be the lender; this is "seller financing" and perhaps it is commonly used in the manufactured home business.

There can also be multiple grantors or grantees on a deed, for example, where a married couple sells or buys.

Your sister has the legal power to transfer her ownership to you, in that if she properly executes and delivers a notarized deed, and you then record it, that would be effective to transfer her ownership.

However, the power to do an act is not the same as the legal right to do that act without some repercussions. Many, if not most, loan agreements have a "due on sale" clause which says, in effect, if the original purchaser ever parts with ownership before this loan is paid off in full, the entire remaining balance becomes immediately due and payable. There is probably a "due on sale" provision in your sister's loan.

Furthermore, lenders can, if they wish, waive the due-on-sale clause. Often, if the loan is very profitable for them because its interest rate is above current market rates, they don't want it paid off and they will happily allow the property to be sold without calling the loan.

If, on the other hand, the loan is earning below the current market, the lender would love to have it paid off so it can reinvest in another mortgage bearing a higher rate. As interest rates have been low for a long time, but are now rising, lenders may be showing a preference to get old loans repaid. Therefore, they are asking for additional fees (here, $1,000) to waive the due-on-sale provision.

There may be other reasons as well, but I think this sort of explains what's going on. You should read the loan agreement (note, deed of trust, or whatever) to find all the provisions that have a due-on-sale purpose or effect.

Re: Grant Deed from co-signer

Here's an additional thought. If the lender (mortgagee) improperly prepared the loan documents by failing to put your name(s) on the note and trust deed as co-borrowers, and you can prove this by showing them document-preparation instructions that they failed to follow, they might be more willing to waive the fee for waiving the due on sale clause. Get it in writing.

Another point to be made is that if you paid the entire down payment, you are the equitable owner despite legal title being shown in your sister's name. She holds title to you as involuntary trustee of what is called a "resulting trust." The trustee of a resulting trust can be compelled to convey the trust property to the equitable owner at any time. So, if there were ever a dispute "down the pike" over ownership, you should be able to prevail in court against your sister (or her heirs or even a buyer).

Re: Grant Deed from co-signer

In addition to what has been said before, I wanted to add the following: I do encourage you to do something about this with your sister, because I have seen far too many times where people just ignored this kind of situation, and there was a problem later on. One possibility is that your sister could give you a grant deed transferring property from herself to you and you could then hold it, just in case you need it later on. If you don't record it, then it should not trigger the "due on sale" clause that is probably in your note/loan agreement, but it will give you some protection.

There are many related questions that I just don't have enough facts to answer. For example, be aware that as long as your sister is on the title, she is in essence your landlord and could force an eviction.

I also agree with the previous writer: If you can prove that the failure to put your name on title was the fault of the lender, the lender may be willing to waive the fee to do the work now.

I would be happy to discuss this further with you if you have any additional questions.