Legal Question in Real Estate Law in California

I can't think of any legitmate reason for granting you sole ownership of the property while leaving your wife liable for the debt. I can't imagine any reason your wife would agree to that, other than some scheme to avoid creditors or other shennanigans. I expect the lender will see it that way too and accelerate the loan. I know of no lender that will allow a borrower to transfer the security without the mortgage being paid off. You are right that it would not impair their security, but that is not the reason they care. Regardless of your intentions, a person who no longer owns the property is much less motivated to pay the debt and much more likely to default. The lender underwrote the loan based on the borrower owning the property. The borrower not owning the property completely alters the character of the loan and the lender will not stand for that.

Mr. McCormick's analysis is pretty solid, but there are a few facts missing from your question that, if answered, might shed a different light on the situation. The first of these is when the current loan was taken out - before or after the marriage. The second is whether you will be receiving full ownership of the property as a gift, or if you are giving your wife some payment or other consideration from your separate-property funds or otherwise. There are a bunch of laws that may apply here, including laws against fraudulent transfers, laws respecting the fiduciary relationship of spouses, tax laws, and laws limiting lenders' rights to exercise due-on-sale clauses. I think the possible serious consequences of an uninformed decision here warrant the two of you having a face-to-face session with an attorney.

Both attorneys above give their normal excellent analysis. One point not discussed is that both of you are owners of the property in the form of a joint tenancy with right of survivorship. Why would any bank lend money to your wife only on the full value of the property when she only owns a undivided half interest? The loan, if it was for more than 50% of the fair market value is not fully secured.