Legal Question in Real Estate Law in California

Your note is obviously secured by the real property for the amount of the note. I would not agree that you do a reconveyance, because you could lose your position as a lien holder. You should, instead, to a modification of the note, showing the new balance and whomever will be assuming the note, and continue to secure it by the property in the same position. While it could possibly be done through escrow, it would be beneficial to you to have an attorney draft the modification for you.

You can't do that because you are entitled to enforce the note and deed of trust against the probate estate and anyone the estate administrator conveys the property to. It would be tax fraud to write the note off as uncollectable. If the property is no longer worth what is owed on it, and you want to properly document the loss, you will need to foreclose on the existing DOT, and then sell the property at market value. You are free to do 100% seller financing when you sell, and choose whom you sell to, but you'll need some evidence that it is sold in at least the ballpark of market value. The other problem is that doing it that way you lose your priority over any intervening liens, and more importantly you subject yourself to any irregularities in the probate process. If heirs surface and successfully challenge the distribution of the property to whomever is record owner now, your security would be wiped out.

With all that said, if you want to give up the right to write off the loss on your taxes, and you want to subject yourself to the risks of the reconveyance allowing claims to jump in ahead of you, the process you outline, done through an escrow, would work.

If the note is secured by a deed of trust on real property, you simply foreclose on the deed of trust. The person who has title to the property is still subject to the deed of trust, and to prevent the loss of the property, they will have to refinance to pay you. You can foreclose through a nonjudicial foreclosure sale, and you do not have to mess with the probate estate.