Legal Question in Real Estate Law in California

Obtaining and recording a quitclaim from the daughter-in-law is certainly the preferred practice to avoid a possible cloud on title. The main reason is that if, during the time your son was a co-owner, any of their community-property funds were used to pay principal on a loan on the rental property, their community would acquire an interest. Their community-property funds would include his income from his employment. A future buyer of the rental property could be turned off by the risk, even if not one dime of community funds was ever spent.

Another issue with deals like this is that each transaction -- transfer to the son, then transfer back from the son -- will have tax consequences. Probably exempt from reassessment under California property-tax law, but you may need to file certain declarations in order to claim the exemption (varies by county). However, there would be reportable capital gains and possibly gift tax effects that should be discussed with your tax advisor.

Finally, the transactions may have the unintended consequence of converting your joint tenancy into a tenancy in common. If this matters, you should have the paperwork trail examined by a real estate lawyer. Remember that one of the requirements of a joint tenancy is that both (or all) the joint tenants must acquire their ownership at the same time and in equal proportions.

A probably-needed correction to my previous answer. If this were a cash purchase and there is no financing on the property, the likelihood of the issues discussed in the first paragraph is lessened.......nevertheless, a future buyer might be wary and might want to be fully informed.