Legal Question in Real Estate Law in California

Re: liability for a mortgage

This isn't the answer you want, but I would not have made the loan in the first place. But now that you have, you need to protect yourself. You state that the borrower gave you a grant deed to his condo - is there debt on the condo (aside from the HOA dues)? There are a ton of variables that need to be analyzed and this forum is really not going to be the place to do so. You need to contact an attorney in San Francisco and review your options. The deed may give you some protection, but only if the condo is not already over-encumbered by the time you add the loans on the property and the unpaid HOA dues. Its very likely that the property is upside down given the current RE market in California, and given his apparent inability to pay his obligations. Also, was the deed ever recorded? The deed is effective on the date is is signed and does not have to be recorded to transfer the property, but you may not want to actually take the property from him if its over encumbered and also saddled with unpaid HOA dues. You could have a serious issue with the unpaid HOA dues if the property was transferred to you prior to the accrual of that obligation. You need to speak with a local attorney in SF as soon as possible.

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Re: liability for a mortgage

Your "grant deed" is probably not recorded, right? Your deal was, no doubt, that the condo was given as collateral, and if the loan were not repaid, you should record the deed and take the condo as payment.

If so, here's where you stand. A court would treat the grant deed as a mortgage, rather than a conveyance, if it were challenged. Instruments that facially appear to be something else, but serve the purpose of securing a loan with real property, entitle the debtor to the protections and formalities of mortgages, including the right to a foreclosure process and redemption rights.

Of course, if the debtor doesn't challenge you, you could go right ahead and record the deed and take possession of the condo, and if you resold it later on to a bona fide purchaser for value without notice of the nature of your deed, that would be the end of the story.

However, there is also a great risk that the debtor might not be so accommodating, and might sue you to force a foreclosure proceeding, or he might file bankruptcy, and the trustee would investigate and take action to recover the condo for the bankruptcy estate.

There is another problem here. Your "deed," which I'm assuming is unrecorded, lacks any priority. Any other deed or lien which has been recorded in the interim will have priority.

And yet another problem. It sounds as though your loan is not yet due (you seem to be in the third year of a five-year obligation). Therefore, you may not yet be entitled to foreclose, unless your loan (is there a written promissory note?) has some provision that has been breached, thus entitling you to declare a default. You may have to wait another two years to do anything.

I will have to stop short of making a recommendation or offering advice. There are too many pitfalls, and any path you take has both potentials to work out well or to be a mistake.

If you wish, you can contact me directly with details such as what terms are contained in your promissory note, any particulars of the grant deed, and the assessor parcel number for the property, and I could give you a better evaluation and perhaps we could work out a representation agreement. I'm about an hour away from S.F. and currently have another real estate case in the court there (as well as others statewide).

Re: liability for a mortgage

Assuming the property is worth the amount owed to you in addition to any other loans on it, I would commence foreclosure ASAP.