Legal Question in Real Estate Law in California

Re: Quick claim

There is another possible problem here. Sometimes homeowners who are in financial trouble and fear losing their homes -- not so much to morgage foreclosure but maybe to foreclosure from judgment liens -- will try to insulate the property from foreclosure by transferring it to a relative or friend.

Such transfers are fraudulent. The pattern is well-known and resulted in many states adopting the Uniform Fraudulent Transfer Act. In California it is found at Civil Code sections 3439 to 3439.12. The law provides that any transfer made with intent to, or having the effect of, "hinder, defraud or delay" a present or prospective creditor of the transferor is voidable. There are cases that hold that a cooperating transferee is also liable for his or her part in the fraud. A gift transfer is always suspect, but if the transferor receives reasonable value in exchange for the property, there is no fraud.

Finally, the tax consequences of a transfer during the lifetime of the transferor are usually far less favorable than the taxes resulting from transfering property by living trust or will.

Re: Quick claim

You cannot "inherit" her bad credit by her simply transferring title to you and your brother. Owning a piece of real property and owning money on it are two entirely separate issues. If your mother quitclaims (not "quick claims") the property to you she has simply transferred title to you subject to any liens which may currently exist.

If your mother has a loan against the property (which I assume she does by your reference to her "making her house payment"), she must keep that loan current. If she does not make the payments, the lender will foreclose on the property and you will loose your interest in it. That will not, however, affect your credit. It will affect your mother's credit, however.

Re: Quick claim

There are two ways that parties take title to in the State of California when they do not fully purchase the property or finance it with their own loan during the purchase.

A party who takes title to a property with an existing mortgage takes the property either "subject to" or with an "assumption."

If you take title subject to, it means that you did it without the bank's permission (I use bank, although it can be a private lender) and you are subject to the penalties of foreclosure if your mother does not make the mortgage payments.

If you take title with an "assumption" it means that you have the banks permission, and are assuming payments under the existing mortgage. If you do this, it means that in addition to the bank's ability to foreclose on the note by looking to the property, you are personally liable on the note.

While my old master might read this, and say that you should not worry, because of anti-deficiency laws (which are whole lengthy post in an of themselves) if you assume a mortgage and default, it could affect your future credit.

The other thing is what is known as a due on sale clause. There is a very bright attorney who posts here named Brian Whipple, who will tell you that most deeds of trust contain a "due on sale clause" which can trigger bank foreclosure.

While I agree with Mr. Whipple, the results are not straightforward. In Wellenkamp v. Bank of America, the California Supreme Court ruled that the exercise of the due on sale clause by a lender was an unlawful restraint on alienation unless the lender could show that the enforcement of the due on sale clause was reasonable to protect itself against the impairment of its security. (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943.)

What that means for you is not subject to an easy prediction. But many of my clients are suprised when they ask me one question and I ask them ten in return.

Very truly yours,