Legal Question in Real Estate Law in California

Re: quit claim deed

Here are the answers to your questions, in sequence, with brief explanations. I note by your Zip code that you are about 20 miles from me, and I would be happy to meet with you, without charge, to discuss the ramifications further:

(1) Yes, it is possible to quitclaim property without being removed as a borrower/obligor on a mortgage (or note secured by deed of trust). The ownership of property and the obligation to pay a particular debt secured by that property are loosely related but separate concepts. The borrower remains an obligor on the loan even though the borrower no longer owns the collateral. However, with many loans the lender must look to the collateral, and cannot pursue the borrower separately. Hence, if you quitclaim away ownership, the person to whom you quitclaim will often be the big loser in a foreclosure, while the lender has no recourse to you for a deficiency as the actual original borrower, should the foreclosure sale produce insufficient proceeds to pay the loan and the foreclosure costs. The main exception to this collateral-only rule is loans where (1) the lender forecloses in court rather than by trustee sale, and (2) the loan was not a purchase-money loan, e.g., it was a refi. Note that many loans contain "due-on-sale" clauses which accelerate the maturity of the loan unless waived by the lender. Many lenders will waive, but for a fee. Also, note that junior lenders whose security is wiped out by foreclosure of a senior trust deed become unsecured creditors of the borrower and can sue on their notes.

(2) An alert lender can find out by checking recorded documents, tax payment records, and/or looking at the name on monthly loan-payment checks. Lender diligence in these areas varies, but risk of discovery is moderate to high, especially if the payments are not prompt and regular, thus prompting an inquiry.

(3) A deed of any kind is valid between the parties and others with notice thereof notwithstanding failure to record, provided the deed is delivered into the actual or constructive possession of the grantee during the grantor's lifetime. However, an unrecorded deed is not valid against bona fide intermediate buyers or lenders who record their deed(s) or lien(s) first, in good faith, for value received, and without actual or constructive knowledge of the unrecorded deed.

This is a concise and oversimplified summary of a lethally-complicated area of the law, and proceeding without complete knowledgable lawyer assistance is a recipe for disaster.