Legal Question in Real Estate Law in California

Re: quit claim

I agree with Mr. Gibbs. Transactions like this are often done to avoid probate. While that may be one happy result, probate is also avoided by use of a living trust, which also avoids substantial taxes (gift and capital gains) that far, far, exceed the small cost to have a trust prepared. Further, it is unnecessary to deal with the existing financing if and when a trust is set up.

Further, I would caution against any transfer of a property for less than full market value if the purpose, or the effect, is to hinder or delay a creditor or prospective creditor of the transferor, such as MediCal. Such transfers are fraudulent and often result in bad consequences for both transferor and transferee.

There could be unusual tax or value considerations warranting going against this general advice, such as a built-in capital loss. Your parents' tax advisor should be consulted if such circumstances are thought to exist.

Re: quit claim

The options are as follows: (1) they can have you refinance the property in your name - means you have to qualify for the loan; (2) they can have you formally assume the loan with the lender - the loan must be assumable (most are not), and you must again qualify; or (3) you can transfer the property, not refinance it and pay your parent's mortgage. This later option has a lot of downside. First, your parent's loan almost certainly has a "due on sale" clause in it. That means that when it is transferred - even to you - the loan is now due and payable in full at any time after the transfer. From a practical standpoint, most lender's aren't aware of the transfer until there is a default, but be aware that the lender could suddenly call the loan due in full, and you would have a very short time frame in which to refinance or pay off the loan. Second, your parents would still be "on the hook" for the loan - credit and all, and it will show as an obligation if they seek another home loan or other credit - it will be harder for them to get new credit with that loan tied around their necks. Further, be aware that after the property is transferred, you have to seek an exclusion from the County Tax Assessor for a familial transfer exclusion from reassessment or the property taxes on the home will go up to an amount based upon the current, fair market value. Finally, regardless of which way you handle the loan, you need to be aware that you personally could have a very large tax bill as a result of the transfer. The equity in the property is essentially a gift to you when they transfer the title to you. Under current tax law, a certain level of gift income in a year is not taxable, but everything above that is just as if you receive cash income. The annual gift exclusion amount is relatively small, so unless there isn't much equity, you really need to consult with a CPA before taking this on. There are better ways to structure a transfer to children if it is for estate planning purposes. I'd suggest that it would be wise to sit with an attorney and/or a CPA prior to doing anything.

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