Legal Question in Real Estate Law in California

Re: quitclaim

Your problem is the mortgage. You can't just sign your way off a mortgage by filling out and filing forms. A mortgage is a lien against the property, and the borrowers obligated on an underlying loan will have their feet held to the fire by the lender. Taking your name off a mortgage by quitclaim deed is as impossible as divorcing a spouse by clapping your hands three times while saying "I divorce thee." Maybe in ancient Arabia it worked, but not here.

Seriously, if two people are joint tenants, and each is a co-borrower on the same mortgage (usually a note and deed of trust), and the two want to part company, this has to be addressed as two SEPARATE problems. Let's say the co-owners and co-borrowers are X and Y. X and Y decide to break up, and X is willing to buy out Y. Y can get "off title" by quitclaiming his or her interest to X. When the buy-out money is paid to Y then Y delivers the deed to X (I assume no escrow here), the X takes the duly notarized quitclaim to the County Recorder and makes sure the deed is recorded. This handles the change of ownership, assuming these novices have filled out the deed properly.

However, the mortgage (or deed of trust) is left "as is" by the sale; indeed, the sale by Y to X of a half interest has probably breached the "due-on-sale" clause of the loan, so technically the loan is in default and the entire remaining balance is now due and payable.

Your situation is common, and there are three, maybe four, ways to handle it. One very common and easy method is to refinance the mortgage. Along with the change of ownership, the old loan is paid off and a new loan is taken out, on which there is only one borrower, X.

The next common way is to obtain a formal waiver of the "due on sale" clause. X and Y will still be on the loan, but the sale will not cause a default. In many cases, Y's remaining on the loan creates little risk for Y, since there is often no recourse by the lender to the borrower's assets other than the property subject to the deed of trust. If there is a default, foreclosure and deficiency after sale, the lender often cannot go after either borrower. Not always. Some lenders charge a fee for such a waiver. It may be worth it, but if the fee is excessive, I'd recommend considering refinancing.

The third way is to ask the lender to release the selling borrower. This is not the same as #2, because under this scenario the lender formally takes Y off the loan, rather than just agreeing to waive the default resulting from Y selling to X.

Re: quitclaim

I had to divide my answer into two parts because LawGuru limits us to 3000 characters.

The fourth possible way to deal with the existing loan that includes both former owners as co-obligors is to ignore the due-on-sale clause and hope that the lender never notices the sale or, if it does, that it will shrug off the technical default because the loan is current and they don't want to make unnecessary waves. This is a strategy lawyers don't recommend, but I think in the real world it happens a lot just because two co-owners don't understand the obligations their joint loan placed upon them.

My strong recommendation is that you not attempt to handle all of this, or any of it, without professional advice and assistance, preferably from a local real-estate lawyer, but failing that, maybe a title and escrow company. They could do all your documents professionally, get clearance from the existing lender, and give the new sole owner title insurance, all in one swell foop.