Legal Question in Real Estate Law in California

Re: real estate quit claim deeds

Whomever is on the actual loan docs (not just title) is the one(s) responsible for the default.

Re: real estate quit claim deeds

You probably are not liable for the loan, but you do not present enough facts. Normally, you would only be liable if you signed the loan with the lender. If your friend and already secured the loan before giving you partial ownership, your friend and the bank could try to argue that you also assumed an equal percentage of the loan. That argument likely would not succeed against you as you did not receive any of the loan money, but you need to be careful that your friend does not turn around and claim that you did agree to help them pay the loan. Was your name added to the loan papers; if you are not sure, contact the lender immediately t see the documents.

Why did the friend give you part of the property? Was it just friendship, romantic, attempt to avoid taxes, etc. Even if you are not liable for the loan, the foreclosure might appear on your own credit record which will mean it will be more difficult to get loans in the future and they will be at higher rates and more points. Is it worthwhile to try to deal with the lender so that foreclosure does not occur? Banks do not like to be real estate holders so they often will rework the loan so that it does not go into default. Or you might be able to arrange a so called short sale with the bank's approval where the property is sold, the lender paid up to the amount of debt left and the costs of the sale, and if anything is left the rest goes to the owners; in return, there is no foreclosure so no effect on your credit record. Your friend, however, will probably have to report the amount of the debt not paid back as "income" and be taxed on it. You need to contact the IRS to verify you will not have this problem because you did not recieve any portion of the loan.

Re: real estate quit claim deeds

Were you given a half interest or the whole thing?

Ordinarily, one does not become liable on a real-estate loan without signing the promissory note. See Civil Code section 1624(a)(7) (a portion of the Statute of Frauds, requiring loans over $100,000 to be in writing).

Further, in most cases the lender cannot go after the borrower for a deficiancy if the foreclosure sale fails to produce enough net cash to pay off the loan(s). The lender will foreclose on the property, but it has no further remedy unless the loan was not a purchase-money loan and the foreclosure was in court rather than by a trustee's sale. If this was a re-fi loan and the case is in court, watch out!

I can think of a couple of exceptions. First, if the transfer of an interest to you was done for the purpose, or had the effect, "to hinder, defraud or delay" (by hiding or sheltering an asset) a creditor, it would be considered a fraudulent transfer. Here, if the lender cannot go after the borrower for a deficiency, then the transfer of an interest to you would have no sheltering effect anyway, so probably no fraudulent transfer problem here.

The other possibility is that if anyone has committed waste on the property, the lender might have a separate action against either or both of you for the resulting damages. ("Waste" is something that squanders the secured lender's collateral, such as logging off all the beautiful old trees, or running a quarry operation in the back yard.)

You will, however, lose the house, since your deed is presumably junior to the lien of the loan being foreclosed. You may be entitled to part of any excess sale proceeds.