Legal Question in Real Estate Law in California

Re: real estate

If such a transfer delayed a foreclosure sale (and it very well might), it would just be for long enough for the lender to figure out what happened and decide whether to shift from a trustee's sale to a judicial foreclosure coupled with additional claims against you.

First, your loan probably has a clause in it requiring that it be paid off, or giving the lender additional rights, upon any sale or transfer of an interest. This is the so-called due-on-sale clause. If you have defaulted, you've probably already triggered an acceleration clause, so the additional problems caused in this regard may be marginal.

However, unless your son, or other transferee, pays full value, the sale or gift of the home will be deemed a fraudulent transfer. A transfer of property is fraudulent if it is intended, or even has the effect, to "hinder, defraud or delay" a creditor or prospective creditor of the transferor. Civil Code sections 3439 to 3439.12. Courts usually find both the transferor and the transferee equally at fault, especially where the transferee is a close relative and likely knew the reason for the transfer. A transfer is not fraudulent, however, if the transferor receives equivalent value.

Finally, changing the ownership of property does not erase or invalidate an earlier-recorded deed of trust. The house remains collateral for the loan despite any sale, even if the seller receives full value. The lender still has a lien and can proceed with foreclosure. The recorded Notice of Default serves as notice to the buyer that the property is subject to a foreclosure soon, and although the trustee might have to re-notice the sale, that wouldn't buy much time and you (and now your son also) would have all the other problems.

Bankruptcy is sometimes a legitimate way to buy a little more time, but the value is rather marginal, in my personal view, because the creditor can usually get prompt relief from the automatic stay by application to the bankruptcy court. You might consider conferring with a bankruptcy attorney, however.

Another factor to consider is that a buyer at a foreclosure sale won't necessarily move immediately to evict you; the buyer may be a speculator or investor who is looking to hold distressed properties until the market recovers in a year or three. Therefore, the buyer may be willing to rent to you, possibly at a lower payment than on your previous loan(s).

Keep an eye and ear on the current news for any developments designed to control the flood of foreclosures resulting from the subprime mortgage meltdown. There may already be some relief available. Ask your lender as well. They would often rather work something out than foreclose.