Legal Question in Real Estate Law in California

Re: removing a name from deed for financing

I agree with all that Mr. Whipple stated. I think this whole deal sounds "fishy," for an additional reason.

In California a nonconsenting spouse can void a deed of trust that was executed by only one spouse during the marriage. (Droeger v. Friedman Sloan & Ross (1991) 54 Cal.3d 26, 36-39.)

I have never seen a loan transaction where the lender did not want both parties on the loan documents. She could also set this aside in probate, in the event that something happened to you.

The transaction you described does not make much sense. It sounds like you have a lender who is trying to shortcut around California's law.

Very truly yours,

Re: removing a name from deed for financing

I would advise against this for several reasons, including the one you mentioned. The additional reasons are:

(2) The deeding back-and-forth is a fraud on the lender. The lender doesn't want the low FICO person on the deed next week any more than it wants him/her on the deed at the closing.

(3) The loan may contain a due-on-sale clause. A transfer of a part interest, even though not technically a "sale" if no money changes hands may trigger the due-on-sale clause, and the new loan would become due in full.

(4) It is always possible that the spouse who gets full ownership will suddenly run off with the butler or the maid, or simply keep ownership as some kind of "power trip" or control device, and the half interest will never get re-conveyed.

There are a couple of positive notes. The transfer of real property between spouses usually doesn't trigger a property tax reassessment that would cause you to lose your Prop. 13 valuation. You would have to be careful to follow your county's reporting rules to make sure there was no reassessment. Also, the transfers your loan broker is suggesting should not cause a gift tax liability, because of the marital exemption.