Legal Question in Real Estate Law in California

What would happen after the loan is paid? Would the child sell it back? Who will live in the house? What is the purpose of this transaction? Who will pay the loan? Will the child pay a fair price?

I'm going to say without even knowing the answers to these questions that this has obvious hallmarks of a bad deal, a mistake.

First, you probably can't sell the house without (1) refinancing, or (2) getting the lender's permission, without triggering the 'due on sale' clause that is in almost all residential loan terms. So, unless the child can qualify for replacement financing, the child will essentially be assuming the existing loan, or the loan will become due and payable in full the instant the sale closes.

Second, every transaction (buy or sell) causing a change of ownership is a "taxable event" that will necessitate the seller filing a capital gains report and maybe paying taxes on the gain. If the ultimate intent is that the child own your house, it is better to inherit (by will or in trust) than to receive an inter vivos gift.

Also, if you give up ownership, even for a fair price, there remains the question of whether you also intend to give up possession. If the child owns the house, assuming the child is at least 18, the child can do as it pleases with it (move in, rent it to strangers, sell it, etc.).

Finally, a sale for less than fair value, or an outright gift, might be attacked by your creditors as a fraudulent transfer (Civil Code sections 3439 to 3439.12).