Legal Question in Real Estate Law in California

It is hard to know where to start explaining everything that is wrong with that scheme. Let's just start with the simplest. No one will lend to you if you are not on title to the building. So the document giving you 85% would have to be a recorded deed. Of course that triggers reappraisal for property taxes, documentary transfer tax, etc. Depending on how much equity is in the building it may very likely also trigger gift tax, since you aren't paying anything for it.. The document you would sign giving the 85% back would also have to be a deed. Once that is recorded, you will be in default on the due on sale or transfer clause that is in virtually every California Deed of Trust, unless it is never recorded until the loan is repaid. I could go on and on, but I hope that is enough. Oh, of course the whole scheme is probably bank fraud - a crime. In fact about the ONLY thing you DON'T have to worry about in this scheme is collecting the rents. Since you would have a recorded deed of 85% of the property, you would certainly have legal right to collect the rents.

I'm basically in agreement with Mr. McCormick that this is not a well-thought-out idea for some of the reasons he mentions. The reappraisal problem might be avoided in a father-son transaction, and whether the gift tax would kick in depends upon the value of the building and any prior gifts between you. However, there is also a substantial capital-gains tax issue lurking here.......whenever a property changes hands, there is a gain or loss reportable on the difference between the value given and the "tax-adjusted basis" (generally, the investment to date, less depreciation). Both of you should get legal and tax advice before acting.