Legal Question in Real Estate Law in California

Re: title to property

You need to have him sign a promissory note and deed of trust then record the deed of trust. If you record the deed of trust before the refinance the new lender: (i) won't loan him the money; (ii) will require that he pay off your loan; or (iii) will require you to subordinate your deed of trust to their deed of trust. If your deed of trust is recorded after the refinance it will be junior to the new lender's deed of trust. Either way, if your friend fails to make payments on the new loan and it goes into foreclosure, you will loose your security in the property, but will still hold an unsecured loan.

You also might want to ask your friend to refinance the property for enough to pay-off the money you loaned him as well as the existing encumbrances.

Re: title to property

Your friend is offering you a deal you should refuse. He is asking you to forfeit your "collateral" (part ownership) so he can get the benefits of refinancing, but you get less than nothing. Mr. Hoffman's idea doesn't really help that much, either; as he says, if you record first, the refinance lender won't lend, and if you record after the refi, you are in a weak, weak second position.

There may be some compromise available, but I don't readily see it without interviewing you, and if I were in a position like this, I'd tell the friend "No deal, go back to the drawing board and find something that keeps me ahead of the lender."