Legal Question in Real Estate Law in California

Re: wife buying house on own?

OK, here's a discussion of possible legal implications of the entire deal, not necessarily in order of importance, but as they come to mind in the course of reading your facts from top to bottom - and thinking about facts that are missing which an attorney would want to ask about if it were a face-to-face interview:

1. You mantion "applied for a loan" and "bought a house" without being really clear on the status. I guess you mean close of escrow is pending, dependent upon the success of her loan application.

2. Not consulting with you on something this major might be a violation of Family Code section 721(b) to the effect that spouses must deal with one another as fiduciaries and with fairness, good faith and candor. However, susbsection (a) of the same law says spouses can contract with third parties to the same extent they could if not married.

3. The question will arise as to the source of the downpayment funds and the funds actually used to make future payments on the loan. This is probably the motivation for getting a quitclaim. If the funds are her separate property, or at least clearly not community property in either case, I'd think the deal is on the up-and-up and you should cooperate with the quitclaim request.

4. On the other hand, if any community funds are being used to buy the house, or will be used to make mortgage payments, you'd be making a gift to someone (wife or stepson) of your share of the community assets used. Sounds like this is not something you want to do.

I'll finish in a second post.

Re: wife buying house on own?

Since LawGuru limits answers to 3000 characters, I had to cut my response into halves and post each separately:

5. Note that the earnings of either spouse during marriage are community property, regardless of which spouse gets the paycheck.

6. Using community funds to make mortgage payments after the quitclaim may not, however, result in a gift; instead, it may actually give the community what is called a "pro tanto" interest in the house, which you could assert later on and maybe get some money back (in a divorce, upon her death, etc. - this is a family law issue and I don't practice in that area, so I can't give you a clear and complete statement of the law here).

7. Spouses are not supposed to make substantial gifts of community property unilaterally. See Family Code section 1100(b). See also 1101 for a spouse's legal remedies for certain breaches of the fair dealing duty or mishandling of community assets.

8. The question of your possible personal liability on a loan you didn't sign, for a property you didn't buy, boils down to two legal areas. First, in a default lenders are supposed to look to the collateral first, and may be prevented from seeking a deficiency judgment. If the house is being bought for a fair price at the market bottom with a decent down payment, a deficiency is unlikely in the first place, and in a foreclosure by trustee's sale the lender cannot seek a deficiency judgment. It would take a foreclosure in court. All pretty unlikely. Next, would you be liable? Probably, to the same extent as your wife, under Family Code section 910(a). Net result: you are somewhat, but not completely, safe, mainly because a deficiency judgment is unlikely, but if there is one, all community assets could be tapped by the creditor.

Re: wife buying house on own?

From what you say she did not sign for you, but for herself. The legal implications are these. To the extent that she is impoverished you have the obligation to support her inthe style to which you (both of you) have become accustomed and within your means. Therefore a big financial loss affecting her may indirectly translate into financial loss to you. Why don't you and she get legal advice on this. Obviously you can afford it.