Legal Question in Real Estate Law in California

California does not really have mortgages. We have them, but no one uses them. The property is probably encumbered by a deed of trust, which secures a promissory note. An actual mortgage is a different creature.

When people take title to property encumbered by an existing deed of trust, and do not pay it off, they are subject to the deed of trust. In this situation, attorneys say that they take "subject to." When people take title to property, and assume liability of the underlying promissory note, we say that they take "subject to, coupled with an assumption." If you have not personally assumed the note, you are at least going to be subject to the deed of trust.

You may make payments on the underlying deed of trust, but the deed of trust most likely contains a "due on sale" clause. At one time, due on sale clauses were unenforceable in California unless the lender could show impairment of his security interest by reason of the new owner. (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943.) This was preempted, however, by federal law known as the Garn-St. Germain Depository Institutions Act of 1982. That act allows a lender to enforce a due on sale clause, subject to a few exceptions. A lender cannot enforce the due on sale clause if the transfer is into an intervivos trust in which the borrower is and remains a beneficiary.

California mirrors this provision. (Civ. Code, � 2924.6 subd. (a)(4).) It is upon enforcement of the bank's due on sale clause that you would be forced to obtain a loan and sign a new deed of trust.

A transfer out of the trust, however, is not exempted. My advice to you based on the information you gave would be for you to leave the property in the trust, unless you can get the bank to agree to allow you to assume the existing promissory note.