Can a Parent Use a Grant Deed to Gift Property in CA?

Question from ProPerT, Can a Parent Use a Grant Deed to Gift Property in CA?

Answer from AI:

In California, a parent can use a grant deed to transfer real property to their adult child, even if there is a deed of trust (a type of mortgage) on the property. However, there are important considerations and potential complications involved in this process.

Understanding Grant Deeds and Deeds of Trust

A grant deed is a legal document used to transfer ownership of real property from one person to another. It guarantees that the property is free from any encumbrances, except those disclosed at the time of transfer.

A deed of trust is a security instrument used in California and other states to secure a loan on real property. It involves three parties: the borrower (trustor), the lender (beneficiary), and a trustee. The trustee holds the title to the property until the loan is paid off.

Transferring Property with an Existing Deed of Trust

When a property has an existing deed of trust, the following considerations are important:

• The grant deed can still be used to transfer ownership, but the new owner (the adult child) will take the property subject to the existing deed of trust.
• The lender’s consent is typically not required for the transfer, but the loan terms may include a “due-on-sale” clause. This clause allows the lender to demand full repayment of the loan if the property is transferred.
• It’s crucial to review the loan agreement to understand any potential consequences of the transfer.

Steps to Transfer Property Using a Grant Deed

1. Review the Loan Agreement: Check for any clauses that might affect the transfer, such as a due-on-sale clause.
2. Prepare the Grant Deed: The grant deed must be properly drafted, including the legal description of the property and the names of the grantor (parent) and grantee (child).
3. Notarize the Grant Deed: The grant deed must be signed in front of a notary public.
4. Record the Grant Deed: File the grant deed with the county recorder’s office where the property is located to make the transfer official.
5. Notify the Lender: Inform the lender of the transfer to avoid any misunderstandings or issues with the loan.

Legal and Financial Implications

Transferring property with an existing deed of trust can have legal and financial implications:

• Tax Consequences: The transfer may have gift tax implications. The IRS allows a certain amount to be gifted tax-free each year, but exceeding this amount may require filing a gift tax return.
• Loan Implications: If the lender enforces the due-on-sale clause, the loan may need to be paid off or refinanced.

When to Seek Legal Advice

Given the complexities involved, it is advisable to consult with a legal professional or a real estate attorney to:

• Ensure compliance with all legal requirements.
• Understand the potential tax and financial implications.
• Address any specific concerns related to the existing deed of trust.

For more detailed information, you can refer to resources like the [California Department of Real Estate](https://www.dre.ca.gov/) or consult with a legal professional for personalized advice.