Transfer of Property

This area covers deeds, recording and notice, title insurance, escrow, transfer and property taxes, and probate, vesting, and exchanges, about 12 of 150 salesperson questions and 16 of 200 broker questions. It is the most numeric of the seven, and several rules changed recently, where stale prep books lose points.

§ 5.1The deed family

California's standard grant deed is presumed to pass fee simple unless its wording shows a lesser estate, and the word grant implies exactly two covenants.

Both covenants reach only the grantor's own acts, so a prior owner's easement gives the grantee no deed claim, and buyers rely on title insurance instead. A grant deed also passes after-acquired title to the grantee automatically (Civil Code § 1106). The quitclaim deed does neither, conveying whatever present interest the grantor holds with no warranties, the tool for clearing clouds on title. A gift deed reciting only love and affection is valid, consideration being a contract essential, not a deed essential.

Trust deed and deed of trust name one security instrument with three parties, the borrowing trustor, the trustee holding bare legal title, and the lending beneficiary. The trustee signs both endings, a reconveyance when the loan is paid, a trustee's deed after foreclosure. A forged deed is void, passing nothing even to a good faith purchaser for value who records, while a fraud-induced deed is only voidable, leaving a pre-rescission good faith purchaser protected.

§ 5.2What a valid deed requires

An estate in real property transfers only by operation of law or by a written instrument subscribed by the grantor or an agent authorized in writing (Civil Code § 1091). The essentials: a writing, a capable grantor, an identifiable living grantee, words of grant, a sufficient description, a signature, and delivery plus acceptance. A minor's deed is void outright, not voidable (Family Code § 6701).

A grant vests only on delivery, the grantor's manifested intent to pass title presently, during life, not the physical handoff (Civil Code § 1054), so a signed deed found in the deceased grantor's drawer conveyed nothing. Delivery to the grantee cannot be conditional, the deed takes effect stripped of the oral condition, and conditional delivery works only through a third person, the foundation of escrow (Civil Code § 1056). Once title vests, returning or destroying the deed moves nothing, only a new deed retransfers title (Civil Code § 1058).

§ 5.3Recording, notice, and the race

Before recording, an instrument must be acknowledged by its signer or proved by a subscribing witness (Government Code § 27287), and the acknowledgment vouches for the signature's genuineness and voluntariness, never the contents. Recording gives constructive notice to later purchasers and mortgagees from filing, whether or not anyone looks (Civil Code § 1213). Possession gives notice too, so a buyer must inquire into the rights of anyone in open possession. An unrecorded deed stays valid between its parties and against anyone with notice (Civil Code § 1217).

All three elements are required. Grantor deeds to A, who does not record, then to B, who knows of A's deed and records first: A prevails because B's knowledge destroyed good faith. A donee recording first also loses, having paid no value, while a mortgagee for value is protected like a purchaser.

Recording also carries a $75 Building Homes and Jobs Act fee per document, capped at $225 per transaction, though owner-occupier home transfers and transfers subject to transfer tax are exempt, so an ordinary sale escapes twice over (Government Code § 27388.1).

§ 5.4Title insurance and escrow

A preliminary report is only a statement of the terms on which the insurer will issue its policy, not a representation of the condition of title and not an abstract, so no abstract-style liability attaches (Insurance Code § 12340.11). The CLTA standard policy covers matters of record plus a short off-record list: forgery, impersonation, incapacity in the chain, and defense costs win or lose. It excludes unrecorded easements and liens, rights of parties in possession, and survey matters, which the ALTA extended policy moves into coverage for lenders who cannot inspect. Neither insures against zoning, and who pays is negotiable by contract and local custom.

An escrow delivers money, an instrument, or another thing of value to a third person to hold until a specified event or condition (Financial Code § 17003). A complete sale escrow needs exactly two things, a binding contract and conditional delivery of something of value to a neutral third party, so neither a licensed escrow company nor a cash deposit is essential. The holder is a limited dual agent of both principals: it follows mutual instructions, refuses one party's unilateral change, and keeps the escrow confidential (Financial Code § 17004).

Independent escrow agents are licensed by the Department of Financial Protection and Innovation, corporations only, with a surety bond of at least $25,000 (Financial Code § 17200). Banks, title companies, attorneys with bona fide clients, and brokers under defined conditions are exempt (Financial Code § 17006), but the broker exemption exists only inside the broker's own transactions requiring a license, is personal, and is lost when escrow becomes a business of its own. A broker-held escrow's trust funds are deposited by the next business day, not the usual three (Commissioner's Regulations 2832(e)).

§ 5.5Transfer tax and property taxes

The base excludes liens remaining on the property, so an assumed loan comes out and a new loan does not: with a $200,000 loan assumed, a $450,000 sale taxes $250,000, or $275.00, and with a new loan it taxes the full $450,000, or $495.00. A city may add half the county rate, $0.275 per $500, but the credit keeps the combined bite at $0.55, and a deed of trust records tax free (Revenue and Taxation Code §§ 11911, 11921, 11930).

Property tax is capped at 1 percent of full cash value plus voter-approved debt (California Constitution, article XIII A). Base year value is set at purchase, new construction, or change in ownership, then rises at most 2 percent a year, compounded, so $500,000 becomes $530,604 after three full years, not the un-compounded $530,000. A lease of 35 years or more counting options is a change in ownership, entity-interest transfers can reassess with no deed, and interspousal transfers never reassess (Revenue and Taxation Code §§ 61, 63).

The mnemonic No Darn Fooling Around orders the four dates, first installment in the fall. A change in ownership or completed construction also triggers a supplemental assessment on the difference between new and roll value, prorated from the first day of the following month through June 30, so a September 15 closing pays from October 1, nine of twelve months. The homeowners' exemption removes $7,000 of value from an owner-occupied home, saving $70 a year, not $7,000 (Revenue and Taxation Code § 218).

Proposition 19 rewrote two rules. Since February 16, 2021 the parent-child exclusion reaches only a family home or farm that was the parent's principal residence and becomes the child's, with an exemption claim filed within one year, and it is capped: value above the old taxable value plus an adjustment amount, $1,044,586 for February 16, 2025 through February 15, 2027 transfers and revised every two years, is added to the taxable value. Since April 1, 2021 a homeowner 55 or older, severely disabled, or a disaster victim may move a sold home's base year value anywhere in California, up to three times for the first two groups, any price excess added, so a costlier replacement still qualifies.

§ 5.6Probate sales, succession, and vesting

A court-confirmed probate sale requires an appraisal within one year before the hearing and a price of at least 90 percent of appraised value (Probate Code § 10309). An overbid must beat the accepted offer by 10 percent of the first $10,000 plus 5 percent of the balance: on $300,000, $1,000 plus $14,500 makes $315,500 the minimum, not the flat 10 percent $330,000 (Probate Code § 10311). Full Independent Administration of Estates Act authority lets the representative sell on notice without a hearing, so these rules bind only court-confirmed sales.

Intestate, the surviving spouse takes the decedent's half of the community property, ending up with all of it, plus one half of the separate property when one child survives, one third when more than one, and all when no issue, parent, sibling, or issue of a sibling survives (Probate Code § 6401). Other property runs down the statutory chain of relatives, escheating only when the chain is empty (Probate Code §§ 6402, 6404).

Joint tenancy requires an express declaration and the four unities of time, title, interest, and possession, and its survivorship passes outside probate and free of the deceased tenant's will (Civil Code § 683). One joint tenant's conveyance severs the tenancy as to that share. Unmarried co-owners who specify nothing hold as tenants in common, with unequal, devisable shares and no survivorship. Community real property takes both spouses' signatures to convey, encumber, or lease beyond a year, with one year after recording to avoid a one-spouse instrument (Family Code §§ 760, 1102). Since July 1, 2001 spouses may hold community property with right of survivorship, passing without administration, whereas plain community property lets a deceased spouse will their half elsewhere (Civil Code § 682.1).

§ 5.7Federal tax aspects of a transfer

Section 1031 deferral covers only real property held for trade, business, or investment, no personal property since the 2018 federal changes, and never a primary residence. Most real estate is like-kind to most other real estate, apartment building for vacant land included. The taxpayer has 45 days from the sale to identify replacements in a signed writing delivered to a party to the exchange, such as the qualified intermediary, and must close by the earlier of 180 days after the sale or the return due date with extensions. Both clocks run from the sale itself, never 225 total days.

The exchange is tax deferred, never tax free. Cash, non-like-kind property, or net debt relief is boot, taxed now, and the replacement takes a carryover basis preserving the deferred gain. Broker depth: liabilities are netted, full deferral needs equal or greater value and debt with all equity reinvested, a reverse exchange parks the replacement with an exchange accommodation titleholder for at most 180 days, and the taxpayer's own agent, attorney, or accountant within the prior two years cannot serve as intermediary.

On a principal residence, up to $250,000 of gain is excluded, $500,000 on a joint return, after 2 years of ownership and use within the 5 before sale, at most once every 2 years, no reinvestment required. An installment sale, one with a payment after the tax year of sale, spreads gain as payments arrive, with recapture due in the year of sale. Adjusted basis is cost plus improvements minus depreciation taken, so depreciation comes back as extra gain at sale, and it never applied to land or a personal residence in the first place. At the first spouse's death community property steps up to market value on both halves, including the survivor's own.