Articles Posted in Real Estate

What normally occurs in a bonafide real estate sale

INTRODUCTION – Real Estate Sales Legal Overview

Real Estate Sales Legal Overview – While there are many different factors in any real estate sale, there are certain common procedures and steps involved in most transactions. This is a birds-eye view of a typical sale but is by no means a comprehensive checklist of everything involved. It is up to the brokers and or attorneys involved to make sure everything is taken care of properly. Most real estate sales in California involve the use of California Association of Realtors (CAR) standard forms which are widely recognized.  Over the last 100 years, there have been thousands of court cases involving real estate disputes and contracts and as a result the law and the forms are pretty well defined and established. A licensed California real estate broker or real estate attorney has access to those forms and should be familiar with them.

Sample of Bespoke Realty, Inc. Exclusive Listing Agreement (CAR)

Bespoke Realty, Inc. - Residential Listing Agreement - Exclusive


You do not need a real estate broker to sell your own property.  You can simply place an ad in the paper or on the Internet or place a sign of the property to find a buyer for your property.  If you’re going to sell somebody else’s property, a real estate license is required.

How can I tell if the deed is a valid legal transfer of ownership


A deed is the legal name for the document which transfers ownership of real estate. California state law has specific requirements for a deed to be valid. In a typical home sale or transfer, the deed will be prepared by the escrow company or by the attorney handling the transfer. Further, in a typical sale, there is title insurance paid for by the seller and the title insurance company always reviews the deed to make sure that it is legally correct and proper.

Example of a Grant Deed

Example of a Grant Deed


Whomever is preparing the deed for the transaction is charged with creating a document that fulfills all the requirements of California law. First, the deed must be in writing and have the names of the grantor and grantee. The grantor is the person selling or giving the property and the grantee is the person buying or receiving the property. Second, there must be a sufficient description of the property which typically is a legal description with an assessor’s parcel number although in some instances a lesser description will suffice. Third, there must be proper “words of conveyance”. Fourth, the grantor must be legally competent.  Fifth, the deed must be signed by the grantor or the grantor’s legal representative. Sixth, the deed must be delivered to the grantee and it is effective upon delivery.  For example, if a grantor signs a deed and it is delivered, and then the grantor dies before the deed is recorded with the County recorder, the transfer is still valid because it was delivered.

Resolving Conflicting Ownership and Lien Claims to Real Estate

What to do to be Able to Close Escrow On a Sale or Loan


orange county clerk-recorder standing by signOwnership is kept track of by the County recorder of each County. When properties are sold or transferred, a legal document known as a deed is given to the County recorder. The deed is then recorded in the County records with a date and sequential file number stamped on the document.

The County records are public and anyone can record a deed or other types of real estate documents. The County does not check to see if people presenting deeds for recording have any legal rights or claims against the property in question. It is up to individuals and lending institutions to determine who actually has the proper legal rights to a property. Thus, before property is bought or sold, a search of the County records is made typically by a title insurance company. This is known as a “title search” to find out who actually has record title ownership according to the County records.


Deeds are typically recorded to provide notification to the general public as to who owns a particular property. Deeds are also recorded to prevent fraud or double sales of the same property. Recording is important especially to the grantee (the buyer) so that the grantor (seller) is prevented from fraudulently transferring the same property to a different person. Under California law, once a property deed is recorded, it is considered notification to all the world of the transfer. For example, if a grantor delivers a deed to grantee #1 today and grantee #1 records the deed today then grantee #1 is safe from the grantor fraudulently giving a deed to somebody else. Thus, if the grantor gives another deed to the same property to grantee #2 tomorrow, that person receiving the deed tomorrow is considered to have legal notice of the recording that was done today by grantee #1 and therefore cannot claim valid ownership of the property. Grantee #1 does not have to prove that the grantee #2 somehow had actual knowledge of the sale or transfer to grantee #1. That is the point of the law that says that the recorded deed has in effect notified the grantee #2 so the grantee #2 cannot possibly claim legal ownership.



Retired couples typically have choices about how to pass on the family home. Might they make a mistake and give away the house too soon? They could sell the home and put the cash in the bank and rent. Another way people sometimes handle this is to draw up and record a deed transferring a home now to their children. The logic is that the children are going to get the house anyway so why not just given to them now. The third choice is to continue ownership of the house until both husband and wife have passed away and transfer the house to the children through their will or better yet through their living trust.

ight they make a mistake and give away the house too soon?


  1. Sell now. However, if they make more than $500,000 gain on the sale of the house there will be income tax to pay. Also, they would still have to have a place to live which would cost rent and use up part of the gain on the sale. Moreover, selling the house at the present time would give up future appreciation.
  2. Give it up now. By giving the house to the children at the present time, the couple could still live in the house by making arrangements with the children. However, the income tax basis of the couple would carry over to the children since under the tax laws this is a gift during lifetime. The income tax basis is what the couple paid for the house plus the cost of any documented improvements. When the couple have passed away, the children could sell the house but most likely would have capital gains if the house has gone up in value over what the couple paid. For example, assume the couple paid $200,000 to purchase the house in 1990 and spent 30,000 on remodel costs. That would make their tax basis $230,000. Now supposing the children sell the house in 2016 after their parents are gone and at that time the house is worth $800,000.  The children would have reportable capital gains of the difference between $800,000 and $230,000 which is $570,000. Assuming a federal and state tax rate of about 33% combined, there would be about $180,000 tax to be paid. The only way the children could get out of paying most of the tax would be for the children to move into the house, claim it  as their personal residence, and utilize the $500,000 exclusion from available to married couples.

Image on lovely Orange County residenceSubtitle:  Pull out tax free gain while downsizing


Under our system of federal and state income tax, if your personal residence is sold before death for more than what was paid for it then there is a capital gain. For example, if you purchased your home for $100,000 and sell it for $300,000 there would be a capital gain of $200,000.  The capital gain is reported as income on your personal income tax return.  Figure roughly a combined federal and state tax on the $200,000 gain of 1/3rd which would be $66,666.


An individual may exclude up to $250,000 in gain and a married couple may exclude up the $500,000 on a joint return if the property was the “personal residence”.  A personal residence is defined under the tax law as a residence used as your principal residence for periods aggregating two years (730 days) during the five years leading up to the sale.  Thus, you don’t have to actually have to be living in the residence at the time of the sale if you meet the 2 year test.  Short temporary absences and vacations are counted as part of the 730 days.

Qualified Personal Residence Trust

What is a Qualified Personal Residence Trust?

A Qualified Personal Residence Trust (also known as a “ QPRT”) is an irrevocable trust which a homeowner establishes to make a future gift of his home to his or her children while retaining the right to continue living in the home for a defined number of years. At the end of that period, the home transfers to the remainder beneficiaries who are typically the homeowner’s children.  The right to continue living in the home is the “retained interest” and the beneficiaries’ interest is the “remainder interest”.   The remainder interest is a reportable gift and effectively removes the house from the homeowner’s taxable estate. The QPRT takes advantage of provisions in the tax law that allows the gift to be reported at a discounted value.

Typical Situation

John Doe, a widower at age 67,  owns his home which is worth $1 million.  He has a life expectancy of 15.2 years.  He expects that the house will be worth $1.5 million in 15.2 years.  He has other assets which total over $5,325,000, the amount of the federal estate tax exemption.  If he keeps his home until he dies, then it becomes part of his taxable estate and will be subject to estate tax of 35% on the $1.5 million value at his date of death.  $1.5 million at the 35% tax rate would be $525,000.  He wants to transfer the ownership of the home to his children and avoid the estate tax by getting it out of his estate.  He establishes a QPRT which provides that he may live in the home for 10 years.

Image of Tax Basis Increase

Gifting before death may cause huge capital gains taxes


Under our system of federal and state income tax, if the property is sold before death for more than what was pay for it then there is a capital gain. There are special rates which apply to capital gains the penny upon one’s tax bracket. To compute capital gains, you subtract the income tax basis of the property from the net selling price. The income tax “basis” is what was paid for the property in the first place minus any depreciation and adding any expenditures for capital improvements.


Income Tax Basis Increase on Death of an Owner – The basis of property acquired from a deceased person’s estate or trust is generally it’s fair market value on the date of the decedent’s death. Thus, the children who inherit a property from their parents through a trust or through a probate proceeding will have a date of death income tax basis. This is known as the step-up in basis at death.

Reassess Property Tax on Death of an Owner

County assessor will reassess property tax on death of an owner unless prevented


Property taxes are administered by the County in which the real property is located. The County tax assessor determines the amount of property taxes based upon the fair market value of the property at the date of purchase plus a small amount of increase each year is allowed. The county property tax year goes from July 1 through June 30 tax bills are sent out typically in October and are payable in two installments: December 10 for the first installment and April 10 for the second installment.


By law the County tax assessor is entitled to reassess the property and increase the taxes to current market value upon a “change in ownership” of a property. Thus, when you buy a house on the open market your property tax bill will be based on the price you paid for the house. However, if you receive a property as a result of an inheritance or a gift there may be exemptions from the change in ownership rules which would prevent the reassessment of taxes.

The wrong kind of deed can have expensive and unintended consequences. Once the horse is out of the barn you can get back!

What is a deed?

image of California property deedReal estate property ownership is legally changed by a document commonly known as a deed which is signed by the person making the ownership transfer. The deed is then recorded with the County recorder in the county where the property is located.

Danger of property tax increase

Deeding Property Dangers – Under California law, the recording of a deed is considered a change of ownership by the County tax assessor which allows the property to be reassessed to current market value. Thus, supposing you have a property that you paid $200,000 for which is now worth $1 million and you record a deed transferring that property to another person. The first impression at the County level will be to say that the property taxes are going to be assessed based upon the $1 million valuation.  There are exceptions to the change of ownership rules which exempt certain types of transfers to certain types of persons. One such exemption is the parent-child exclusion which allows these same property tax bases to carry over in the situation where a personal residence occupied by the transferring party is transferred to a child or grandchild. However, certain papers have to be filed with the county assessor within the time deadlines to take advantage of the exclusion. There are other exclusions which Crockett law firm can advise on and plan to try to keep the property tax increase from happening.

Probate is not needed to transfer ownership of joint tenancy property

Generally, Probate court is the legal way for ownership transfer on death

Probate court is generally necessary to transfer ownership of property and accounts upon someone’s demise EXCEPT for some narrow exceptions.  A major exception is property held in joint tenancy ownership. Attorney David Crockett can advise clients as to whether the joint tenancy exception is available and assist in preparing necessary documentation to create joint tenancies and to transfer the property to the survivor when one of the joint tenants passes away.

Type of property

Joint tenancy ownership is typically found in real estate ownership and in bank and securities account ownership.

Joint tenancy ownership


Joint tenancy property is created by deed, will, or other transfer to two or more persons in equal shares who are expressly declared to be “joint tenants”.  Thus, if the deed to the house owned by John and Jane Doe states the grantees to be “John Doe and Jane Doe as joint tenants” a legal joint tenancy is created.