Transfer of Property

Deeds, and the moment title actually passes

A valid deed needs a competent grantor, an identifiable grantee, words of conveyance, an adequate description of the property, and the grantor's signature. Then it needs delivery with intent to convey, and acceptance by the grantee, during the grantor's lifetime.

Title passes on delivery and acceptance. Not on signing, not on notarisation, not on recording. A signed deed left in a drawer conveys nothing at all. This is the most reliably tested point in the whole area, and it is worth being able to state without hesitation.

Notarisation is required in order to record, but it is not an element of validity between the parties. Recording is not required for validity either. Its function is to give constructive notice to the world and to establish priority against later claimants.

Recording, notice, and priority

California operates a race-notice recording system. A later purchaser who takes in good faith, for value, and without notice, and who records first, prevails over an earlier unrecorded interest. All three conditions matter, and the without-notice element is where questions get interesting.

Notice comes in two forms. Actual notice is what someone genuinely knows. Constructive notice is what the law deems everyone to know, and it arises in two ways: from the public record, and from open possession of the property.

That second route surprises candidates. A buyer who inspects a property and sees a tenant in occupation has constructive notice of whatever rights that occupant holds, whether or not the lease was ever recorded, and a duty to inquire into them. A buyer who fails to ask takes subject to the tenant's actual rights. This is one of the main off-record risks that a standard title policy excludes.

Title insurance and the preliminary report

A preliminary report is an offer to issue a policy of title insurance on stated terms, subject to the listed exceptions and requirements. It is expressly not an abstract of title and creates no liability except as an offer, which surprises candidates who treat it as a guarantee. It is nonetheless the practical document in which liens, easements and CC&Rs surface during escrow.

The policy itself comes in two forms, and the difference between them is the single most tested point in this topic. A standard CLTA policy covers matters of record plus certain off-record hazards such as forgery, lack of capacity and improperly delivered deeds. An ALTA extended policy adds coverage for matters a physical inspection or a correct survey would disclose: unrecorded easements, encroachments, boundary discrepancies and rights of parties in possession.

Lenders require the extended policy, which is why a transaction with financing usually involves both an owner's policy and a lender's policy. Title insurance is paid once with a single premium and covers backwards in time rather than forwards, which is the opposite of every other insurance product and is worth stating that way to remember it.

Escrow, and the limits of neutrality

A valid escrow requires two things: an enforceable underlying contract between the parties, and conditional delivery of the transfer instruments to a neutral third party. Without the contract there is nothing to perform. Without conditional delivery there is no escrow, only a stakeholder holding documents.

Escrow is neutral by definition. It holds funds and documents and performs only what the mutual written instructions authorise. It advocates for nobody, adjudicates nothing, and cannot give legal advice to either party. Candidates who imagine escrow as an advocate or an arbiter miss several questions in this area.

In California escrow may be conducted by a licensed escrow company, or under an exemption by a broker in a transaction where the broker is acting as agent, or by an attorney, bank or title company. The broker exemption is narrow: it applies to a transaction in which the broker is a party or is acting as agent, not to escrow as a standalone business.

Where escrow instructions conflict with the purchase agreement on a material term, later mutual instructions signed by both parties generally supersede earlier ones on the same subject. Relying on that is poor practice, though. The correct response is a written amendment both parties sign, because escrow may never choose between the parties.

The tax aspects: transfer tax, Proposition 13, and the gain exclusion

The documentary transfer tax is a county tax at $0.55 per $500 of consideration, which is the same as $1.10 per $1,000. A partial $500 counts as a whole unit, so the unit count always rounds up. Charter cities may impose their own additional tax and several large California cities do so at substantially higher rates. An assumed lien remaining on the property is deducted from taxable consideration before the tax is computed.

Proposition 13 fixes the base property tax rate at 1% of assessed value and limits growth in assessed value to no more than 2% a year while ownership is unchanged. A change in ownership or new construction triggers reassessment to current market value, which is why a long-held California property can carry a tax bill far below an identical house next door. Voter-approved bonds and direct assessments sit on top of the 1%, so an actual bill is normally above 1%.

Mello-Roos is the other thing sitting on top. A special tax levied in a Community Facilities District to fund infrastructure, it is not an ad valorem tax and is therefore not limited by Proposition 13. It can add substantially to a bill in a newer development, and a seller must make a good-faith effort to obtain and deliver a notice of the special tax to a prospective buyer.

Principal residence exclusion

Up to $250,000 of gain for a single filer and $500,000 for a married couple filing jointly, where the property was owned and used as a principal residence for at least two of the previous five years. Generally available once every two years. The old one-time over-55 exclusion is long repealed and still circulates in outdated material.

Section 1031 exchange

Defers gain when investment or business real property is exchanged for like-kind real property. It defers rather than eliminates, and the basis carries over. Identify the replacement within 45 days and close within 180. Since 2018 it applies only to real property, and boot received is taxable to the extent of gain.

Property tax due dates

The first instalment is due November 1 and delinquent after December 10. The second is due February 1 and delinquent after April 10. The mnemonic candidates use is No Darn Fooling Around.

Supplemental assessment

After a reassessment event, a supplemental bill covers the difference between the old and new assessed value for the remainder of the tax year. New buyers are frequently surprised by it, and it is a required disclosure.

Transfer through court supervision

Probate sales subject to court confirmation carry a distinctive risk. At the confirmation hearing the court entertains overbids, and the first overbid must exceed the accepted offer by a statutory minimum, commonly calculated as 10% of the first $10,000 plus 5% of the balance. A buyer with an accepted offer can lose the property in the courtroom, which is why probate listings carry that warning prominently.

The Independent Administration of Estates Act allows a personal representative with full authority to sell without court confirmation, giving notice of proposed action instead. That is the faster route and it removes the overbid risk, so identifying whether the fact pattern involves full IAEA authority is the first thing to check.

Other court-supervised transfers include a partition action, where a co-tenant forces a division or sale, a quiet title action to resolve competing claims, and transfers in a dissolution of marriage or a bankruptcy.

Types of vesting at transfer

How a buyer takes title is decided at closing and has consequences that outlast the transaction by decades. Sole ownership, tenancy in common, joint tenancy, community property, community property with right of survivorship, and title held in the name of a trust or an entity are the options that appear.

California is a community property state, so property acquired by a married person during marriage other than by gift, bequest, devise or descent is presumed community. Separate property is anything owned before marriage, anything acquired during marriage by gift or inheritance, and the rents and profits of separate property. The presumption can be rebutted, but the burden falls on the party claiming otherwise.

Community property with right of survivorship is the vesting worth understanding properly. It combines probate avoidance with community property tax treatment, so the survivor receives a full step-up in basis on the entire property rather than only on the deceased spouse's half. On a property held for thirty years in California that difference can be very large indeed.