Q: In 2008 our son and his wife lost their home in a foreclosure. So we went out and bought another home, in our names, and he and his family have lived there since. He has always paid the mortgage, taxes, etc. and treated the house as his own. Since then, both he and wife have gotten good jobs and have repaired their credit. So now the time has come for him to buy the house from us. There’s a big mortgage on the house, since we bought it with only 8 percent down. What do we need in the way of paperwork to do the transfer correctly?
A: Let me start with my standard disclaimer. We live in California, the most consumer-protective state in the country. In any residential real estate transaction, the buyer is always considered the consumer while the seller is the person the laws are designed to protect the consumer from.
Selling the house to your son may mean that he takes it with a high sense of gratitude and would never sue you. At least we all hope so, though I’ve been doing this more than long enough to see exceptions to such a reasonable expectation.
Nonetheless, assuming your son is going to go out and get a mortgage, you’ll have to do just about everything any other seller has to do because the bank will require it.
Having said that, here’s a short list of the required documents. However, I can’t possibly provide enough information in the column you assure that everything is done right.
Obviously the first document is a purchase contract.
Contracts are unique from state-to-state, since the laws in each state are so different.
Here in California the two big publishers are the California Association of Realtors and a company called Professional Publishing. These are the contracts that Realtors use. I doubt that a non-Realtor can buy the CAR contracts, but you can get the Professional Publishing versions from that company.
Once you get either form contract in your hand, you’ll see that was the easy part. Knowing how to fill it out correctly is where training and experience come in.
But that’s just the start.
By my count there are 27 specific disclosure forms that you may need to give to your son. Some are only necessary under certain circumstances.
For example, if the house is located near an airport, or the house is of a certain age, or it’s located in a flood plain, or if there’s a Mello Roos assessment, or if there’s a private transfer fee, etc.
Many others are required for all residential homes – such as smoke detector compliance statement, residential environmental hazards, homeowners guide to earthquake safety, Megan’s law disclosure and more.
And then there’s the mother of all disclosures, the California Transfer Disclosure Form, which much be filled out in detail.
Regarding the disclosures, it doesn’t matter legally that your son has been living in the house since the day you bought it and so he’s the one with personal knowledge of the condition of the property.
You, the seller, are solely responsible for making the disclosures.
Now granted, the details of your disclosures may not need to be what an arms-length seller would want to do, since we are trusting your son not to sue you.
But here comes that bank again.
The bank is using the house for the security of the loan. They have a right to rely on the disclosures to help them determine whether or not, and for how much, they’ll make a loan on the property.
The bank knows what disclosures are going to be required and will insist that they be included with the loan package.
All of this is to say that unless your son is buying the house for cash, you’re going to be compelled to go through the correct process of selling the home even if your son and you don’t care.
Most homeowners are shocked when they become exposed to the complexity of selling a home in California.
But the truth is that most of these requirements are met by the Realtor who includes it all in the services she provides. Unfortunately, all of this expertise typically goes all but unnoticed by their clients.
But if you’re going to go it alone, you’re going to have to follow the correct steps.
Tim Jones is a real estate attorney in Fairfield. If you have any real estate questions you would like to have answered in this column you can contact him at [email protected]