I've been working on this boundary adjustment for going on five years now. I can't think of a way to make this long story short. This guy (an attorney) and his wife bought 20+ acres 35 years ago, built a beautiful home and divided the property into 4 parcels. They got divorced and the four parcels including the house on one parcel and a "guest house" on another parcel ended up in 50-50 ownership of him and her. She remarries, dies, and leaves her share of the property to her step-kids (also attorneys) in a trust.
While they were married, they took out a loan on the place and after they got divorced, the attorney took out another loan on it, both of which are still in place.
The step-kids, of course, want to cash in on their inheritance, so there was a court order that they get the guest house and one of the vacant parcels and the ex-husband keeps the main house and one vacant parcel. I got involved when they wanted the lines marked between the various parcels to see who's getting what. Lo and behold, one parcel line goes through the guest house. They thought they had adjusted the line when the guest house was built but something fell through a crack and it never got recorded.
Still awake? The attorney/owners were convinced that there were some title issues that were caused when the various parties conveyed their interests to each other and to trusts, so they decided the thing to do was to take the two parcels and quitclaim to each other a 50% interest so both parcels being adjusted would be commonly owned by the ex-husband and the step-kids for now and then they would clear that up after the adjustment was complete. After months of wrangling, they did that. The adjustment is now approved by the County with the condition that the deeds of trust be modified to reflect the new adjusted descriptions.
I brought up the issue that the bank might have a little heartburn that the entities they loaned the money to are no longer the owners of the property. The title company says that's not a problem, the bank doesn't care who owns the property as long as they still encumber the property with the original trustor(borrower) on the hook to pay off the loan. That's the part that sounds odd to me. How can a borrower transfer half the ownership of the collateral for a loan without the lender being a bit concerned? Am I just being a trouble-maker?
Sounds to me like you are prudent to raise this issue, as each lender is different and I have seen them get in a wad over lesser concerns, I would try to somehow document your concern over this issue, which would probably by a non-issue if the loan continues to be paid. If trouble should arise, or heaven forbid, foreclosure rear its ugly head, then it likely would become an issue.
my 2 cents.
I'm sure it's different in California, but here you could just go back to the judge and he would issue an order making the changes to the parcels and clean everything up. The Court Clerk would take the new deeds to the recorder and BAM it's done. It happens in divorce and probate actions now and then. And state law allows it as an exception to subdivision laws.
I've been involved in a couple of cases where the judge has ruled that the record boundary is to be modified, but they order the parties to process a lot line adjustment through the local agency to finalize the judgment. I'm not sure if a judge can actually move an unambiguously described property line him/herself from the bench in California.
As far as the issue of changing the ownership of a property that is encumbered by a deed of trust, I called a real estate attorney friend who is also a real estate broker and he basically agreed with the title company that if somebody is foolhardy enough to take a 50% interest in a property that is encumbered by a loan, therefore subject to foreclosure if the borrower fails to make the payments, they can do it. He said he runs across this all the time with divorces, trusts, etc. changing the ownership entity on encumbered properties, and the lenders usually don't care if the payments are being made and the equity in the property is still enough to cover the outstanding loan balance. However, he said technically changing ownership probably violates a clause in the loan doc's and would allow the lender to call in the loan if they wanted to.
I run across "court deeds" and court created parcels from time to time. A judge will issue an order: for instance the last one I dealt with was where a judge during a probate proceeding deeded to the heir a subdivision road. There were some questions who owned the road and he gave it to the heir of the man who originally created the subdivision, in effect taking it away from the owners of the lots. That was that. Also, some subdivisions have been created dividing land during a divorce. These judges are not interested in having their decrees reviewed by the planning department. It goes straight from court into the record.
Working with a lawyer we almost got around a new subdivision regulation by having the parent tract go to foreclosure. That would have allowed the owner to sell the majority of his land to a neighbor and retain 40 acres without review. But the county finally relented and the sell went ahead without all the review, which would have taken at least 6 months, probably 9-10, and would have cost the owner $6000-$8000 extra.
