Overview: What actually happens when one owner buys out another

If one owner of California real property wants to buy the other owner’s interest, the process usually combines three things: (1) agreeing on a buyout price, (2) arranging financing (commonly a refinance in the buyer’s name), and (3) transferring and recording title so the selling owner no longer holds an interest. The buyer’s refinance pays off any existing mortgage and creates a new loan in the buyer’s name. Recording a deed transfers ownership on the public record. Both steps are required to protect each party’s legal and financial positions.

Step 1 — Confirm how the property is owned

• Identify whether the owners hold title as tenants in common, joint tenants, or (if spouses/registered domestic partners) community property. Each form changes rights and remedies.
• If spouses, California treats property acquired during marriage as community property by default. See California Family Code § 760 for the legal definition of community property: Cal. Fam. Code § 760.
• Order a copy of the recorded deed from the county recorder or obtain title information from a title company to confirm the exact ownership language and any liens.

Step 2 — Determine the buyout price

Common methods:

• Obtain a professional appraisal (most reliable).
• Use comparable sales (“comps”) from a real estate agent if owners agree.
• Agree on a negotiated price based on equity less outstanding liens and costs (e.g., closing costs, payoffs).

Calculate how much the buying owner must pay the selling owner: (property value) – (outstanding mortgage(s) and liens) = equity; then multiply equity by the seller’s ownership share.

Step 3 — Choose the financing path

Typical options:

• Refinance the existing loan solely in the buyer’s name (most common). The new loan pays off the old mortgage and provides funds to pay the seller the agreed buyout amount.
• Buyer obtains a new mortgage while seller’s loan is paid off in escrow.
• Buyer pays cash to the seller and obtains a new loan later or carries the property free of mortgage if no loan is needed.
• Seller remains on the existing mortgage while deed transfers to buyer (risky). Lenders are not bound by deed transfers — a seller who remains on the loan remains responsible for payments unless the lender releases them.

Key lender requirements: the buyer must qualify based on credit, income, assets, debt-to-income (DTI) ratio, and loan-to-value (LTV) rules. Lenders often require a current appraisal and title search as part of underwriting.

Step 4 — Use escrow and title services

Escrow and title companies manage the exchange of funds and document recording. Typical escrow steps:

1. Open escrow with a neutral company agreed to by both owners.
2. Escrow orders a payoff demand for any existing loans and a preliminary title report to identify liens or easements.
3. When the buyer’s refinance loan funds, escrow uses the proceeds to pay off existing loans and to wire the agreed buyout amount to the seller.
4. Escrow records the new deed (grant deed or quitclaim as agreed) and the trustee’s reconveyance or mortgage satisfaction documents.

Purchase title insurance or review existing policies to make sure the new owner gets clear title and protection from unknown past claims.

Step 5 — Transfer title correctly

Common deed choices in California:

• Grant deed — used to transfer ownership and typically promises the grantor has not already conveyed the property and that there are no undisclosed encumbrances created by the grantor.
• Quitclaim deed — transfers whatever interest the grantor has without warranties; often used between family members or to clear clouds on title but provides less protection to the grantee.

To be effective, deeds must be properly prepared, signed, notarized, and recorded in the county where the property sits. Escrow or a title company usually prepares the deed and records it after closing.

Step 6 — Make sure the mortgage liability ends for the selling owner

Important: transferring the deed alone does not remove loan liability. The lender’s lien stays until the loan is paid or refinanced. To protect a selling owner, use one of these approaches:

• Complete a refinance that pays off the existing loan so the seller is released from the mortgage debt.
• Get the lender’s written approval for an assumption or release (rare and depends on the loan terms).
• Hold proceeds in escrow until the payoff is confirmed and the lender records a lien release or reconveyance.

What if the other owner refuses to cooperate?

If negotiations break down, the unwilling co‑owner can force resolution through court. A partition action asks the court to divide or sell the property and distribute proceeds according to ownership shares. Partition litigation can be lengthy and expensive. Many people resolve disputes through mediation first because court outcomes are uncertain and costlier than negotiated buyouts.

Practical legal, tax, and cost considerations

• Property taxes: transferring title can trigger reassessment for property tax purposes. Consult a tax advisor or county assessor about possible reassessment rules or exclusions.
• Capital gains & income taxes: seller may owe tax on gain from the sale of their share. Speak with a tax professional about basis, exclusions, and reporting requirements.
• Transfer taxes and recording fees: many counties charge recording fees and sometimes documentary transfer taxes when real property changes hands. Check with the county recorder.
• Closing costs: appraisal fees, title and escrow fees, lender fees, notary fees, and recording costs typically apply on refinance/buyout closings.
• Legal agreements: record a written buyout agreement or settlement that explains payment terms, effective date of transfer, who pays which costs, and who will carry insurance and maintenance during the transition.

Where to get help

• Mortgage lender or broker for refinance options and underwriting requirements.
• Title company or escrow officer to handle payoffs and recordation.
• Real estate agent or appraiser to establish fair market value.
• California-licensed attorney for complex disputes, partition actions, or tax consequences.
• California Department of Real Estate for general state real estate guidance: dre.ca.gov.

Helpful Hints

• Get a current title report early. It shows liens and easements that affect the buyout.
• Use escrow for fund transfers to ensure payoffs and deed recording happen together.
• Do not rely on an unrecorded deed or oral promise to remove loan responsibility — only lender payoff or refinance removes the lien.
• Ask for a written payoff demand from the lender showing the exact amount needed to clear any mortgage and the date the payoff is valid through.
• Consider getting independent legal and tax advice before signing closing documents; the tax and liability effects can be significant.
• If one party is licensed to practice real estate or law, treat their involvement as a potential conflict and consider independent counsel.