Secured Transactions

A major component of a real estate transaction is the secured interest that constitutes the underlying transition of ownership in a property—i.e. lien on a property. Mortgages are the most commonly known types of liens. The mortgage effectively serves to create an interest in the property to secure the performance of an obligation. Specifically, a mortgage company, usually a bank, will hold title over the property, with a deed of trust, until the property owner pays off the principal amount of the mortgage and any accumulated interest. Once the property owner pays off the mortgage, the bank transfers title by and through a deed of trust to the owner.

There are all sorts of liens that can exist on real property. In California, the lending industry has exhibited a strong preference for deeds of trust to secure mortgages and property title. A deed of trust, which is also known as a trust deed, is a conveyance (transferring ownership interest) of real property providing security for the performance of a debt or other obligation relating to real property. A deed of trust imposes a lien to secure a debt over the property. This means that title, or ownership of the property, cannot be transferred without first addressing the pending debt over the property. In most cases, the first mortgage on the property is the first lienholder. Essentially, if the property owner chooses to sell the property before fully paying the mortgage, the owner will need to use the proceeds of the sale to fulfill the mortgage obligation before any other obligation. If the sale of the property does not completely satisfy the mortgage legal disputes and actions may arise. These obligations may be different if the property owner has a second mortgage over the property.

Under California Civil Code section 3046, the seller, also known as the vendor, may place a lien on the property. With a vendor’s lien, the seller transfers title to the property before the buyer provides the full purchase price. The buyer then holds title to the property and continues to make payments to the seller until the full purchase price has been paid. Technically, a lien does not exist over the property unless the vendor instigates a lawsuit, in which case a court orders a lien over the property. There are also several involuntary liens that can attach to property, such as mechanic liens or judgment liens. Under California Civil Code section 3110, laborers are entitled to hold a mechanic’s lien on real property that they have worked on until they receive payment for their work. Under California Code of Civil Procedure section 697.310, a judgment holder may also record a judgment lien on real estate to secure a court judgment against the property owner.

In the midst of all the different types of real property securities, buyers and sellers must take care to proceed with these transactions to satisfy all pending liens and transfer clean title. As such, it is helpful to speak to an attorney with the experience and knowledge in real estate transactions to help guide your decisions. You may contact Law Offices of Salar Atrizadeh today in order to speak with a skilled attorney who can explain the options for your real estate transaction.