What California Homeowners Need to Know About Proposition 58 Home Loans

In short, Proposition 58, also known as Prop 58 for short, is an amendment to the constitution of California that excludes property tax when real estate is transferred from parent to child. Normally when property is transferred in California, it is reassessed at its current market value. This can cause annual property taxes to surge.

To help prevent this financial burden when property moves from parent to child (or grandchild), Proposition 58 was created. This allows the new owner to maintain the property tax at the rate that it was when it was originally purchased.

Why Would Someone Need a Prop 58 Loan?

This brings us to the next question — why might someone need a Proposition 58 loan? There are several reasons why these kinds of loans are necessary:

It offers liquidity to divide interest in property that’s inherited

When beneficiaries divide their interest in real estate, they often need to borrow against the real estate so that one sibling can buy out the others. At this time the property is still in the trust or estate’s name. Since the beneficiary isn’t on the title, the bank can’t provide financing. A Proposition 58 loan can step in and give the liquidity needed to divide interest between beneficiaries.

It avoids the need for a sibling to sibling transfer

Even if the one who’s going to keep the property has enough money to be able to buy out the others, it’s not a good idea to use personal money to divide interest in the inherited real estate. It makes the cash look like a simple sibling to sibling cash transfer and that’s not eligible for prop 58. Only parent to child transfers are considered (or in the case of Prop 193, grandparent to child).

What Happens When You Get a Prop 58 Home Loan?

Getting a Prop 58 loan from a trust loan lender allows the loan to be made directly to the estate or trust that currently owns the property, since they’re technically the borrower. When this happens, a note and deed of trust are recorded against the property, in the same way that a traditional mortgage works. This provides for loan security.

Once the loan is funded, proceeds are sent directly to the trust or the estate. Cash is then paid to the beneficiaries that are selling their interest in the real estate. Once they’ve been paid, the title can be transferred into the name of the beneficiary that is keeping the property.

After this happens, the new owner can refinance that short-term Proposition 58 home loan into a long term loan, paying off the Prop 58 loan with the cash. Although the process sounds involved, it’s very simple and straightforward and very common in California.

How to Get a Proposition 58 Home Loan in California

If you’re interested in learning more about how Prop 58 loans work or you’d like to apply for a Prop 58 home loan, contact us at LBC Mortgage today. Our dedicated home loan experts can help you navigate any uncertainties while answering the most common questions about the process, so that it is straightforward and simple.

We also work with an established network of lenders offering affordable rates to help make the process easy and hassle-free. We can help you determine your eligibility, and our senior loan officers can work to get you approved in as little as 24 hours. We also offer great rates on conventional mortgages too. Work with a name you know and trust, and a leader in Prop 58 loans. Contact us today to learn more.