Highlights • Chapter 5 ½ 7
Chapter 5: FORMS OF REAL PROPERTY OWNERSHIP
Chapter Highlights
1. What is ownership in severalty? What is concurrent ownership?
When title is held by one person, that person is said to have sole ownership, or ownership in severalty.
Title held by more than one party, is referred to as co-ownership, or concurrent ownership.
2. Describe joint tenancy and how it is used.
Joint tenancy is a widely used form of concurrent ownership, especially for property held by married couples. Under joint tenancy, two or more parties (the joint tenants) are considered to have a single estate in land, and each is considered to be the owner of the entire estate.
3. What are the four unities of joint tenancy? Describe each one.
The four unities of joint tenancy are the unity of title, the unity of time, the unity of interest, and the unity of possession.
The unity of title requires that all owners derive their title from the same grantor.
The unity of time requires that all joint tenants take title to the property at the same time.
The unity of interest requires that all joint tenants have an equal interest in the property.
The unity of possession requires that each owner have one and the same undivided possession of the property.
4. What is a straw man?
A straw man is a third party who, for a fee, takes title temporarily and then reconveys the property to the designated parties.
5. What is the right of survivorship?
The right of survivorship is sometimes referred to as the “grand incident” of joint tenancy because it enables the surviving joint tenant to avoid the hassle of probate court (at least for property owned as joint tenants).
It is generally a good idea and required in certain states that if joint tenancy with the right of survivorship is desired that it be explicitly stated in a deed.
6. How does tenancy by the entireties exist?
For tenancy by the entireties, also known as tenancy by the entirety, to exist the four unities required for joint tenancy must be met and one more: the unity of person. Unity of person requires that the tenants be married.
7. How is tenancy by the entireties different from joint tenancy?
Tenancy by the entireties is, however, different from joint tenancy because when property is owned in this form, neither party is individually able to mortgage or transfer his or her interest to another party.
8. What are some advantages to tenancy by the entireties?
One advantage is that it usually features automatic survivorship, although some states may require the phrase “with the right of survivorship.” Another advantage of tenancy by the entireties is that in many states, property held in this form is protected from claims advanced by the creditors of only one spouse.
9. What is tenancy in common?
Tenancy in common is another form under which two or more parties may hold concurrent ownership in real property. This tenancy is the most common form of concurrent ownership; it is the relationship that is created unless the parties clearly specify their intent to create another form of ownership, and meet the requirements of the specified form.
10. What ate the differences between tenancy in common and joint tenancy?
The primary distinction between tenancy in common and joint tenancy is that the only unity required for a tenancy in common is the unity of possession. That is, each tenant in common must have an undivided right to possess the property and each has the right to a share in any rents or profits derived from the property. Unlike joint tenants, tenants in common may acquire their interests from different grantors or from different conveyances, although tenants in common may, and frequently do, acquire title from the same conveyance. Tenants in common, unlike joint tenants, may hold unequal ownership interests.
Another difference between joint tenancy and tenancy in common is that survivorship does not apply to tenancy in common. Each tenant in common can pass his or her interest on by will; each tenant’s share does not automatically pass to the surviving tenants in common.
11. What are some advantages and disadvantages of tenancy in common?
Under tenancy in common, any owner may convey his or her interest to others at any time without the permission of the other co-owners. No tenant in common, however, may transfer the entire property without the permission of the other owners. Alternatively, an owner could sell his or her interest to the other tenants in common. If they are unwilling or unable to purchase the interest, the owner can bring an action for partition.
If one or more of the tenants in common fails to pay their share of taxes and assessments, the other tenants must make up the difference or risk losing the property to foreclosure. Conversely, if one of the tenants pays taxes or assessments above his or her own share, then that tenant generally has a lien on the interests of the other tenant or tenants. In addition, lenders generally do not consider a tenant in common’s interest to be desirable security, because in the event of foreclosure, the lender has the additional expense of forcing a partition proceeding to recover on the security interest. Finally, the fact that the interest of a deceased tenant in common is subject to probate can create problems that could be avoided by holding title either in the form of a partnership or trust.
12. What is the community property law?
Under community property law, each spouse is presumed to have an equal interest in property acquired by either spouse during the marriage and each is equally responsible for any debts incurred during the marriage. Each spouse has an equal interest regardless of whether either was unemployed or employed during the marriage, and regardless of whether record title is held in only one spouse’s name. States using community property law are referred to as community property states.
Neither curtesy, nor dower rights are recognized in community property states. When one spouse dies with a valid will, the surviving spouse retains his or her half share of the community property and the other half goes to the deceased’s heirs as specified in the will. Under such circumstances the other half does not have to pass to the surviving spouse, although it may if so specified. In three community property states, Arizona, Louisiana, and Texas, if a spouse dies intestate, the deceased’s descendants are the primary recipients. In the other community property states, if a spouse dies intestate, the deceased’s interest passes to the surviving spouse.
13. What is a condominium?
A condominium is an estate in real property that consists of individual ownership of a residential or commercial unit and an undivided joint interest in the common areas in the condominium project, such as: the land, elevators, stairways, hallways, lobby, parking area, any recreational area, and structure exterior. A residential condominium can take many physical forms, including an apartment, a duplex, or a townhouse, but the physical form does not affect the owner’s legal status or rights.
With respect to his or her dwelling, the condominium owner has all the rights and duties associated with a fee simple interest. The interest can be mortgaged, leased, sold, or given away, and the interest is subject to foreclosure and homestead rights. Although the owner holds a fee simple interest, there may be restrictions on the use of the dwelling, which are imposed by deed, or by the homeowners’ association.
14. What does a master deed describe?
The master deed, sometimes called the declaration of condominium, or declaration of horizontal property regime and covenants, describes the real property involved and the number of units located therein. Individual deeds to every condominium unit owner refer to the master deed for a complete legal description of the unit owner’s interest. Once the master deed is recorded, no variations in the uses of the structure of the property are permitted unless one follows the amendment procedures specified in the master deed.
15. What do condominium bylaws do?
Once the master deed is complete, the developer must adopt condominium bylaws for the unit owners. The bylaws provide rules and regulations for the unit owners and for the operation of the units. They also include rules for the governing body of the dwelling units: the homeowners’ association.
16. What is a cooperative?
A cooperative is a living arrangement in which the dwellers purchase ownership shares in a business organization (corporation, partnership, or trust) the principal asset of which is the building. Unlike a condominium, the individuals who inhabit a cooperative do not have fee simple ownership of any real property. Instead, ownership of the property is usually held by the (nonprofit) business organization, and share ownership in the organization entitles the holder to a proprietary lease on a dwelling unit.
17. How does a proprietary lease differ from an ordinary lease?
A proprietary lease differs from an ordinary lease in two ways. First, no provision for rent is made in a proprietary lease. Instead of rent payments, the periodic payments made by the cooperative tenant to the corporation are called a maintenance fee. While this fee may be fixed for the term of the lease, it is common for the lease to provide for possible increases in the fee. This may be accomplished by basing the fee on a cost-of-living scale. The second way in which a proprietary lease differs from an ordinary lease involves the termination date of the lease. Many proprietary leases do not stipulate a specific termination date. The termination of the lease is usually tied to either the transfer of the tenant’s interest, or the tenant’s death. When a termination date is included in a proprietary lease, the date is usually in the distant future.
18. What are the main differences between condominiums and cooperatives?
Condominium owners actually own their own units. They are, therefore, less restricted than cooperative shareholders in the use of their unit. In addition, the condominium owner is free to sell his interest to whomever he or she chooses. The cooperative shareholder may be able to freely sell his or her shares, but such transfers are usually restricted. The cooperative shareholder may be required to first offer the shares to the cooperative, or to obtain permission from the cooperative before he or she sells them.
19. What are partnerships and partnership agreements?
A partnership exists when two or more parties agree to combine their time, effort, money, and property for the purpose of operating a business. The agreement between the partners may be either written or oral, although a written partnership agreement that clearly delineates the duties and responsibilities of each partner is preferable.
20. What are the advantages and disadvantages of partnerships?
One advantage is that partnerships are relatively easy to form. Another is that a partnership is not subject to income taxes on any profits it generates. Instead, each partner is taxed on his or her share of the partnership’s profits. This avoids the double taxation that occurs under the corporate form of organization. Another advantage is that by investing in a partnership many people can participate in investments they would otherwise be unable to, such as a shopping mall, or a large apartment complex. There are, however, factors that may offset these advantages. First, partners are generally taxed on their share of the partnership profits regardless of whether the profits are distributed to them or retained by the partnership. Second, for real estate partnerships in particular, the ability to use partnership losses to offset other taxable income is restricted.
21. What is a tenancy in partnership?
When the partners decide to hold the property in the partnership’s name the ownership form is called a tenancy in partnership. If the tenancy in partnership is used, the name of the partnership, as well as the name of all partners, must be published in the public records of each county and state where the partnership owns property. In large partnerships, it is common to specify that a few of the partners have the authority to contract for the entire partnership.
A tenancy in partnership is similar to the tenancies described previously. Each partner has the right to possess and use the property for partnership purposes, and one partner cannot dispossess the partnership or other partners from the property without their permission. Tenancy in partnership is similar to joint tenancy in that if one partner dies, the remaining partners are entitled to the deceased partner’s interest.
22. What is a general partnership and what are its disadvantages?
A general partnership is what most people consider a partnership. Perhaps the biggest disadvantage of a general partnership is that each partner has personal liability for the debts of the partnership. In real estate partnerships, this personal liability is limited to the extent that the partnership uses non-recourse financing. Non-recourse financing occurs when a lender agrees to use real property as collateral for a loan, and further agrees that in the event of default on the loan the lender may only rely on the property to satisfy the debt without recourse to the borrower. Another potential disadvantage of a general partnership is the possibility that a partner will have to spend time managing the partnership. Finally, ownership interests in partnerships tend to involve large amounts of money and to be illiquid.