4.Forms of Real Estate Ownership

8/8/2019 4.Forms of Real Estate Ownership

1/19

Forms of Real

Estate

Ownership


2/19

Earlier we saw the interests in RE (fee simple, life estates and

easements), however we must also know howthese interests in

RE are held. A RE professional must know this for the following

reasons

To know who is authorised to sign the documents

Know what form of ownership a purchaser wants and what

options are available when more than one person will take title

Also the form of ownership determines how the property can be

reconveyed to a new owner

Forms of Ownership

Although the forms of ownership available are controlled by state

laws, a fee simple estate may be held in three basic ways:

1. In severalty, where title is held by one individual

2. In co-ownership, where title is held by two or more individuals

3. In trust, where a third individual holds title for the benefit ofanother.


3/19

Ownership in Severalty

When real estate is owned by one individual, that individual is said to

own the property in severalty. The term comes from the fact that

this sole owner is Severed or Cut off from other owners.Theseveralty owner has sole rights to the ownership and sole

discretion over the transfer of the ownership.

Co-OwnershipWhen title to one parcel of real estate is held by two or more

individuals, those parties are called co-owners or concurrent

owners. Most states commonly recognize various forms of co-

ownership. Individuals may co-own property as tenants in

common, joint tenants or tenants by entirety or co-own ascommunity property.

During the lifetime of the co-owners, however there is no apparent

difference among the various types of ownership.

Only when the property is conveyed or one of the owners dies do the

differences become apparent


4/19

Form of Co-ownership1. Tenancy in Common

2. Joint tenancy3. Tenancy by the Entirety

4. Community Property

Tenancy in Common

A Parcel of real estate may be owned by two or more

people as Tenants in Common. In tenancy in

common, each tenant holds an undivided fractional

interest in the property. Such a tenant may hold

one-half or one third interest in a property. Theproperty cannot be physically divided into half or

third, due to unity of possession, i.e. entitled to

the possession of whole property. It is the

ownership interest, not the property that is divided.


5/19

Benefits ofTenancy in Common

The benefits of holding a property astenancy in common is seen when two or

more individuals buy a piece of real

estate, but each person contributes adifferent amount of money.

In this designation, each party to the

transaction holds a fiscally apportionedinterest in the property, not a 100%

unlimited right to access. This comes in

play in Real Estate Mutual Funds


6/19


7/19

Joint Tenancy

Most states recognize some form of joint tenancy in

property owned by two or more people. The featurethat distinguishes a joint tenancy from a tenancy in

common is unity of ownership. Title is held as though

all owners collectively constitute one unit. The death of

one tenant does not destroy the ownership unit; it only

reduces the number by one the number of people whomake up the unit.

Joint tenancy is synonymous with the right ofsurvivorship, and this provides a legal backdrop

against which a person's property is divided among

heirs.


8/19

Special wording is required in a deed

creating a joint tenancy, such as To A and Bas joint tenants and not as tenants in

common.

Example : To Unnati and Vikas as joint

tenants and not as tenants in common

Memory Tip

The four unities necessary to create a joint

tenancy may be remembered by the acronym

P I TT : Possession, Interest, Time and Title.


9/19

Example of Joint Tenancy:

Advantage:

Joint tenancy provides equal, unlimited and free access to

the real property in question to all parties. For example, if

you need your father's signature on the mortgage that

secures your home, and if you choose to have the property

titled as a joint tenancy, both you and your father have

equal rights to enter the house at any time.

Disadvantage:

If only you live there, and you father lives somewhere else,

this kind of title can become a burden if he comes in without

invitation, comes in during your absence, or makes

modifications to the property you did not authorize.


10/19


11/19

Termination of Joint Tenancies

Ends when one of the 4 unities is terminated. A joint tenant is free to

convey his/her interest in the jointly held property. However the new

owner cannot become a joint tenant. The rights of the other joint

tenants however are unaffected.

For e.g. A, B, and C hold title to Blackacre as joint tenants. A

conveys her interest to D; D now owns a fractional interest in

Blackacre as a tenant in common with B and C, who continue to own

their undivided interest as joint tenants. D is presumed to have a

1/3rd interest, which may be reconveyed or left to Ds heirs.

Termination of Co-Ownership by Partition Suit

Cotenants who wish to terminate their co-ownership may file an

action in court to partition the property. Partition is a legal way to

dissolve the relationship when the parties do not voluntarily agree to

its termination.


12/19

If the court feels that the land cannot be

divided physically into separate parcels w/o

destroying its value, the court will order thereal estate sold. The proceeds of the sale will

then be divided among the co-owners

according to fractional interests.

For e.g. If a father leaves a 500 sq.ft

land/house to seven sons, in this case, whole

property if physically divided ceases to offer

any economic value or living standard, in thatcondition. In such a case, the court may

intervene and decide the case in favour of

sale of property and proceeds divided

amongst the sons.


13/19


14/19

Ownership by Married Couples

Tenancy by the Entirety. Some states allow husbands and

wives to use a special form of co-ownership called Tenancy

by the Entirety. In this form of ownership, each spouse hasan equal, undivided interest in the property.

Memory Tip

The methods of terminating a tenancy by the entirety may

be remembered by the acronym JSDAD: Judgment Sale,Death, Agreement or Divorce

Trusts

A trust is a device by which one person transfers ownership

of property to someone else to hold or manage for he

benefit of a third party. Perhaps a grandfather wishes to

ensure the college education of his granddaughter, so he

transfers his oil field to the grandchilds mother.


15/19

Living and Testamentary Trusts

A Property owner may provide for his or her own

financial care or for that of the owners family byestablishing a trust. This trust may be crated by

agreement during the property owners lifetime or

established by will after he owners death.

Land Trusts

A few states permit the creation of land trusts, in

which real estate is the only asset. As in all trusts,

the title to the property is conveyed to a trustee, andthe beneficial interest belongs to the beneficiary.


16/19

Ownership of Real Estate by Business

Organizations

A business organization is a legal entity that exists

independently of its members. Ownership by a

business organization makes it possible for many

people to hold an interest in the same parcel of real

estate.

Partnership

A Partnership is an association for two or more

persons who carry on a business for profit as co-owners. In a general partnership, all the partners

participate in the operation and management of the

business and share full liability for business losses

and obligations.


17/19

Corporation

A corporation is legal entity created under the

authority of the laws of the state from which itreceives its charter. A corporation is managed and

operated by its board of directors.

Syndicates and Joint VenturesA Syndicate is two or more people or firms Joined

together to make and operate a real estate

investment.

Limited Liability Companies

The Limited Liability Companies LLC is a relatively

recent form of business organization. An LLC

combines the most attractive features of limited

partnership and corporations.


18/19

Condominiums, Cooperatives And Time-

Shares

Home ownership does not refer only to a brick

bungalow on a grassy lawn surrounded by a white

picket fence. A growing urban population, diverse

lifestyles, changing family structures and heightened

mobility have created a demand for new forms ofhome and other property ownership.

Condominium Ownership

The Condominium form of ownership has becomeincreasingly popular throughout h United States.

Condominium law, often called horizontal property

acts, have been enacted in every state.


19/19

Cooperative Ownership

In a cooperative, a corporation holds title to the land

and building. The corporation then offers shares ofstock o prospective tenants. The price the

corporation sets for each apartment becomes the

price of the stock.

Time-Share Ownership

Time-Sharing permits multiple purchasers o buy

interests in real estate, usually a resort property.

Each purchaser receives the right to use thefacilities for a certain period of time.

Documents

4.Forms of Real Estate Ownership