Unlike other real property assets, real estate ownership can take several forms, each of which has implications on how ownership can be transferred and can affect how they can be financed, improved or used as collateral.
Each of the types of title methods has its advantages and disadvantages, depending on an individual’s particular situation and how one wants ownership to pass in the event of such things as death, divorce or sale. The most common of these methods of holding title are as follows:
- Joint tenancy
- Tenancy in common
- Tenants by entirety
- Sole ownership
- Community property
Joint tenancy occurs when two or more people hold title to real estate jointly, with equal rights to enjoy the property during their lives; in the event of the death of one of the partners, their rights of ownership pass to the surviving tenant(s).
The advantage of this method is that the parties in the ownership need not be married or related.
The downside is that any financing or use of the property for financial gain must be approved by all parties and cannot be transferred by will after one passes. If the parties are not married, in order to get out of the title, they must petition the court to divide the property or order its sale.
Another large disadvantage is that a creditor that has a legal judgment to collect a debt from one of the owners can also petition the court to divide the property and force a sale in order to collect on its judgment. In this method, each of the owners takes a risk in the other’s financial choices.
Tenancy In Common
With tenancy in common, two or more persons hold title to real estate jointly, with equal rights to enjoy the property during their lives. Unlike joint tenancy, tenants in common hold title individually for their respective part of the property and can dispose of or encumber it at will. Ownership can be willed to other parties, and in the event of death, ownership will transfer to that owner’s heirs undivided.
Tenancy in common allows for one owner to use the wealth created by their portion of the property as collateral for financial transactions, and creditors can place liens only against one owner’s particular portion of the property.
Any liens on the property must be cleared in order for a total transfer of ownership to take place.
Tenants By Entirety
Tenants by entirety is ownership in real estate under the fictional assumption that husband and wife are one person for legal purposes. This method conveys ownership to them as one person, with title transferred to the other in entirety if one of them dies. This method can only be used when owners are legally husband and wife.
The advantage of this method is that no legal action need take place at the death of one’s spouse. There is no need for a will, and probate or other legal action isn’t necessary.
Conveyance of the property must be done together and the property cannot be subdivided. In the case of divorce this type of title automatically converts to a tenancy in common, meaning that one owner can transfer ownership of their respective part of the property to whomever they wish.
Sole ownership can be characterized as ownership by an individual or entity legally capable of holding title. The most common sole ownerships are held by single men and women, married men or women who hold property apart from their spouse, and businesses with corporate structure allowing it to invest in or hold interest in real estate.
In the situation of married persons wishing to own real estate apart from their spouse, title insurance companies will typically require the spouse to specifically disclaim or relinquish their right to ownership in the property.
The main advantage to holding title as a sole owner is the ease with which transactions can be accomplished because no other party need be consulted to authorize the transaction.
The obvious disadvantage is the potential for legal issues regarding the transfer of ownership should the sole owner die or become incapacitated. Unless specific legal documentation such as a will exists, the transfer of ownership upon death can become very problematic.
Community property is a form of ownership by husband and wife during their marriage that they intend to own together. Under community property, either spouse has the right to dispose of one half of the property or will it to another party. Outside of real estate, property acquired during one’s marriage is usually deemed community property.
Real estate that is acquired during a common-law marriage will also be considered to be held as community property. Anyone who has lived with another person as a common-law spouse and doesn’t specifically change title to the property as sole ownership (which is legally transacted with approval by the significant other) takes the risk of having to share ownership of the property in the absence of having a legal marriage.
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