Real Estate Level 13

The first way buyers let the world know they own their property:

Taking possession of the property, which is an action that creates actual notice that others can observe directly.

The second way buyers let the world know they own their property:

Recording the deed, which is part of the normal process in real estate closings.

Constructive Notice of Ownership

Usually, the title company sends the deed to the County Clerk’s Office for recording, and the recording company sends the recorded deed to the purchaser.

Difference between Constructive notice and Actual notice:

• Constructive notice presumes a diligent individual can search the public record to gain a sufficient understanding of the property, including those with present and past interests in that property.

• Actual Notice is the knowledge that you have obtained firsthand, either as a result of your own experience or communication you have received with your own ears or eyeballs.

____________ notice is when a property’s ownership is recorded publicly, so everyone can know the contents of recorded documents. _____________ notice is when an individual actually knows of the fact.

• Constructive

• Actual

Opinion of Title

The official opinion of an attorney regarding the condition of a property’s title. The opinion of title is created by searching title records.

Abstract Title

Condensed history of title to a tract of land that summarizes the transfers of ownership and encumbrances.

What is one practice that has helped lessen the unscrupulous activity prevalent in the early days of real estate?

The buyer getting an abstract and having it examined by an attorney.

Title Insurance

A policy that protects homeowners from certain financial losses due to title issues, such as defects, encumbrances, and liens. A title company attempts to e stablish a chain of title (the complete history of the title, including all transfers from the original owner up until the present owner), and an attorney examines it to see how sound it is.

Real estate license holders are required to tell every buyer:

they should obtain an abstract of title and have it examined by an attorney or receive a policy of title insurance. If someone does make a claim on the buyer’s property, the title insurance company will defend the title in court.

What is one thing buyers can get to protect themselves against loss if someone attacks their title?

Title Insurance

Vendors began organizing locally, and in 1908, the National Association of Real Estate Exchanges, now know as the _____________________ was formed.

National Association of Realtors

In 1913, National Association of Realtors created a ____________________ for the industry.

Code of Ethics

Estate

The degree, quantity, and extent of interest one owns in property.

Statutory Estates

Created as a matter of state law, so they can vary from state to state.

The interest one holds in real estate can be limited by the rights or interest of others. These limiting interests of others can take the form of:

• Statutory, as in tax liens, or

• Encumbrances, such as the rights of others to use specific rights of way on a parcel of land, linens, etc.

The four main types of estates in land are:

1. Freehold Estates

2. Leasehold Estates

3. Equitable Estates

4. Concurrent Estates

Freehold Estate

The individual with interest has some degree of ownership for an undetermined or unspecified and unlimited period of time. The individual, depending on the type of freehold estate, may also have a right of disposition or right to convey the interest they own.

The types of freehold estates:

1. Fee simple absolute estate

2. Defeasible fee estate (also called qualified fee or fee simple defeasible)

3. Life Estate

Fee Simple Estate

The least limited, most absolute interest in real property. It is of indefinite duration, freely transferable, and freely inheritable. The owner has the clearest and most pure ownership of the property without any strings attached.

Monica owns her house. For the duration of her lifetime, she has the right to her property and can will her property title to her children after her death. Monica has a:

Fee Simple Estate

Defeasible Fee Estates

A property interest characterized by perpetual ownership on the condition that the property is used for a certain purpose or under specific conditions. Ownership reverts back to the original owner if the stipulations are violated. This is a type of estate in which the person who has possession of the property will only be able to hold the property until an event takes place or does not occur.

Two Common Forms of Defeasible Fee Estates:

1. Fee Simple Determinable

2. Fee Simple Subject to Condition Subsequent

Fee simple determinable estate

Will come to an end automatically and immediately upon the occurrence of a designated event, the time of such occurrence is uncertain. No legal action is required of the grantor in order to assume the recovery of the estate.

Fee simple subject to condition subsequent

These estates have specific requirements on them that, if they are not met, could cause the property to revert back to the original owner.

With a fee simple subject to condition subsequent, if a court determines that the specific requirement is not met, the property will:

Revert back to the original owner.

Fee simple determinable and fee simple subject to condition subsequent are similar types of interests because…

A certain condition could cause either of these interests to revert back to the original owner.

Difference between determinable and fee simple subject to condition subsequent

The difference is that this return to the original owner is automatic with fee simple determinable, but the reversion requires going to court if it’s subject to a condition subsequent. The distinction between them goes back to the language used when the conveying instruments are crafted.

Fee simple determinable language…

Relieves the grantor of the need to pursue court approval where as the fee for simple subject to condition subsequent does not.

Memory Trick

Fee simple determinable doesn’t require you to go to court to get your property back: It’s already been determined that it’ll be returned to you.

Fee simple subject to condition subsequent does require you to o to court. That’s another, subsequent action you have to get to get your property back.

If the reversion to the original owner is automatic, then it is a ________________ estate, but if the reversion requires going to court, then it is ________________.

• Fee simple determinable

• Fee simple subject to condition subsequent

Life Estates

Type of freehold estate. It is owned for the duration of an individual’s life. The life estate documents identify the part to whom the estate will pass at the time of the death of the individual upon whom the life estate is based. Sometimes it passes to a new owner, and sometimes it reverts back to the original owner.

Life Estate Terms:

• Remainder

• Reversionary Interest

• Remainderman

Remainder

Refers to the estate that will pass to another party at the death of the person upon whom the life estate is based.

Reversionary Interest

When the property reverts back to the person who granted ti in the first place once the life estate’s measuring life ends. This may also be referred to as a right of reverter.

Remainderman

Refers to the recipient of the remainder - either the grantor who set up the life estate or a designated third party.

A father conveys property to his son, but reserves a life estate for himself. During the father’s lifetime, what interest does his son have?

Remainder

The life estate owner does not have the right to dispose of the property or allow the property to descend to heirs. Instead, the grantor of the life estate will either:

• Designate a third-party as a remainderman (recipient of the remainder, with a remainder interest). The remainderman receives the estate when the grantor’s own life estate ends.

OR

• Set themselves up for repossession of the property via a reversion or reversionary interest.

2 key points regarding life estate, remainderman, and reversion:

1. Life estates may be created by agreement of the parties or by operation of the law (state statute).

2. Upon the death of the life tenant, the holder of either the reversionary or remainder interest will own a fee simple absolute estate.

If no third party is named as remainderman, when a life estate owner dies, the property reverts to the:

Grantor

Doug granted Betsy a life estate for a property he owned and named his son as the remainderman. When will his son become the owner of the property?

When Betsy dies

2 different types of life estates:

1. Conventional life estate

2. Legal life estate

Conventional life estate

An estate created by the grantor that is based on the life of the life tenant or the life of another. When a life tenant in a conventional life estate dies, the estate is returned either to the original grantor by way of reversion or to some other designated person as a remainderman.

Pur Autre Vie

When a conventional life estate is based on the life of someone other than the life tenant. Describes a life estate that grants one party ownership of a property for the duration of another individual’s life.

Legal Life Estate

A homestead is a popular type of legal life estate. Other types of legal life estates include dower and curtesy.

Homestead

A residence that is occupied by the individual or family who owns it. Homestead laws protect families from losing their home to general creditors that are owed money. This type of protection does not cover the money that is owed for a mortgage, because in that type of loan, the property is collateral for the loan itself.

According to the Texas Property Code, a homestead…

in a rural area is limited to 200 acres for a family and 100 acres for a single person. A homestead in the city cannot be larger than 10 acres, and those acres must be on contiguous (touching) lots. This law will not protect three acres on one side of town and seven on the other side of town.

Leasehold Estates

One party owns the property, but someone else lives there. Tenants don’t own the property, buy they have the right of possession for a period of time. And, whereas a freehold estate may be evidenced by a deed, a leasehold estate may be evidenced by a lease.

Leasehold Estates has a reversionary right:

Possession of the property reverts back to the landlord after the lease term has expired. The landlord’s interest in the property is specifically know as a “leased fee estate plus reversionary right.”

The tenant who leases real property has a _________ interest in the property.

Leasehold

This is true whether the tenant is a person leasing an apartment to line in or a developer leasing land with intentions of constructing an office building. If they’re leasing, they have a leasehold.

The landlord, on the other hand, has a…

leased fee interest in the property that they own and are leasing to someone else.

Leasehold estate

One party owns the property, but someone else lives there. Tenants don’t own the property, but they have the right of possession for a period of time.

Whereas a freehold estate may be evidenced by a _______, a leasehold estate may be evidenced by a ________.

• Deed

• Lease

The tenant’s right of possession continues…

Until the lease has expired. The property reverts back to the landlord when the lease ends.

Leasehold estates are established when…

A tenant has possession of a property and has the legal right to use the property, but they do not have actual ownership interest (they do not hold legal title and cannot legally sell the property). They may use the property for a specific period of time, and, in almost all cases, they would not have the option to purchase it.

Leasehold Estates have a reversionary right, which means…

Possession of the property reverts back to the landlord after the lease term has expired. The landlord’s interest in the property is specifically know as a “leased fee estate plus reversionary right”.

The tenant who leases real property has a _____________ interest in the property.

• Leasehold

This is true whether the tenant is a person leasing an apartment to live in or a developer leasing land with intentions of constructing an office building. If they’re leasing, they have a leasehold.

The landlord, on the other hand has a _____________ interest in the property that they own and are leasing to someone else.

Leased Fee

A couple renting a home have a leasehold estate, which means they have:

The right of possession

Four types of Leasehold Estates:

1. Estate for Years

2. Periodic Estate

3. Estate at Will

4. Tenancy at Sufferance

Estate for Years

This is a leased possession of property for a certain, specific period of time. A lease created under an estate for years stipulates a specific starting and ending time. It can by any amount of time: days, weeks, months, or years.

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Has a definite ending period, there is no automatic renewal, and no notice is required to terminate the lease.