Real Property Ownership and Interests

The Concept of Property

• The Bundle of Legal Rights: Ownership implies a bundle of rights, not just physical possession.

  • Livery of Seisin: An old English custom representing a promise of ownership.

• DEEP C (Mnemonic): Disposition, Enjoyment, Exclusion, Possession, Control

The Bundle of Legal Rights

• Disposition: The right to determine how to dispose of the property (sell, will, trade, gift).

• Enjoyment: The right of uninterrupted use without harassment or interference from a third party with a superior title. Use in any legal manner.

• Exclusion: The right to keep others from entering or using the property.

• Possession: The right to use the property.

• Control: The right to control the use of the property and its profits within the framework of the law.

Appurtenances

• Rights or privileges that “run with the land” and are passed with property ownership unless legally severed.

• Improved Land vs. Improved Lot

  • Improved land refers to land with a structure on it (e.g., a house).

  • Improved lot means basic services are available (electricity, phone, street access, etc.).

Land Rights

• Surface Rights

• Subsurface Rights

• Air Rights

Subsurface Rights

• May be sold or leased separately from the surface rights.

• Include the right to remove natural resources from the ground.

• Mineral Rights: Can be deeded separately for particular minerals or be all inclusive.

• Oil and Gas Rights: Frequently severed from the land, especially in states like Texas.

• North Carolina law requires disclosure if oil and/or gas rights have been severed.

• Rights include:

  • Drawing water from underground rivers.

  • Removing minerals (oil, gas, precious metals).

  • Mineral rights can be conveyed without full land ownership.

Air Rights

• May be sold or leased independently of the land.

• Solar or Sun Rights: Important due to solar energy applications.

• View Rights: Scenic views from a property are increasingly valuable.

• Cities and private owners can lease airspace for walkways or transit systems.

Water Rights

• Address the right to use adjacent water.

• Riparian Rights: Pertain to non-navigable and navigable waters.
  Figure 2.2 relates to Riparian Rights
  Figure 2.3 relates to Littoral Rights

• Littoral Rights: Generally pertain to navigable waters with a tide.

  • In North Carolina, adjacent landowners have unrestricted use of navigable waters but only own up to the average high-water mark.

  • The foreshore (land between high and low tide marks) is owned by the state of North Carolina.

Appurtenances (Continued)

• Accretion, Reliction, Erosion, and Avulsion

• Support Rights

  • Lateral Support

  • Subjacent Support

Natural Actions Affecting Land Boundaries

• Accretion: Gradual increase in land from the deposit of soil by water.

• Reliction: Gradual increase in land as water recedes or disappears.

• Erosion: Gradual decrease in land caused by flowing water or other natural forces.

• Avulsion: Rapid decrease in land due to natural events like floods; property boundaries do not change.

Support Rights

• Lateral Support: Right to have adjacent property support the natural boundaries of the land.

• Subjacent Support: Right to have subjacent support for the surface of the property from the owner of subsurface rights.

Real Property vs. Personal Property

• Plants (Fruits of the Soil)

  • Fructus Naturales: Fruits of nature; do not require annual cultivation; considered real property.

  • Fructus Industriales: Fruits of industry; annual crops (emblements); considered personal property if planted by a tenant farmer.

• Severance: Changing real estate to personal property by detaching it from the land (e.g., cutting down a tree).

• Personal Property: Movable items, also known as chattels.

  • Everything that is not real property.

• Fixtures: Items that were once personal property but are now permanently attached to real property. See Offer to Purchase form.

Fixtures

• An item of real property may be changed to personal property through severance.

  • Example: A farmer selling crops while still growing.

  • Example: A seller detaching a chandelier before selling the property.

• An item of personal property may become real estate through attachment (annexation).

  • Example: Construction materials becoming part of a house.

  • Example: Home improvement items like ceiling fans.

Legal Tests of a Fixture: Total Circumstances Test (IRMA)

• (I) Intention of the annexor (most important factor)

• (R) Relationship of the annexor

• (M) Method of annexation

• (A) Adaptation to real estate
  Refers to text page 273

• Trade Fixtures: Personal property owned by a tenant, attached to rented property for business use. If not removed by the end of the lease, they become the property of the landlord through accession.

• Agricultural Fixtures: Special class of fixtures in North Carolina; items attached by a tenant farmer are considered real property of the landlord.

Improvements

• A valuable addition to the land or a change in its condition intended to enhance its value (e.g., grading, drainage, sidewalks).

• For national exam questions, consider an improvement as an appurtenance.

• To avoid confusion, fixtures should be clarified when a property is listed.

• The sales agreement is negotiated by using the Fixtures Provision in both the Listing Agreement and the Offer to Purchase and Contract.

Uniform Commercial Code (UCC)

• Filing a security agreement legally makes a financed fixture personal property until paid in full.

• A title search should reveal any such agreements.

• Creditor may remove item upon default if a security agreement is filed.

Manufactured Homes vs. Modular Homes

• Manufactured Housing: Factory-built to HUD standards; has a permanent chassis; personal property that may convert to real property.

• Modular Housing: Factory-built to state building codes; real property as soon as assembled on-site.

Factory-Built Housing Types

• Manufactured Housing: Trailer, Mobile Home, Singlesection, Multisection, Factory Home

• Modular

• Panelized

• Log Home

• Geodesic Dome Homes

• Kit, Prefab Homes

• Systems Built Home, Panelized Home

Important Considerations

• Restrictive Covenants & Zoning

• Available Financing

• Appraisal

• Taxes on Completed Structure

Key Differences

• Importance of Proper Disclosure

• Similarities between Types of Housing

• Misrepresentation: Innocent or Intentional

Converting Manufactured Homes to Real Property

• Remove wheels, axles, and hitch.

• Attach to a permanent foundation.

• Notify Department of Motor Vehicles.

• Record paperwork.

Modular Homes

• Constructed in factories according to state building codes.

• Contain a label certifying compliance.

• Once assembled on the home site, it is immediately considered to be real property.

Manufactured Homes vs. Modular Homes (NC Specifics)

• Modular homes are factory-built to state building codes and become real property as soon as assembled on site.

• Manufactured homes are factory-built to HUD construction standards and have a HUD label on the rear exterior wall or under the kitchen sink.

  • Must be transportable in one or more sections with a permanent chassis.

  • Must be designed as a dwelling with or without a permanent foundation.

• Manufactured homes (trailers or mobile homes) are considered personal property and have a Vehicle Identification Number registered with the NCDMV.

• To convert a manufactured home to real property in NC:

  • Remove wheels, axles, and trailer hitch.

  • Attach to a permanent foundation.

  • Cancel the DMV title.

Estates in Real Property

• Freehold Estates: Ownership estates for a potentially unlimited period of time.

  • Fee Simple Estate: An estate of inheritance that is always legally transferable but not always free of encumbrances.

    • Fee Simple Absolute: No limitations on fee simple ownership; the highest type of interest in real estate recognized by law.

Freehold Estates (Inheritable)

• Fee Simple Absolute: Highest form of ownership with no limitations, as long as it does not violate land use regulations, deed restrictions, or the rights of others.

• Fee Simple Defeasible: Also called qualified (limited); ownership may be lost by the occurrence or nonoccurrence of a specified event.

  • Fee Simple Subject to a Condition Subsequent: Exists provided a condition is not violated; former owner retains a future right of reentry through court proceedings (e.g., no alcohol).

  • Fee Simple Determinable: Exists “so long as” a limitation is met; former owner retains the possibility of an automatic reverter in the future (e.g., Pullen Park).

Freehold Estates (Non-Inheritable)

• Conventional Life Estate: Created by the owner by deed or will for the lifetime of the new owner (life tenant).

• Life Estate Pur Autre Vie: Created by the owner by deed or will for the lifetime of a third party called the measuring life. The measuring life has no ownership interest.

Other Important Points

• Remainder Interest: The grantor names a party to receive title at the end of the life estate.

• Reversionary Interest: The grantor does NOT name another party to receive title when the life estate terminates; title reverts back to the grantor or the grantor’s heirs or devisees.

Rights of Life Tenants

• Include all income/profit from property during tenancy.

• Use of property resources to maintain property (estovers).

• Ability to mortgage or sell life interest.

• Must pay real estate ad valorem taxes and special assessments during tenancy.

• Must pay interest on any pre-existing financing secured by the property.

• Cannot permanently injure or waste the property.

Life Estate Pur Autre Vie

• Ownership by life tenant will terminate upon the death of the measuring life.

• The measuring life has no ownership rights.

• Upon death of measuring life, estate will either revert back to original owner or transfer to remainderman.

Legal Life Estate

Dower and curtsey allow non-owning spouse a lifetime right to a partial ownership

• Replaced by Intestate Succession Laws in N.C.

• Homestead laws protect the family home from debt judgments.

• N.C. has a limited exemption.

• Homestead: a legal life estate involving the family home in some states that protects the at least some part of the home from most creditors. North Carolina has a very limited homestead exemption.

Ownership of Real Property

• Ownership in Severalty

• Concurrent Ownership

  • Tenancy in Common

  • Joint Tenancy

  • Tenancy by the Entirety

Severalty or Sole Ownership

• Title vested in one natural or legal person or entity; sole ownership.

• Not married when property acquired.

Concurrent Ownership (Co-ownership, Co-tenants)

• Held by two or more persons or entities at the same time.

• Tenancy in Common:

  • Two or more natural or legal owners.

  • Each owner has an undivided interest; unity of possession.

  • Interest does not have to be equal.

  • Each owner may encumber or convey her interest.

  • Each interest is inheritable; no right of survivorship possible.

• Tenancy in Common Defined

  • A form of co-ownership by which each owner holds and undivided interest in real property as if he or she were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have the right of inheritance.

• When two or more unmarried people acquire title to a parcel of real estate and the deed does not stipulate the type of tenancy created, by operation of law they acquire title as tenants in common.

• It is impossible to distinguish physically which half, (\frac{1}{4}) or whatever % of the property the tenant in common owns.

Joint Tenancy

• Two or more owners with equal interest delivered simultaneously by the same instrument (deed).

• In North Carolina, interest can be unequal.

• Joint tenants usually have right of survivorship between tenants; last surviving joint tenant will own the property in severalty.
  Figure 2.8 illustration

• A person newly acquiring an interest in the property will be a tenant in common with the original remaining joint tenants.
  Figure 2.9 illustration

• North Carolina does not favor the right of survivorship among the owners; North Carolina statutes provide that upon the death of a joint tenant, his estate does not pass to the surviving joint tenant(s), but instead goes to his heirs in the same manner as estates held by tenancy in common unless a right of survivorship is written in.

• Example: this is a joint tenancy with the right of survivorship.

Key Features of Joint Tenancy

• Equal partners – two or more

• Must purchase at the same time

• Not married

• Survivorship- Distinguishing Feature

• NC does not favor this – the deed must be worded in compliance with NC court decisions

Joint Tenancy Defined

• Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. On the death of a joint tenant, the decedent’s interest passes to the surviving joint tenant or tenants by the right of survivorship.

Termination of Co-ownership by Suit for Partition

• Available to tenants in common and joint tenants.

• The court may physically divide the property or order it sold and divide the proceeds among the disputing owners.

Tenancy by the Entirety

• Special form of ownership for married couples only; must be married at the time that title is received.

• Property owned prior to marriage does not automatically convert to tenancy by the entirety upon marriage.

• In North Carolina, a purchase by a married couple will convey as tenancy by the entirety by default unless otherwise requested.

• The grantees in a deed are at the time husband and wife, a tenancy by the entirety is created even though they are not named as such, and even though there is no express mention in the instrument of a tenancy by the entirety.

Key Features of Tenancy by the Entirety

• Undivided unity of possession

• Owners must be husband and wife when they obtain property

• Ownership interest must be equal

• Both must purchase at the same time and both must appear on the deed

• Both must sign deed to convey

• Terminated by death, divorce, or mutual agreement of spouses

• Survivorship is automatic

Types of Ownership in Real Estate

• Common Interest Community Ownership

  • Condominium ownership

  • Cooperative ownership

  • Townhouse ownership

  • Time-share ownership

  • Planned unit development (not in syllabus)

Common Interest Community Ownership

• Condominium Ownership:

  • Created under horizontal property acts.

  • Owner of each unit has title to airspace and undivided interest in the common elements of the building or area. No land is owned by individual owners.

  • Limited common elements are a special type of common element restricted for the use of some units to the exclusion of others.

  • Can be for any type of real estate, not just residential.

  • Distinguish between the architectural style and ownership form.

  • No right to partition condominium ownership.

  • Require periodic fees for common area expenses.

  • Individual ownership unit is assessed for real property tax.

  • Title to individual units can be likened like any other real estate ownership.
    File 2.10

North Carolina Condominium Act of 1986

• A condominium is created and established when the developer of the property executes and records a declaration of its creation in the county where the property is located.

  • Declaration must include any covenants, restrictions, or conditions on the property.

  • Developer must file a plat map or plan of the condominium property, buildings, and any other improvements.

  • Developer must prepare a set of bylaws, which usually provide the following:

    • Creation of a unit owners’ association giving a vote to each unit owner

    • The election of a board of managers from among the unit owners

    • The duties of the board of managers

    • The compensation of its members

    • Their method of election and removal

    • Whether or not a managing broker is to be engaged

    • The method of collecting the unit owners’ association monthly dues from each member to cover the costs of management and maintenance of the common areas

• Consumer Protection - North Carolina law also requires the developer to provide a public offering statement to the purchaser before the purchase contract is signed

  • There is a seven-day rescission period on the sale of new units in which the purchaser can cancel the sale and receive a full refund of any earnest money deposit that must be held in escrow for seven days.

  • Resale unit—a resale certificate detailing a monthly dues assessment and any other fees payable by a unit owner that must be given to a purchaser prior to conveyance.

  • There is no right of rescission on resales.

Condominium Ownership Summary

• Title airspace

• Common areas

• Freehold

North Carolina Condominium Act Requirements for Developers

• File plat map or plan

• Prepare set of bylaws

• Provide public offering statement prior to contract signing

• Allow buyer of new unit 7-day rescission period
  Resales must provide resale certificate … no rescission period

Cooperative Ownership

• Title to the building is held by a corporation or land trust.

• The purchaser is a shareholder who receives the following:

  • A stock certificate in the corporation

  • A proprietary lease to an individual unit for the life of the corporation

• Shareholders pay fees/assessments to support the corporation’s expenses

• The cooperative building’s real estate taxes are assessed against the corporation as owner

• Rights of co-op owners

• Shares of stock

• No deed for owners

Townhouse Ownership

• Each town house unit is individually owned. Each unit owner belongs to the homeowners’ association that owns the common areas

• Unlike a condominium unit, the owner of each town house unit also independently owns the land on which the unit is built

• Low rise

• Land ownership

• Also known as “row houses”

• Individual owner owns land under unit.

• Not covered by North Carolina Condominium Act.

• Units usually attached horizontally by party walls.

• Sometimes called “row houses”.

Party Walls

• Shared between two units

• Residential or commercial

Time-Share Ownership

• Can be either a fee simple interest (time-share estate) or a right to use (time-share use)

• It is any right to occupy a unit for at least five separate time periods over at least five years.

• The purchaser usually receives the right to occupy a certain unit for a specified time frame each year (one week is the most common).

The North Carolina Time Share Act

• Regulates the development and sale of time-shares.

• Time-share salespeople must be active real estate brokers under the supervision of the project broker.

• Time-share developers can be fined 500 per violation of the act and/or have the project’s registration certificate revoked; there is no maximum penalty amount.

• The time-share developer is the only entity that the North Carolina Real Estate Commission can fine.

Time-Share Purchaser Rights and Requirements

• Time-share purchasers must be allowed five days to cancel the purchase without penalty.

• The down payment or earnest money deposit must be held in the trust account for 10 days or until the contract is canceled and the money is refunded.

• Right to occupy a unit during 5 or more separated time periods over at least 5 years

• Covered by North Carolina Time Share Act

• Five-day rescission period on purchases

• Monies must stay in escrow account 10 days or until contract is rescinded

• Must be actively licensed to sell time-shares

• NCREC may fine developer 500 per violation with no maximum fine total

Trusts

• Trust: a means by which one party transfers ownership of property to another party, or parties, to hold or manage for the benefit of a third party; used in recent decades as a major estate planning tool to limit the time and cost of probate.

• Trustor: the individual who creates the trust; also called grantor or settler

• Beneficiary: the person or entity that benefits from the trust

• Trustee: the fiduciary who exercises control over the subject property to the instructions of the trustor in the trust agreement; can be the trustor.

• Used in estate planning to limit time and cost of probate.

• Assets in trusts pass to heirs outside of probate (reduces time and taxes)

• Trustor (grantor, settler) – the person that creates the trust

• Beneficiary – person or entity that benefits from the trust

• Trustee – the fiduciary who exercises control over the subject property according to the instructions of the trustor in the agreement.
  Legal and tax implications are complex and vary.
  Real Estate professionals should be careful in dealing with real estate assets held by a trust. Seek out legal counsel when dealing with trusts.

Trusts - Terms

• Real property may be owned by trusts in most states.

• Legal and tax implications for trusts are complex and vary widely.

• Trust dissolution may occur when the beneficiary reaches a certain age, at the death of the beneficiary or the trustor, or when other conditions are met.

• Assets transfer to the beneficiary upon specified terms of the trust agreement.

Trusts - Terms

• Trustee’s power and authority limited by the terms of the trust agreement and law.

• Typically includes care and investment of trust assets.

• After payment of trust expenses and trustee’s fee, income maybe paid to or used on behalf of the beneficiary.

• May be able to transfer assets into and out of the trust per trust agreement terms.

Types of Trusts That Can Own/Hold Real Estate

• Living Trust: created during trustor’s lifetime

• Testamentary Trust: created by property owner’s will

• Land Trust: real estate is only asset

• Real Estate Investment Trust (REIT)

Land Trusts

• Beneficiary is usually the trustor.

• Can be used for secrecy since public records do not usually name the beneficiary.

• Beneficial interest in the trust is considered personal property that may be transferred by assignment vs a deed.

• Usually for a definite term (e.g., 20 years) which can be Extended

The Concept of Property

• The Bundle of Legal Rights: Ownership implies a bundle of rights, not just physical possession.

  • This bundle includes the rights to possess, use, enjoy, and dispose of the property, as well as the right to exclude others. These rights can be unbundled and sold or leased separately.

• Livery of Seisin: An old English custom representing a promise of ownership.

  • This was a ceremonial act symbolizing the transfer of ownership from a grantor to a grantee. It involved the physical transfer of a twig or clod of earth from the land to the new owner.

• DEEP C (Mnemonic): Disposition, Enjoyment, Exclusion, Possession, Control

  • This acronym summarizes the core rights associated with property ownership, making it easier to remember the key components of the bundle of rights.

The Bundle of Legal Rights

• Disposition: The right to determine how to dispose of the property (sell, will, trade, gift).

  • This includes the freedom to transfer ownership to another party through sale, inheritance, or other means. It is a fundamental aspect of property ownership.

• Enjoyment: The right of uninterrupted use without harassment or interference from a third party with a superior title. Use in any legal manner.

  • This right ensures that the owner can use the property as they see fit, as long as it is legal and does not infringe upon the rights of others.

• Exclusion: The right to keep others from entering or using the property.

  • The owner has the authority to control who can access the property and can take legal action to prevent trespassing or unauthorized use.

• Possession: The right to use the property.

  • This is the most basic right of ownership, allowing the owner to occupy and utilize the property for their own purposes.

• Control: The right to control the use of the property and its profits within the framework of the law.

  • This includes the ability to manage the property, make improvements, and generate income from it, subject to local regulations and legal constraints.

Appurtenances

• Rights or privileges that “run with the land” and are passed with property ownership unless legally severed.

  • These can include easements, rights-of-way, and other rights that benefit the property and are transferred along with it.

• Improved Land vs. Improved Lot

  • Improved land refers to land with a structure on it (e.g., a house).

  • This indicates that the land has been developed and is ready for occupancy or use.

  • Improved lot means basic services are available (electricity, phone, street access, etc.).

  • This signifies that the lot is equipped with essential utilities and infrastructure, making it suitable for building or development.

Land Rights

• Surface Rights

  • The rights to use and occupy the surface of the land, including the right to build, cultivate, and enjoy the land.

• Subsurface Rights

  • The rights to extract minerals, oil, gas, and other resources from beneath the surface of the land.

• Air Rights

  • The rights to use the airspace above the land, which can be valuable for building structures or creating easements.

Subsurface Rights

• May be sold or leased separately from the surface rights.

  • This allows for the exploitation of underground resources without affecting the surface use of the land.

• Include the right to remove natural resources from the ground.

  • These resources can be a significant source of income for the property owner.

• Mineral Rights: Can be deeded separately for particular minerals or be all inclusive.

  • This allows the owner to specify which minerals are included in the sale or lease, or to transfer all mineral rights.

• Oil and Gas Rights: Frequently severed from the land, especially in states like Texas.

  • Due to the value of oil and gas, these rights are often separated from the surface rights and sold or leased to energy companies.

• North Carolina law requires disclosure if oil and/or gas rights have been severed.

  • This ensures that potential buyers are aware of any limitations on their ownership rights.

• Rights include:

  • Drawing water from underground rivers.

  • The right to access and use water sources beneath the land.

  • Removing minerals (oil, gas, precious metals).

  • The right to extract and profit from mineral resources.

  • Mineral rights can be conveyed without full land ownership.

  • This allows individuals or companies to acquire the rights to specific minerals without owning the land itself.

Air Rights

• May be sold or leased independently of the land.

  • This allows for the development of structures above the land without owning the surface rights.

• Solar or Sun Rights: Important due to solar energy applications.

  • These rights protect access to sunlight, which is essential for solar energy systems to function effectively.

• View Rights: Scenic views from a property are increasingly valuable.

  • These rights ensure that the owner's view will not be obstructed by new construction or other developments.

• Cities and private owners can lease airspace for walkways or transit systems.

  • This allows for the creation of public infrastructure above private property.

Water Rights

• Address the right to use adjacent water.

  • These rights govern how landowners can use water from rivers, lakes, and other water sources adjacent to their property.

• Riparian Rights: Pertain to non-navigable and navigable waters.

  • These rights apply to landowners whose property borders a river or stream. They generally have the right to use the water for reasonable purposes, such as irrigation or recreation.

  Figure 2.2 relates to Riparian Rights

  Figure 2.3 relates to Littoral Rights

• Littoral Rights: Generally pertain to navigable waters with a tide.

  • These rights apply to landowners whose property borders a lake or ocean. They generally have the right to use the water for recreational purposes but may be subject to restrictions to protect navigation and public access.

• In North Carolina, adjacent landowners have unrestricted use of navigable waters but only own up to the average high-water mark.

  • This means that the public has the right to use navigable waters, and landowners cannot interfere with that right.

• The foreshore (land between high and low tide marks) is owned by the state of North Carolina.

  • This ensures that the public has access to the beach and intertidal areas.

Appurtenances (Continued)

• Accretion, Reliction, Erosion, and Avulsion

  • These are natural processes that can affect land boundaries and ownership.

• Support Rights

  • Lateral Support

  • The right to have adjacent property support the natural boundaries of the land.

  • Subjacent Support

  • The right to have subjacent support for the surface of the property from the owner of subsurface rights.

Natural Actions Affecting Land Boundaries

• Accretion: Gradual increase in land from the deposit of soil by water.

  • This can occur when a river deposits sediment along its banks, gradually increasing the size of the property.

• Reliction: Gradual increase in land as water recedes or disappears.

  • This can occur when a lake or pond dries up, exposing new land.

• Erosion: Gradual decrease in land caused by flowing water or other natural forces.

  • This can occur when a river erodes its banks, gradually reducing the size of the property.

• Avulsion: Rapid decrease in land due to natural events like floods; property boundaries do not change.

  • This occurs when a sudden event, such as a flood, causes a large amount of land to be washed away. In this case, the property boundaries remain the same, even though the physical landscape has changed.

Support Rights

• Lateral Support: Right to have adjacent property support the natural boundaries of the land.

  • This ensures that landowners cannot remove soil or make other changes to their property that would cause the adjacent property to collapse or subside.

• Subjacent Support: Right to have subjacent support for the surface of the property from the owner of subsurface rights.

  • This ensures that landowners cannot extract minerals or other resources from beneath the surface of the property in a way that would cause the surface to collapse or subside.

Real Property vs. Personal Property

• Plants (Fruits of the Soil)

  • Fructus Naturales: Fruits of nature; do not require annual cultivation; considered real property.

  • This includes trees, shrubs, and other plants that grow naturally on the land.

  • Fructus Industriales: Fruits of industry; annual crops (emblements); considered personal property if planted by a tenant farmer.

  • This includes crops that are planted and harvested each year, such as corn, wheat, and soybeans.

• Severance: Changing real estate to personal property by detaching it from the land (e.g., cutting down a tree).

  • This occurs when an item that was once considered part of the real property is removed and becomes personal property.

• Personal Property: Movable items, also known as chattels.

  • Everything that is not real property.

• Fixtures: Items that were once personal property but are now permanently attached to real property. See Offer to Purchase form.

  • These items become part of the real estate and are transferred with the property.

Fixtures

• An item of real property may be changed to personal property through severance.

  • Example: A farmer selling crops while still growing.

  • The crops are considered real property until they are harvested, at which point they become personal property.

  • Example: A seller detaching a chandelier before selling the property.

  • The chandelier is considered a fixture until it is removed, at which point it becomes personal property.

• An item of personal property may become real estate through attachment (annexation).

  • Example: Construction materials becoming part of a house.

  • The materials are considered personal property until they are incorporated into the house, at which point they become real estate.

  • Example: Home improvement items like ceiling fans.

  • These items are considered personal property until they are installed and become part of the real estate.

Legal Tests of a Fixture: Total Circumstances Test (IRMA)

-(I) Intention of the annexor (most important factor)

• What was the intention of the person who attached the item to the property? If the intention was to make the item a permanent part of the real estate, it is likely to be considered a fixture.

  • (R) Relationship of the annexor

• Is the person who attached the item the owner of the property or a tenant? If the person is a tenant, the item is less likely to be considered a fixture.

  • (M) Method of annexation

• How is the item attached to the property? If the item is permanently attached, it is more likely to be considered a fixture.

  • (A) Adaptation to real estate

• How well is the item adapted to the real estate? If the item is specifically designed for the property, it is more likely to be considered a fixture.

  Refers to text page 273

  • Trade Fixtures: Personal property owned by a tenant, attached to rented property for business use. If not removed by the end of the lease, they become the property of the landlord through accession.

• These are items that a tenant installs in a commercial property to conduct their business. They remain the tenant's personal property but must be removed before the end of the lease. If they are not removed, they become the property of the landlord.

  • Agricultural Fixtures: Special class of fixtures in North Carolina; items attached by a tenant farmer are considered real property of the landlord.

• In North Carolina, items that a tenant farmer attaches to the property are considered real property of the landlord, even if they are used for the tenant's business.

Improvements

• A valuable addition to the land or a change in its condition intended to enhance its value (e.g., grading, drainage, sidewalks).

  • These are changes that are made to the property to increase its value or usability.

• For national exam questions, consider an improvement as an appurtenance.

  • This means that an improvement is considered to be part of the real property and is transferred with the property.

• To avoid confusion, fixtures should be clarified when a property is listed.

  • This helps to avoid disputes between the buyer and seller over which items are included in the sale.

• The sales agreement is negotiated by using the Fixtures Provision in both the Listing Agreement and the Offer to Purchase and Contract.

  • This ensures that both parties are clear on which items are included in the sale and which are not.

Uniform Commercial Code (UCC)

• Filing a security agreement legally makes a financed fixture personal property until paid in full.

  • This allows a lender to retain a security interest in a fixture that is financed, even though it is attached to the real property.

• A title search should reveal any such agreements.

  • This is important for potential buyers to be aware of any liens or encumbrances on the property.

• Creditor may remove item upon default if a security agreement is filed.

  • This gives the lender the right to repossess the fixture if the borrower defaults on the loan.

Manufactured Homes vs. Modular Homes

• Manufactured Housing: Factory-built to HUD standards; has a permanent chassis; personal property that may convert to real property.

  • These homes are built in a factory and then transported to the building site. They are initially considered personal property but can be converted to real property by removing the wheels and attaching them to a permanent foundation.

• Modular Housing: Factory-built to state building codes; real property as soon as assembled on-site.

  • These homes are also built in a factory, but they are built to the same standards as site-built homes. They are considered real property as soon as they are assembled on the building site.

Factory-Built Housing Types

• Manufactured Housing: Trailer, Mobile Home, Singlesection, Multisection, Factory Home

• Modular

• Panelized

• Log Home

• Geodesic Dome Homes

• Kit, Prefab Homes

• Systems Built Home, Panelized Home

Important Considerations

• Restrictive Covenants & Zoning

  • These are rules and regulations that govern the use of the property.

• Available Financing

  • This refers to the ability to obtain a loan to purchase the property.

• Appraisal

  • This is an estimate of the value of the property.

• Taxes on Completed Structure

  • These are the taxes that will be assessed on the property after it is built.

Key Differences

• Importance of Proper Disclosure

  • It is important to disclose all relevant information about the property to potential buyers.

• Similarities between Types of Housing

  • There are many similarities between the different types of factory-built housing.

• Misrepresentation: Innocent or Intentional

  • It is important to avoid making any misrepresentations about the property, whether they are innocent or intentional.

Converting Manufactured Homes to Real Property

• Remove wheels, axles, and hitch.

  • This makes the home more permanent and less mobile.

• Attach to a permanent foundation.

  • This further solidifies the home's connection to the land.

• Notify Department of Motor Vehicles.

  • This officially changes the status of the home from personal property to real property.

• Record paperwork.

  • This provides a public record of the change in status.

Modular Homes

• Constructed in factories according to state building codes.

  • This ensures that the homes are built to a high standard of quality and safety.

• Contain a label certifying compliance.

  • This provides verification that the home meets the required standards.

• Once assembled on the home site, it is immediately considered to be real property.

  • This simplifies the process of transferring ownership and avoids the need for conversion.

Manufactured Homes vs. Modular Homes (NC Specifics)

• Modular homes are factory-built to state building codes and become real property as soon as assembled on site.

• Manufactured homes are factory-built to HUD construction standards and have a HUD label on the rear exterior wall or under the kitchen sink.

  • Must be transportable in one or more sections with a permanent chassis.

  • Must be designed as a dwelling with or without a permanent foundation.

• Manufactured homes (trailers or mobile homes) are considered personal property and have a Vehicle Identification Number registered with the NCDMV.

• To convert a manufactured home to real property in NC:

  • Remove wheels, axles, and trailer hitch.

  • Attach to a permanent foundation.

  • Cancel the DMV title.

Estates in Real Property

• Freehold Estates: Ownership estates for a potentially unlimited period of time.

  • These estates represent the highest form of ownership in real property.

• Fee Simple Estate: An estate of inheritance that is always legally transferable but not always free of encumbrances.

  • This is the most complete form of ownership, but it may be subject to certain restrictions or encumbrances.

• Fee Simple Absolute: No limitations on fee simple ownership; the highest type of interest in real estate recognized by law.

  • This is the most absolute form of ownership, with no limitations or restrictions.

Freehold Estates (Inheritable)

• Fee Simple Absolute: Highest form of ownership with no limitations, as long as it does not violate land use regulations, deed restrictions, or the rights of others.

  • This is the most desirable form of ownership, as it gives the owner the greatest degree of control over the property.

• Fee Simple Defeasible: Also called qualified (limited); ownership may be lost by the occurrence or nonoccurrence of a specified event.

  • This type of ownership is subject to certain conditions or restrictions, which could cause the owner to lose the property if they are violated.

• Fee Simple Subject to a Condition Subsequent: Exists provided a condition is not violated; former owner retains a future right of reentry through court proceedings (e.g., no alcohol).

  • In this case, the owner has the right to use the property as long as they do not violate a specific condition. If the condition is violated, the former owner has the right to take the property back through a court proceeding.

• Fee Simple Determinable: Exists “so long as” a limitation is met; former owner retains the possibility of an automatic reverter in the future (e.g., Pullen Park).

  • In this case, the owner has the right to use the property as long as they meet a specific limitation. If the limitation is not met, the property automatically reverts back to the former owner.

Freehold Estates (Non-Inheritable)

• Conventional Life Estate: Created by the owner by deed or will for the lifetime of the new owner (life tenant).

  • This type of estate gives the owner the right to use the property for their lifetime, but it cannot be passed on to their heirs.

• Life Estate Pur Autre Vie: Created by the owner by deed or will for the lifetime of a third party called the measuring life. The measuring life has no ownership interest.

  • In this case, the owner has the right to use the property for the lifetime of another person, who is called the measuring life. The measuring life has no ownership interest in the property.

Other Important Points

• Remainder Interest: The grantor names a party to receive title at the end of the life estate.

  • In this case, the grantor specifies who will receive the property after the life estate ends.

• Reversionary Interest: The grantor does NOT name another party to receive title when the life estate terminates; title reverts back to the grantor or the grantor’s heirs or devisees.

  • In this case, the property goes back to the grantor or their heirs after the life estate ends.

Rights of Life Tenants

• Include all income/profit from property during tenancy.

  • The life tenant has the right to receive all income and profits from the property during their tenancy.

• Use of property resources to maintain property (estovers).

  • The life tenant has the right to use the property's resources to maintain the property.

• Ability to mortgage or sell life interest.

  • The life tenant has the right to mortgage or sell their life interest in the property.

• Must pay real estate ad valorem taxes and special assessments during tenancy.

  • The life tenant is responsible for paying all real estate taxes and special assessments during their tenancy.

• Must pay interest on any pre-existing financing secured by the property.

  • The life tenant is responsible for paying the interest on any existing loans secured by the property.

• Cannot permanently injure or waste the property.

  • The life tenant is not allowed to damage or waste the property.

Life Estate Pur Autre Vie

• Ownership by life tenant will terminate upon the death of the measuring life.

  • The life tenant's ownership rights end when the measuring life dies.

• The measuring life has no ownership rights.

  • The measuring life does not have any ownership rights in the property.

• Upon death of measuring life, estate will either revert back to original owner or transfer to remainderman.

  • After the measuring life dies, the property will either go back to the original owner or be transferred to a remainderman.

Legal Life Estate

Dower and curtsey allow non-owning spouse a lifetime right to a partial ownership

• Replaced by Intestate Succession Laws in N.C.

  • Legal life estates have been replaced by intestate succession laws in North Carolina.

• Homestead laws protect the family home from debt judgments.

  • Homestead laws provide some protection for the family home from debt judgments.

• N.C. has a limited exemption.

  • North Carolina has a limited homestead exemption.

• Homestead: a legal life estate involving the family home in some states that protects at least some part of the home from most creditors. North Carolina has a very limited homestead exemption.

Ownership of Real Property

• Ownership in Severalty

• Concurrent Ownership

  • Tenancy in Common

  • Joint Tenancy

  • Tenancy by the Entirety

Severalty or Sole Ownership

• Title vested in one natural or legal person or entity; sole ownership.

  • This means that one individual or entity holds exclusive ownership of the property.

• Not married when property acquired.

  • This is a common way for individuals to own property in severalty.

Concurrent Ownership (Co-ownership, Co-tenants)

• Held by two or more persons or entities at the same time.

  • This means that multiple individuals or entities share ownership of the property.

• Tenancy in Common:

  • Two or more natural or legal owners.

  • This is the most common form of co-ownership.

  • Each owner has an undivided interest; unity of possession.

  • This means that each owner has the right to use and possess the entire property.

  • Interest does not have to be equal.

  • Co-owners can have different ownership percentages.

  • Each owner may encumber or convey her interest.

  • Co-owners can sell or mortgage their individual shares of the property.

  • Each interest is inheritable; no right of survivorship possible.

  • When a co-owner dies, their share of the property passes to their heirs.

Tenancy in Common Defined

• A form of co-ownership by which each owner holds and undivided interest in real property as if he or she were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have the right of inheritance.

Joint Tenancy

• Two or more owners with equal interest delivered simultaneously by the same instrument (deed).

  • This means that all joint tenants must receive their ownership interest at the same time and through the same document.

• In North Carolina, interest can be unequal.

  • While traditionally joint tenancy requires equal interests, North Carolina allows for unequal interests.

• Joint tenants usually have right of survivorship between tenants; last surviving joint tenant will own the property in severalty.

  Figure 2.8 illustration

• A person newly acquiring an interest in the property will be a tenant in common with the original remaining joint tenants.

  Figure 2.9 illustration

• North Carolina does not favor the right of survivorship among the owners; North Carolina statutes provide that upon the death of a joint tenant, his estate does not pass to the surviving joint tenant(s), but instead goes to his heirs in the same manner as estates held by tenancy in common unless a right of survivorship is written in.

  • This means that in North Carolina, the right of survivorship must be explicitly stated in the deed to be valid.

• Example: this is a joint tenancy with the right of survivorship.

Key Features of Joint Tenancy

• Equal partners – two or more

• Must purchase at the same time

• Not married

• Survivorship

  • Distinguishing Feature

• NC does not favor this – the deed must be worded in compliance with NC court decisions

Joint Tenancy Defined

• Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. On the death of a joint tenant, the decedent’s interest passes to the surviving joint tenant or tenants by the right of survivorship.

Termination of Co-ownership by Suit for Partition

• Available to tenants in common and joint tenants.

  • This legal action allows co-owners to divide the property or its proceeds.

• The court may physically divide the property or order it sold and divide the proceeds among the disputing owners.

  • The court will determine the best way to divide the property based on the circumstances of the case.

Tenancy by the Entirety

• Special form of ownership for married couples only; must be married at the time that title is received.

  • This type of ownership provides additional protection for married couples.

• Property owned prior to marriage does not automatically convert to tenancy by the entirety upon marriage.

  • The couple must take action to convert the ownership to tenancy by the entirety.

• In North Carolina, a purchase by a married couple will convey as tenancy by the entirety by default unless otherwise requested.

  • This is the default form of ownership for married couples in North Carolina.

• The grantees in a deed are at the time husband and wife, a tenancy by the entirety is created even though they are not named as such, and even though there is no express mention in the instrument of a tenancy by the entirety.

Key Features of Tenancy by the Entirety

• Undivided unity of possession

• Owners must be husband and wife when they obtain property

• Ownership interest must be equal

• Both must purchase at the same time and both must appear on the deed

• Both must sign deed to convey

• Terminated by death, divorce, or mutual agreement of spouses

• Survivorship is automatic

Types of Ownership in Real Estate

• Common Interest Community Ownership

  • Condominium ownership

  • Cooperative ownership

  • Townhouse ownership

  • Time-share ownership

  • Planned unit development (not in syllabus)

Common Interest Community Ownership

• Condominium Ownership:

  • Created under horizontal property acts.

  • These laws enable the creation of condominiums by defining ownership rights and responsibilities.

  • Owner of each unit has title to airspace and undivided interest in the common elements of the building or area. No land is owned by individual owners.

  • Condominium owners own the space within their unit and share ownership of common areas like hallways, elevators, and amenities.

  • Limited common elements are a special type of common element restricted for the use of some units to the exclusion of others.

  • Examples include balconies, parking spaces, and storage units that are reserved for specific units.

  • Can be for any type of real estate, not just residential.

  • Condominiums can be used for commercial, industrial, and other types of properties.

  • Distinguish between the architectural style and ownership form.

  • The architectural style of a building does not determine whether it is a condominium or another type of ownership.

  • No right to partition condominium ownership.

  • Condominium owners cannot divide the common areas or their individual units.

  • Require periodic fees for common area expenses.

  • Condominium owners pay monthly or annual fees to cover the costs of maintaining the common areas.

  • Individual ownership unit is assessed for real property tax.

  • Each condominium unit is assessed separately for property tax purposes.

  • Title to individual units can be likened like any other real estate ownership.

  File 2.10

North Carolina Condominium Act of 1986

• A condominium is created and established when the developer of the property executes and records a declaration of its creation in the county where the property is located.

  • Declaration must include any covenants, restrictions, or conditions on the property.

  • The declaration outlines the rules and regulations that govern the condominium community.

  • Developer must file a plat map or plan of the condominium property, buildings, and any other improvements.

  • This map shows the location of the units, common areas, and other features of the condominium.

  • Developer must prepare a set of bylaws, which usually provide the following:

  • Creation of a unit owners’ association giving a vote to each unit owner

    • The unit owners' association is responsible for managing the condominium community.

  • The election of a board of managers from among the unit owners

    • The board of managers is responsible for making decisions on behalf of the unit owners' association.

  • The duties of the board of managers

    • These duties typically include maintaining the common areas, enforcing the covenants and restrictions, and collecting fees.

  • The compensation of its members

    • The board members may be compensated for their time and effort.

  • Their method of election and removal

    • The bylaws specify how board members are elected and removed from office.

  • Whether or not a managing broker is to be engaged

    • The unit owners' association may hire a managing broker to assist with the management of the condominium.

  • The method of collecting the unit owners’ association monthly dues from each member to cover the costs of management and maintenance of the common areas

    • The bylaws specify how the monthly dues are collected and used.

Cooperative Ownership

• Title to the building is held by a corporation or land trust.

  • The corporation or land trust owns the entire building, and the residents are shareholders in the corporation.

• The purchaser is a shareholder who receives the following:

  • A stock certificate in the corporation

  • This certificate represents the shareholder's ownership interest in the corporation.

  • A proprietary lease to an individual unit for the life of the corporation

  • This lease gives the shareholder the right to occupy a specific unit in the building.

Townhouse Ownership

• Each town house unit is individually owned. Each unit owner belongs to the homeowners’ association that owns the common areas

• Unlike a condominium unit, the owner of each town house unit also independently owns the land on which the unit is built

• Time-Share Ownership

• Can be either a fee simple interest (time-share estate) or a right to use (time-share use)

• It is any right to occupy a unit for at least five separate time periods over at least five years.

• The purchaser usually receives the right to occupy a certain unit for a specified time frame each year (one week is the most common).