Real Estate Ownership

Forms of Ownership

Real estate buyers must determine the type of ownership that best fits their needs, as this choice affects the ability to transfer real estate in the future and has tax implications. Real estate professionals should identify basic forms of ownership, but it is up to the buyers to explore their options, likely with advice from an attorney.

Basic Ways Real Estate May Be Held

Ownership in severalty: One owner.
Co-ownership: More than one owner.
Ownership by a trust: Property held for the benefit of someone else.

Ownership in Severalty

Occurs when property is owned by one person, individual, company, corporation, or another entity.
The sole owner is severed or cut off from other owners.
The owner in severalty has the sole right to the property and the discretion to do whatever they want:
- Sell.
- Lease.
- Leave it in a will.
- Transfer part or all ownership rights to another person.

Co-ownership

When a title to a parcel of real estate is held by two or more persons, those parties are called co-owners.
Most states commonly recognize various forms of co-ownership.
Individuals may co-own property as:
- Tenants in common.
- Joint tenants.
- Some states recognize special forms of ownership for co-owners who are married or in a recognized civil union.
During the lifetime of the co-owner, there may be no difference between the various types of ownership. The differences become apparent when the property is conveyed or when one of the owners dies.

Tenancy in Common

A parcel of real estate may be owned by two or more people as tenants in common.
Each owner (tenant) holds an undivided interest in the property.
Co-owners have unity of possession, meaning each owner is entitled to possession and use of the entire property, even though they only hold a fractional ownership interest.
If there are two co-owners of property and no other division is specified in the deed, each will own a one-half interest.
It's the ownership interest, not the property, that's divided.
The deed creating a tenancy in common may or may not state the fractional interest held by each co-owner.
If no fractions are stated, the tenants are presumed to hold equal shares. For example, if five people hold title, each will own an undivided one-fifth interest.
Each of these shares can also be held by a couple, whether they're married or in a civil unit.
Because co-owners own separate interests, they can sell, convey, mortgage, or transfer their individual interest in the tenancy in common without the consent of the other co-owners.
A share owned by a married couple can only be transferred with the agreement of both parties.
No individual tenant may transfer ownership of the entire property; they can only transfer what they own.
When one co-owner dies, that co-owner's undivided interest passes according to their will, to the heirs identified by the state (if there is no will), or by a living trust (if written before death).
When two or more single individuals or couples acquire title to real estate and the form of ownership is not indicated, the new owners are usually determined to have acquired title as tenants in common automatically.
Tenancy in common has become popular in expensive urban areas because it allows a multi-family dwelling to be sold to multiple owners without converting it into a condominium.
The downside of a co-ownership tenancy in common interest is that it may not be as easy to sell as property held in a different form of co-ownership, and formation of a tenancy in common requires the use of an attorney to clarify the terms of the ownership.
Example scenario:
- A and B are tenants in common.
- A and B have a 1/2 interest in the property.
- B dies; A does not acquire B's property.
- B's property goes to the heirs C and D; it is inheritable.
- If B had three kids, each would get 1/3 of his 1/2. If he had one kid, that one kid would get the 1/2. If he had five kids, each would get 1/5 of his 1/2.

Joint Tenancy

Another form of co-ownership.
Most states recognize some form of joint tenancy in property owned by two or more people, whether they're married or not.
The distinguishing feature of a joint tenancy is the right of survivorship (upon the death of a joint tenant, that deceased interest transfers directly to the surviving joint tenants; essentially, there is one less owner).
No formal legal action is required, just a death certificate to prove they're gone.
If there are only two joint tenants, the death of one of those owners will terminate the joint tenancy.
If there are three or more joint tenants at each successive joint tenant's death, the surviving owners acquire the deceased's interest, and the last survivor takes title in severalty and has all the rights of sole ownership, including the right to pass the property to any heirs.
Creating a joint tenancy can be created only by the intentional act of conveying a deed or giving a property by will or living trust. It cannot be implied or created by operation of law (lawsuit). The instrument must specifically state the parties' intention to create a joint tenancy, and the parties must be explicitly identified as joint tenants.
To create a joint tenancy, four elements or unities are needed (can be remembered as PITT):
- Possession: All joint tenants hold an undivided right to possession.
- Interest: All joint tenants hold an equal ownership interest.
- Time: All joint tenants acquire their interest at the same time.
- Title: All joint tenants acquire their interest by the same document.
The four requirements/unities are met when the right of possession of a property is acquired by all the joint tenants by means of a single instrument that conveys an equal undivided interest to all of them, stipulating that they are to be joint tenants with the right of survivorship.
In some states, identifying the owners as joint tenants automatically includes the right of survivorship, but the wording with right of survivorship makes that meaning clear.
The use of a single instrument necessarily means the right of ownership is conveyed to all the joint tenants at the same time.
Example scenario: A mother owns a house and wants her three sons to have it; she signs the deed over to all three of them, and they are to be joint tenants with the right of survivorship. This means that if one of the sons dies, his wife can't take his place, nor can his kids; the other two split that share. When a third brother passes away, the last brother owns it in severalty.
Terminating a joint tenancy: A joint tenancy is destroyed when any one of the four unities of joint tenancy is terminated. Unless prohibited by state law, the joint tenants are free to convey their individual interest in a jointly held property, but doing so destroys the unity of time and title as to that interest, meaning that the new owner cannot be a joint tenant but instead is a tenant in common.
If there were only two joint tenants to begin with, the joint tenancy is terminated. If the joint tenancy had more than two owners to begin with and one of them conveys their interest, there will still be a joint tenancy, but only as for the interest held by the remaining joint tenants. The new owner is a tenant in common.
Example scenario:
- A, B, and C are three sons and joint tenants.
- A sells his 1/3 interest to D.
- D is a tenant in common with B and C, but B and C are still joint tenants.
- If C were to die, there would be no more joint tenancy. B would own 2/3, and D would own 1/3.
The difference between joint tenancy and tenancy in common is the right of survivorship.
In tenancy in common, when one of them dies, their interest goes to their heir.
In joint tenancy, when one of them dies, their interest does not go to the heir; it goes to the other joint owners.

Termination of Co-ownership by Partition Suit

Partition is a legal way to dissolve the relationship between the co-owners of real estate when the parties do not voluntarily agree to its termination.
If the court determines that the property cannot be divided physically into separate parcels without destroying its value, the court will order the real estate sold, and then the proceeds of the sale will be divided among the co-owners according to their fractional interest.
You can only partition tenancy in common and joint tenancy.
Partition may sound simple, but it can be very dangerous because of the way land developers take advantage of people who have inherited property. The developer finds one person who wants to sell, buys their share, and then forces the other owners to sell their shares through partition.

Married People

Most states recognize a special form of co-ownership of property that is available only to married couples.

Tenancy by the Entirety

Recognized in about half of the states, it is a special form of co-ownership used in some states that allows a spouse to inherit the other spouse's ownership interest upon death.
In this form of ownership, each spouse has an equal undivided interest in the property.
The term entirety refers to the fact that the owners are considered one indivisible unit/one undivided person (common law viewed a married couple as one legal person).
Spouses who are tenants by the entirety have the right of survivorship.
During their life, they can convey title only by deeds signed by both parties; one party cannot convey a 1/2 interest.
They generally have no right to partition or divide the property. To divide the property, you have to go to divorce court (marriage court), and the judge will tell you how to divide that property or who gets what.

Community Property Rights

Community property laws are based on the idea that spouses, rather than merging into one entity, are equal partners in the marriage.
Under community property laws, any property acquired during a marriage is considered to be obtained by mutual effort, even if only one spouse works.
Only nine states recognize community property: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington (state), and Wisconsin. In addition, Alaska allows married couples the option of choosing the community property form of ownership.
Although community property laws vary among the states that recognize it, all of them recognize two kinds of property:
- Separate property.
- Community property.

Separate Property

Any real or personal property that was owned solely by either spouse before the marriage, or acquired by gift or inherited by one spouse during the marriage, or purchased with separate funds during the marriage.
Any income earned from a spouse's separate property remains part of that spouse's separate property.
Separate property can be mortgaged or conveyed by the owning spouse without the signature of the non-owning spouse.

Community Property

Consists of any real and personal property acquired by either spouse during the marriage.
Any conveyance or encumbrance of community property requires the signature of both spouses.
The spouses can will half of the community property to whomever they desire, but upon the death of one spouse, the other spouse automatically owns one half of the property.
If a spouse dies without a will, half of the community property already belongs to the surviving spouse; the other half is inherited by the surviving spouse or by the other heirs, depending on state law.
Community property does not provide the automatic right of survivorship that tenancy by the entirety does.
A spouse who wishes to maintain the character of separate property must be careful not to commit some funds that are separate with funds that belong to the community (if the proceeds of a sale of separate property are placed into the community bank account, they are now community property funds).

Maryland Book

Forms of Co-ownership

Concurrent owners mean the same thing as co-ownership but is just a different word.
Unless the deed clearly specifies otherwise, a conveyance of Maryland real estate to two or more persons normally creates a tenancy in common.
To create a joint tenancy, it's necessary to use words such as the Fred Donaldson and Sam Roberts as joint tenants and not as tenants in common, and they're also gonna add the phrase with right of survivorship.
A deed to a married couple is presumed to create a tenancy by the entirety unless it specifies otherwise.
Only joint tenants and tenants by the entirety have rights of survivorship; tenants in common do not.
There are many advantages for a couple who hold real property as tenants by the entirety, but Maryland only allows legally married persons to own property as tenants by the entirety.
Maryland now recognizes same-sex couples who marry in Maryland or in another jurisdiction that recognizes same-sex marriage as married.
Clients and customers of Maryland real estate brokerage licensees should be made aware of the advantages of tenancy by the entirety. The advantages include: Both spouses must sign the deed to convey the property that they hold as tenants by the entirety; therefore, neither spouse who owns Maryland's real property as tenant by the entirety may petition the court for its partition against the will of the other tenant.
Tenants by the entirety may join in granting the property back to themselves as either tenants in common or joint tenants or either granting their entire property to one spouse or the other, and they can do this without having their ownership passed through an attorney.
They can deed their property into a trust.
Property held as tenancy by the entirety in the case of a federal tax lien is not subject to a forced partition to satisfy the death of one tenant.
Because the IRS now recognizes same sex marriage, a couple who were domestic partners can now file as merit filing jointly when reporting their income to the IRS. They also pay lower different after death taxes, and they can transfer probably to one another without incurring any kind of tax, a gift tax, and so forth.
They're also eligible for that $500,000 capital gain exclusion when they sell their property; they can earn the $500,000 and not pay taxes on it.
The only legal advice that you can give them is this: an attorney and an tax expert guidance are vital to buyers in your position.
Upon divorce or other legal termination of the marriage, tenants by the entirety become tenants in common by operational law. The court may still delay any partition proceedings (dividing of the property by one against the other's will) for a period as long as three years. The ban on partition after the void can occur if the property is gonna be occupied by the as the family house by the spouse having custody of the children.