Real Property ownership and names on title.
“Home is a shelter from storms-all sorts of storms.” William J. Bennett
“Home is where one starts from.” T.S. Eliot
“There’s no place like home” Dorothy Gale
Title to real property must be transferred, when the asset is sold and must be cleared (free of liens or encumbrances) for the transfer to occur. Unlike other real property assets, real estate ownership can take several forms. Each of these forms has implications on how ownership can be transferred and can affect how they can be financed, improved or used as collateral.
Investopedia’s article, “5 Common Methods of Holding Titles on Real Property,” looks at the ways in which to hold title to real estate property.
Joint Tenancy. This is when two or more people hold title to real estate jointly, with equal rights to enjoy the property during their lives. When one dies, their rights of ownership pass to the surviving joint owner. The parties in the ownership need not be married or related, but 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. Another disadvantage is that a creditor with 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 the judgment. That’s the type of real property transfer that we want to protect against.
Tenancy In Common. In this situation, two or more persons hold title to real estate jointly with equal rights to enjoy the property during their lives. However, unlike joint tenancy, tenants in common hold title individually for their respective part of the property and can dispose of or encumber as they chose. Ownership can be willed to other parties, and in the event of death, ownership will transfer to that owner’s heirs undivided. An owner can 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 specific portion of the property. Any liens must be cleared for a total transfer of ownership to take place.
Tenants by the Entirety. This can only be used, when the owners are legally married. This is ownership in real estate under the assumption that the couple is one person for legal purposes. The title transfers to the other in entirety, if one of the couple dies. The advantage is that no legal action is required at the death of a spouse. There’s no need for a will, and probate or other legal action isn’t necessary. Conveyance of the property must be done in total, and the property can’t be subdivided. In the case of divorce, the property converts to a tenancy in common, and one owner can transfer ownership of their respective part of the property to whomever they want.
Sole Ownership. This is ownership by an individual or entity legally capable of holding title. The main advantage to holding title as a sole owner, is the ease with which transactions can be accomplished, since no other party needs to authorize the transaction. The disadvantage is the potential for legal issues regarding the transfer of ownership, if the sole owner dies or become incapacitated. Unless there’s a will, the transfer of ownership upon death can be an issue.
Community Property. This form of ownership is by husband and wife during their marriage for property they intend to own together. New York does not have community property. Under community property, either spouse has the right to dispose of one half of the property or will it to another party. Anyone who’s 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 a legal marriage. This type of real property ownership and names on title takes place in states other than New York..
Community Property With the Right of Survivorship. This is a way for married couples to hold title to property in some states. However, it is only available in Arizona, California, Nevada, Texas, and Wisconsin. It lets one spouse’s interest in community-property assets pass probate-free to the surviving spouse, in the event of death.
Entities other than individuals can hold title to real estate in its entirety. Ownership in real estate can be done as a corporation. The legal entity is a company owned by shareholders but regarded under the law as having an existence separate from those shareholders. Real estate can also be owned as a partnership, which is an association of two or more people to carry on business for profit as co-owners. Real estate also can be owned by a trust. These legal entities own the properties and are managed by a trustee on behalf of the beneficiaries. There are many benefits, such as managerial influence, financial and legal liability and tax considerations.
Reference: Investopedia (April 10, 2018) “5 Common Methods of Holding Titles on Real Property”
The focus of this post was Real Property ownership and names on title.