Chapter 2- Forms Of Ownership, Transfers, And Recording Of Title

Question 1

Estate in severalty

Answer 1

1. Ownership by one is called an estate in severalty, tenancy in severalty or sole ownership. This can be ownership by one individual, or one business entity such as a corporation or a partnership. Corporations or Partnerships often hold title this way. If only one signature is required to sell a piece of property, then there is only one owner.

Question 2

Tenancy in common

Answer 2

2. Ownership by two or more without rights of survivorship is called tenancy in common. This is the most common type of joint ownership. It is an estate of inheritance. A condo- minium is multi-unit housing with individual ownership of apartments and tenancy in common ownership of the common areas. Upon your death, your share goes to your heirs, at probate. Unequal shares are permitted. You may sell your share without the permission of the other owners. In the absence of any other instructions, the title company will always assume tenancy in common with equal shares.

Question 3

Joint tenancy

Answer 3

3. Ownership by two or more with rights of survivorship is called joint tenancy. Upon your death, your share goes to surviving co-owners, immediately. This is sometimes called a “poor man’s will” as it eliminates the need for a will. Joint tenancy overrides a will. This is not an estate of inheritance. To prevent any accidental cases of joint tenancy, there are four unities required for this type of ownership – time, title, interest and possession. All owners acquire their interest at the same time, from the same legal document. Their shares are equal and undivided - each owns a percentage of the whole, rather than a piece of the whole.

Question 4

Partition

Answer 4

Par- tition is a procedure to divide the co-tenant’s interests in real property. It can be a court action - involuntary alienation, or by agreement of the parties - voluntary alienation. Partition would divide the property into pieces and end the joint tenancy. If the land cannot be physically divided, the court will order the property sold and the proceeds will be divided among the joint tenants.

Question 5

Tenancy by the entirety

Answer 5

4. Tenancy by the entirety is a specific type of joint tenancy where the co-owners are married to one another: husband/wife, spouse/spouse. One advantage of this type of ownership is that it avoids probate. (This is also true of joint

Question 6

Property held in trust

Answer 6

5. If a property is held by one party for the benefit of another then that property is held in trust

Question 7

Syndicate

Answer 7

6. When two or more parties join together to create and operate a real estate investment we call this a syndicate

Question 8

Time shares

Answer 8

Time Shares give an individual part ownership of a property coupled with the right to exclusive use of it for a specified number of days per year, without the responsibility of full ownership. This can be called “interval ownership.” It is tenancy in common ownership. This is most often used for resort or vacation properties

Question 9

Cooperative or “co-ops”

Answer 9

Cooperative or “Co-ops” are an investment for residents. The land and buildings are owned by a corporation. Residents must buy shares in the corporation in exchange for a “proprietary lease” on their unit. The corporation pays for the mortgage, property taxes and maintenance of the building. The residents have a personal property interest in their units and the common areas

Question 10

Condominiums

Answer 10

Condominiums are established under laws referred to as horizontal property acts. Each unit is a separate legal ownership and each owner arranges his or her own financing. Along with unit own- ership comes a tenancy in common interest in all the common areas. Property taxes are assessed on each unit separately and are based on the assessed value of the unit plus the share of the common areas. It is not necessary for the taxing authority to assess and tax the common areas separately. Monthly condominium fees are not for taxes. They pay for the maintenance of the complex and the salary of the manager. Condominium managers work for resident owners and their main responsi- bility is to preserve property values.

Question 11

ESTATES

Answer 11

An estate is an interest in real property.

Question 12

Freehold estate

Answer 12

A freehold estate is ownership

Question 13

Bundle of rights

Answer 13

All the legal rights that attach to the ownership of real property are commonly called the Bundle of Rights.

Question 14

1.Disposition

Answer 14

1. the right to sell, will to heirs, encumber or lease (disposition)

Question 15

2.Exclusion

Answer 15

2. the right to exclude others (exclusion

Question 16

3.Possession

Answer 16

3. the right to use, enjoy, occupy (possession)

Question 17

4.Quiet enjoyment

Answer 17

4. the right to use uninterrupted by former owners (quiet enjoyment)

Question 18

Fee simple/ fee simple absolute

Answer 18

Ownership with the greatest bundle of rights - the best type of ownership - is called Fee Simple or Fee Simple Absolute. The owner has all the available rights to the property and can always pass it to his or her heirs

Question 19

Fee simple defeasible

Answer 19

Fee simple defeasible is ownership with conditions or terms, which if violated, could cause the ownership interest to be defeated or terminated. When the ownership is defeated, it reverts, or goes back, to the original grantor or the grantor’s heirs.

Fee simple defeasible can be determinable or condition subsequent. If it is determinable, violation of the condition, or termination of the conditional use results in reversion to the grantor, auto- matically. In condition subsequent, the grantor must take steps to reclaim the property within a reasonable period of time if the condition is violated or the conditional use is terminated

Question 20

Life estate

Answer 20

A life estate is ownership for the duration of someone’s life.

Question 21

Life tenant

Answer 21

. The owner is called the life tenant.
The life tenant has all the rights and duties of an owner, except the right to choose who will get the property upon his or her death.

Question 22

Remainder-man

Answer 22

. The person who gets the property after the life estate is ended is the remainderman. The remainderman gets fee simple.

Question 23

Life estate with reversion

Answer 23

If the life estate is set up so that at the end of the life estate the property goes back to the original owner, this is called a life estate with reversion. The original owner has a reversionary interest in the property. The original owner is the remainderman.

Question 24

Life estate pur autre vie.

Answer 24

If the life estate is based on the life of someone other than the life tenant, this is called a life estate pur autre vie.
If the life tenant leases the property and then dies, the lease expires. If the life tenant sells his or her interest in the property, this has no effect on the remainderman. In other words, the buyer of the life estate would have to vacate the property upon the death of the original life tenant and would not receive a refund of the purchase price

Question 25

Lease hold estate

Answer 25

Lease agreements create the leasehold estate. The lease is personal property, but the right to posses- sion that the lease gives is real property. There are four leasehold estates and each gives possession without ownership.

Question 26

Estate for years

Answer 26

1. An estate for years is a lease with a specific starting and ending date. This lease survives death and/or the sale of the property. No notice is required to terminate

Question 27

Periodic tenancy

Answer 27

2. A periodic tenancy is a lease with a fixed period that is automatically renewed unless the tenant or landlord acts to terminate it. A month-to-month lease is this type. Notice to terminate is usually required, typically 30 days’ notice.

Question 28

Estate at will / tenancy at will

Answer 28

3. An estate at will or tenancy at will is a lease that can be terminated by either party at will without notice

Question 29

A tenancy at sufferance

Answer 29

4. A tenancy at sufferance occurs when a lease expires and the tenant refuses to move out. The landlord is not receiving rent. This holdover tenant has no right to be there. If the holdover tenant pays rent and the landlord accepts that rent, a holdover tenancy is created.

Question 30

Gross lease

Answer 30

Gross Lease - the landlord pays all the expenses of the property. The tenant pays only rent

Question 31

Net lease

Answer 31

the tenant pays rent plus some of the expenses of the property.

Question 32

Percentage lease

Answer 32

lease in which all or part of the rent amount is based on the receipts of the tenant’s business (Typical shopping center lease). This lease allows the landlord to participate in the tenant’s success.

Question 33

Graduated lease

Answer 33

Graduated Lease – a lease with scheduled rent increases often based on expected business growth.

Question 34

Lease with an option to buy

Answer 34

Lease with an option to buy - gives a tenant the right to purchase at a future date. The price is set
when the agreement is negotiated. It is advantageous to the tenant-buyer

Question 35

Lease purchase agreement

Answer 35

Lease purchase agreement - an agreement in which part of the rent payment is applicable toward a set purchase price. Title is transferred from lessor to lessee when the lessor receives the prearranged total price.

Question 36

Ground lease

Answer 36

Ground Lease – the tenant is usually making a long-term commitment, up to 99 years. This lease is more often for industrial or commercial land use. The tenant will build on the leased property.

Question 37

Oil and gas lease

Answer 37

Oil and Gas Lease – this lease gives the tenant the right to extract oil and gas from a specific property. NOTE: In Texas, the Texas Railroad Commission regulates oil and gas leases, but on a Federal level, for the National portion of the exam, the EPA will be the best answer for any ques- tions regarding what department of the government regulates these leases.

Question 38

Covenant of quiet enjoyment

Answer 38

Covenant of quiet enjoyment - a landlord is usually prohibited from entering leased property unless there is a need for maintenance, inspections or emergency response.

Question 39

Right of first refusal

Answer 39

Right of First Refusal - the tenant has the right to match or better any offer before the property will be sold to someone else.

Question 40

Subletting

Answer 40

Subletting is the transfer of some or all of the rights and/or leased space under a lease to another, with liability remaining with the original tenant.

Question 41

Assignment

Answer 41

Assignment is the transfer of all rights and liabilities to a new tenant under an existing lease.

Question 42

Forcible entry and detainer, or an action of forcible detainer

Answer 42

Forcible entry and detainer, or an action of forcible detainer, is the legal term for eviction. This pro- cess would be used by a

Question 43

Expiration

Answer 43

Expiration - When the lease comes to the end of the negotiated term or lease period.

Question 44

Termination

Answer 44

Termination - When the time period on a lease ends or is cut short.

Question 45

Mutual rescission

Answer 45

Mutual rescission - When a lease is terminated by agreement of the parties.

Question 46

Constructive eviction

Answer 46

Constructive eviction - Occurs when a landlord is aware of a property condition and allows deterio- and Recording of Title
ration to the point that the building is uninhabitable and the tenants are forced to leave

Question 47

Sale and lease back

Answer 47

Sale and leaseback - A property owner sells property to an investor or lender and then leases it back. Therefore, the seller occupies the property after closing.

Question 48

Lien

Answer 48

A lien is a charge against property as security for a debt. The lien is an encumbrance – a limit on your rights. It is also, usually, a cloud on the title. This means title cannot be conveyed or transferred to another until the lien is removed. The legal method of removing an encumbrance is to release it or get a release

Question 49

Voluntary lien

Answer 49

A voluntary lien is created by the lienee’s or borrower’s actions, like taking out a mortgage or home improvement loan. Filing or recording the mortgage creates a lien. A mortgage is not effective or enforceable until it is recorded. When the mortgage is recorded, if it is the first recorded claim, it will be the first priority lien.

Question 50

Involuntary lien

Answer 50

An involuntary lien is created by law and can be statutory or equitable (common law). (NOTE: Statutory law always takes precedence over common law.) Examples of statutory liens include federal tax liens, ad valorem (according to value) tax liens, judgment liens, and mechanics and materialmens’ (m&m) liens.
(Note: An m&m lien can be placed on a property when materials have been delivered or work has begun.)

Question 51

Equitable liens

Answer 51

Equitable liens come from common law and include seller (vendor) or buyer (vendee) liens. An example of a vendor’s lien would be seller financing. A vendee’s lien would be used when a buyer has paid, but not yet received a deed. (i.e. at a foreclosure sale, or in contract for deed)

Question 52

Specific lien

Answer 52

Liens can be specific or general. A specific lien attaches to one or more specific or named properties (Example: a mortgage).

Question 53

General lien

Answer 53

. A general lien attaches to all the property of the debtor, not exempt from forced sale (Example: a judgment or IRS lien). Recording is required for a judgment to become a lien.

Question 54

Writ of execution

Answer 54

If a party wins a judgment and is unable to collect, that party can secure a writ of execution from the courts to enforce payment of the lien.
Reminder: At foreclosure, lien priority is determined by date of recording with the first recorded lien having first priority. Recorded liens are only paid after the property tax lien is paid