Interests in Real Estate Flashcards
Interests/Estates/Tenancies in Real Estate
- extent of someone’s claim to real estate
- will be either freehold interests (refer to ownership) or non-freehold interests (possessory rights that don’t include ownership (usually a rental)).
Freehold: Fee Simple Absolute
- default type of ownership
- also referred to as “fee” or “fee simple” or “fee simple indefeasible ownership”
- not in any way limited
- inheritable
- owner is entitled to entire bundle of rights to the property
- interests are intended to be indefinite, and are only limited by public and private restrictions (e.g. zoning and building codes).
Freehold: Fee Simple Indefeasible
- “fee simple indefeasible” or “qualified fee”
- ownership is an interest in real estate that is limited in some way, and can be lost if some limitation is violated or a condition is triggered
THREE TYPES
- “fee simple determinable”: automatically lost when a limitation is violated
- “fee simple subject to a condition subsequent”: lost when legal action is brought pursuant to the violation of the limitation and returns the property to the original grantor
- “fee simple subject to an executory limitation”: basically the same as fee simple subject to a condition subsequent except the property would be transferred to third party named by the grantor, rather than back to the original grantor themselves
Freehold: Life Estate
- Life estates are freehold interests that only exist as long as the owner of the property (the “life tenant”) is alive.
- The life tenant’s deed will state who receives the life estate (usually a “remainderman”) upon their death in a habendum clause.
- A life tenant has a present interest to the real estate subject to the life estate, while the remainderman (or the grantor in a life estate in reversion) holds a future interest.
- life tenant may not commit waste (cause the property to be damaged, legally compromised, or at risk of foreclosure), because it would compromise the remainderman’s future interest
- Otherwise, the life tenant may enjoy their full bundle of rights, less the right to devise (transfer in a will) the property
- life tenants can sell, rent, or otherwise dispose of the property as they see fit, but anything they do while alive is undone upon their death. A client would probably not want to buy or rent property subject to a life estate.
Freehold (Life Estate): Life estate in reversion
A life estate where, when the life tenant dies, legal title (ownership) will transfer back to the original grantor.
Freehold (Life Estate): Life estate in remainder
A life estate where, when the life tenant dies, legal title will transfer to some third party originally named by the grantor (the third party is the remainderman).
Freehold (Life Estate): Pur Autre Vie
Old French meaning, “for another’s life.” A life estate that is based not on the life tenant’s term of life, but on some arbitrary third party’s life as named by the original grantor
Freehold (Life Estate): Legal Life Estate
A life estate created by law, often in cases of dower rights (where a surviving husband or wife is granted a life estate for real property that was not willed to them, but that was owned by their spouse at their spouse’s time of death). In many states, a surviving spouse is entitled to dower rights - up to a 1/3rd interest in their deceased spouse’s real estate, in lieu of what was left in the will. The right is inchoate, or inactive, before the spouse’s death. Dower rights have been abolished in Massachusetts, but still appear on the National section of the exam.
Freehold (Life Estate): Homestead
legal life estate granted to the owners of a family home. It often provides protections from the forced sale of the home to satisfy debts up to a certain amount. Usually you can only have one homestead at a time.
Freehold: Severalty
A freehold interest (ownership) held by only one person. Its root is “severed”; ownership in severalty is the ownership of real estate severed from any co-owners.
Freehold: Co-Ownership
any freehold interest (ownership) shared by two or more persons
Freehold (Co-Ownership): Tenancy in Common
- default form of co-ownership
- Co-owners who purchase property without specifying a type of ownership own in common
- Ownership interests may be equal or unequal, but all co-owners have an interest in the entire property that cannot be compromised.
- This type of co-ownership is inheritable
Freehold (Co-Ownership): Joint Tenancy
- type of co-ownership that must be chosen by all co-owners, and specified in the deed
- All owners must hold four unities to create a joint tenancy
1. unity of possession (all have equal right of possession)
2. unity of time (all purchase the property at the same time)
3. unity of interest (all have equal interests in the property)
4. unity of title (all acquire in the same deed) - Once a joint tenancy is created, it creates a right of survivorship. Survivorship means that, if one of the co-owners dies, their interest is divided amongst the surviving co-owners evenly. A joint tenancy is therefore not inheritable
- If one of the joint tenants sells their portion of the property, that portion of the property is removed from the joint tenancy
- A joint tenancy can be completely terminated by agreement (voluntary partition), court action (partition action), or the death of all joint tenants
- f all joint tenants die except for one, the joint tenancy also ends, and the surviving owner owns in severalty
Freehold (Co-Ownership): Tenancy by the Entirety
- joint tenancy for married couples
- works the same as joint tenancy, but includes creditor protections: a limitation on forced sale of the property to satisfy the debts of one spouse only (debts must be in the couple’s name for the home to be sold), and an automatic homestead protection for $125,000, and the ability to file for $500,000 of protection, in Massachusetts
- if the couple divorces, it defaults back to a tenancy in common, unless the couple chooses otherwise
- In separate property states (including Massachusetts), tenants by the entirety may sell or devise separately, similar to joint tenants
- In community property states, on the other hand, the property acquired during marriage cannot be sold or devised without the consent of both spouses, since it is treated as the property of both spouses (even if only one actually bought it).
Freehold (Co-Ownership): Condominiums
- a way to subdivide a building into separate units, creating fee simple ownership of the individual units, and shared ownership of the common areas (hallways, elevators, a roof deck, etc.) as tenants in common
- Most states have condominium laws referred to as a horizontal property act.
- created via a master deed, which describes how the building and its condominium or homeowner’s association (the building’s governing body) will be set up. A declaration of trust sets up a Board of Trustees to manage the condominium association. Bylaws of the association are the rules of the building. A building that is made into condominiums is known as a condo conversion
