Module 5 - Forms of Property Ownership (WHO) - TYPES OF OWNERS Flashcards
Ownership in Severalty
Ownership in severalty is really sole ownership by an individual or single entity.
Severalty is derived from the word sever, meaning to separate or set apart. Basically the property is “cut off” from anyone else’s control or claim—it’s 100% yours.
Who or what can own property can be:
* Corporations
* Real Estate Investment Trusts (REIT)
* Syndicates (Syndications)
Co-Ownership
AKA concurrent ownership. Breaks down into four general categories and these four operate in comparatively the same way during the lifetime of the co-owners. The differences become apparent when the property is conveyed or one owner dies:
1. Tenancy in common
2. Joint tenancy AKA right of survivorship
3. Tenancy by the entirety
4. Community property rights
Concurrent Ownership
AKA Co-Ownership. Breaks down into four general categories and these four operate in comparatively the same way during the lifetime of the co-owners. The differences become apparent when the property is conveyed or one owner dies:
Tenancy in common
When two or more people own property. Unless it is spelled out in the conveyance document, it is assumed that the owners under tenancy in common own equal shares in the property. In fact, each owner can sell their separate interest, mortgage, or even transfer their interest without the consent of the other co-owners; but a co-owner cannot transfer the entire property. If one co-owner dies, his share can go to someone else if it’s stated in his will.
- Business partnerships generally own real estate under tenancy in common.
- Syndicates often operate in this manner using a limited partnership with the syndicator as the general partner and the investors as limited partners.
- When the title to real estate is conveyed to two people and the deed does not specify the form of tenancy, it is assumed as tenancy in common.
Joint Tenancy
Joint tenancy - The distinguishing characteristic of this type of ownership is known as right of survivorship. If one co-owner dies, his shares are passed on to the surviving tenants. The last surviving tenant will own the property in severalty. When the last person dies, the property is passed to the heirs of that last owner.
- Joint tenancy can involve multiple persons and they don’t have to be married.
- The important thing to understand is that when one owner dies, that owner’s interest is passed to the surviving tenant (or tenants) and not to the heir or heirs in the passing owner’s will.
- If one tenant sells their ownership interest to someone else, the original joint tenancy is terminated. ex. If Jim, Joe and Jerry hold real estate as joint tenants, but if Jim sells his interest to Audrey. So Joe and Jerry remain as joint tenants and Audrey becomes a tenant in common. Audrey cannot become a joint tenant because the original joint tenancy is terminated by an agreement. She now has a partial (or fractional) interest in the property as a tenant in common, with Joe and Jerry remaining with an undivided interest as joint tenants.
Tanancy by the Entirety
Tenancy by the entirety - Set up specifically for married couples in most states. This type of ownership also features right of survivorship in the same way that joint tenancy does. However, unlike joint tenancy this ownership type was created specifically for two individuals who are married. Joint tenancy can involve multiple persons and they don’t have to be married.
When two or more people own own equal shares in a property. Each owner can sell their separate interest, mortgage, or even transfer their interest without the consent of the other co-owners; but a co-owner cannot transfer the entire property.
Tenancy in Common
If one co-owner dies, his shares are passed on to the surviving tenants. The last surviving tenant will own the property in severalty. When the last person dies, the property is passed to the heirs of that last owner.
Join Tenancy
Set up specifically for married couples in most states. This type of ownership also features right of survivorship in the same way that joint tenancy does. However, unlike joint tenancy this ownership type was created specifically for two individuals who are married.
Tanancy by the Entirety
Community Property Rights
Community property rights - This is also designed for married couples and its used in nine states. In contrast to joint tenancy, when one spouse dies, the survivor is entitled to one-half of the community property. The other half is distributed according to the will of the deceased. If there is no will, the interests will go to the surviving spouse (or other heirs) depending upon applicable laws of the state. Community property recognizes two categories classifications of property:
* Separate property (real and personal) - what you owned before you entered the marriage. The spouse can mortgage or convey his or her separate property without the signature of the spouse who does not own the property.
* Community property (real and personal) - real estate that is purchased during the marriage.
Types of Trusts
- Living Trust
- Testamentary Trust
- Land Trust
- REIT
What is a Living Trust?
A living trust is a legal document created during a person’s lifetime that allows them to transfer assets to a trust for management and distribution.
- Hold your assets: You put your stuff (house, money, etc.) into a “trust.”
- Manage it while alive: You usually manage it yourself.
- Give it to who you want after death: It avoids the often lengthy and public process of “probate.”
You give the ownership papers (title) to a lawyer (trustee) to hold for you. But you can name yourself as the beneficiary. Or someone else if you happen to die. It’s like you have a special right (beneficial interest) to the house and you can control the property through the fiduciary (lawyer).
What is a testamentary trust?
a testamentary trust is a trust that comes into existence after you die, and it’s created through instructions in your will.
Created by a Will:
Unlike a living trust, which is created during your lifetime, a testamentary trust is established through the provisions of your last will and testament.
Goes Into Effect After Death:
The trust only becomes active after your death and after your will has gone through the probate process.
a legal document created during a person’s lifetime that allows them to transfer assets to a trust for management and distribution.
You give the ownership papers (title) to a lawyer (trustee) to hold for you. But you can name yourself as the beneficiary. Or someone else if you happen to die. It’s like you have a special right (beneficial interest) to the house and you can control the property through the fiduciary (lawyer).
A Living Trust
a trust that comes into existence after you die, and it’s created through instructions in your will.
Testamentary Trust
What is a Land Trust?
Real estate is the only asset in a land trust
A land trust is designed to provide tax and privacy advantages for the beneficiary.
Privacy:
* A land trust can help keep the actual owner’s identity private. The trustee’s name appears on public records, not the beneficiary’s.
Estate Planning:
* Land trusts can simplify the transfer of property to heirs, potentially avoiding probate.
* They can also help manage and distribute property among multiple beneficiaries.
Asset Protection:
* In some cases, land trusts can offer a layer of protection from creditors or lawsuits.
* It can make it more difficult for someone to discover that you own a particular piece of property.
Ease of Transfer:
* Transferring ownership of a beneficial interest in a land trust can be simpler than transferring the actual property deed.
What is a REIT?
REIT - A corporation or trust that combines the capital of many investors to acquire or provide financing for all forms of real property. A REIT serves much like a mutual fund for real property.
- A REIT has sole ownership of the properties the entity possesses even though it can have 100 or more investors.
- A REIT is only taxed on its retained earnings.
- 90% of the taxable income of a REIT must be distributed among its shareholders, who
- must number at least 100 investors; no fewer than five investors can own more than 50% of the value of the REIT during the last half of each taxable year.
- SEC stipulates that REITs with over 300 investors have to make their financial statements public.
What is Condominium Ownership?
A condominium is a form of property ownership characterized by the individual ownership of a specific unit coupled with the shared ownership of common areas, all governed by a legally binding condominium declaration and managed by a homeowners’ association. It is this combination of individual and shared ownership, and the legal documents that enable that type of ownership, that makes a condo a condo.
Individual Ownership of a Specific Unit:
* A condo owner holds “fee simple title” to their individual unit. This means they own that specific space outright, just like owning a single-family home.
* Each unit has a unique legal description, ensuring clear boundaries.
Shared Ownership of Common Areas:
This is the key differentiator. Condo owners also collectively own a share of the “common areas.” Known as common elements.
Common elements outside the building can include:
* Land
* Community buildings
* Swimming pools
* Tennis courts
* Boat slip for waterfront properties
* Parking spaces
Common elements inside the building can include:
* Lobby
* Hallways
* Elevators
* Underground garage
* Exercise room
* Balconies
* Laundry
* Storage areas
This shared ownership is usually defined by a percentage interest assigned to each unit.
Legal Foundation: The Condominium Declaration
What makes a property a condominium is its “legal declaration.” This is a crucial document, filed with the local government, that formally establishes the condominium regime. This declaration outlines:
* The boundaries of each unit.
* The definition of common areas.
* The rules and regulations governing the property.
* The establishment of the homeowners’ association (HOA).
HOA
Failure to pay association dues can result in the association obtaining a court-ordered judgment to have the delinquent owner’s unit sold to pay off the outstanding amount, or the association can place a lien on the individual unit.
What is a Cooperative Ownership?
Under cooperative ownership. A corporation actually owns the real estate and individuals own shares of stock in the corporation.
Apartment price equals stock price
* Tenant/shareholder obtains a proprietary lease to the apartment (owned by the corporation) for the life of that corporation. Stock is personal property, and the tenants do not own real estate. They own interest in a corporation whose only asset is the property.
- Shareholders must assume the cost of any non paying shareholders who are failing to pay their periodic assessments.
- If enough shareholders default on their assessment, the corporation might not be able to pay its mortgage and/or tax payments. In that case, the cooperative property could be sold by court order to satisfy the debt. The shareholders who never defaulted on their payments would also lose their property interests.
What is Time-Share Ownership?
Limited “Fee Simple”:
While some timeshare contracts might use the term “fee simple,” it’s often a very restricted version. It means you own the right to use the property during a specific time, not the actual physical property itself in the traditional sense.
Think of it as owning a very specific slice of time within a specific property.
Key Aspect: Time, Not Space:
The primary asset you own is the time interval, not the physical walls and floors.
What are PUD’s?
A “Planned Unit Development” (PUD) is a type of real estate development where a community is designed with a mix of housing types, like single-family homes, condos, and townhouses, often including commercial spaces and recreational amenities, all within one subdivision, typically governed by a homeowners association (HOA) and not strictly adhering to standard zoning regulations, allowing for more creative land use planning by developers; essentially creating a self-contained community with diverse housing options and shared common areas.
PUDs are not an ownership type. Like condominiums, PUDs have common elements and association dues. However, the association for PUD can’t foreclose for delinquent payments on association dues like they can in a condominium.
PUDs were created to cluster residences and thus allow for more open natural areas in the development as a method that helps to conserve natural habitats while maintaining higher density levels than typical single-family developments.
De minimus planned unit development - this means the common elements don’t add significantly to the value of the individual properties in the PUD. Your first telltale sign that the PUD is de minimus is that the monthly association dues are rather minimal. This kind of information is particularly important for lenders.
