Real Estate Ownership

Question 1

Which of the following is the difference between the value of a property and the total amount of liens against the property?

Answer 1

Equity

• Equity is not directly affected by the purchase price for the property; nor is it directly affected by the amount of down payment put forth at the time of the purchase. Many owners are under the misguided belief that a high down payment will always result in high equity. This is only true if the market value of the property remains the same as it is when the down payment is given; or increases after the down payment is given. If the market value of the property decreases, the equity in the property will decrease also, regardless of the purchase price and down payment amount.

Question 2

A parcel of residential real estate is held in a life estate. The life tenancy is held by a woman, and she is the measuring life. Her nephew is the remainderman. The life tenant wants to take out a loan using the property as collateral. Which of the following statements is correct?

Answer 2

Both the life tenant and the remainderman will need to sign the loan documents to protect the lender’s security interest in the property.

*The life tenant (i.e., the aunt) can take out a loan on the property without the remainderman’s signature. However, if only the life tenant life signs the loan documents, then the debt will die with her. In order to protect the lender’s security interest in the event of the aunt’s death, both the life tenant and the remainderman will need to sign the loan documents. The same would be true if the property were being sold: Both the life tenant and the remainderman would need to sign the deed in order to ensure that the buyer’s ownership interest in the property would continue after the life tenant dies.

Question 3

There are four separate, recently-sold parcels of real estate on Main Street. Parcel 1 was owned by a Real Estate Investment Trust and was voluntarily conveyed to the City where the property is situated. Parcel 2 was owned by four unmarried brothers and was voluntarily conveyed to their father. Parcel 3 was owned by two corporations, until one corporation recently sold its ownership interest in the property to the other corporation. Parcel 4 was owned by Mr. and Mrs. Kim, but was recently sold to Amanda Lee, Trustee of the Lee Family Revocable Trust. What do all of these buyers have in common?

Answer 3

Ownership in Severalty

*’Ownership in severalty’ occurs when there is only one owner of a parcel of real estate. The owner can be, for example, an individual, a corporation, a governmental entity, a trust, or a partnership. As long as it is sole ownership, it is an ownership in severalty (aka “an estate in severalty”). Test-Taking Tip: This is frequently tested because of the word “several” in “severalty.”