Section 1 Unit 4

Question 1

There are numerous ways of holding ownership of a freehold estate according to how many parties share the ownership and how they share it. The primary distinction is between ownership by a single party, and ownership by multiple parties. Various trust structures enable an owner to employ a trustee to hold and manage an estate. Condominiums, cooperatives and time-shares are hybrids that combine several forms of ownership.

Answer 1

If a single party owns the fee or life estate, the ownership is a tenancy in severalty. Synonyms are sole ownership, ownership in severalty, and estate in severalty. When the would-be sole owner is a husband or wife, state laws may require homestead, dower or elective share rights to be released to allow ownership free and clear of any marriage-related claims.

The estate of a deceased tenant in severalty passes to heirs by probate.

Question 2

Co-owners are also called co-tenants

Answer 2

If more than one person, or a legal entity such as a corporation, owns an estate in land, the estate is held in some form of co-ownership.

Question 3

Estate in common

Answer 3

is the most common form of co-ownership when the owners are not married.

Question 4

The defining characteristics of tendancy (estate in common) are:

Answer 4

two or more owners
identical rights
interests individually owned
electable ownership shares
no survivorship
no unity of time

Question 5

Two or more owners

Answer 5

Any number of people may be co-tenants in a single property.

Question 6

Identical rights

Answer 6

Co-tenants share an indivisible interest in the estate, i.e., all have equal rights to possess and use the property subject to the rights of the other cotenants. No co-tenant may claim to own any physical portion of the property exclusively. They share what is called undivided possession or unity of possession.

Question 7

Interests individually owned

Answer 7

All tenants in common have distinct and separable ownership of their respective interests. Co-tenants may sell, encumber, or transfer their interests without obstruction or consent from the other owners. ( A co-tenant may not, however, encumber the entire property.)

Question 8

Electable ownership shares

Answer 8

Tenants in common determine among themselves what share of the estate each party will own. For example, three co-tenants may own 40%, 35%, and 25% interests in a property, respectively. In the absence of stated ownership shares, it is assumed that each has a share equal to that of the others.

Question 9

No survivorship

Answer 9

A deceased co-tenant’s estate passes by probate to the decedent’s heirs and devisees rather than to the other tenants in common. Any number of heirs can share in the ownership of the willed tenancy.

Question 10

No unity of time.

Answer 10

It is not necessary for tenants in common to acquire their interests at the same time. A new co-tenant may enter into a pre-existing tenancy in common.

Question 11

In a joint tenancy, two or more persons collectively own a property as if they were a single person.

Answer 11

Rights and interests are indivisible and equal: each has a shared interest in the whole property which cannot be divided up. Joint tenants may only convey their interests to outside parties as tenant-in-common interests. One can not convey a joint tenant interest.

Question 12

The defining characteristics and requirements of joint tenancy are:

Answer 12

unity of ownership
equal ownership
transfer of interest
survivorship

Question 13

Unity of ownership

Answer 13

Whereas tenants in common hold separate title to their individual interests, joint tenants together hold a single title to the property.

Question 14

Equal ownership

Answer 14

Joint tenants own equal shares in the property, without exception. If there are four co-tenants, each owns 25% of the property. If there are ten co-tenants, each owns 10%.

Question 15

Transfer of interest.

Answer 15

A joint tenant may transfer his or her interest in the property to an outside party, but only as a tenancy in common interest. Whoever acquires the interest co-owns the property as a tenant in common with the other joint tenants. The remaining joint tenants continue to own an undivided interest in the property, less the new cotenant’s share.

Question 16

Survivorship.

Answer 16

In most states, joint tenants enjoy rights of survivorship: if a joint tenant dies, all interests and rights pass to the surviving joint tenants free from any claims of creditors or heirs.

In other states, joint tenancy does not inherently include survivorship; survivorship must be expressly stated to be effected on transfer.

When only one joint tenant survives, the survivor’s interest becomes an estate in severalty, and the joint tenancy is terminated. The estate will be then probated upon the severalty owner’s death.

The survivorship feature of joint tenancy presents an advantage to tenancy in common, in that interests pass without probate proceedings. On the other hand, joint tenants relinquish any ability to will their interest to parties outside of the tenancy.

Question 17

Creation of joint tenancy

Answer 17

To create a joint tenancy, all owners must acquire the property at the same time, use the same deed, acquire equal interests, and share in equal rights of possession. They are referred to as the four unities: unity of time, title, interest and possession.

Question 18

Unity of time:

Answer 18

all parties must acquire the joint interest at the same time

Question 19

Unity of title:

Answer 19

all parties must acquire the property in the same deed of conveyance

Question 20

Unity of interest:

Answer 20

all parties must receive equal undivided interests

Question 21

Unity of possession:

Answer 21

all parties must receive the same rights of possession

Question 22

In most states, the conveyance must name the parties as joint tenants with rights of survivorship.

Answer 22

Otherwise, and in the absence of clear intent of the parties, the estate will be considered a tenancy in common. In addition, a joint tenancy can only be created by agreement between parties, and not by operation of law.

Question 23

In some states, a severalty owner may create a joint tenancy with other parties without…

Answer 23

the presence of the four unities by deeding the property to himself or herself and other parties as joint tenants.

Question 24

Termination by partition suit

Answer 24

A partition suit can terminate a joint tenancy or a tenancy in common. Foreclosure and bankruptcy can also terminate these estates.

A partition suit is a legal avenue for an owner who wants to dispose of his or her interest against the wishes of other co-owners. The suit petitions the court to divide, or partition, the property physically, according to the owner’s respective rights and interests. If this is not reasonably feasible, the court may order the property sold, whereupon the interests are liquidated and distributed proportionately.

Tenancy by the entireties is a form of ownership reserved exclusively for husband and wife. It features survivorship, equal interests, and limited exposure to foreclosure.

Question 25

Survivorship

Answer 25

On the death of husband or wife, the decedent’s interest passes automatically to the other spouse.

Question 26

Equal, undivided interest

Answer 26

Each spouse owns the estate as if there were only one owner. Fractional interests cannot be transferred to outside parties. The entire interest may be conveyed, but only with the consent and signatures of both parties.

Question 27

No foreclosure for individual debts.

Answer 27

The estate is subject to foreclosure only for jointly incurred debts.

Question 28

Termination.

Answer 28

The estate may be terminated by divorce, death, mutual agreement, and judgments for joint debt.

Some states have established a community property form of ownership. This type of ownership defines property rights of legal spouses before, during, and after their marriage, as well as after the death of either spouse.

Question 29

Community property law distinguishes real and personal property into categories of separate and community property. Separate property belongs to one spouse; community property belongs to both spouses equally.

Separate property consists of:

Answer 29

property owned by either spouse at the time of the marriage
property acquired by either spouse through inheritance or gift during the marriage
property acquired with separate-property funds
income from separate property

Question 30

Community property consists of:

Answer 30

all other property earned or acquired by either party during the marriage

For instance, John owns a car and a motorcycle, and Mary owns a car. They marry and buy a house. A year later, Mary’s father dies and leaves her $10,000, which she uses to buy furniture. John, meanwhile, sells the motorcycle and buys a computer. John rents the computer to a programmer for $50 a month. The ownership of these properties is as follows:

Question 31

A spouse owns separate property free and clear of claims by the other spouse. He or she can transfer it without the other spouse’s signature. Upon the death of the separate property owner, the property passes to heirs by will or laws of descent.

Community property cannot be transferred or encumbered without the signatures of both spouses. Upon the death of either spouse, half of the deceased’s community property passes to the surviving spouse, and the other half passes to the decedent’s heirs.

Answer 31

Tenancy in partnership is a form of ownership held by business partners, as provided by the Uniform Partnership Act. The partnership tenancy grants equal rights to all partners, but the property must be used in connection with the partnership’s business. Individual rights are not assignable.

Question 32

In an estate in trust, a fee owner– the grantor or trustor– transfers legal title to a fiduciary– the trustee– who holds and manages the estate for the benefit of another party, the beneficiary. The trust may be created by a deed, will, or trust agreement.

Answer 32

The trustee has fiduciary duties to the trustor and the beneficiary to maintain the condition and value of the property. The specific responsibilities and authorities are set forth in the trust agreement.

Question 33

Testamentary trust

Answer 33

A testamentary trust is structurally and mechanically the same as a living trust, except that it takes effect only when the trustor dies. Provisions of the decedent’s will establish the trust.

Living and testamentary trusts may involve personal property as well as real property.

Question 34

Conventional trust structure

Answer 34

The trustee holds legal title and has conventional fiduciary duties. The trustor must be a living person, but the beneficiary may be a corporation.

Question 35

The distinguishing features of the land trust are:

Answer 35

Beneficiary controls property, Beneficiary controls trustee, Beneficiary identity not on record, Limited term, Beneficial interest

Question 36

Beneficiary controls property

Answer 36

this includes occupancy and control of rents and sale proceeds

Question 37

Beneficiary controls trustee

Answer 37

the trustee is empowered to sell or encumber the property, but generally only with the beneficiary’s approval

Question 38

Beneficiary identity not on record

Answer 38

public records do not identify the beneficiary; the beneficiary owns and enjoys the property in secrecy

Question 39

Limited term

Answer 39

the term of the land trust is limited and must be renewed or else the trustee is obligated to sell the property and distribute the proceeds

Question 40

Beneficial interest

Answer 40

The beneficiary’s interest in a land trust is personal property, not real property. This distinction offers certain advantages in transferring, encumbering, and probating the beneficiary’s interest: Transferring, Encumbering, and probating

Question 41

Transferring

Answer 41

the beneficiary may transfer the interest by assignment instead of by deed

Question 42

Encumbering

Answer 42

the beneficiary may pledge the property as security for debt by collateral assignment rather than by recorded mortgage

Question 43

Probating

Answer 43

the property interests are probated in the state where the beneficiary resided at the time of death rather than the state where the property is located

Question 44

Corporation

Answer 44

A corporation is a legal entity owned by stockholders. An elected board of directors oversees the business. Officers and managers conduct day-to-day activities. Officers and directors may be held fully liable for the corporation’s actions, while shareholders are liable only to the extent of the value of their shares. Corporations, like individuals, may own real estate in severalty or as tenants in common.

Question 45

Partnership

Answer 45

In a partnership, two or more persons agree to work together and share profits. A general partnership is not a distinct legal entity like a corporation. All the partners bear full liability for debts and obligations. A limited partnership has two or more partners, one or more being general partners and the others limited partners. The general partners run the business and are liable for debts and obligations. The limited partners are liable only to the extent of their investment in the partnership. Both general and limited partnerships may own real estate.

Question 46

Limited liability company

Answer 46

A limited liability company (LLC) combines features of the corporation and the limited partnership. The LLC offers its members limited liability like a corporation, but income is passed directly to the members and is taxed to them as individual income. The management structure is flexible. Like a corporation or a partnership, an LLC may own real estate.

Question 47

A condominium is a hybrid form of ownership of multi-unit residential or commercial properties. It combines ownership of a fee simple interest in the airspace within a unit with ownership of an undivided share, as a tenant in common, of the entire property’s common elements, such as lobbies, swimming pools, and hallways.

Answer 47

A condominium unit is one airspace unit together with the associated interest in the common elements.

The unique aspect of the condominium is its fee simple interest in the airspace contained within the outer walls, floors, and ceiling of the building unit. This airspace may include internal walls which are not essential to the structural support of the building.

Question 48

Common elements are all portions of the property that are necessary for the existence, operation, and maintenance of the condominium units. Common elements include:

Answer 48

the land (if not leased)
structural components of the building, such as exterior windows, roof, and foundation
physical operating systems supporting all units, such as plumbing, power, communications installations, and central air conditioning
recreational facilities
building and ground areas used non-exclusively, such as stairways, elevators, hallways, and laundry rooms

Question 49

Declaration provisions. The condominium declaration may be required to include:

Answer 49

a legal description and/or name of the property
a survey of land, common elements, and all units
plat maps of land and building, and floor plans with identifiers for all condominium units
provisions for common area easements
an identification of each unit’s share of ownership in the overall property
organization plans for creation of the condominium association, including its bylaws
voting rights, membership status, and liability for expenses of individual owners
covenants and restrictions regarding use and transfer of units

Question 50

Organization

Answer 50

Condominium declarations typically provide for the creation of an owner’s association to enforce the bylaws and manage the overall property. The association is often headed by a board of directors. The association board organizes how the property will be managed and by whom. It may appoint management agents, hire resident managers, and create supervisory committees. The board also oversees the property’s finances and policy administration.

Question 51

Management.

Answer 51

Condominium properties have extensive management requirements, including maintenance, sales and leasing, accounting, owner services, sanitation, security, trash removal, etc. The association engages professional management companies, resident managers, sales and rental agents, specialized maintenance personnel, and outside service contractors to fulfill these functions.

Question 52

Individual units. Owner responsibilities relating to the apartment include:

Answer 52

maintaining internal systems
maintaining the property condition
insuring contents of the unit

Question 53

Common area assessments.

Unit owners bear the costs of all other property expenses, such as maintenance, insurance, management fees, supplies, legal fees, and repairs. An annual operating budget totals these expenses and passes them through as assessments to unit owners, usually on a monthly basis.

Answer 53

Should an owner fail to pay periodic assessments, the condominium board can initiate court action to foreclose the property to pay the amounts owed.

The unit’s pro rata share of the property’s ownership as defined in the declaration determines the amount of a unit owner’s assessment. For example, if a unit represents a 2% share of the property value, that unit owner’s assessment will be 2% of the property’s common area expenses.

Question 54

Cooperative association’s interest.

Answer 54

The corporate entity of the cooperative association is the only party in the cooperative with a real property interest. The association’s interest is an undivided interest in the entire property. There is no ownership interest in individual units, as with a condominium.

Question 55

Shareholder’s interest.

Answer 55

In owning stock and a lease, a co-op unit owner’s interest is personal property that is subject to control by the corporation. Unlike condominium ownership, the co-op owner owns neither a unit nor an undivided interest in the common elements.

Question 56

Proprietary lease.

Answer 56

The co-op lease is called a proprietary lease because the tenant is an owner (proprietor) of the corporation that owns the property. The lease has no stated or fixed rent. Instead, the proprietor-tenant is responsible for the unit’s pro rata share of the corporation’s expenses in supporting the cooperative. Unit owners pay monthly assessments. The proprietary lease has no stated term and remains in effect over the owner’s period of ownership. When the unit is sold, the lease is assigned to the new owner.

Question 57

Expense liability.

Answer 57

The failure of individual shareholders to pay monthly expense assessments can destroy the investment of all the other co-op owners if the co-op cannot pay the bills by other means.

Question 58

Transfers.

Answer 58

The co-op interest is transferred by assigning both the stock certificates and lease to the buyer.

A developer creates a cooperative by forming the cooperative association, which subsequently buys the cooperative property. The association’s articles of incorporation, bylaws, and other legal documents establish operating policies, rules, and restrictions.

Question 59

The shareholders elect a board of directors.

Answer 59

The board assumes the responsibility for maintaining and operating the cooperative, much like a condominium board. Cooperative associations, however, also control the use and ownership of individual apartment units, since they are the legal owners. A shareholder’s voting power is proportional to the number of shares owned.

Question 60

Time-share ownership

Answer 60

a fee or leasehold interest in a property whose owners or tenants agree to use the property on a periodic, non-overlapping basis. This type of ownership commonly concerns vacation and resort properties. Time-share arrangements provide for equal sharing of the property’s expenses among the owners.

Question 61

Leasehold time-share

Answer 61

the tenant agrees to rent the property on a scheduled basis or under any pre-arranged system of reservation, according to the terms of the lease. Generally, the scheduled use is denominated in weeks or months over the duration of the lease, a specified number of years.

Question 62

Freehold time-share, or interval ownership estate

Answer 62

tenants in common own undivided interests in the property. Expense prorations and rules governing interval usage are established by separate agreement when the estate is acquired.

Question 63

In a community property state, a basic distinction is made between

Answer 63

property acquired during a marriage and property already owned by each party at the time of marriage.

Question 64

The distinguishing features of a condominium estate are

Answer 64

fee simple ownership of the airspace in a unit and an undivided share of the entire property’s common areas.

Question 65

The “four unities” required to create a joint tenancy include which of the following conditions?

Answer 65

Parties must acquire respective interests at the same time.

Question 66

Who are the essential parties involved in an estate in trust?

Answer 66

Trustor, trustee and beneficiary

Question 67

Three people have identical rights but unequal shares in a property, share an indivisible interest, and may sell or transfer their interest without consent of the others. This type of ownership is

Answer 67

tenancy in common.

Question 68

A unique feature of a land trust is that

Answer 68

the identity of the beneficiary may not be identified.

Question 69

One difference between a cooperative estate and a condominium estate is that

Answer 69

a default by a coop owner may cause a foreclosure on the entire property instead of just a single unit, as with a condominium.

Question 70

Who owns the property in a time-share estate?

Answer 70

the property is owned by tenants in common or by a freehold owner who leases on a time-share basis.

Question 71

Unlike tenants in common, joint tenants

Answer 71

cannot will their interest to a party outside the tenancy

Question 72

When a single individual or entity owns a fee or life estate in a real property, the type of ownership is

Answer 72

tenancy in severalty.

Question 73

Which of the following is true of a cooperative?

Answer 73

A cooperative may hold an owner liable for the unpaid operating expenses of other owners.