Unit 7: Forms of Real Estate Ownership

Question 1

What are the 3 basic ways a fee simple estate may be held?

Answer 1

1. In severalty, where title is held by one individual or corporation
2. In co-ownershp, where title is held by two or more individuals
3. In trust, where a neutral individual holds title for the benefit of another

Question 2

Ownership in Severalty

Answer 2

Ownership of real property by one person only, also called sole ownership. The term comes from the fact that a sole owner is severed or cut off from other owners.

Question 3

Co-ownership (Concurrent Owners)

Answer 3

Title ownership held by two or more persons.

Question 4

Tenancy in Common

Answer 4

A form of co-ownershp by which the owners individually hold an undivided interest in real property as if sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have right of inheritance.

Question 5

When two or more new owners acquire title to a parcel of real estate in PA and the deed does not stipulate tenancy, how will they acquire title?

Answer 5

They acquire title, by operation or rule of law, as tenants in common. But if the conveyance is made to husband and wife with no further explanation, in PA a tenancy by the entirety is created.

Question 6

Joint Tenancy

Answer 6

Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the dependent’s interest passes to the surviving joint tenant or tenants by the right of survivorship. To establish a joint tenancy with right of survivorship, the intentions of the parties must be stated clearly.

Question 7

Right of Survivorship

Answer 7

Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a join tenant, the dependent’s interest passes to the surviving joint tenant or tenants by the right of survivorship.

Question 8

How is a Joint Tenancy created?

Answer 8

A joint tenancy can be created only by the intentional act of conveying a deed or giving the property by will or living trust. It cannot be implied or created by operation of law. The deed must specifically state the parties’ intention to create a joint tenancy, and the parties must be explicitly identified as joint tenants.

Question 9

List the 4 groups or unities needed to create a Joint Tenancy (PITT).

Answer 9

1. Unity of Possession - all joint tenants hold an undivided right to possession
2. Unity of Interest - all joint tenants hold equal ownership interests
3. Unity of Time - all joint tenants acquire their interest at the same time
4. Unity of Title - all joint tenants acquire their interest by the same document

Question 10

List the 4 requirements for unities.

Answer 10

1. Title is acquired by one document or deed
2. The deed is executed and delivered at one time
3. The deed conveys equal interests to all of the parties
4. The parties hold undivided possession of the property as joint tenants

Question 11

Unity of Possession

Answer 11

(Joint Tenancy) All joint tenants hold an undivided right to possession

Question 12

Unity of Interest

Answer 12

(Joint Tenancy) The deed is executed and delivered at one time

Question 13

Unity of Time

Answer 13

(Joint Tenancy) All joint tenants acquire their interest at the same time

Question 14

Unity of Title

Answer 14

(Joint Tenancy) All joint tenants acquire their interest by the same document

Question 15

How is a Joint Tenancy terminated?

Answer 15

A joint tenancy is destroyed when any one of the 4 unities of joint tenancy is terminated. The new owner will own an undivided interest in severalty as tenant in common with the remaining joint tenants.

Question 16

How is the disposition of the deceased joint tenant’s ownership governed in PA?

Answer 16

The disposition of the deceased tenant’s ownership is governed by the joint tenancy with right of survivorship rather than by the person’s will or the state’s inheritance laws (although a dangerous substitute, joint tenancy is sometimes referred to as “the poor man’s will”). PA law requires that the right of survivorship be clearly state for survivorship to occur. For example, the document would say, “A and B as Joint Tenants with Right of Survivorship and not as Tenants in Common.”

Question 17

Partition

Answer 17

The division of co-tenants’ interests in real property when the parties do not all voluntarily agree to terminate the co-ownership; takes place through court procedures.

Question 18

Tenancy by Entirety

Answer 18

The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse, the survivor becomes the owner of the property. During their lives, they can convey title only by a deed signed by both parties.

Question 19

List 4 ways a Tenancy by Entirety can be terminated.

Answer 19

1. Death of one spouse
2. An agreement between both parties (through the execution of a new deed)
3. A Divorce (which leaves the parties as tenants in common)
4. A court-ordered sale of the property to satisfy a judgment against the husband and wife as joint debtors (the tenancy is dissolved so that the property can be sold to pay the judgment)

Question 20

Separate Property

Answer 20

Under community property law, property owned solely by either spouse before the marriage, acquired by gift or inheritance after the marriage, or purchased with separate funds after the marriage.

Question 21

Community Property

Answer 21

A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A holdover of Spanish law, found predominately in western states, the system was unknown under English common law.

Consists of real and personal property acquired by either spouse during the marriage. Any conveyance or encumbrance of community property requires the signatures of both spouses. Spouses can will their half of the community property to whomever they desire, but upon the death of one spouse, the surviving spouse automatically owns one-half of the remaining property. If one spouse dies without a will, the other half is inherited by the surviving spouse or by the decendent’s other heirs, depending on state law. Community property does not provide an automatic right of survivorship as joint tenancy does.

Question 22

Trust

Answer 22

A fiduciary arrangement whereby property is conveyed to a person or institution, called a trustee, to be held and administered on behalf of another person, called a beneficiary. The one who conveys the trust is called the trustor.

Question 23

Can real estate be held in trust?

Answer 23

Yes, depending on the type of trust and its purpose, the trustor, trustee, and beneficiary can all be either people or legal entities, such as corporations. Trust companies are corporations set up for this specific purpose. Real estate can be owned under living or testamentary trusts and land trusts. It can also be held by investors in a real estate investment trust (REIT).

Question 24

Living Trust

Answer 24

A trust created by agreement during a property owner’s lifetime

Question 25

A Testamentary Trust

Answer 25

A trust established by will after the property owner's death

Question 26

Explain how a Living Trust works.

Answer 26

In a living trust, the property towner (trustor, grantor or settler) transfers ownership of real and personal property to a trustee. The trustee is often the trustor. In this way, the owner continues to control the assets of the trust. The trustee may transfer property into and out of the trust, subject to the trust agreement. Upon the death of the trustee, the property passes to the beneficiary or beneficiaries without the need for probate. In the case of community property, the husband and wife may transfer real and personal property into a trust and name themselves as joint trustees with rights of survivorship. Upon the death of the surviving trustee, the estate is distributed to the beneficiary or beneficiaries.

Question 27

Deed of Trust

Answer 27

A financing document similar to a mortgage

Question 28

Deed in Trust

Answer 28

Creation of a living trust, testamentary trust or land trust

Question 29

Partnership

Answer 29

An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law, a partnership is regarded as a group of individuals rather than as a single entity.

Question 30

General Partnership

Answer 30

A general partnership is a typical form of joint venture in which each general partner shares in the administration, profits and losses of the operation.

Question 31

Limited Partnership

Answer 31

A limited partnership is a business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments.

Question 32

Uniform Partnership Act

Answer 32

In PA, under this act, a partnership is recognized as a legal entity and can hold title in the partnership's name because under common law, a partnership is not a legal entity and technically cannot own real estate-individual partners must hold title as tenants in common or joint tenants.

Question 33

Uniform Limited Partnership Act

Answer 33

in PA, under this act, a limited partnership is recognized as a legal entity that can hold title to property in the limited partnership's name because under common law, a partnership is not a legal entity and technically cannot own real estate-individual partners must hold title as tenants in common or joint tenants. Profits and losses are passed through the partnership to each partner, whose individual tax situation determined the tax consequences.

Question 34

What must be done if one partner in a General Partnership dies?

Answer 34

The general partnership must be dissolved and reorganized if one partner, dies, withdraws, or goes bankrupt.

Question 35

Corporation

Answer 35

An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures. Suffers from double taxation.

Question 36

S-Corporation

Answer 36

A corporation composed of 100 or fewer shareholders, offering small businesses may of the benefits of a corporation but avoiding double taxation. Only the dividends distributed to shareholders are taxed as part of their individual incomes. The favorable tax treatment may be lost and the entity redefined as some other form of business organization, however, if the IRS determines that the S corporation failed to comply with strict requirements regulating its structure, membership and operation.

Question 37

Limited Liability Company

Answer 37

An alternative, hybrid business entity with the combined characteristic and benefits of a limited partnership and and S corporation that is established according to the laws of the state in which the LLC is chartered.

Question 38

Condominium

Answer 38

The absolute ownership of a unit in a multiunit building based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned as tenants in common with the other condominium owners.

Question 39

What is another name for Condominium Laws?

Answer 39

Horizontal Property Acts. Laws under which the owner of each unit of a condominium hold a fee simple title to the unit. The individual unit owners also own a specified share of the undivided interest in the remainder of the building and land, know as common elements (land, courtyards, lobbies, the exterior structure, hallways, elevators, stairways, the roof, recreational facilities).

Question 40

Common Elements

Answer 40

Parts of a property that are necessary or convenient to the existence, maintenance, and safety of a condominium or are normally in common use by all the condominium residents. Each condominium owner has an undivided interest in the common elements.

Question 41

Pennsylvania Uniform Condominium Act

Answer 41

The state law adopted from the national model act that governs the development and operation of condominiums. The law also provides for certain disclosures to purchasers of condominium units.

Question 42

What does a Declaration of Condominium include?

Answer 42

1. a legal description of the condominium units and the common elements (including limited common elements - those that serve only one particular unit) 2. the condominium's bylaws, governing the operation of the owners' association 3. a survey of the property 4. An architect's drawings and surveyor's legal descriptions, illustrating both the vertical and horizontal boundaries of each unit 5. Any restrictive covenants controlling the rights of ownership

Question 43

How many days before a prospective purchaser(s) of a condominium signs a sales contract must they receive a public offering statement?

Answer 43

15 days

Question 44

How many separate categories of information must a public offering statement include?

Answer 44

22, including such items as bylaws, rules and regulations, projected operating budgets for the building, liens or encumbrances on the property, and so forth.

Question 45

If a condominium purchaser is not properly provided the public offering statement, what type of recourse does she have?

Answer 45

The purchaser may cancel the contract without penalty within 15 days after receiving the material. In addition, the prospective buyer may recover an amount equal to 5 percent of the unit's sale price, up to a maximum of $2,000 or actual damages, which is greater.

Question 46

Within how many days do condominium buyers have a right to void the agreement of sale if they receive the resale certificate and condominium documents after they've signed an agreement of sale?

Answer 46

Within 5 days after receiving the information

Question 47

Cooperative

Answer 47

A residential multiunit building whose title is held by a trust or corporation that is owned by and operated for the benefit of persons living within the building, who are the beneficial owners of the trust or stockholders of the corporation, each possessing a proprietary lease.

Question 48

Time-share

Answer 48

A form of ownership interest that may include an estate interest in property or a contract for use, which allows use of the property for a fixed or variable time.

Question 49

What is PITT?

Answer 49

The four unities of possession: 1. Possession 2. Interest 3. Time 4. Title