Vesting and Escrow - Part 1 - Chapters 56-57

Question 1

Trace the heritage of the laws governing the possession and conveyance of property interests in CA

Answer 1

A conveyance by the vested owner of a parcel, transfers title to the next owner if the person conveying ownership rights holds title.

Ownership by an individual or entity is classified as either:

• a SOLE OWNERSHIP - legally called SEVERALTY OWNERSHIP
• a CO-OWNERSHIP, of two or more persons

Question 2

Identify the various title vestings for the ownership of real estate including sole ownership and multiple types of co-ownership

Answer 2

Real estate is owned by a person (or persons) - whether individuals or entities - either by sole ownership or a co-ownership of two or more persons. Sole ownership is reflected by the use of a vesting naming an individual or entity as the one person entitled to ownership of the entire property described in the conveyance transferring title to that person. Co-ownership exist for individuals as either vested co-owners on title or as co-owners of an entity which is the vested owner holding title to the property.

Co-owners vest title in their individual names in one of four types of ownerships:

• as joint tenants
• as tenants in Partnership
• as tenants-in-common or
• as community property, which is only available to married couples and domestic partners.

Question 3

Advise a buyer on the most suitable vesting under which they may take title to property in a real estate transaction

Answer 3

Each co-owner of a property has the right to possess the entire property, lease their possessory right to occupy and use the property, sell their ownership interest in the property and encumber their ownership interest in the property. A co-owner may not exclude other co-owners form their right to possession of the property or create an easement on the property against another co-owner.

When two or more persons take title to real estate and the type of vesting is not stated, the co-owners are presumed to be tenants-in-common. Likewise, when the co-owners are spouses or domestic partners and title is not vested as a tenancy-in-common, the property is presumed to be community property. As tenants-in-common, co-owners retain the ability on death to transfer their interest in real estate to individuals other than the remaining co-owners of the property.

Question 4

Establish, maintain ansd sever co-owner’s rights of survivorship of their interest in title to real estate

Answer 4

Groups of investors numbering just a few individuals often acquire property as co-owners, to hold and operate as income-producing property. As a critical fact, they’re common venture necessitates a joint effort for the collective benefit of all the individual co-owners. Here a tenancy in Partnership is the result for ownership purposes.

Any number of co-owners can take title to real estate as joint tenants as long as they share equally in the ownership. On death, the interest of the deceased co-owner is absorbed by the surviving joint tenants to share equally.

Question 5

Distinguish joint tenancy from community property and identify the ways in which they are used by married co-owners

Answer 5

For community property, both spouses or domestic Partners need to consent to the sale, leased for more than one year or encumbrances of Community Real Estate no matter how it is vested.

Every co-owner vested as a joint tenant or community property with right of survivorship has the right to unilaterally sever the right of survivorship. The severance buy a co-owner terminates the right of survivorship and not co-owners interest.

By California law, all property acquired by spouses during marriage or by Partners during a domestic partnership is community property – regardless of the vesting – if it is acquired, managed and operated as a Community Asset by the couple.

Thus, the real estate owned by spouses or domestic Partners (unless vested as tenants-in-common) is community property for federal income tax purposes. Accordingly, the surviving spouse on receiving the property received a cost basis stepped up to the property’s fair market value on the date of death, the result of becoming the sole owner of property previously owned by the community.

Question 6

chain of title

Answer 6

Chain of title is a history of conveyances and encumbrances affecting the title from the time the original patent was granted, or as far back as records are available, used to determine how title came to be vested in the current owner.

Question 7

community property

Answer 7

Community property is all property acquired by spouses during a marriage (or domestic partnership) when not acquired as the separate property of either spouse (or partner).

Question 8

conveyance

Answer 8

Conveyance is a written document used to transfer (convey) rights to property from one person to another, such as a grant deed, quit claim deed or lease agreement.

Question 9

ownership

Answer 9

Ownership is the right of one or more persons to possess and use property to the exclusion of all others.

Question 10

severalty ownership

Answer 10

Severalty ownership is also known as sole ownership and this is ownership owned by one person only.

Question 11

stepped-up basis

Answer 11

A stepped-up basis is the setting of an asset’s cost basis to fair market value for income tax purposes when transferred by death of the owner.

Question 12

vesting

Answer 12

Vesting is a method of holding title to real estate, including joint tenancy, tenancy in common, community property and community property with right of survivorship.

Question 13

Explain the function of a preliminary title report in real estate transactions

Answer 13

A preliminary title report (prelim) is a report furnished by a title insurance company in connection with an application for a policy of title insurance which discloses the current vesting and encumbrances reflected on the public record. A title insurer has no duty to accurately report all title defects and encumbrances on the prelim.

Encumbrances set out in a preliminary title report include:

• General and special taxes
• assessments and bonds
• covenants, conditions and restrictions (CCRs)
• easements
• rights-of-way
• liens
• interests of others.

Question 14

Distinguish between a preliminary title report and an abstract of title for reliance on their content

Answer 14

A prelim is not a representation of the conditions of title or a policy of title insurance and cannot be relied on by anyone. A prelim is no more than an offer to issue a title insurance policy based on the contents of the prelim and any modifications made by the title company before the policy is issued.

The prelim and a last-minute date down search of title conditions are used by escrow and the title insurer to reveal any title problems to be eliminated before closing and, as instructed, obtain title insurance for the documents when recorded.

Conversely, an abstract of title is an accurate, factual representation of title to the property being acquired, encumbered or leased. thus, an abstract of title may be relied on by those who order them as an absolute representation of the conditions of title.

Question 15

abstract of title

Answer 15

AN ABSTRACT OF TITLE is a representation issued by a title company as a contract to be relied upon by the named person as a guarantee, not an insurance policy, listing all recorded conveyances and encumbrances affecting title to the described real estate. Prelims were once compared to abstract of title. An abstract of title is a statement of facts, an accurate, factual representation of title to the property being acquired, encumbered or least. Thus, an abstract of title may be relied upon by those who order them as an absolute representation of the conditions of title.

Question 16

date-down search

Answer 16

A DATE DOWN SEARCH is a further search of the public records performed immediately prior to closing a policy of title insurance. The prelim and a last-minute date down search of title conditions are used by escrow and the title insurer to reveal any title problems to be eliminated before closing and, as instructed, obtain title insurance for the documents when recorded. The title insurers date down of the prelim prior to closing may turn up title defects or encumbrances not included in the prelim. If so the title company withdraws its offer under the prelim, and then issues a new prelim, offering to issue a policy on different terms.

Question 17

encumbrance

Answer 17

ENCUMBRANCE is a claim or lien on a parcel of real estate and the ownership interest in the property, such as property taxes, assessments, CCRs, easements, trust Deeds or abstract of judgment. A title insurer has no duty to accurately report encumbrances affecting title on the prelim, shown as exceptions for the proposed policy of title insurance.

Question 18

preliminary title report

Answer 18

A PRELIMINARY TITLE REPORT - PRELIM is a report constituting a revocable offer by a title insurer to issue a policy of title insurance used by a buyer and escrow for an initial review of the vesting and encumbrances recorded and currently affecting title to a property. A preliminary title report is intended to disclose the current vesting and encumbrances which may be reflected on the public record affecting a property title. A prelim is not a representation of the conditions of title or a policy of title insurance. Note unlike an abstract of title, a prelim cannot be relied upon by anyone and imposes no liability on the title insurance company.