October 30, 2024
Gaithersburg, MD--When purchasing a new home, or a parcel of land, the Buyer will have many important questions to ask and decisions to make. Who is going to be my Realtor and Lender? How does the settlement or closing process work? How much is all of this going to cost? But perhaps the most important question to ask, and decision to make, is how are you going to take title to the property?
It will be discussed in greater detail below, but the reason this is such an important decision is that the method of taking title will determine who obtains ownership if one of the owners passes away. Or perhaps an owner is sued and gets a judgment against them. Can the creditor take the family home? These are the everyday issues that can be life changing if title to the property is incorrect.
There are several ways to take title to property. When more than one person takes title to property, this is known as a “concurrent ownership interest.” Each co-owner has an ownership interest in the entire (or whole parcel of) property. The three forms of concurrent ownership are Joint Tenants, Tenants in Common, and Tenants by the Entirety.
The specifics of the various ownership interests may vary by State, so it is crucial that the choice of tenancy is discussed with an experienced real estate attorney. Sometimes, the choice of wording can make all of the difference in the world, and Buyer’s are cautioned to review the exact wording with their attorney. A summary of the general rules of law regarding the various tenancies follows.
1. JOINT TENANTS. A Joint Tenancy exists whenever two or more persons own an entire, undivided interest in a particular piece of property. The distinguishing characteristic of a Joint Tenancy is the right of survivorship. Upon the death of one of the Joint Tenants, the surviving Joint Tenant continues to retain an undivided ownership interest in the property. If there is more than one surviving Joint Tenant, the remaining Joint Tenants continue as co-owners of the property until there is only one last survivor. The last survivor then has sole ownership in the entire property.
Generally speaking, most State laws will not imply a Joint Tenancy. In fact, when the intent to create a Joint Tenancy is not clearly expressed, most courts may hold that the conveyance created is a Tenancy in Common (see discussion below). Therefore, for the purchasers of property wishing to obtain title to property with the above mentioned rights, it is suggested that the purchasers expressly state that they wish to obtain title as “Joint Tenants with the Right of Survivorship,” and such words must be set forth in the Deed.
In most cases, a Joint Tenant may sever his or her undivided ownership in the property by conveying that interest to a third party. Thereafter, the new owner holds title to the property as a Tenant in Common with the remaining Joint Tenants.
2. TENANTS IN COMMON. The key distinguishing factor between a Tenancy in Common and Joint Tenants with Right of Survivorship is that a Tenancy in Common is concurrent ownership with no right of survivorship. Each individual owner has a distinct, proportionate, undivided interest in the property, which is freely transferable by inheritance and is subject to the claims of the creditors of the particular owners. Tenants in Common do not necessarily need to own equal undivided interests in the property. Although each owner is entitled to possession of the whole property, Tenants in Common may acquire their interests at different times by different instruments and may have undivided interests. Unless otherwise stated, however, each Tenant in Common is presumed to take an equal share in the property. For example, A and B own a parcel of property as Tenants in Common. A has an undivided forty percent (40%) ownership interest, and B has an undivided sixty percent (60%) ownership interest. A still has the right to possess and enjoy the property in a manner equal to that of B, so long as the concurrent ownership lasts. However, either concurrent owner may, at any time, and without the consent of the other, freely sell, assign, or convey his ownership interest.
Unfortunately, an individual creditor of one of the owners can attach or take one of the owner’s interest in the property. Thus, by way of example, if a couple owns a house and they take title as Tenants in Common, and then someone sues and gets a judgment against one of the owners, the judgment creditor can now place a lien against the property and it would attach to that owner’s share of the property. That judgment would have to be paid off by the one owner in order to sell the property.
3. TENANTS BY ENTIRETY. Ownership as Tenants by the Entirety is similar to a Joint Tenancy with Right of Survivorship, subject to three significant differences. First, Tenants by the Entirety must be married. Second, neither spouse can sever his or her ownership interest in the property without the consent of the other. In other words, an attempted conveyance to a third party by one spouse alone will not eliminate the right of survivorship, as such conveyance would be invalid. This means that one spouse cannot sell or mortgage any part of the property without the consent of the other spouse.
Finally, with the exception of certain Federal tax liens, the ownership interest of one Tenant by the Entirety cannot be reached by the other spouse’s individual creditors. The only ways to terminate the co-ownership interest of Tenants by the Entirety are by the death of either spouse, divorce (in which case the parties become owners as Tenants in Common), or mutual agreement.
Another related aspect of taking title to real estate is the type of Deed that is prepared. This can vary by State, and even by local custom, so it is especially important that this matter is discussed with your attorney and addressed in the Contract of Sale.
There are three basic types of Deeds conveying property.
1. SPECIAL WARRANTY DEED. With a Special Warranty Deed, the grantor/seller warrants that she did nothing personally during her ownership of the property which would create a defect in the title to the property. It is generally understood that title insurance is important in all transactions. Because the warranty in a special warranty Deed is limited in time, the need for title insurance becomes even more significant in States where a Special Warranty Deed is the norm.
2. GENERAL WARRANTY DEED. The grantor, giving a General Warranty Deed, warrants that the title is free of any defects, either prior to his ownership of the property or arising out of his ownership in the property. The grantor warrants to the purchaser that the title to the property is good from the beginning of time until the purchaser takes title.
3. QUITCLAIM DEED. A quitclaim deed transfers to the purchaser any title which the seller/grantor has. This Deed gives no assurances (no covenants or warranties) that the title is good. The seller is merely giving to the purchaser whatever title the seller has, if any. This type of Deed is usually used to cure a title defect or convey title when the grantor is unsure as to the status of title. Often, we will see this type of Deed in a divorce case, or perhaps in a case in which there is some question as to whether or not someone truly has an ownership interest in a piece of property. With a quitclaim Deed, the grantor is essentially saying, “I do not know what, if anything, that I own, but if I have any interest in the property, I am conveying it to you.”
As can be seen, the method of taking title to real estate is a very important decision and, coupled with the type of Deed that is being utilized, a new buyer can avoid many future disputes, costs and even the possibility of losing the house or land by taking a few minutes to discuss these issues with their attorney.
At Kriss Law/Atlantic Closing and Escrow and Village Settlements, an Atlantic Closing and Escrow Company, we recognize the importance of these decisions and our attorneys are always available to answer any questions that a Buyer or Seller may have with regard to the tenancy in a Deed, as well as the type of Deed to be prepared. It is much better to spend a few minutes discussing this with one of the attorneys before settlement or closing, as opposed to waiting until a problem arises and then learning that the matter was not properly addressed.
David Parker is an attorney and the Managing Director of Village Settlements-an Atlantic Closing and Escrow Company. His columns have appeared regularly in local newspapers, magazines, and newsletters. He is the co-author of the book, “Real Estate Practice in DC, Maryland and Virginia.” If you have a topic that you would like him to write about, he can be reached at dparker@villagesettlements.com
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