Real Property Ownership and Interests Methods of Ownership and Holding Title
Tenancy by the Severalty
When ownership of real property is in the hands of an individual or corporation it is referred to as a severalty estate. The law considers a corporation an individual which must act by corporate resolution with official decisions by the board of directors. The word severalty is used here in the sense of “severed” or separated as rights exclusive to the individual.
Law regarding property ownership may be statute law (state legislated) or common law (court precedent), depending upon the state. When two or more people are involved in ownership they may own as either Tenants in Common, or as Joint Tenants, or as Tenants by the Entireties.
#1. Tenants in Common
Tenants in Common exist when two or more people own an undivided interest in the whole of the property. That is, they each own a percentage share, which may or may not be equal, but does not represent a specific physical part of the property. The shares in a tenancy in common are independent of each other and shares may be sold or even separately mortgaged or devised.
#2. Joint Tenants
Joint Tenants also own an undivided interest in the whole, but shares must be equal, and may not be inherited since there is a right of survivorship. This means that upon the death of one of the parties, their share is automatically vested equally in the surviving partners. The shares may be sold, but if they are, that portion of the joint tenancy is dissolved and the new party becomes a tenant in common. In most states, a joint tenancy must specifically state “with rights of survivorship”, otherwise, it may be considered a tenancy in common. A joint tenancy will have:
- Unity of Time, meaning the parties have acquired the title at the same time;
- Unity of Title, meaning all interests are on the same deed;
- Unity of Interest, meaning that the shares are equal; and
- Unity of Possession, meaning there is equal right of possession. Since the title automatically vests in the survivors, no probate action is necessary.
Both Joint Tenancy and Tenancy in Common may be terminated through partition action. The dissolution of a joint tenancy is known as partition.
#3. Tenancy by the Entirety
Tenancy by the Entirety is joint tenancy specifically for a married couple. Upon the death of a spouse, the title will automatically vest in the surviving spouse. It differs from a joint tenancy in that the shares cannot be sold to a third party and the right of survivorship cannot be extinguished. Only creditors against both husband and wife can enforce a lien against the property. Married couples may choose to act as Tenants in Common or as Tenants in the Entirety. If they choose Tenants in the Entirety, then both names must appear on the deed as a married couple.
Considerations for Foreign Buyers:
The way in which foreign buyers hold title in their home country or other foreign countries may be vastly different than property ownership and the methods of taking title in the United States. For example, in the United States, there are no requirements for a specific number of days or a dollar amount for taking title.
It is best to determine the preferred method of taking title to the property prior to signing a contract to purchase property. To be fully informed, foreign buyers should meet with a real estate attorney before making an offer on real property so that the title will be correctly recorded on the deed. If title needs to be changed after the completion of the transaction, additional documentary stamps will be due on the later transfer. If it is handled correctly initially, there will not be the need for additional expense later.
Foreign buyers should be aware that the way a property is used, affects its taxation. For example, properties used for investment, rental income, vacation, or as a second home, may have different tax considerations.
Real estate sales associates, brokers, and attorneys should advise foreign buyers of the Foreign Investment in Real Property Tax Act (FIRPTA) prior to closing. When foreign buyers are aware of the tax upon purchase, they are less likely to be surprised about the tax upon selling.
- Benefits of working with a real estate attorney
- Commercial Real Estate
- Documentary Stamp Taxes
- File as an S-Corp Quickguide
- Know the difference between a 1099-A and 1099-C
- Lease Purchase vs. Lease Option - A Potential Solution for Your Buyer or Seller
- Real Property Ownership in an LLC
- Real Property Transactions Involving Foreign Individuals or Entities
- Realtor's Guide to Tax and Legal Freedom
- Short Sales from a Tax Perspective - Myth vs Truth