Types of Homeownership
Buyers should understand the types of real estate ownership when buying a home or starting estate planning. The type of ownership you select will impact your rights throughout your homeownership and beyond.
Do you want sole ownership, or are you open to co-ownership? Do you want an undivided interest in the real property?
This article will explore the different types of property ownership, including fee simple, joint tenancies, and more.
Fee simple absolute is the most common form of homeownership. This type of ownership has the following features:
- The holder of a title in fee simple has full possessory rights now and in the future for an infinite duration.
- There are no limitations on its inheritability.
- The titleholder can sell the entire property or any portion of the property.
- The owner can dispose of the property by will when they die.
For example, in a condominium or townhouse sale, the owner often buys the residential unit for a fee simple. They then have the right to use community property. Each unit has its own tax bill, deed, mortgage, and ownership rights but shares in the maintenance of the common areas. Most states have a "Condominium Deed," which will reference the separate maintenance agreement.
Joint Tenancy With Right of Survivorship
In a joint tenancy with right of survivorship (JTWROS), each owner holds an undivided share of the estate. There is a right of survivorship, which means when one joint owner dies, the surviving owner or owners have an undivided right to the entire estate. This ownership is not subject to the rights of the deceased co-owner's heirs, avoiding probate.
Tenancy in Common
A tenancy in common is another type of joint ownership. Each owner has an undivided interest in the entire property. Each tenant has an equal right of possession. There are no survivorship rights. Each tenant has a distinct proportionate ownership interest, which passes by succession. If a deed does not state "with right of survivorship," the presumption favors tenants in common.
Tenancy in the Entirety
Tenancy in the entirety is a marital estate, only created between married couples. It is similar to a joint tenancy, except that the right of survivorship cannot be destroyed since severance by a surviving spouse is not possible. If one of the spouses dies, the property automatically passes to the surviving spouse.
In many states, there is a presumption that any transfer to a husband and wife creates a tenancy in the entirety. Many states have abolished this type of tenancy. Instead, they favor the couple taking title to the property as joint tenants with the right of survivorship.
In states with community property laws, property acquired during a marriage belongs to both spouses equally. Community property is not limited to the real estate the couple purchases. It includes personal property, such as art and jewelry. If the couple divorces without a prenuptial or postnuptial agreement, they get an equal share of community property.
The following community property states use community property laws to distribute assets following a divorce:
- New Mexico
Alternate Methods of Homeownership
The types of ownership and co-ownership mentioned above are not the only ways to own property. For example, real estate investors could form an entity or a trust to own property. A living trust is another way to own property and avoid probate when the grantor dies.
A living trust requires a grantor (owner of the property), the property, a trustee, and a beneficiary. The grantor transfers the property into the trust for the beneficiary. The trustee then manages the trust for the beneficiary. There are two types of living trusts: a revocable living trust and an irrevocable living trust.
In a revocable living trust, the grantor maintains some control over the trust. Often the grantor is the trustee. By contrast, in an irrevocable living trust, the grantor relinquishes control over the trust.
Most of the examples in this article refer to people as owners or co-owners of real estate. Business partnerships can also own real estate. Real estate investors are one example of a business partnership that owns real estate. Often the partners structure their business to avoid personal liability.
One popular business structure is the limited liability company (LLC). An LLC has a general partner and limited partners. The limited partners buy shares of the LLC but leave its management to the general partner. The shareholder's liability is never more than the value of their share. The LLC shields their personal assets. So if a bank places a lien on a home the LLC owns, the bank can't go after any of the limited partners.
Buying a home is a big undertaking with many challenging decisions. A real estate attorney can help guide you through the homebuying process and advise you of your legal rights.
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