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Real Estate Ownership

 

This LegalCapsule,™  prepared by the Auerbach Law Firm, is a plain-English explanation of real estate ownership. In an effort to be brief, many points may be oversimplified. Readers are therefore cautioned to check with our offices or another lawyer as to the particulars of their case; this generalized information should not be construed to be formal legal advice.


"Real estate" refers to property that is land and structures affixed to the land. The law relating to real estate has developed over a period of many years and incorporates the law of other subjects, such as contracts and negligence. The following are some commonly asked questions regarding real estate.

What should an agreement to buy or sell real estate contain?

What happens at the real estate settlement?

What are the different types of ownership in real estate?

What are the responsibilities of property owners to persons entering the property?

Q. What should an agreement to buy or sell real estate contain?

A. A real estate purchase agreement is a contract, and therefore must contain the elements that are required by contracts in general. Thus, the parties entering the agreement must have the capacity and intention to do so and there must be something of value given by both sides. In addition, most states require that a contract regarding real estate must be in writing to be enforceable.

No particular form of the agreement is required.  Whatever the format, the agreement should contain the names of the purchaser and seller, a description of the property to be conveyed, the purchase price and the terms of the sale. The terms generally include: the time period in which settlement (actual transfer of the property) is to occur; the financing to be utilized, and any points (percentages of the loan amount) payable by either party to the lender; the amount of deposit to be placed by the purchaser and with whom placed (often, the real estate broker holds the deposit); any contingencies or conditions affecting the sale (such as conditioning the purchase on the purchaser's ability to obtain financing within a certain time period or selling a presently owned residence); and what would happen in the event either party defaults.

Q. What happens at the real estate settlement?

A. The real estate settlement is the occasion when the purchase and sale is completed; that is, the title to the property is transferred to the purchaser.

The parties pay the expenses that are usually required at real estate settlements, such as transfer taxes and recording costs, broker's commissions, title search fees and title insurance premiums, fees for document preparation, appraisal costs, escrow requirements of mortgage lenders, points payable to the lender, and a pro-rata division of real estate taxes.

A summary of the settlement transaction is usually contained in a "settlement statement." The form of the settlement statement and settlement procedure is governed by a federal law known as the Real Estate Settlement Procedures Act. The Act requires that the parties be notified, in advance, of the settlement costs to be incurred at the settlement.

Q. What are the different types of ownership in real estate?

A. In most states, real estate can be owned, or titled in different ways:

  • Sole Ownership

This is property owned by a single person or entity.

  • Tenants In Common

This is property held by two or more persons. In this type of ownership, each owner has a right to the whole of the property, subject to the rights of the co-owners. The interest of each is the proportionate share depending on the number of owners. A co-owner as a tenant in common does not have a right of survivorship as to the other owner's interests. Thus, the property interest of a co-owner passes to the owner's heirs, rather than to the co-owners, upon death. Owners can sell their interest without the consent of the co-owners.

  • Joint Tenants

This is another type of ownership held by two or more persons. Unlike tenants in common, joint tenants have a right of survivorship. Thus, the interest of a co-owner, upon the co-owner's death, goes to the remaining co-owners and not to the heirs of the deceased. Owners must acquire the property simultaneously in order to hold the property as joint tenants.

  • Tenants By The Entireties

Twenty-nine states and the District of Columbia recognize this type of ownership. It is similar to joint tenancy, except that it can only be held by husband and wife. An important feature of this type of ownership is that under the law of many states which recognize this tenancy, a creditor of only one of the parties cannot liquidate the property to satisfy the party's debt to the creditor. For example, if one spouse borrows money on a "signature" loan or a credit card and thereafter defaults on payments, the lender or credit card issuer will not be able to liquidate the real estate held as tenants by the entireties even if a court judgment is obtained against the spouse only. For this reason, many lenders require both parties to sign the loan documents.

Q. What are the responsibilities of property owners to persons entering the property?

A. Owners are required to exercise reasonable care to prevent injury to others. Many states classify visitors into the categories known as invitees and licensees. Invitees are those persons coming on the owner's property for the benefit, usually financial benefit, of the owner. Typically, invitees are customers of commercial property owners. Property owners owe the highest duty to invitees, requiring the exercise of reasonable care to prevent injury from any dangerous conditions upon the property. Licensees are persons lawfully on the property but not necessarily for the financial benefit of the owner. The person delivering pizza to a homeowner is a licensee. As to licensees, property owners have a duty not to create unreasonable dangerous conditions.

Those states that do not recognize the distinctions between invitees and licensees use the general rule that owners are required to exercise due care to prevent unreasonable harm to visitors.


 

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