Understanding the impact of co-ownership on property is crucial for avoiding costly mistakes in real estate transactions. Major life events — such as marriage, divorce, or inheritance — can all significantly affect title and how it’s conveyed. To ensure the right parties are involved and proper procedures are followed, it’s important to grasp the key distinctions between ownership types that come into play when life changes and property conveyance intersect.
Title to real property may be held by sole individuals or entities, termed as sole ownership, or by two or more parties, termed as joint ownership. How joint owners hold title may impact how they convey title when they elect to sell the property, who can convey title if a co-owner passes away, or how property is treated if there is a dissolution of marriage. Depending on your state, the implications in each situation may determine how documents are prepared. A title company may ask for more information to have title conveyed by the appropriate grantor(s) and to also have title held by the grantee(s) pursuant to their wishes based on the permitted state laws.
Understanding the terminology is helpful when considering who may need to execute a conveyance deed or execute a mortgage/deed of trust, or how joint owners may want to take title to real property.
SOLE OWNERSHIP
Sole Ownership is just as it sounds, meaning that one person or entity owns the real property and has complete control over it.
JOINT OWNERSHIP
Tenants in Common is used when co-owners can take equal or unequal shares in the property. SeeThe Law Dictionary. Each co-owner can do what they wish with their share, but only as to their share. For example, a person with a 25% ownership interest in the property can convey their 25% interest (or less) to another person. If a co-owner passes away, their interest will pass to their estate. In this case, the heir or beneficiary of the decedent’s estate will become a tenant in common with the other owners. If the deed is silent to how the co-owners hold title, typically this joint ownership type is viewed to have been created.
Joint Tenancy with the Right of Survivorship allows co-owners to hold title jointly and equally when the four unities are present. These unities are unity of time, unity of title, unity of interest, and unity of possession. SeeFindlaw. If the four unities are broken, then the co-ownership typically changes to a tenants in common. In states that recognizes Joint Tenancy with the Right of Survivorship, upon the death of one of the owners, that ownership is automatically transferred to the remaining surviving owner or owners.
Tenancy by the Entireties is a co-ownership only available for a married couple. In this joint ownership, each spouse owns the entire estate and on the death of one spouse, the real property remains the sole ownership of the surviving spouse. In states that recognize this joint ownership, the deed may only show that they are a married couple (i.e., husband and wife) without any particular wording. However, if the deed does not identify that they are a married couple may cause the real property to be held as tenants in common. Currently there are 25 states that recognize this joint ownership.
Community Property is property owned in common by married couples, or either, during marriage, when not acquired as their separate property. SeeThe Law Dictionary. Each person has an undivided one-half interest in the property by reason of their marital status. Property that was acquired before the marriage, however, typically remains as their separate property. There are also cases in which certain property that is acquired during the marriage and is placed only in the name of one spouse, may be that spouse’s sole and separate property. In the latter, to assist with making it clear, the other spouse may typically execute a written consent and relinquish title, interest and any rights by executing a disclaimer deed and have the instrument recorded in the county land records. There are currently nine (9) states that are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Take a look at each state’s statutes as to how community property is treated in the state.
Let’s look at a few examples of these joint ownerships in action.
Scenario 1
The parties live in a state that recognizes Tenancy by the Entireties. Jake Smith and Vivian Smith acquired title as husband and wife. They are now selling the property, and the prepared deed may read as follows:
Jake Smith and Vivian Smith, husband and wife, as Grantors, to Monica Walker, a single person and Christopher Walker, a single person, as Joint Tenants with Right of Survivorship, as Grantees.
In this case, presuming both are still alive and are still married to each other, then to convey title, the grantors, Jake Smith and Vivian Smith, should execute the deed conveying title to Monica Walker and Christopher Walker.
As for the grantees, you may have noticed that the marital status also shows for each grantee (i.e., in this case, “a single person”) and how they are to hold title under their joint ownership is specifically identified (i.e., “Joint Tenants with Right of Survivorship”).
Scenario 2
Let’s use the same parties but change the situation slightly regarding the grantors. In this case, Jake Smith and Vivian Smith previously took title to the real property without any reference to their marital status. Now they are selling the property, and the conveyance deed was prepared as follows:
Jake Smith and Vivian Smith, as Grantors, to Monica Walker, a single person and Christopher Walker, a single person, as Joint Tenants with Right of Survivorship, as Grantees.
In most states, in this situation, the grantors are found to hold title as Tenants in Common. As you may recall, if prior to the conveyance Jake Smith passed away, for example, then his interest would go to his heirs or beneficiaries of his estate, depending on the probate laws of the state.
Also, in this situation, we are missing the grantor’s marital status. As a best practice, the parties’ marital status should be reflected on the deed when they acquired title and when they convey title. The purpose of this is so that any marital interest in the property may be addressed. Thus, it may be required that the spouse of the grantor also executes the deed to convey their marital interest in the property to the grantees, depending on your state.
Scenario 3
In this last scenario, what happens if Jake Smith and Vivian Smith, as husband and wife, acquired title but while in title, their marriage is dissolved? Jake Smith now says he wants to sell the property.
In this situation, a complete copy of the final judgment to dissolve their marriage should be obtained from the family court records. Also, as a best practice, the final judgment should be recorded in the county land records. Recording of the final judgment provides notice that the joint ownership was severed and how the property was distributed by the court. It is important to thoroughly read the final judgment regarding who was awarded the real property. For example, the court may order that both parties will continue to hold title, which means they most likely are holding as tenants in common. Alternatively, the court may have ordered one party to execute a deed to convey title to the other party. In the claims department, on occasion, we do find that the court’s instruction to execute, and record, a deed was not completed. This may lead to extra legwork in either having to find the other party for a deed to the other spouse and to have it recorded in the county land records, or to go back to the court for it to enter an order declaring the title is in the spouse and record the new order in the county land records.
CONCLUSION
With everyday life changes, a person may take title as a single person but may be married when they are ready to convey title, for example. From sole ownership to joint ownership, and from marital property to non-marital property, understanding terminology and gathering accurate information to uncover how parties hold title and the proper parties needed to convey title, these all play an important role in real property ownership.
This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.
A contract for deed agreement is nothing new. These agreements are between a current owner of the property (the “legal titleholder”) and a person who is interested in purchasing the property from the owner (the “equitable interest holder”) but may not be eligible for traditional financing (or for other reasons), and the owner agrees to finance the transaction. The equitable interest holder typically takes possession of the property in exchange for making monthly or other periodic installment payments, along with possible other obligations, to the legal titleholder. If all the terms in the agreement are successfully satisfied, the legal titleholder is expected to transfer the title by deed.
Contract for deed agreements are frequently not recorded in the county land records. However, as an example, Texas requires executory contracts be recorded by the seller within thirty (30) days from the date of execution or the seller may be liable for damages to the other party for noncompliance. In Texas, such a recorded executory contract is treated as a deed with a vendor’s lien. See Tex. Prop. Code § 5.076 and 5.079. Other states also have statutes addressing executory contracts.
Contract for deed agreements have been the subject of many lawsuits. Generally, a lawsuit can be the first opportunity for a non-party to know that an unrecorded contract for deed agreement exists. A claimant is either sued or discovers the conflict through other communication, typically from the equitable interest holder. The claimant, at times, files a notice under its title insurance policy seeking coverage for such disputes. As each case is different and depending on the specific title policy, a coverage determination will be unique to the situation. Therefore, it is important to be aware that contract for deed agreements exist and that they may impact a new buyer’s title or a lienholder’s interest in the property.
The claims team has encountered situations involving contract for deeds. For example, a lender may be preparing a foreclosure action involving a recorded mortgage or deed of trust when it discovers a lawsuit naming the lender’s borrower. The plaintiff alleges it entered into a contract for deed agreement with the prior owner several years earlier. The plaintiff states the prior owner failed to execute the deed to the plaintiff at the completion of the terms of the agreement and now seeks a recordable deed to the property, free and clear of the lender’s lien. The plaintiff also argues it timely satisfied all obligations under the contract for deed agreement before the seller sold the property to another and the lender’s lien attached to the property; and thus, alleges that the subsequent transaction is clouding the plaintiff’s title and is void. There may be various legal and equitable defenses for the lender in such a lawsuit, but the time and expense incurred may be significant.
Practical Pointers
Before closing on a home, there may be ways to uncover and address a contract for deed agreement before the issue culminates into contentious litigation for new buyers and lenders. Here are some steps to consider:
If the seller asserts there is a tenant occupying the property, ask if there is or has been any contract for deed agreements (a/k/a installment purchase/sale land contract) with the tenant or any other party.
If there is a contract for deed and the intended purchaser has defaulted or violated the agreement, request written documentation identifying that the contract for deed agreement is cancelled. In certain cases, this may require legal action by the seller to establish that the equitable interest is extinguished. It is recommended that this documentation be recorded.
If the terms of a contract for deed are still in effect, however, the seller and the intended purchaser mutually agree to terminate the contract, it is recommended that a written termination of the contract for deed agreement between the parties be obtained and recorded.
Last, if the intended purchaser under the contract for deed is unwilling to release their equitable interest or asserts that the legal titleholder has violated the agreement, then contact the anticipated title underwriter and the proposed lender prior to the closing date to discuss what options may be available for the situation.
A contract for deed remains a resource to help some with the home buying process. However, the impact of such an agreement can later result in a challenge to the title and impact others when a dispute arises between the parties in the agreement. If you have questions, reach out to me or any member of the Alliant National claims team.
This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.
Dealing with mortgages and deeds of trusts in a transaction seems fairly easy to address at a closing, you would think. On occasion, we see a security instrument known as the Home Equity Line of Credit (HELOC) Mortgage or Deed of Trust – a revolving credit line secured by the home’s equity – that is not treated the same way as a traditional mortgage. HELOC instruments may require additional steps to shut down and release the lien from the property.
Let’s consider a scenario:
Mr. and Mrs. Smith are the previous owners of property located at 123 Main Street, Anywhere, USA. The owner has two loans secured by the property: a $150,000 traditional mortgage and a $300,000 HELOC mortgage. Mr. and Mrs. Smith sell the property to the buyer, Tim Jones, for $475,000. As part of the closing process, the title company sends the payments to the lenders by wire transfer.
Two years later, Tim Jones receives a notice of foreclosure from the home equity line of credit lender. The lender asserts that Mr. and Mrs. Smith’s HELOC loan has a balance and was never closed. The HELOC loan once again has a balance of $300,000, and the loan is now in default. Tim Jones submits a claim.
The Lesson:
A HELOC loan typically includes a clause that gives the borrower the ability to “borrow, repay, and reborrow” from time to time, up to a maximum credit available, through a maturity date.
In our scenario, the lender may have applied the payment on the HELOC loan as a “pay down” on the loan and did not close down the account and cancel the loan two years earlier.
For a HELOC loan, the lender may require additional steps be taken to close out the loan and have the lien released from the property. In certain cases, the lender requires that the borrower execute a “Close out / Close Down” letter. Not only does the borrower(s) have to sign the letter authorizing the account to be closed, but the signed letter has to be delivered to the lender instructing the lender to do so. In some cases, a lender may even have a specific form to be used to effectuate the closing of the account.
Practice Points:
If you are planning to mail or wire payoff funds to a HELOC lender, as a best practice, if you see that the loan is a HELOC –
carefully review the lender’s instructions to close out the account;
ask questions to ensure all requirements are met;
deliver the borrower’s signed close down the account letter concurrently with the payment; and
keep a copy of the letter along with evidence on how and when you sent the “close out / close down” letter to the lender.
Even if there is a zero-dollar ($0) balance on the borrower’s account on the day of closing, you still want to ensure that the account is properly closed, and the lien released.
When you come across a HELOC mortgage, be aware that only requesting a loan payoff statement from a lender may not be enough to obtain a cancellation and release of the HELOC mortgage. By recognizing that there is a difference between a traditional mortgage versus a HELOC mortgage when it is time to pay off the loan, you will be well on your way to having the lien properly cancelled from the property.
By Martin R. Ufford Member Hinkle Law Firm,LLC Wichita, KS
I’ve had the privilege of representing title insurance companies and their insureds for the past ten years.
Each claim represents a unique challenge. With the benefit of hindsight, I have reached some conclusions that may assist agents and local counsel in avoiding claims.
Looking to avoid title claims related to unpaid mortgages and deeds of trust? We offer 4 tips
Our Claims Team has received various claims related to unpaid mortgages and deeds of trust. Here are two scenarios we have seen arise in the context of a claim:
Scenario One
The agent receives a payoff statement from the seller. The seller sends an email requesting the payoff from the lender and copies the agent on the email.
The agent relies on the email and the payoff statement to wire funds to the lender.
Later, it is discovered that the email address for the lender is fake, and the bank account receiving the payment was held by the seller, not the lender.
Scenario Two
The agent reaches out to the lender for a payoff statement. However, the closing date is approaching, and the lender has not responded.
The seller provides the agent with a printout showing a zero-balance owed on the account. The agent contacts the lender once again for a payoff statement.
The lender confirms over the phone that a zero balance is owed. The agent closes the transaction based on these representations.
Later, it is determined the original lender confirmed a zero-balance due because the loan had been sold to another lender.
An assignment of the mortgage had been recorded, and the current holder of the notes filed to foreclose.
Here are 4 tips to help you avoid these types of claims:
Always obtain a payoff statement directly from the lender. Do not rely on payoff statements provided by other parties. Your request for a payoff should include a letter of authorization from the borrower, the loan number, the property address, the borrower’s name and your fax number or email address.
Only rely on a payoff statement sent by the current holder of the note. Check the MERS system, (if the mortgage is a MERS loan), and the public records for the last assignee.
Obtain separate payoff statements directly from each lender with an interest in the property being sold or refinanced. Do not rely on representations from the borrower or other institutions regarding the balance of a loan.