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.
The relationship between an independent title agency and its title insurer is a unique one; we rely on each other for our mutual success. So when a claim occurs, it’s no fun for anyone. Claims are a fact of life for any insurer, but thankfully, some of the costliest claims are entirely preventable if time is taken to appropriately review and analyze information that is part of the transaction.
What are these costly and preventable claims? Based on our experience at Alliant National, the top five categories for claim files over the last three years have been in the following areas:
Missing or erroneous legal descriptions,
Lack of capacity or authority to convey title or release a lien,
Unreleased mortgages or deed of trust,
All other unreleased liens and judgments, and
Unpaid taxes and assessments.
To take this a step further, when we compared all of our closed claim files against closed claim files classified as “agent error,” we found that claims involving “agent error” tend to be more costly, particularly when it comes to the top five claims categories.
You ask, what can I do to reduce these preventable claims and thereby reduce the costs and other impacts of claims? Based on our experience, here are a few items to consider in every transaction:
Carefully read documents. Real estate transactions involve a lot of detail, and all those details are important. Take time to carefully read what the prepared instruments and documents say. This includes those that may have been delivered to you by a party to the transaction, a third-party or within a lender’s package. Do not assume anything. Here’s one example. Let’s say the lender does not include a spouse or a co-titleholder’s name on the mortgage or deed of trust. In several states, if the borrower is married, the spouse must join on the mortgage or deed of trust. Just because their name was not originally included, the lender may fall back on what the closing instructions required. In this case, it would be important to take a minute to contact the lender and make the necessary adjustments.
Do not be afraid to communicate. We’re all in a hurry, but it’s important to take the time to ask questions and be willing to ask for clarification when something is not clear. Then, of course, we need to listen to what is being said. In some cases, there may be disclosures of matters – not known until that moment – which can alter the transaction. Also, it’s helpful to consider whether everyone is using the same terminology to describe the same thing. We use a lot of jargon in this industry, so be careful not to think that “everyone uses this term” or that they understand things the same way you do.
Avoid being solely persuaded by the seller or borrower not to collect funds required at the closing. We oftentimes hear that the seller or borrower told the closer that the delinquent taxes, mortgage, or homeowner assessment was already paid outside of closing and to just disregard any payoff or estoppel letter that was previously collected. Experience tells us that you should not just take the person’s word but instead contact the creditor, lienor, or lender that is owed the funds, at a properly verified number, and confirm whether a payment has resolved or made current an amount owed. If appropriate, it may be good practice to hold back those collected funds until a certain time has passed, and it is confirmed that the account is current and/or the lien has been satisfied or released.
Spend time in understanding the subject of the closing. This includes the parties in the transaction and the property. Understanding the intricacies can help you spot types of fraud involving the conveyance of title or unpaid liens and taxes. With a critical eye, review the person’s ID and other documents that are presented since a number of fraudsters and imposters are impersonating others in transactions.
Promptly discuss concerns and matters with the underwriting and claim teams. We at Alliant National are always ready to review and discuss issues and matters of concern with our agents. Please don’t hesitate to call us. Waiting until the last minute or after closing to discuss a known issue may cause problems. In some cases, it may be too late to deal with an issue brought to the title underwriting team after the closing, as a claim may now exist.
Everyone is excited when a closing occurs and funds are disbursed, but this enthusiasm can quickly change to concern when a title matter is submitted involving that transaction. Thankfully, taking time to review, understand and analyze transaction information can reduce the possibility of errors and help avoid those top-five pesky and preventable title claims.
If you have questions, please contact the Alliant National claims team.
The number of residential property sales exploded over the past few years, but the hot real estate market may have driven at least one unexpected consequence when it comes to surveys. Amid the highly competitive market, some home buyers may have been told that it would take longer to close a transaction since surveyors were overwhelmed with numerous orders. Thus, some buyers elected to waive surveys. After purchasing the property, however, buyers may have discovered encroachment matters impacting their property or their neighbor’s property, or that a boundary line is in a different location than originally believed.
Every year the claims team receives several notices involving survey matters and boundary disputes. Here are a few scenarios that serve as a reminder about the importance of surveys, and what you can do when a transaction does, or does not, include a survey.
Scenario One: A new buyer does not obtain a survey at closing. She is visited by her neighbor a few days after purchasing the property. The new property owner believes it’s going to be a friendly visit but instead the neighbor says, “your driveway and garage are encroaching on my property, and we want it removed in 30 days or else you will be hearing from our attorney.”
Typically, such an encroachment would have been shown in a survey. Further, the title policy may not offer much relief to the beleaguered buyer in such a case.
A title policy will likely have reflected a standard survey exception in Schedule B which may read, “Any discrepancies, conflicts, or shortage in area or boundary lines, or any encroachments or protrusions, or any overlapping of improvements that would be disclosed by an inspection or an accurate and complete land survey of the Land.” Since a survey was not obtained in this scenario, this may result in the matter not being covered under the title policy.
Scenario Two: This next situation involves a seller who owns a large tract of land and decides to split the tract into three smaller lots. The seller only wants to sell and convey one of the smaller, unplatted lots. The legal description in the seller’s deed is for the entire larger tract. How will the parties determine which of the three tracks is to be sold and properly identify the location of the property and its legal description to include in the deed? The purchase agreement most likely is not clear and will require additional questions and written clarification between the agent and the parties as to what is intended to be conveyed in the transaction. Unfortunately, without clarification in such cases, the parties may eventually find themselves in an expensive lawsuit.
In either scenario, if a survey is not requested and purchased at the time of closing, it is a good practice to have the buyer sign a document that the party understands a new survey is being declined, and to keep the document in the closing file. On the other hand, if a survey is obtained ahead of closing the transaction, consider the following:
Review the survey for accuracy of the survey and the survey certification. Are the correct parties identified? Review the legal description. Do you have a signed and dated survey from the surveyor?
Carefully review the survey to locate any items beyond the boundary lines or encroaching onto the buyer’s property.
Add any specific survey matters which are reflected on the survey as exceptions in the title commitment.
Provide a copy of the survey to the buyer (and lender, if appropriate).
As a good practice, have the buyer acknowledge receipt of the survey by having the buyer sign and date either the survey or a separate document confirming receipt, and keep a copy in the closing file.
Also, in certain jurisdictions, Survey Coverage or Survey Endorsement may be available for purchase to add coverage to an Owner’s or Loan Policy. If permitted in your jurisdiction to rely on a prior survey and an affidavit, discuss such a situation and the requirements with the Alliant National underwriting team before the closing occurs.
We understand not every case requires a new survey, but a buyer may find that a survey provides an understanding of what was conveyed and some peace of mind regarding their investment.
If you have questions, please contact the Alliant National claims team.
I’m sure at some point in life, each of us has thrown up our hands and said, “I’m not worrying about the details, this is good enough.” Of course, when you deal with real property transactions, you quickly learn that the small stuff matters.
The claims team has seen several areas that can be typically resolved in the transaction or post-closing without ever rising to the level of a claim. Let’s look at three of those areas – Release of Liens, Release of Revolving Line of Credit / Home Equity Line of Credit, and Property Taxes – which all require attention to detail.
Release of Liens
Let’s say you’ve obtained the payoff letter from the correctly identified and verified lienor, closed the transaction, sent the funds to the lienor, and now you are moving on to the transaction. But wait! The lien is recorded in the county land records, so how are others to know it has been paid? Several lienors will handle recording a release in the proper county land records, but there are few lienors who fail to do so. Either the lienor sends an unrecorded release to their borrower, to the title company, or does not prepare one at all. In a few states, there are statutes that provide a timeframe in which a lienor must record the release after receipt of payment. In other cases, the instrument may have a clause that discusses the obligation of the lienor when the debt is paid. In all cases, as part of a post-closing, best practice process, a release or satisfaction should be promptly filed in the property’s county land records before the file is classified as completed. This may require a few follow-up communications with the lienor to satisfy this requirement, but it will be worth it in the long run.
Release of Revolving Line of Credit / Home Equity Line of Credit
The Revolving Line of Credit or Home Equity Line of Credit loans allow a borrower to draw funds, when needed, and the borrower can use the line of credit over and over while being secured with the property. Many closers may take the same steps as a typical payoff of a mortgage or deed of trust, but there are a few additional steps required to properly close down and have the loan released from the property. Just sending the payoff funds is not enough.
To properly address these types of loans, a written request from the borrower to close the account upon receipt of the full payoff is typically required. Many lenders request a signed letter from the borrower requesting to close the account. So, if you are wiring the funds, the seller’s written request to close the account will still need to be delivered to the lender. To provide evidence that the borrower’s written request was sent to the lender, a best practice would be to track the delivery of the request to the lender, either by facsimile, mail or email. Once you receive confirmation that it has been delivered and received, keep a copy of this information in the file along with a copy of the written request. Similar to the Release of Lien section above, a release or satisfaction should be properly filed in the property’s county land records before the file is classified as completed.
Property Taxes
Whether you are using a tax company to provide a report on the outstanding property taxes or doing the research yourself, if not handled accurately, unpaid property taxes may result in a homeowner being subjected to additional taxes and penalties or losing the property. In a few states, just looking at the county’s tax collector site is not enough as there are other entities required to be paid that are situated outside of the tax collector’s office. If you are doing business in such a state, identify all the tax entities to which taxes are due and payable when a property is conveyed or refinanced.
Another tax example involves states that are reviewing prior owner exemptions. If an exemption was deemed to have expired in an earlier conveyance, the tax collector’s office is sending letters to the current homeowner seeking payment for the difference caused by the changed exemption for the prior years. As an example, if there is a homestead exemption reflected but a company has held title to the property for several years, this may require a discussion with the tax collector’s office as to the proper calculation of taxes owed if the exemption is no longer valid. With this information, the proper amount of taxes can be collected at closing.
Our final tax example involves prior year’s unpaid taxes or issued tax certificates. In these cases, make certain the proper payment amount is collected and timely delivered to stop a tax lien sale or, if sold, any certificate holder from obtaining a tax deed. Depending on the state, the expiration of the redemption period after a tax deed is issued may result in a loss. As a best practice, the title company should confirm with the tax collector’s office or its designated entity that it has received payment and that the payment is being applied to the correct account(s).
Conclusion
Attending to the details in these three areas will provide assurance to all those involved in the transaction. Having properly addressed these matters, a seller or buyer will not have to worry about being contacted in a few months, or possibly years from now, to address these issues. If you have questions, please contact the Alliant National claims team.
