Lesson 1: Chapter 7 - Interests in Real Estate Flashcards
Four Government Powers
PETE:
- Police Power
- Eminent Domain
- Taxation
- Escheatment
Police Power
Every state has the power to enact legislation to preserve order, protect the public health and safety, and promote the general welfare of its citizens.
The state’s authority is passed on to municipalities and counties through legislation called Enabling Acts.
For example: police power is used to enact environmental protection laws, zoning ordinances, and building codes. Regulations that govern the use, occupancy, size, location, and construction of real estate also fall within government police powers.
Eminent Domain
The right of the government to acquire privately owned real estate for public use.
Local units of government and quasi-governmental bodies are given the power of eminent domain by the Illinois Constitution and by the Illinois Code of Civil Procedure.
Condemnation
(the actual process of taking the property).
The process by which the government exercises their right of Eminent Domain, by either judicial or administrative proceedings. In the taking of property, just compensation must be paid to the owner, and the rights of the property owner must be protected by due process of law.
Sometimes in cases where the owner’s consent cannot be obtained, the government agency can initiate condemnation proceedings to acquire the property.
Quick-Take
In certain situations, Illinois law permits a summary proceeding in which a plaintiff/condemner may obtain immediate fee simple title to real property, including the rights of possession and use. Such a proceeding in Illinois is called a quick-take.
In a quick-take, the plaintiff must deposit a sum with the county treasurer that is preliminarily considered by the court to be just compensation; this can be litigated later. A quick take might be appropriate, for example in the following situations:
- The state of Illinois or the Illinois Toll Highway Authority takes property to construct, maintain, and operate highways.
- A sanitary district takes property to remove obstructions in a river, such as the Des Plaines River or Illinois River.
- An airport authority takes property to provide additional land for airport purposes.
Kelo v. City of New London
In the past, the proposed use for taking property in eminent domain was to be for the public good. However, in June 2005, the U.S. Supreme Court in Kelo v. City of New London, significantly changed the definition of public use.
The court held that local governments can condemn homes and businesses for private or economic development purposes. In Kelo, a development agent, on behalf of the city, initiated condemnation proceedings on land owned by nine property owners who refused to have their property taken. The development plan involved land for commercial, residential, and recreational purposes. The court noted that the development plan was not going to benefit a particular class of identifiable individuals. Further, although the owners’ properties were not blighted, the city determined that a program of economic rejuvenation was justified and entitled to deference. Economic development fit within the broad definition of public purpose. The court found that the city’s proposed disposition of petitioners’ properties qualified as a public use within the meaning of the Takings Clause of the Fifth Amendment of the U.S. Constitution.
In this case, the city had invoked a state statute that authorized the use of eminent domain to promote economic development. The court decision left it to the states to establish rules that cities must follow when exercising eminent domain powers.
After Kelo, Illinois enacted the Equity in Eminent Domain Act.
Equity in Eminent Domain Act
After Kelo v. City of New London, Illinois enacted this law which places the obligation on the government to prove that an area is blighted before forcing property owners to sell their property for private development projects. In addition, the act helps owners receive fair market value for their property, requires relocation costs for displaced residents and businesses, and pays attorneys’ fees when property owners successfully sue to keep their property.
Taxation
A charge on real estate to raise funds to meet the public needs of a government. Taxes on real estate include annual real estate taxes assessed by local governmental entities, including school districts; taxes on income realized by individuals and corporations on the sale of property; and special fees that may be levied for special projects. Nonpayment of taxes may give government the power to claim an interest in the subject property.
Escheatment
A process by which the state may acquire privately owned real or personal property. State laws provide for ownership to transfer, or escheat, to the state when an owner dies and leaves no heirs and also leaves no will or living trust instrument that directs how the real estate is to be distributed.
In some states, real property escheats to the county where the land is located. In other states, it becomes the property of the state. Escheatment is intended to prevent property from being ownerless or abandoned.
In Illinois, real property will escheat to the county in which it is located rather than to the state.
Estate in Land
The degree, quantity, nature, and extent of an owner’s interest in real property.
Many types of estates exist, but not all interests in real estate are estates. To be an estate in land, an interest must allow possession, meaning the holding and enjoyment of the property either now or in the future, and must be measured according to time. Historically, estates in land have been classified by their length of time of possession (i.e. as freehold estates and leasehold estates).
Freehold Estates
Last for an indeterminate length of time, such as for a lifetime or forever. They include fee simple (or indefeasible fee), defeasible fee, and life estates. The first two of these estates continue for an indefinite period and may be passed along to the owner’s heirs. A life estate is based on the lifetime of a person and ends when that individual dies.
Leasehold Estates
Last for a fixed period of time. They include estates for years and estates from period to period. Estates at will and estates at sufferance (type of leasehold estate in which a tenant stays in possession of a property after the lease has expired or has been legally terminated without the consent of the owner/LL) also are leaseholds, though by their operation, they are not generally viewed as being for fixed terms.
The traditional freehold and leasehold estates found in most states are also recognized under Illinois law.
Fee Simple Estate
Fee simple estates are of unlimited duration - because of this they are said to run “forever”. Upon the death of the owner, a fee simple passes to the owner’s heirs or as provided by will. A fee simple estate is also called an estate of inheritance (because that is how it passes unless the owner chooses to sell the property) or is also called fee ownership.
There are two major divisions of fee ownership: fee simple absolute and fee simple defeasible.
Two Major Divisions of Fee Ownership
Fee simple absolute and fee simple defeasible.
Fee Simple Absolute
A fee simple absolute estate is the highest interest in real estate recognized by law. Fee simple ownership is absolute ownership; the holder is entitled to all rights to the property. It is limited only by certain public and private restrictions, such as zoning laws and restrictive covenants
Fee Simple Defeasible
A fee simple defeasible (also called defeasible fee) estate is a qualified estate - that is, it is subject to the occurrence or nonoccurrence of some specified event. Two categories of defeasible estate exist: those subject to a “condition subsequent” or by a “fee simple determinable” (qualified by a special limitation).
Condition Subsequent
A fee simple estate may be qualified by a condition subsequent. This means that the new owner must not perform some action or activity. The former owner retains a right of reentry so that if the condition is broken, the former owner can retake possession of the property through legal action. Conditions in a deed under “condition subsequent” are different from restrictions or covenants because of the grantor’s right to reclaim ownership. Possible reclamation of ownership does not exist under private restrictions made by builders or homeowner associations.
For Example: An owner grants some land to her church “on the condition that no alcohol is consumed on the premises.” This is a fee simple subject to a condition subsequent. If alcohol is consumed on the property, the former owner has the right to reacquire full ownership. It will be necessary for the grantor (or the grantor’s heirs or successors) to go to court to assert that right.
Fee Simple Determinable
A fee simple defeasible estate that may be inherited.
This estate is qualified by a special limitation (which is an occurence or event). The language used to distinguish a special limitation - words such as “so long as, while, or during” - is the key to creating a special limitation. The former owner retains a “possibility of reverter”. If the limitation is violated, the former owner (or heirs or successors) can reacquire full ownership with no need to go to court. The deed is automatically returned to the former owner.
The right of reentry and possibility of reverter may never take effect. If they do, it will only be at some time in the future. Therefore, each of these rights is considered future interest.
For Example: When an owner gives land to a church, “so long as the land is used for only religious purposes,” it is called a fee simple determinable. The church had the full bundle of rights possessed by a property owner, but in this case one of the “sticks” in the bundle is a control “stick”.IF the church ever decides to use the land for a nonreligious purpose, the original owner has the right to reacquire the land without going to court.
Two Categories of Defeasible Estates
1) those subject to “condition subsequent”
2) or by a “fee simple determinable” (qualified by a special limitation)
Future Interest
The right of reentry and possibility of reverter may never take effect. If they do, it will only be at some time in the future. Therefore, each of these rights is considered future interest.
For Example: When an owner gives land to a church, “so long as the land is used for only religious purposes,” it is called a fee simple determinable. The church had the full bundle of rights possessed by a property owner, but in this case one of the “sticks” in the bundle is a control “stick”.IF the church ever decides to use the land for a nonreligious purpose, the original owner has the right to reacquire the land without going to court.
In Illinois: because the right of reentry and possibility of reverter can happen only in the future, they are considered future interests. While the condition passes from owner to owner forever, Illinois allows the original grantor’s right of reverter to continue for only 40 years. After that time, the condition still may be enforced but no longer by the threat of losing the property.
Life Estate
A freehold estate limited in duration to the life of the owner or the life of some other designated person or persons. Unlike other freehold estates, a life estate is not inheritable. It passes to future owners according to the prearranged provisions of the life estate.
Life Tenant
A life tenant is not a renter like a tenant associated with a lease. A life tenant is entitled to the rights of ownership and can benefit from both possession and ordinary use and profits arising from ownership, just as if the individual held a fee simple interest. The life tenant’s ownership may be sold, mortgaged, or leased, but it is always subject to the limitation of the life estate.
The ownership is not absolute though. The life tenant may not injure the property, such as destroying a building or allowing it to deteriorate.
Because the ownership will terminate on the death of the person against whose life the estate is measured, a purchaser, lessee, or lender can be affected if the life tenant has sold his rights. Because the interest is less desirable than a fee simple estate, the life tenant’s limited rights must be disclosed if the property is sold. The new purchaser will lose the property at whatever point in time the original life tenant would have lost it.
Waste
A life tenant’s ownership is not absolute. The life tenant may not injure the property, such as destroying a building or allowing it to deteriorate. In legal terms, such injury is called waste. Those who eventually will own the property could seek an injunction against the life tenant or sue for damages if waste occurs.
Conventional Life Estate
A conventional life estate is created intentionally by the owner. It may be established either by deed at the time the ownership is transferred during the owner’s life or by a provision of the owner’s will after the owner’s death. The estate is conveyed to an individual who is called the life tenant. The life tenant has full enjoyment of the ownership for the duration of his life. When the life tenant dies, the estate ends and its ownership passes, often as a fee simple to another designated individual, or returns to the previous owner.
For Example: A woman, who has a fee simple estate in a property, conveys a life estate to a man for his lifetime. The man is the life event. On his death, the life estate terminate,s and the woman once again owns the property. If the man’s life estate had been created by the woman’s will, however, subsequent ownership of the property would be determined by provisions of the will.
