Chapter 4 - Nat'l Ownership - Units 1-7 Flashcards
(316 cards)
1
Q
Real Estate
A
air, water, land, and everything affixed to the land. Real estate in the United States may be owned privately by individuals and private entities, or publicly by government entities.
2
Q
Land
A
Surface area of the earth.
Everything beneath the surface of the earth extending downward to its center.
All natural things permanently attached to the earth.
Air above the surface of the earth extending outward to infinity.
3
Q
Parcel/Tract
A
portion of land delineated by boundaries.
4
Q
Physical Characteristics of Land (3)
A
Immobility.
Indestructibility.
Heterogeneity.
5
Q
Immobility - Phys. Land
A
Land is immobile since a parcel of land cannot be moved from one site to another.
Geographical location of a tract of land is fixed and cannot be changed.
One can transport portions of the land such as mined coal, dirt, or cut plants. However, as soon as such elements are detached from the land they are no longer considered land.
6
Q
Indestructibility - Phys. Land
A
Land is indestructible in the sense that one would have to remove a segment of the planet all the way to the core in order to destroy it.
Even then, the portion extending upward to infinity would remain. For the same reason, land is considered to be permanent.
7
Q
Heterogeneity - Phys. Land
A
Land is non-homogeneous since no two parcels of land are exactly the same.
Two adjacent parcels may be very similar and have the same economic value. However, they are inherently different because each parcel has a unique location.
8
Q
Economic Characteristics of Land (5)
A
Demand. Utility or Usefulness. Scarcity. Transferability. Situs (Site).
Lack of any will decrease market value (price buyer is willing to pay).
9
Q
Demand - Eco. Land
A
The more demand there is for a particular property, the more valuable it is to consumers looking for real estate.
10
Q
Utility or Usefulness - Eco. Land
A
A three bedroom house is more useful to more consumers than a one or two bedroom house.
11
Q
Scarcity - Eco. Land
A
A property will sell quickly if only a few properties in a particular area are on the market.
12
Q
Transferability - Eco. Land
A
When loans are available, and rates are low, real estate is readily transferable from seller to buyer.
13
Q
Situs (Site) - Eco. Land
A
The unique attractiveness of a property’s location is a major determinant of the other economic characteristics.
14
Q
Legal Concept of Real Estate
A
All man-made structures that are “permanently” attached to the land (i.e. “improvements” - fences, streets, sidewalks, buildings, etc.)
Permanently = not literally permanent, but intension of creating permanent dwelling.
15
Q
Property
A
something owned by someone.
16
Q
Real Property
A
ownership of real estate and the bundle of rights associated with owning the real estate.
17
Q
Personal Property
A
Ownership of anything that is not real estate, and the rights associated with owning the personal property item. Items of personal property are also called chattels or personalty.
18
Q
Chatels/Personalty
A
Transferred by means of a bill of sale.
The Uniform Commercial Code regulates the transfer of chattels and the use of chattels as security for debts.
19
Q
Tangible Property
A
physical, visible, and material (i.e. boats, cars, jewelry, appliances, computers, art work).
20
Q
Intangible Property
A
abstract, having no physical existence in itself, other than as evidence of one’s ownership interest (i.e. stock certificates, contracts, patents, copyrights, bonds, trademarks, franchises, listing agreements).
21
Q
Types and Uses of Real Estate Property (5)
A
Residential. Industrial. Commercial. Agricultural. Special Purpose Real Estate.
22
Q
Residential Property
A
land or improved property with buildings designed for humans to live in, such as single-family homes, multi-family homes, apartments, vacation homes or condominiums.
23
Q
Industrial Property
A
land used for industrial purposes, such as warehouses, factories, distribution centers and power plants.
24
Q
Commercial Property
A
income-producing property, such as office buildings, restaurants, shopping centers, hotels and motels, parking lots and stores.
Some industrial properties may also fall into this category.
25
Agricultural Property
land used primarily for growing crops or raising livestock, such as farms, pastureland, orchards, and timberland. Zoning ordinances are usually favorable for agriculture use.
26
Special Purpose Real Estate (SPRE)
property that does not fall into one of the above categories.
It has a unique use to the persons who own and use it, such as churches, hospitals, schools and government buildings.
Other types of property that fall into the special use category include: Public Open Space and Recreational Areas
27
Public Open Spaces - SPRE
usually owned by private persons or the government and includes undeveloped shorelines, public parks and lakes.
28
Recreational Areas - SPRE
parks, water access areas, trails and shorelines.
| These are usually preserved for ecological or educational reasons.
29
Right to Use a Property
right to use it in a certain way (i.e. mining, cultivating, landscaping, razing, and building on the property).
The right is subject to the limitations of local zoning and the legality of the use.
One's right to use may not infringe on the rights of others to use and enjoy their property.
Ex. owner may be restricted from constructing a large pond on her property if in fact the pond would pose flooding and drainage hazards to the next door neighbor.
30
Right to Transfer Interests in the Property
right to sell, bequeath, lease, donate, or assign ownership interests.
Can only sell what they possess.
An owner may transfer certain individual rights in the property without transferring total ownership.
Also, one may transfer ownership while retaining individual interests.
Ex. a person may sell mineral rights without selling the right of possession. On the other hand, the owner may convey all rights to the property except the mineral rights.
31
Right to Encumber the Property
right to mortgage the property as collateral for debt. There may be restrictions to this right, such as a spouse's right to limit the degree to which a homestead may be mortgaged.
32
Right to Exclude
gives the property owner the legal right to keep others off the property and to prosecute trespassers.
33
Severable Land Rights
Land can be laterally severed into:
Surface rights.
Air rights.
Subsurface rights.
34
Surface Rights
Apply to the real estate contained within the surface boundaries of the parcel.
This includes the ground, all natural things affixed to the ground, and all improvements.
Surface rights also include surface water rights.
35
Air Rights
Space above the surface boundaries of the parcel, as delineated by imaginary vertical lines extended to infinity. Since the advent of aviation, air rights have been curtailed to allow aircraft to fly over one's property, provided the overflights do not interfere with the owner's use and enjoyment of the property.
The issue of violation of air rights for the benefit of air transportation is an ongoing battle between airlines, airports, and nearby property owners.
36
Subsurface Rights
Apply to land beneath the surface of the real estate parcel extending from its surface boundaries downward to the center of the earth.
Notable subsurface rights are the rights to extract mineral and gas deposits and subsurface water from the water table.
37
Water Rights
Concern the rights to own and use water found in lakes, streams, rivers, and the ocean.
In addition, they determine where parcel boundaries can be fixed with respect to adjoining bodies of water.
38
Variables that determine what water rights and owner enjoys (3)
Whether the state controls the water.
Whether the water is moving.
Whether the water is navigable.
39
Doctrine of Prior Appropriation
requires that property owners obtain permits for the use of water.
40
Littoral Rights
Concern properties abutting bodies of water that are not moving, such as lakes and seas.
Owners of properties abutting a navigable, non-moving body of water enjoy the littoral right of use but do not own the water or the land beneath the water.
Ownership extends to the high-water mark of the body of water.
Littoral rights attach to the property. When the property is sold, the littoral rights transfer with the property to the new owner.
41
Riparian Rights
Concern properties abutting flowing water, such as streams and rivers.
If a property abuts a stream or river, the owner's riparian rights are determined by whether the water is navigable or not navigable.
42
Riparian Right - Navigable
If the waterway in question is navigable, it is considered to be a public easement.
In such a case, the owner's property extends to the water's edge, as opposed to the midpoint of the waterway.
The state owns the land beneath the water.
However, the landowner has the right to all accretions, which is the land resulting from the soil build-up caused by the natural action of the river or stream.
43
Riparian Right - Non-Navigable
If the property abuts a non-navigable stream, the owner enjoys unrestricted use of the water and owns the land beneath the stream to the stream's midpoint.
44
One's riparian rights to use flowing water are subject to the conditions that:
Usage is reasonable and does not infringe on the riparian rights of other owners downstream.
Usage does not pollute the water.
Usage does not impede or alter the course of the water flow.
45
Groundwater Rights
Groundwater is water located below the earth's surface, below the saturation point, in underground geological formations called aquifers.
The rule of capture allows a property owner to pump a regulated amount of water.
Landowners who negligently remove excessive water may be liable for sinkage in neighboring properties.
46
Land loss or gain due to action of water (5)
```
Accretion.
Erosion.
Avulsion.
Reliction.
Alluvion.
```
47
Accreation
increase of land created by deposits of soil by the natural flow of water.
48
Erosion
gradual loss of land caused by flowing water or the wind; the opposite of accretion.
49
Avulsion
loss of land by a sudden and large-scale change in water flow (e.g. the ocean washes away the water front during a typhoon, or heavy rains change the flow of a stream).
In either event the owner still owns the land underlying the water’s previous location.
50
Reliction
increase in land due to the receding of water from the shore.
51
Alluvion
actual soil, rock and other matter moved by flowing water which results in accretion.
52
Fixtures
Personal property item that has been converted to real property by attachment to real estate is called a fixture. Typical examples are chandeliers, toilets, water pumps, septic tanks, and window shutters.
The owner of real property inherently owns all fixtures belonging to the real property.
When the owner sells the real property, the buyer acquires rights to all fixtures.
Fixtures not included in the sale must be itemized and excluded in the sale contract.
53
Intention
One's original intention can override the test of movability in determining whether an item is a fixture or not.
If someone attached an item to real property, yet intended to remove it after a period of time, the article might be deemed personal property.
If a person intended an article to be a fixture, even though the item is easily removable, the article might be deemed a fixture.
Ex. apartment renter installs an alarm system, fully intending to remove the system upon lease expiration. Here, the alarm system would be considered personal property.
54
Adaptation
If an item is uniquely adapted to the property, or the property is custom-designed to accommodate the item, it may be deemed real property whether the item is easily removable or not.
Ex. house keys, a garbage compactor, and a removable door screen, etc.
55
Functionality
If an item is vital to the operation of the building, it may be deemed a fixture, even though perhaps easily removable.
Ex. Window-unit air conditioners and detachable solar panels are possible.
56
Relationship of parties
If a tenant installs a fixture in order to conduct business, the fixture may be considered a trade fixture, which is the tenant's personal property.
57
Sale or lease contract provisions
In a sale or lease transaction, the listing of an item in the contract as a personal property item, or a fixture, overrides all other considerations.
Unless otherwise stated as exceptions, all fixtures are included in the sale.
Ex. if a sale contract stipulates that the carpeting is not included in the sale, it becomes a personal property item. If the carpeting is not mentioned, it goes with the property, since it is attached to the floor of the building.
58
Trade fixtures (chattel fixtures)
Items of a tenant's personal property that the tenant has temporarily affixed to a landlord's real property in order to conduct business.
Trade fixtures may be detached and removed before, or upon surrender, of the leased premises.
Should the tenant fail to remove a trade fixture, it may become the property of the landlord through accession. Thereafter, the fixture is considered real property.
Ex. grocer's food freezers, a merchant's clothes racks, a tavern owner's bar, a dairy's milking machines, and a printer's printing press.
59
Emblements
Growing plants, including agricultural crops, may be either real property or personal property (require human interaction).
Plants and crops that grow naturally, without requiring anyone's labor or machinery, are considered real property.
60
Conversion (2)
Severance.
| Affixing/Attachment.
61
Severance
converting real property to personal property.
| Ex. cutting down a tree, detaching a door, removing antenna.
62
Affixing/Attachment
converting personal property to real property.
| Ex. assembling bricks into a bbq pit or building a dock from wood boards.
63
Allodial System of Ownership
Individuals are entitled to own property without proprietary control by the king/government.
The allodial system and the right of individuals to own property is one of the foundations upon which our country was built.
All property in the United States is under the allodial system.
64
Areas of Government Regulation (6)
```
Bundle of rights: possession, usage, transfer, encumbering and exclusion
Legal descriptions
Financing
Insurance
Inheritance
Taxation
```
65
Federal Regulation of Real Property Interests
primarily concerned with broad standards of real property usage, natural disaster, land description, and discrimination.
Does not levy real estate taxes.
66
State Regulation of Real Property Interests
Primary regulatory entities of the real estate business.
Establish real estate license laws and qualifications.
Relevant state laws might include laws relating to flood zones, waste disposal, drainage control, shore preservation, and pollution standards.
Play a role in defining how real property may be owned, transferred, encumbered, and inherited.
Have power to levy real estate taxes.
67
Local Regulation of Real Property Interests
Controls how all property within the jurisdiction may be developed, improved, demolished, and managed.
Power to zone land, take over land for the public good, issue building permits, and establish the rules for all development projects.
Power to levy real estate taxes.
68
County and Local gov't zoning laws (7)
Use of land.
Lot size.
Types of structures permitted.
Building heights.
Setbacks (how far back from the street an improvement can be built).
Density (ratio of land area:improved area).
Types of animals that can or cannot be kept on the property.
Violation of zoning laws renders a title unmarketable.
69
Judicial Regulation
Exerts an influence on real estate ownership and use through decisions based on case law and common law, as distinguished from statutory law.
Case law consists of decisions based on judicial precedent.
Common law is the collective body of law deriving from custom and generally accepted practice in society.
70
Uses of Legal Descriptions (4)
Public recording.
Creating a valid deed of conveyance or lease.
Completing mortgage documents.
Executing and recording other legal documents.
provides a basis for court rulings on encroachments and easements.
71
Accepted methods of legally describing parcels of real estate (3)
Metes and Bounds.
Rectangular Survey system, or Government Survey method.
Recorded Plat method, or Lot and Block method.
72
Metes and Bounds
Begins with City, County, and State where property is located.
Identifies the boundaries of a parcel of real estate using reference points, distances, and angles.
Always identifies an enclosed area by starting at an origination point, called point of beginning, or POB, and returning to the POB at the end of the description.
Must return to the POB in order to be valid.
Metes = distance/direction.
Bounds = fixed references points (monuments and landmarks).
73
Rectangular Survey System
```
Created to replace Metes and Bounds.
Use latitude (east-west) and longitude (north-south) lines to create grids called townships.
```
74
Meridians (Principal and Guide)
north-south lines on survey grid.
Principal: single designated meridian for identifying townships in the principal meridian's geographical "jurisdiction."
Guide: Every 24 miles east and west that's used as a correction for the curvature of the earth.
Common meridians are 6 miles apart.
75
Parallel (Base/Base Line and Correction/Standard)
east-west, latitudinal lines that are 6 miles apart.
Base: designated line for identifying townships. There is a base parallel for each principal meridian.
Correction/Standard: every 24 miles north and south of a base parallel used, with the guide meridians, as a correction for the curvature of the earth.
Common parallels are six miles apart, measuring from a standard parallel.
76
Check/Quadrangle
24-by-24-mile square created by the intersection of guide meridians and standard parallels
77
Range
north-south area between consecutive meridians.
Identified by its relationship to the principal meridian.
All ranges are six miles wide.
78
Tier/Township Strip
east-west area between two parallels.
Identified by its relationship to the base parallel.
All tiers are six miles wide.
79
Township
area enclosed by the intersection of two consecutive meridians and two consecutive parallels.
Since the parallels and meridians are six miles apart, a township is a square with six miles on each side.
Its area is therefore 36 square miles.
80
Identifying a Township
identified by their tier and range identification taken together, with the tier designation named first.
81
Sections of a Township
rectangular survey system divides a township into thirty-six squares called sections.
Each side of a section is one mile in length.
Area of a section is one square mile or 640 acres.
Can be divided into fractions (i.e. 1/2 section = 320 acres = 5280ft x 2640ft).
82
Method of describing a fraction of a section (3)
Proceed from the smallest unit to the largest, ending with the section.
Name the location of the unit within the next larger unit, then its fraction of the next larger unit.
Repeat step (2) until you reach the section itself. Give the section number.
83
Converting Section Fractions to Acres
Multiply the denominators of the fractional descriptions together.
Divide 640 by the resulting number.
Ex. SE 1/4 of a Section = 640/4 = 160 acres
W 1/2 of the NW 1/4 of a Section = 640/ (2 x 4) = 80 acres
E 1/2 of the NE 1/4 of the NE 1/4 of a Section = 640/(2 x 4 x 4) = 20 acres
84
Recorded Plat/Lot and Block System
used to describe properties in residential, commercial, and industrial subdivisions.
85
Subdivision Plat Map
Under this system, tracts of land are subdivided into lots. The entire group of lots comprises the subdivision.
In a large subdivision, lots may be grouped together into blocks for ease of reference.
Entire subdivision is surveyed to specify the size and location of each lot and block.
Surveyor then incorporates the survey data into a plat of survey, or subdivision plat map, which must comply with local surveying standards and ordinances.
86
Describing Elevation
To describe property located above or below the earth's surface, such as the air rights of a condominium, a surveyor must know the property's elevation.
Standard elevation reference points, called datums, have been established throughout the country.
To simplify matters, surveyors have identified local elevation markers, called benchmarks, to provide reference elevations for nearby properties.
87
Interests
```
ownership of any combination of the bundle of rights to real property, including the rights to:
Possess.
Use.
Transfer.
Encumber.
Exclude.
```
88
Undivided Interest
owner's interest in a property in which two or more parties share ownership.
If two co-owners have an undivided equal interest, one owner may not lay claim to the northern half of the property for his or her exclusive use.
89
Examples of Interests (12)
Owner's enjoyment of the complete bundle of rights
a tenant's temporary enjoyment of the right to use and exclude.
Lender's enjoyment of the right to encumber the property over the life of a mortgage loan.
Repairman's right to encumber the property when the owner fails to pay for services.
Buyer's right to prevent an owner from selling the property to another party under the terms of the sale contract.
Mining company's temporary right to extract minerals from the property's subsurface.
Local municipality's right to control how an owner uses the property.
Utility company's right to have access to the property in accordance with an easement.
Length of time a person may enjoy the interest
the portion of the land, air, or subsurface the interest applies to.
Public or private nature of the interest.
Inclusion or exclusion of legal ownership of the property.
90
Estates in Land
If the interest-holder enjoys the right of possession, the party is considered to have an estate in land, or familiarly, an estate.
91
Estates in Land - Encumbrance
If a private interest-holder does not have the right to possess, the interest is an encumbrance.
Enables a non-owning party to restrict the owner's bundle of rights.
Ex. tax liens, mortgages, easements, and encroachments are examples.
92
Estates in Land - Public Interest
If the interest-holder is not private, such as a government entity, and does not have the right to possess, the interest is some form of public interest.
Ex. police power or the right of the local or county government to zone.
93
Eminent Domain
right of the government to take private property for a necessary public use, with just compensation paid to the owner.
The government's right to take a property voluntarily from an owner is limited by three requirements:
Property owner must be paid compensation for the property.
Property must be used for the public good.
Owner must have due process in the court's system.
Ex. the state may use eminent domain to acquire land for streets, parks, public buildings, public rights-of-way, and similar uses. No private property is exempt from this exercise of government power.
94
Condemnation
instituted to take property by eminent domain when no accepted negotiation between government and property owner.
95
Escheat
process of reversion to state ownership.
Since property cannot be without an owner, if an owner dies without a will and without heirs, the property reverts to the state.
Similarly, if the property is abandoned (by failure to pay taxes), the ownership of the property goes to the state.
96
Freehold Estate
duration of the owner's rights cannot be determined: the rights may endure for a lifetime, for less than a lifetime, or for generations beyond the owner's lifetime.
Commonly equated with ownership of the property
97
Leasehold Estate
distinguished by its specific duration, as represented by the lease term.
Not so considered because the leaseholder's rights are temporary.
98
Tenancies
Applies to both leasehold and freehold estates.
| The owner of the freehold estate is the freehold tenant, and the renter, or lessee, is the leasehold tenant.
99
Freehold Estate: Fee Simple Estate
A freehold estate of potentially unlimited duration.
Highest form of ownership.
An estate limited to the life of the owner is a life estate.
Remain subject to government restrictions and private interests.
100
Freehold Estates: Fee Simple Absolute
Perpetual estate that is not conditioned by stipulated or restricted uses.
May also be freely passed on to heirs.
101
Freehold Estates: Fee Simple Absolute - Bundle of Rights (6)
```
Right of quiet enjoyment.
Right to give away.
Right to sell by deed.
Right to will.
Right to exclude.
Right to control within what is allowed by law.
```
102
A fee simple owner may: (5)
Pass a life estate in reversion or remainder to another person.
Use the property as security for a debt.
Grant an easement.
Allow another person to lease the property.
Give permission for another to conduct an activity on the property.
103
Freehold Estates: Fee Simple Defeasible
Deeds that create what starts out as a fee simple, but attach some sort of condition or limitation.
Ownership can continue indefinitely, provided the use of the property conforms to certain stated conditions.
104
Freehold Estates: Fee Simple Defeasible - Essential Characteristics (2)
Property must be used for a certain purpose, or under certain conditions.
If the use changes or if prohibited conditions are present, the estate reverts to the previous grantor of the estate.
105
Freehold Estates: Types of Fee Simple Defeasible (2)
Determinable.
| Condition subsequent.
106
Determinable
Deed to the determinable estate states usage limitations. If the restrictions are violated, the estate automatically reverts to the grantor or heirs.
107
Condition Subsequent
If any condition is violated, the previous owner may repossess the property.
However, reversion of the estate is not automatic; the grantor must re-take physical possession within a certain time frame.
108
Freehold Estates: Life Estates
Freehold estate that is limited in duration to the life of the owner or other named person.
Upon the death of the owner or other named individual, the estate passes to the original owner or another named party.
The holder of a life estate is called the life tenant.
The life tenant does not have the right to pass ownership to his or her heirs.
109
Distinguishing characteristics of the life estate (3)
The owner enjoys full ownership rights during the estate period.
Holders of the future interest own either a reversionary or a remainder interest.
The estate may be created by agreement between private parties, or it may be created by law under prescribed circumstances.
110
Life Estate: Remainder
If a life estate names a third party to receive title to the property upon termination of the life estate, the party enjoys a future interest, called a remainder interest or a remainder estate.
111
Reversion
If no remainder estate is established, the estate reverts to the original owner or the owner's heirs.
In this situation, the original owner retains a reversionary interest or estate.
112
Type of Life Estates
Conventional
| Legal.
113
Conventional
A conventional life estate is created by grant from a fee simple property owner to the grantee, the life tenant. Following the termination of the estate, rights pass to a remainderman or revert to the previous owner.
114
Types of Conventional Life Estates
Ordinary.
| Pur autre vie.
115
Ordinary Life Estate
ends with the death of the life estate owner and may pass back to the original owners or their heirs (reversion) or to a named third party (remainder).
116
Pur Autre Vie
endures over the lifetime of a third person, after which the property passes from the tenant holder to the original grantor (reversion) or a third party (remainderman).
117
Legal Life Estate
Created by state law, as opposed to, being created by a property owner's agreement.
Provisions vary from state to state.
The focus of a legal life estate is defining and protecting the property rights of surviving family members upon the death of the spouse.
118
Legal Life Estate - Marital Rights
legal life estate makes it impossible for one partner to sell the property without the consent of the other partner, or to own property in one name only.
119
Types of Legal Life Estate
Homestead.
Dower and Curtesy.
Elective share.
120
Legal Life Estate - Homestead
One's principal residence.
Homestead laws protect family members against losing their homes to general creditors attempting to collect on debts.
All or portions of one's homestead are exempt from a forced sale executed for the collection of general debts (judgment liens).
Tax debts, seller financing debt, debts for home improvement, and mortgage debt are not exempt.
The family must occupy the homestead.
The homestead interest cannot be conveyed by one spouse; both spouses must sign the deed conveying homestead property.
The homestead exemption and restrictions endure over the life of the head of the household and pass on to children under legal age.
Homestead interests in a property are extinguished if the property is sold or abandoned. If the owner does not intend to use it again as a home, then the rights are extinguished.
121
Legal Life Estate - Dower and Curtesy
Dower: wife's life estate interest in the husband's property. When the husband dies, the wife can make a claim to portions of the decedent's property.
Curtesy: identical right enjoyed by the husband in a deceased wife's property. Property acquired under dower laws is owned by the surviving spouse for the duration of his or her lifetime.
If both parties sign the conveyance, the dower right is automatically extinguished.
122
Legal Life Estate - Elective Share
State-level statute enabling a surviving spouse to make a minimum claim to the deceased spouse's real and personal property in place of the provisions for such property in the decedent's will.
Ex. a husband's will excludes the wife from any property inheritance, the wife may, upon the husband's death, make the elective share claim.
Surviving spouse is entitled to a percent of the deceased spouse's property, excepting homestead property and property the decedent owned exclusively.
Surviving spouse must file for the elective share within a limited time period.
If the spouse fails to file, the estate passes on according to the will, or the state's laws of descent.
Elective share right pertains only to the surviving spouse and is not transferable.
123
Life Tenant Responsibilities
Constitutes true ownership of the property for the owner's life. That means that the life tenant can use and enjoy the property, lease it, and receive any income and profits that the property generates.
Has the responsibility to protect the property for the remainderman or the revisionary interest.
He or she may not do injury to the property in any way.
If the life tenant damages or misuses the property, it is known as an Act of Waste.
124
Act of Waste Examples (4)
Using the property for something other than was intended.
Causing a fire that destroys the home.
Neglecting to pay property taxes.
Conducting activities that would decrease the value of the property.
125
Leasehold Estate (Leasehold)
Arises from the execution of a lease by a fee owner-- the lessor, or landlord-- to a lessee/tenant.
Since tenants do not own the fee interest, a leasehold estate is technically an item of personal property for the tenant.
Leasehold tenants are entitled to possess and use the leased premises during the lease term in the manner prescribed in the lease.
126
Types of Leasehold Estates (4)
Estate for Years.
Estate from Period to Period.
Estate at Will.
Estate at Sufferance.
127
Estate for Years (3)
Definite beginning and ending date.
Does not require notice to terminate at the end of the term.
Renewal is NOT automatic; when this type of lease is over, it's over.
128
Estate from Period to Period (periodic tenancy)
No definite ending date (this type of lease renews itself for whatever period of time was agreed upon in the original lease.
Either party may terminate tenancy by giving proper notice to the other party. Proper notice is defined by state law.
ex. month to month rent
129
Estate at Will (tenancy at will) (3)
Landlord lets you stay without a lease.
Notice can be given by either party without warning.
Death of either party immediately terminates tenancy.
130
Estate at Sufferance (2)
Holdover tenant is in unlawful possession of the property.
The landlord must evict a tenant through the courts; cannot lock the tenant out, turn off utilities, or forcibly remove the tenant.
131
Tenant's Rights (4)
Exclusive possession and occupancy.
Exclusive use.
Quiet enjoyment.
Profits from use.
132
Tenant's Obligations (4)
Pay the rent on time.
Maintain the property's condition.
Comply with the rules and regulations of the building.
Return the premises to the lessor at the end of the term in the condition specified by the lease.
133
Landlord's Rights (leased fee estate) (3)
Receive rent.
Re-possess the property following the lease term.
Monitor the tenant's obligations to maintain the premises.
134
Landlord's Obligations (2)
Provide the necessary building support and services.
| Maintain the condition of the property.
135
Tenancy in Severalty
when a single party owns the fee or life estate.
| aka: sole ownership, ownership in severalty, and estate in severalty
136
Co-ownership and Types (3)
If more than one person, or a legal entity such as a corporation, owns an estate in land, the estate is held in some form of co-ownership.
Co-owners are also called co-tenants.
Types: Tenants in Common, Joint Tenancy, Tenancy By the Entireties.
137
Tenancy in Common
aka Estate in Common.
| Most common form of co-ownership when the owners are not married.
138
Characteristics of Tenancy in Common (1-3)
Two or more owners - Any number of people may be co-tenants in a single property.
Identical rights - Co-tenants share an indivisible interest in the estate, i.e., all have equal rights to possess and use the property subject to the rights of the other co-tenants. No co-tenant may claim to own any physical portion of the property exclusively. They share what is called undivided possession, or unity of possession.
Interests individually owned - All tenants in common have distinct and separable ownership of their respective interests. Co-tenants may sell, encumber, or transfer their interests without obstruction or consent from the other owners. (A co-tenant may not, however, encumber the entire property.)
139
Characteristics of Tenancy in Common (4-7)
Electable ownership shares - Tenants in common determine among themselves what share of the estate each party will own. For example, three co-tenants may own 40%, 35%, and 25% interests in a property, respectively. In the absence of stated ownership shares, it is assumed that each has a share equal to that of the others.
No survivorship - A deceased co-tenant's estate passes by probate to the decedent's heirs and devisees rather than to the other tenants in common. Any number of heirs can share in the ownership of the willed tenancy.
No unity of time - It is not necessary for tenants in common to acquire their interests at the same time. A new co-tenant may enter into a pre-existing tenancy in common.
Partition suit - If other co-owners will not buy the interests of a co-owner who wants to sell out, and no-one can be found to buy the shares, an individual shareholder co-owner can request that the courts sell either his/her share (seek an equitable distribution) or the whole property.
140
Example of Tenancy in Common
The exhibit shows three owners of a property as tenants in common:
A owns 20%, B owns 30%, and C owns 50%.
C decides to sell 4/5 of his interest to D and 1/5 to E.
D's interest in the estate will be 40% (4/5 times 50%), and E's will be 10% (1/5 times 50%).
Both new tenants are tenants in common with A and B. Note that any owner may sell any portion of his or her interest to other owners or outside parties.
The second part of the exhibit shows how, when co-owner A dies, she might bequeath her 20% share of the ownership to heirs D and E equally.
In such a case, the heirs would each acquire a 10% share of ownership as tenants in common with B and C.
141
Joint Tenancy
Two or more persons collectively own a property as if they were a single person.
Rights and interests are indivisible and equal: each has a shared interest in the whole property, which cannot be divided up.
Joint tenants may only convey their interests to outside parties as tenant-in-common interests.
One cannot convey a joint tenant interest.
Must have written agreement that specifies that there is an intention to create a joint tenancy.
142
Characteristics of Joint Tenancy (2)
Unity of ownership-- Whereas tenants in common hold separate title to their individual interests, joint tenants together hold a single title to the property.
Equal ownership-- Joint tenants own equal shares in the property, without exception. If there are four co-tenants, each owns 25% of the property. If there are ten co-tenants, each owns 10%.
When only one joint tenant survives, the survivor's interest becomes an estate in severalty, and the joint tenancy is terminated. The estate will then be probated upon the severalty owner's death.
143
Creating Joint Tenancy (4)
All owners must acquire the property at the same time.
Use the same deed.
Acquire equal interests.
Share in equal rights of possession.
These are referred to as the four unities.
Joint tenancy may not be created by operation of law! Joint tenancy creates the right of survivorship, which means that when one owner dies, the owner's interest passes to the other joint tenants rather than to heirs. This may avoid probate, depending on state laws.
144
Four Unities of Joint Tenancy
Unity of time -- all parties must acquire the joint interest at the same time.
Unity of title -- all parties must acquire the property in the same deed of conveyance.
Unity of interest -- all parties must receive equal undivided interests.
Unity of possession -- all parties must receive the same rights of possession.
145
Terminating Joint Tenancy
Terminated when any of the four unities is broken.
Sale of an interest: if there are three joint tenants and one sells his interest to a fourth party, this fourth party becomes a tenant in common with the remaining two joint tenants.
Bankruptcy of any of the joint tenants.
Foreclosure of the property.
Partition suit: as stated above under Tenants in Common
146
Partition Suit
Legal avenue for an owner who wants to dispose of his or her interest against the wishes of other co-owners.
The suit petitions the court to divide, or partition, the property physically, according to the owner's respective rights and interests.
If this is not reasonably feasible, the court may order the property sold, whereupon the interests are liquidated and distributed proportionately.
147
Tenancies by the Entries (4)
Form of ownership reserved exclusively for spouses.
Survivorship - On the death of a spouse, the decedent's interest passes automatically to the other spouse.
Equal, undivided interest - Each spouse owns the estate as if there were only one owner. Fractional interests cannot be transferred to outside parties. The entire interest may be conveyed, but only with the consent and signatures of both parties.
No foreclosure for individual debts - The estate is subject to foreclosure only for jointly incurred debts.
Termination - The estate may be terminated by divorce, death, mutual agreement, and judgments for joint debt.
Essentially this is joint tenancy plus marriage!
148
Tenancies by the Entries terminates when there is: (4)
Death of either spouse - survivor now owns the property.
Divorce - parties become tenants in common.
Mutual agreement – parties agree to sell the property.
Foreclosure.
There is no right of partition: one spouse cannot sell the property without the agreement of the other spouse.
149
Co-ownership: Community Property
Type of ownership defines property rights of legal spouses before, during, and after their marriage, as well as after the death of either spouse.
All other property earned or acquired by either party during the marriage
150
Co-ownership: Separate Property
Property owned by either spouse at the time of the marriage.
Property acquired by either spouse through inheritance or gift during the marriage.
Property acquired with separate-property funds
income from separate property.
Property by gift.
Settlements for personal injury.
Written contract with the spouse.
151
Co-ownership: Community Property
A spouse owns separate property free and clear of claims by the other spouse.
He or she can transfer it without the other spouse's signature.
Upon the death of the separate property owner, the property passes to heirs by will or laws of descent. However, in community property states, title insurance companies like to have the signatures of both spouses on a conveyance of separate property to do away with any speculation that the property is not community property. Licensees should know about the need for obtaining both signatures.
152
Community Property: A spouse may gain an equitable interest in separate property if
The value of the separate property increases during the marriage.
Community property funds were used to discharge any debt on the separate property.
153
Co-ownership: Tenancy in Partnership
Form of ownership held by business partners, as provided by the Uniform Partnership Act (UPA).
Grants equal rights to all partners, but the property must be used in connection with the partnership's business. Individual rights are not assignable.
154
Estates in Trust
In an estate in trust, a fee owner-- the grantor or trustor-- transfers legal title to a fiduciary-- the trustee-- who holds and manages the estate for the benefit of another party, the beneficiary.
The trust may be created by a deed, will, or trust agreement.
155
Advantages of Estates in Trust (4)
Allowing control over how and when assets are distributed after death.
Reducing estate and gift taxes.
Distributing assets to heirs without the cost and delay of probate.
Protection of assets from creditors and lawsuits.
156
Estates in Trust: Living trust
Allows the trustor, during his or her lifetime, to convey title to a trustee for the benefit of a third party.
The trustor charges the trustee with all necessary responsibilities for managing the property, protecting its value, and securing whatever income it may produce. The trustee may also be ordered to sell the property at a given point.
The beneficiary receives all income and sales proceeds, net of the trustee's fees.
Unlike a will, which takes effect only after death, the living trust can provide benefits while the trustor is still alive. It can be revocable in nature, so the trustor can make changes to adapt to changes in personal circumstances.
written agreement or declaration appointing a trustee to manage and administer the trustor's property.
157
Estates in Trust: Testamentary Trust
A testamentary trust is structurally and mechanically the same as a living trust, except that it takes effect only when the trustor dies.
Provisions of the decedent's will establish the trust.
A testamentary trust can also be created under a revocable living trust or an irrevocable life insurance trust.
irrevocable and unchangeable since the trust is created after the trustor's death, when the trustor has no ability to amend or revoke it.
Have a definite beginning and ending date, beginning on the date of death of the trust creator and often ending on the date when the youngest beneficiary reaches the specified age.
Common use of the testamentary trust is to control how estate property is distributed to children or young adults.
158
Estates in Trust: Land Trusts
Allows the trustor to convey the fee estate to the trustee and to name himself or herself the beneficiary.
Applies only to real property, not to personal property.
The agreement, or deed in trust, grants the beneficiary the rights to possess and use the property, and to exercise control over the actions of the trustee.
The trustor must be a living person, but the beneficiary may be a corporation.
159
Distinguishing features of Land Trusts (4)
Beneficiary controls property -- this includes occupancy and control of rents and sale proceeds
Beneficiary controls trustee -- the trustee is empowered to sell or encumber the property, but generally only with the beneficiary's approval
Beneficiary identity not on record -- public records do not identify the beneficiary; the beneficiary owns and enjoys the property in secrecy
Limited term -- the term of the land trust is limited and must be renewed, or else the trustee is obligated to sell the property and distribute the proceeds.
160
Land Trust: Beneficial Interest
The beneficiary's interest in a land trust is personal property, not real property. This distinction offers certain advantages in transferring, encumbering, and probating the beneficiary's interest:
Transferring -- the beneficiary may transfer the interest by assignment instead of by deed.
Encumbering -- the beneficiary may pledge the property as security for debt by collateral assignment rather than by recorded mortgage.
Probating -- the property interests are probated in the state where the beneficiary resided at the time of death rather than the state where the property is located.
161
Condominium
Hybrid form of ownership of multi-unit residential or commercial properties.
Combines ownership of a fee simple interest in the airspace within a unit with ownership of an undivided share, and as a tenant in common, of the entire property's common elements, such as lobbies, swimming pools, and hallways.
162
Condominium: Airspace
Unique aspect of the condominium is its fee simple interest in the airspace contained within the outer walls, floors, and ceiling of the building unit.
This airspace may include internal walls, which are not essential to the structural support of the building.
163
Condominiums: Elements (5)
Common elements are all portions of the property that are necessary for the existence, operation, and maintenance of the condominium units.
Common elements include:
The land (if not leased).
Structural components of the building, such as exterior windows, roof, and foundation.
Physical operating systems supporting all units, such as plumbing, power, communications installations, and central air conditioning.
Recreational facilities.
Building and ground areas used non-exclusively, such as stairways, elevators, hallways, and laundry rooms.
164
Condominium: Possession, Use, and Exclusion
Unit owners exclusively possess their apartment space but must share common areas with other owners. The property's legal documents may create exceptions.
Ex. unit owners may be required to join and pay fees for the use of a health club.
Unit owners as a group may exclude non-owners from portions of the common area, for instance, excluding uninvited parties from entering the building itself.
165
Condominiums: Transfer and Encumbrance
Condominium units can be individually sold, mortgaged, or otherwise encumbered without interference from other unit owners. As a distinct entity, the condominium unit may also be foreclosed and liquidated. An owner may not sell interests in the apartment separately from the interest in the common elements.
Resale of a unit interest may entail limitations, such as the condominium association's prior approval of a buyer. Condominium units are individually assessed and taxed. The assessment pertains to the value of the exclusive interest in the apartment, as well as the unit's pro rata share of common elements.
166
Condominiums: Creation
Condominium units can be individually sold, mortgaged, or otherwise encumbered without interference from other unit owners.
As a distinct entity, the condominium unit may also be foreclosed and liquidated.
An owner may not sell interests in the apartment separately from the interest in the common elements.
Resale of a unit interest may entail limitations, such as the condominium association's prior approval of a buyer. Condominium units are individually assessed and taxed. The assessment pertains to the value of the exclusive interest in the apartment, as well as the unit's pro rata share of common elements.
167
Condominiums: Declarations
May be required to include:
Legal description and/or name of the property.
Survey of land, common elements, and all units.
Plat maps of land and building, and floor plans with identifiers for all condominium units.
Provisions for common area easements.
Identification of each unit's share of ownership in the overall property.
Organization plans for creation of the condominium association, including its bylaws
voting rights, membership status, and liability for expenses of individual owners.
Covenants and restrictions regarding use and transfer of units.
168
Condominiums: Organization
Condominium declarations typically provide for the creation of an owners' association to enforce the bylaws and manage the overall property. The association is often headed by a board of directors. The association board organizes how the property will be managed and by whom. It may appoint management agents, hire resident managers, and create supervisory committees. The board also oversees the property's finances and policy administration.
169
Condominiums: Management
Condominium properties have extensive management requirements, including maintenance, sales, and leasing, accounting, owner services, sanitation, security, trash removal, etc.
The association engages professional management companies, resident managers, sales and rental agents, specialized maintenance personnel, and outside service contractors to fulfill these functions.
170
Condominiums: Individual Unit Owner Responsibilities
Maintaining internal systems.
Maintaining the property condition.
Insuring contents of the unit.
171
Condominiums: Common Area Assessments Owner Responsibilities
Unit owners bear the costs of all other property expenses, such as maintenance, insurance, management fees, supplies, legal fees, and repairs. An annual operating budget totals these expenses and passes them through as assessments to unit owners, usually on a monthly basis.
Should an owner fail to pay periodic assessments, the condominium board can initiate court action to foreclose the property to pay the amounts owed.
The unit's pro rata share of the property's ownership, as defined in the declaration, determines the amount of a unit owner's assessment. For example, if a unit represents a 2% share of the property value, that unit owner's assessment will be 2% of the property's common area expenses.
172
Cooperatives/Co-op
One owns shares in a non-profit corporation or cooperative association, which in turn acquires and owns an apartment building as its principal asset. Along with this stock, the shareholder acquires a proprietary lease to occupy one of the apartment units.
The number of shares purchased reflects the value of the apartment unit in relation to the property's total value. The ratio of the unit's value to total value also establishes what portions of the property's expenses the owner must pay.
173
Cooperatives/Co-op example
The exhibit shows a nine-unit apartment building. A cooperative corporation buys the building for $900,000. All nine units are of equal size, so the corporation decides that each apartment represents a value of $100,000, or 1/9 of the total. The co-op buyer pays the corporation $100,000 and receives 1/9 of the corporation's stock. The shareholder also receives a proprietary lease for apartment 1. The shareholder is now responsible for the apartment unit's pro rata share of the corporation's expenses, or 11.11%.
174
Cooperatives/Co-op: Associations Interests
The corporate entity of the cooperative association is the only party in the cooperative with a real property interest. The association's interest is an undivided interest in the entire property. There is no ownership interest in individual units, as with a condominium.
175
Cooperatives/Co-op: Shareholder's Interest
In owning stock and a lease, a co-op unit owner's interest is personal property that is subject to control by the corporation. Unlike condominium ownership, the co-op owner owns neither a unit nor an undivided interest in the common elements.
176
Cooperatives/Co-op: Proprietary Lease
The co-op lease is called a proprietary lease because the tenant is an owner (proprietor) of the corporation that owns the property. The lease has no stated or fixed rent. Instead, the proprietor-tenant is responsible for the unit's pro rata share of the corporation's expenses in supporting the cooperative. Unit owners pay monthly assessments. The proprietary lease has no stated term and remains in effect over the owner's period of ownership. When the unit is sold, the lease is assigned to the new owner.
177
Cooperatives/Co-op: Expense liability
The failure of individual shareholders to pay monthly expense assessments can destroy the investment of all the other co-op owners if the co-op cannot pay the bills by other means.
Since the corporation owns an undivided interest in the property, debts and financial obligations apply to the property as a whole, not to individual units. Should the corporation fail to meet its obligations, creditors and mortgagees may foreclose on the entire property. A completed foreclosure would terminate the shareholders' proprietary lease, and bankrupt the owning corporation. Compare this situation with that of a condominium, in which an individual's failure to pay endangers only that individual's unit, not the entire property.
178
Cooperatives/Co-op: Transfers
The co-op interest is transferred by assigning both the stock certificates and lease to the buyer.
179
Cooperatives/Co-op: Cooperative Association
A developer creates a cooperative by forming the cooperative association, which subsequently buys the cooperative property. The association's articles of incorporation, bylaws and other legal documents establish operating policies, rules, and restrictions.
180
Cooperatives/Co-op: Board of Directors
The shareholders elect a board of directors. The board assumes the responsibility for maintaining and operating the cooperative, much like a condominium board. Cooperative associations, however, also control the use and ownership of individual apartment units, since they are the legal owners. A shareholder's voting power is proportional to the number of shares owned.
181
Encumbrances
An interest in and right to real property that limits the legal owner's freehold interest. In effect, an encumbrance is another's right to use or take possession of a legal owner's property, or to prevent the legal owner from enjoying the full bundle of rights in the estate.
An encumbrance does not include the right of possession and is therefore a lesser interest than the owner's freehold interest. For that reason, encumbrances are not considered estates. However, an encumbrance can lead to the owner's loss of ownership of the property.
182
Common Types of Encumbrances are those that affect:
property's use, and those that affect legal ownership, value and transfer.
183
Restrictions to Use Encumbrances (4)
Easements.
Encroachments.
Licenses.
Deed restrictions.
184
Restrictions to Ownership (2)
Liens.
| Deed conditions.
185
Easements and Liens (most common types)
Easement: such as a utility easement, enables others to use the property, regardless of the owner's desires.
Lien: such as a tax lien, can be placed on the property's title, thereby restricting the owner's ability to transfer clear title to another party.
186
Easements (Right of Way)
Interest in real property that gives the holder the right to use portions of the legal owner's real property in a defined way.
Does not give any possessory rights, just the right of ingress (enter) and egress (exit). For that reason, an easement is said to be a non-possessory interest in property owned by someone else.
The receiver of the easement right is the benefited party; the giver of the easement right is the burdened party.
187
Easements: Characteristics
An easement must involve the owner of the land over which the easement runs, and another, non-owning party. One cannot own an easement over one's own property.
An easement pertains to a specified physical area within the property boundaries.
An easement may be affirmative, allowing a use, such as a right-of-way, or negative, prohibiting a use, such as an airspace easement that prohibits one property owner from obstructing another's ocean view.
Two types: Appurtenant and Gross.
188
Easements: Components
An easement appurtenant gives a property owner a right of usage to portions of an adjoining property owned by another party.
The property enjoying the usage right is called the dominant tenement, or dominant estate.
The property containing the physical easement itself is the servient tenement, since it must serve the easement use.
189
Easements Appurtenant
Means "attaching to."
An easement appurtenant attaches to the estate and transfers with it unless specifically stated otherwise in the transaction documents.
More specifically, the easement attaches as a beneficial interest to the dominant estate and as an encumbrance to the servient estate.
The easement appurtenant then becomes part of the dominant estate's bundle of rights and the servient estate's obligation, or encumbrance.
190
Easements: Transfer
Easement appurtenant rights and obligations automatically transfer with the property upon transfer of either the dominant or servient estate, whether mentioned in the deed or not.
For example, John grants Mary the right to share his driveway at any time over a five-year period, and the grant is duly recorded. If Mary sells her property in two years, the easement right transfers to the buyer as part of the estate.
191
Easements: Non-exclusive Use
The servient tenement, as well as the dominant tenement, may use the easement area, provided the use does not unreasonably obstruct the dominant use.
192
Easement Appurtenant: Easement by Necessity
An easement appurtenant granted by a court of law to a property owner because of a circumstance of necessity, most commonly the need for access to a property.
Since property cannot be legally landlocked, or without legal access to a public thoroughfare, a court will grant an owner of a landlocked property an easement by necessity over an adjoining property that has access to a thoroughfare. The landlocked party becomes the dominant tenement, and the property containing the easement is the servient tenement.
This type of easement is also known as an easement by implied grant.
193
Easement Appurtenant: Easement by Necessity - Essential Elements
There must have been a common grantor of the dominant and servient estates.
There must be a reasonable necessity for the easement, not just for convenience.
194
Easement Appurtenant: Easement for Light and Air
Unlike the easement by necessity, where an owner has the right to access when his or her property is landlocked, no such right exists to light and air. A neighbor is within his or her rights to build a structure that "cuts off" an adjoining property owner's "light and air."
To eliminate this occurrence, a property owner can attempt to purchase an easement for light and air over the neighbor's property. An easement of this kind should be in writing.
For example, if an owner has a wonderful view of a beautiful local lake which is located on the other side of his or her neighbor's property, the owner might try to get an easement for light and air over the neighbor's property. If the easement is correctly created and recorded, neither the current owner nor any subsequent owners could build a structure in the airspace.
195
Easements: Party Wall Easement
A party wall is a common wall shared by two separate structures along a property boundary.
Party wall agreements generally provide for severalty ownership of half of the wall by each owner, or at least some fraction of the width of the wall.
In addition, the agreement grants a negative easement appurtenant to each owner in the other's wall. This is to prevent unlimited use of the wall, in particular a destructive use that would jeopardize the adjacent property owner's building. The agreement also establishes responsibilities and obligations for maintenance and repair of the wall.
196
Easements: Party Wall Easement example
Helen and Troy are adjacent neighbors in an urban housing complex having party walls on property lines. They both agree that they separately own the portion of the party wall on their property. They also grant each other an easement appurtenant in their owned portion of the wall. The easement restricts any use of the wall that would impair its condition. They also agree to split any repairs or maintenance evenly.
Other structures that are subject to party agreements are common fences, driveways and walkways.
197
Easement: Easement in Gross
A personal right that one party grants to another to use the grantor's real property.
The right does not attach to the grantor's estate.
It involves only one property, and, consequently, does not benefit any property owned by the easement owner. There are no dominant or servient estates in an easement in gross.
An easement in gross may be personal or commercial.
198
Easement in Gross: Personal
A personal easement in gross is granted for the grantee's lifetime. The right is irrevocable during this period but terminates on the grantee's death. It may not be sold, assigned, transferred or willed. A personal gross easement differs from a license in that the grantor of a license may revoke the usage right. We'll talk about licenses on an upcoming screen.
199
Easement in Gross: Commercial
A commercial easement in gross is granted to a business entity rather than a private party. The duration of the commercial easement is not tied to anyone's lifetime. The right may be assigned, transferred, or willed. This type of easement is usually owned by the government, a government agency, or a public utility.
Examples of commercial gross easements include:
A marina's right-of-way to a boat ramp
A utility company's right-of-way across a lot owner's property to install and maintain telephone lines.
200
Easement Creation (6)
Easements may be created by:
```
Voluntary action
Necessity
Prescriptive operation of law
Grant or reservation
Implication
Government power of eminent domain (condemnation)
```
201
Easement Creation: Voluntary Action
A property owner may create a voluntary easement by express grant in a sale contract, or as a reserved right expressed in a deed.
202
Easement Creation: Necessity
As mentioned earlier, a court decree creates an easement by necessity to provide access to a landlocked property.
203
Easement: Prescriptive Operation of Law
If someone uses another's property as an easement without permission for a statutory period of time and under certain conditions, a court order may give the user the easement by prescription, regardless of the owner's desires.
204
Easement: Prescriptive Operation of Law circumstances
Adverse and hostile use – The use has been occurring without permission or license.
Open and notorious use – The owner knows or is presumed to have known of the use.
Continuous use – The use has been generally uninterrupted over the statutory prescriptive period.
For example, a subdivision owns an access road which is also used by other neighborhoods to access a grocery store. One day, the subdivision blocks off the road, claiming it has never granted the neighbors permission to use the road. If the neighbors have been using the road for the ten-year period, they may sue for an easement by prescription, since the subdivision owners can be assumed to have known of the usage.
205
Easement: Grant or Reservation
Also known as easement by reservation, easement by grant is created with the express written agreement of the property owners.
In conveying land by deed, if the grantor wants to reserve certain easement rights, he or she can stipulate such in the deed itself.
For example, the grantor can convey fee interest in Lot 1 to the grantee, while reserving a non-exclusive easement for ingress and egress over the driveway located on Lot 1.
206
Easement by Implication
An implied easement can be created when a grantor conveys a portion of the real estate he or she owns or when he or she divides a larger tract among separate grantees. In either case, a severance of parcels occurs, which is a necessary prerequisite to an implied easement.
For example, property owner Jess sells off the mineral rights to his property. The mining company has an easement by implication to go onto the property to mine the minerals – but mining is the only reason the company may enter the property.
207
Easement by Condemnation (Gov't)
Government entities can create easements through the exercise of eminent domain, wherein they condemn a portion of a property and cause it to be sold "for the greater good." A typical example is a town's condemnation of private land to create a new municipal sewer system.
Most work to create new highways, roadways and sidewalks and to install utilities is the result of eminent domain.
208
Easement Termination
Express release of the right by the easement holder.
Merger, as when a dominant tenement acquires the servient property, or vice versa.
Purposeful abandonment by the dominant tenement.
Condemnation through eminent domain.
Change or cessation of the purpose for the easement.
Destruction of an easement structure, such as a party fence.
Non-use of an easement by prescription.
209
Encroachments
Unauthorized, physical intrusion of one owner's real property into that of another.
Examples; A tree limb extending into the neighbor's property, violating his or her airspace.
A driveway extending beyond the lot line onto the neighbor's land.
A fence built beyond the property line.
Cause infringements on the rights of the trespassed owner and may diminish the property's value, particularly when the property is to be sold.
Owner may sue for removal of an encroachment or for compensation for damages. If an encroached owner takes no remedial action over a prescribed number of years, the encroachment may become an easement by prescription.
210
License
Much like a personal easement in gross, is a personal right that a property owner grants to another to use the property for a specific purpose. Licenses are not transferrable and do not attach to the land. They cease on the death of either party, or on the sale of the property.
Unlike a personal easement in gross, a license is revocable at any time. Licenses are often granted informally, as a verbal statement of permission.
A farmer granting a neighbor permission to cross his land to reach and fish in his pond is an example of a license.
211
Deed Restrictions and Applications
Limitation imposed on a buyer's use of a property by stipulation in the deed of conveyance or recorded subdivision plat.
A private party who wants to control the quality and standards of a property can establish a deed restriction. Deed restrictions take precedence over zoning ordinances if they are more restrictive.
Typically apply to:
The land use.
The size and type of structures that may be placed on the property.
Minimum costs of structures.
Engineering, architectural, and aesthetic standards, such as setbacks or specific standards of construction.
212
Deed Restrictions: Conditions and Covenants
Conditions: can only be created within a transfer of ownership (transfer documents). If a condition is later violated, a suit can force the owner to forfeit ownership to the previous owner.
Covenants: can be created by mutual agreement. If a covenant is breached, an injunction can force compliance or payment of compensatory damages.
213
Lien
Creditor's claim against personal or real property as security for a debt of the property owner. If the owner defaults, the lien gives the creditor the right to force the sale of the property to satisfy the debt.
The creditor who places a lien on a property is called the lienor, and the debtor who owns the property is the lienee.
214
Lien example
A homeowner borrows $5,000 to pay for a new roof.
The lender funds the loan in exchange for the borrower's promissory note to repay the loan.
At the same time, the lender places a lien on the property for $5,000 as security for the debt.
If the borrower defaults, the lien allows the lender to force the sale of the house to satisfy the debt.
The example illustrates that a lien is an encumbrance that restricts free and clear ownership by securing the liened property as collateral for a debt. If the owner sells the property, the lienholder is entitled to that portion of the sales proceeds needed to pay off the debt. In addition, a defaulting owner may lose ownership altogether if the creditor forecloses.
215
Liens Effect on Title
A lien is an encumbrance that restricts the free and clear ownership of the property. If a property is being sold, all liens should be paid in full before the property transfers ownership.
Depending on the kind of lien, non-payment could trigger a foreclosure action and if the property has transferred ownership, the new owner is in danger of losing the property.
Title insurance can protect the buyer in such a situation. The title search will uncover any liens against the property and serve as notice to the prospective buyer of the condition of the title.
216
Lien Legal Features: A lien does not convey ownership, with one exception.
A lienor generally has an equitable interest in the property, but not legal ownership. The exception is a mortgage lien on a property in a title-theory state. In these states, the mortgage transaction conveys legal title to the lender, who holds it until the mortgage obligations are satisfied. During the mortgage loan period, the borrower has equitable title to the property.
217
Lien Legal Features: A lien attaches to the property.
If the property is transferred, the new owner acquires the lien securing the payment of the debt. In addition, the creditor may take foreclosure action against the new owner for satisfaction of the debt.
218
Lien Legal Features: A property may be subject to multiple liens.
There may be numerous liens against a particular property. The more liens there are recorded against a property, the less secure the collateral is for a creditor, since the total value of all liens may approach or exceed the total value of the property.
219
Lien Legal Features: A lien terminates on payment of the debt and recording of documents.
Payment of the debt and recording of the appropriate satisfaction documents ordinarily terminate a lien. If a default occurs, a suit for judgment or foreclosure enforces the lien. These actions force the sale of the property.
220
Types of Liens (4)
Voluntary and Involuntary.
| General and Specific.
221
Types of Liens: Voluntary and Involuntary
Voluntary: property owner may create to borrow money or some other assets structured by mortgage.
Involuntary: one that a legal process places against a property regardless of the owner's desires.If statutory law imposes an involuntary lien, the lien is a statutory lien. A real estate tax lien is a common example. If court action imposes an involuntary lien, the lien is an equitable lien. An example is a judgment lien placed on a property as security for a money judgment.
222
Types of Liens: General and Specific
General: one placed against any and all real and personal property owned by a particular debtor. An example is an inheritance tax lien placed against all property owned by the heir.
Specific: attaches to a single item of real or personal property and does not affect other property owned by the debtor. A conventional mortgage lien is an example, where the property is the only asset attached by the lien.
223
Superior and Inferior Lien
The category of superior, or senior, liens ranks above the category of inferior, or junior, liens, meaning that superior liens receive first payment from the proceeds of a foreclosure.
224
Ranks of Superior Lien (4)
Real estate tax liens.
Special assessment liens.
Federal estate tax liens.
State inheritance tax liens.
225
Ranks of Inferior Lien (7)
```
Federal income tax liens.
State corporate income tax liens.
State intangible tax liens.
Judgment liens.
Mortgage liens.
Vendor's liens.
Mechanic's liens (priority by date work was performed).
```
226
Lien Priority
Lien priority is of paramount concern to the creditor, since it establishes the level of risk in recovering loaned assets in the event of default.
Two factors primarily determine lien priority:
the lien's categorization as superior or junior.
the date of recordation of the lien (determines priority within junior ranks).
All superior liens take precedence over all junior liens regardless of recording date, since they are considered to be matters of public record not requiring further constructive notice.
The rule is: the earlier the recording date of the lien, the higher its priority.
The mechanic's lien is an exception to the recording rule. Its priority dates from the point in time when the work commenced or ended, as state law determines, rather than from when it was recorded.
227
Lien Priority Example
The following example illustrates how lien priority works in paying off secured debts. A homeowner is foreclosed on a second mortgage taken out in 2019 for $25,000. The first mortgage, taken in 2017, has a balance of $150,000. Unpaid real estate taxes for the current year are $1,000. There is a $3,000 mechanic's lien on the property for work commenced in 2018 and completed in 2019. The home sells for $183,000.
The proceeds are distributed in the following order:
```
$1,000 real estate taxes
$150,000 first mortgage
$3,000 mechanic's lien
$25,000 second mortgage
$4,000 balance to the homeowner
```
Note the risky position of the second mortgage holder: the property had to sell for at least $179,000 for the lender to recover the $25,000.
228
Lien Priority: Subordination
A lienor can change the priority of a junior lien by voluntarily agreeing to subordinate, or lower, the lien's position in the hierarchy.
This change is often necessary when working with a mortgage lender who will not originate a mortgage loan unless it is senior to all other junior liens on the property. The lender may require the borrower to obtain agreements from other lien holders to subordinate their liens to the new mortgage.
229
Lien Priority: Subordination Example
Interest rates fall from 8% to 6.5% on first mortgages for principal residences.
A homeowner wants to refinance her mortgage, but she also has a separate home-equity loan on the house. Since the first-mortgage lender will not accept a lien priority inferior to a home equity loan, the homeowner must persuade the home equity lender to subordinate the home equity lien to the new first-mortgage lien.
230
Superior Liens: Real Estate Tax Lien
The local legal taxing authority annually places a real estate tax lien, also called an ad valorem tax lien, against properties as security for payment of the annual property tax. The amount of a particular lien is based on the taxed property's assessed value and the local tax rate.
231
Superior Liens: Special Assessment Lien
Local government entities place assessment liens against certain properties to ensure payment for local improvement projects, such as new roads, schools, sewers, or libraries. An assessment lien applies only to properties that are expected to benefit from the municipal improvement.
232
Superior Liens: Federal and State Inheritance Tax Liens
Inheritance tax liens arise from taxes owed by a decedent's estate. The lien amount is determined through probate and attaches to both real and personal property.
233
Inferior Tax Liens (Federal Income, State Corp. Income, State Intangible, State Corp. Franchise)
Federal income tax lien -- placed on a taxpayer's real and personal property for failure to pay income taxes.
State corporate income tax lien -- filed against corporate property for failure to pay taxes.
State intangible tax lien -- filed for non-payment of taxes on intangible property.
State Corporation Franchise Tax Lien -- filed to ensure collection of fees to do business within a state.
234
Inferior Tax Liens: Judgment Lien
Attaches to real and personal property as a result of a money judgment issued by a court in favor of a creditor. The creditor may obtain a writ of execution to force the sale of attached property and collect the debt. After paying the debt from the sale proceeds, the debtor may obtain a satisfaction of judgment or release of judgment to clear the title records on other real property that remains unsold.
Certain properties are exempt from judgment liens, such as homestead property and joint tenancy estates. Judgment liens do not attach to homestead property unless, for example, a mechanic's lien has been perfected on the property.
Take priority based on the date the judgment is recorded in the county clerk's office.
235
Inferior Tax Liens: Mortgage and Trust Deed Lien
In lien-theory states, mortgages and trust deeds secure loans made on real property. In these states, the lender records a lien as soon as possible after disbursing the funds, in order to establish lien priority. If a mortgagor defaults, the lender forecloses and the property is put up for sale to satisfy the debt on the mortgage.
Lenders usually require a first mortgage lien. This means that no other liens on the property will take priority over the mortgage, except for the property tax lien we just discussed.
The lien is removed when the property is fully paid for. The lender will sign a satisfaction certificate to remove the lien.
236
Inferior Tax Liens: Vendor's Lien
A vendor's lien, also called a seller's lien, secures a purchase money mortgage, a seller's loan to a buyer to finance the sale of a property. By statute, a seller has a vendor's lien when the cash has not yet been received for the property.
237
Inferior Tax Liens: Vendee's Lien
A vendee's lien may be placed by a buyer when the seller has not delivered the title after all other terms of the contract have been satisfied.
238
Inferior Tax Liens: Municipal Utility Lien
A municipality may place a utility lien against a resident's real property for failure to pay utility bills.
239
Inferior Lien: Surety Bail Bond Lien
In some states, a real estate owner may put up real estate instead of cash to pay bail if he or she has been charged with a crime. A surety bail bond lien is recorded if the owner can prove that he or she has a net worth of at least twice the amount of the bail. Homestead property cannot be levied against for surety bail bond lien.
240
Inferior Lien: Wage Lien
If an employer owes back wages to an employee, a wage lien can be set against all real and personal property of the employer. If the money cannot be collected, then a lien may be filed as a permanent record of the debt owed to the claimant by the employer.
241
Inferior Lien: Mechanics Lien
Secures the costs of labor, materials, and supplies incurred in the repair or construction of real property improvements. If a property owner fails to pay for work performed, or materials supplied, a worker or supplier can file a lien to force the sale of the property and collect the debt.
It is possible for an owner to have to double-pay a bill in order to eliminate the mechanic's lien if the general contractor neglects to pay the subcontractors. The mechanic's lienor must enforce the lien by filing a notice of lien in the public records of the county where the work took place within a certain time period, or the lien expires.
The date of this lien starts when the series was first performed, not when the lien was submitted.
242
Title to Real Estate: Legal and Equitable
Legal: someone who possesses all ownership interests owns legal title to the property.
Equitable: the interest or right to obtain legal title to a property in accordance with a sale or mortgage contract between the legal owner and a buyer or creditor.
243
Title to Real Estate: Legal and Equitable example
A buyer enters into a contract for deed to purchase a house. The seller lends the bulk of the purchase price to the buyer for a term of three years. The buyer takes possession of the property and makes payments on the loan. During this period, the seller retains legal title and the buyer owns equitable title. If the buyer fulfills the terms of the agreement over the three-year period, the buyer has an enforceable contract to obtain legal title.
244
Title to Real Estate: Notice of Title - Actual
A person who has received actual notice has actual knowledge of something. Receiving actual notice means learning of something through direct experience or communication. In proving real estate ownership, a person provides actual notice by producing direct evidence, such as by showing a valid will.
A combination of actual and constructive notice generally provides the most indisputable evidence of real property ownership.
245
Title to Real Estate: Notice of Title - Constructive
aka legal notice, is knowledge of a fact that a person could have or should have obtained. The foremost method of imparting constructive notice is by recordation of ownership documents in public records, specifically, title records.
Since public records are open to everyone, the law generally presumes that when evidence of ownership is recorded, the public at large has received constructive notice of ownership. By the same token, the law presumes that the owner of record is in fact the legal owner.
246
Title to Real Estate: Transferring Title
Transfer of title to real estate, also called alienation, occurs voluntarily and involuntarily. When the transfer uses a written instrument, the transfer is called a conveyance.
247
Title to Real Estate: Transferring Title - Voluntary Alienation
Voluntary alienation is an unforced transfer of title by sale or gift from an owner to another party. If the transferor is a government entity and the recipient is a private party, the conveyance is a public grant. If the transferor is a private party, the conveyance is a private grant.
A living owner makes a private grant by means of a deed of conveyance, or deed. A private grant that occurs when the owner dies is a transfer by will.
248
Title to Real Estate: Transferring Title - Involuntary Alienation
Involuntary alienation is a transfer of title to real property without the owner's consent. Involuntary alienation occurs primarily by the processes of descent and distribution, escheat, foreclosure, eminent domain, adverse possession, and estoppel.
249
Deeds of Conveyance: Delivery and Acceptance
Execution of a valid deed in itself does not convey title. It is necessary for the deed to be delivered to and accepted by the grantee for title to pass.
To be legally valid, delivery of the deed requires that the grantor: be competent at the time of delivery
intend to deliver the deed, beyond the act of making physical delivery.
Validity of the grantee's acceptance requires only that the grantee have physical possession of the deed or record the deed.
Once accepted, title passes to the grantee.
250
Deeds of Conveyance: Validity (6)
Be delivered and accepted.
Have a competent grantor and legitimate grantee. The grantor must be living, of legal age, and mentally competent. If grantor is a corporation, the signing party must be duly authorized. The grantee must be living or have legal existence, but need not be of legal age or mentally competent.
Be in writing.
Contain a legal description.
Contain a granting clause. The deed must express the grantor's present desire and intention to transfer legal title to the grantee.
Include consideration. The deed must be accompanied by valuable (monetary) or good (love and affection) consideration, but the amount need not reflect the actual price in most cases.
Be signed by the grantor. The deed must be signed by the grantor, but need not be signed by the grantee unless the deed contains special provisions requiring the grantee's acceptance. Grantors may give power of attorney to other parties, authorizing them to execute deeds on their behalf. The power of attorney authorization should be recorded to ensure a valid conveyance.
Be acknowledged.
The grantor must declare, before a notary or other authorized person, that the grantor's identity and signature are genuine, and that the deed execution was a free, voluntary act.
251
Deeds of Conveyance: Conveyance Clauses (4)
Conveyance clauses describe the details of the transfer.
Granting clause, or premises clause -- the only required clause; contains the conveyance intentions; names the parties; describes the property; indicates nominal consideration
Habendum clause -- describes the type of estate being conveyed (fee simple, life, etc.)
Reddendum clause, or reserving clause -- recites restrictions and limitations to the estate being conveyed, e.g., deed restrictions, liens, easements, encroachments, etc.
Tenendum clause -- identifies property being conveyed, in addition to land.
252
Deeds of Conveyance: Covenant (Warrant) Clauses (6)
Covenant clauses present the grantor's assurances to the grantee. A deed of conveyance usually contains one or more of the following covenants, depending on the type of deed.
Warrant of seizen -- assures that the grantor owns the estate to be conveyed, and has the right to do so.
Warrant of quiet enjoyment -- assures that the grantee will not be disturbed by third party title disputes.
Warrant of further assurance -- assures that the grantor will assist in clearing any title problems discovered later.
Warranty forever; warranty of title -- assures that the grantee will receive good title, and that grantor will assist in defending any claims to the contrary.
Warrant of encumbrances -- assures that there are no encumbrances on the property except those expressly named.
Warranty against grantor's acts -- states the assurance of a trustee, acting as grantor on behalf of the owner, that nothing has been done to impair title during the fiduciary period.
253
Deeds of Conveyance: Statutory Deeds
The most common deeds are statutory deeds, in which the covenants are defined in law and do not need to be fully stated in the deed.
254
Types of Statutory Deeds (4)
Bargain and Sale Deeds.
General Warranty Deeds.
Special Warranty Deeds.
Quitclaim Deeds.
255
Bargain and Sale Deeds
The grantor covenants that the title is valid but may or may not warrant against encumbrances, or promise to defend against claims by other parties. If there is a warrant of defense, the deed is a full warranty bargain and sale deed.
The overall bargain and sale covenant is: "I own, but won't defend."
256
General Warranty Deeds
Most commonly used deed.
It contains the fullest possible assurances of good title and protection for the grantee. The deed is technically a bargain and sale deed in which the grantor promises to defend against any and all claims to the title.
The overall general warranty covenant is: "I own and will defend."
257
Special Warranty Deeds
In a special warranty deed, the grantor warrants only against title defects or encumbrances not noted on the deed, which may have occurred during the grantor's period of ownership or trusteeship. The deed does not protect the grantee against claims that predate the owner's period of ownership. Special warranty deeds are often used by trustees and grantors who acquired the property through a tax sale.
The overall special warranty covenant is: "I own and will defend against my acts only."
258
Quitclaim Deed
A quitclaim deed transfers real and potential interests in a property, whether an interest is known to exist or not. The grantor makes no claim to any interest in the property being conveyed and offers no warrants to protect the grantee.
The quitclaim is typically used to clear title, rather than convey it. Where there is a possibility that prior errors in deeds or other recorded documents might cloud (encumber) the title, the relevant parties execute a quitclaim deed to convey "any and all" interest to the grantee.
If a party responsible for encumbering title refuses to quitclaim the interest, the owner may file a quiet title suit. This requires the lienor to prove the validity of an interest. If the defendant is unable to do so, the court removes the cloud by decree.
The overall quit claim covenant is: "I may or may not own, and I won't defend."
259
Special-purpose Deeds (9)
```
Personal Representative's Deed.
Guardian's Deed.
Sherriff's Deed.
Deed of Trust.
Deed in Trust.
Master Deed.
Partition Deed.
Petent Deed.
Tax Deed.
```
260
Special-purpose Deeds: Personal Representative's Deed
used by an executor to convey a decedent's estate; also called an executor's deed.
261
Special-purpose Deeds: Guardian's Deed
used by a court-appointed guardian to transfer property of minors, or mentally incompetent persons.
262
Special-purpose Deeds: Sherriff's Deed
used to convey foreclosed property sold at public auction; usually executed pursuant to court order; Texas statute claims that the party which executes the deed is entitled to a sales fee or commission based on a percentage of the property.
263
Special-purpose Deeds: Deed of trust
used to convey property to a third party trustee as collateral for a loan; on satisfaction of the loan terms, the trustee uses a reconveyance deed to convey the property back to the borrower.
264
Special-purpose Deeds: Deed in trust
used to convey property to the trustee of a land trust. Not to be confused with deed of trust.
265
Special-purpose Deeds: Master deed
used to convey land to a condominium developer; accompanied by the condominium declaration when recorded.
266
Special-purpose Deeds: Partition deed
used to convey co-owned property in compliance with a court order resulting from a partition suit; a partition suit terminates an estate when one or more co-owners want to dissolve their relationship and are unable to do so without the assistance of a court.
267
Special-purpose Deeds: Patent deed
used to transfer government property to private parties.
268
Special-purpose Deeds: Tax deed
used to convey property sold at a tax sale.
269
Wills
A will, or more properly, a last will and testament, is a legal instrument for the voluntary transfer of real and personal property after the owner's death. It describes how the maker of the will, called the testator or devisor, wants the property distributed. A beneficiary of a will is called an heir or devisee. The property transferred by the will is the devise.
It is an amendatory instrument, meaning that it can be changed at any time during the maker's lifetime.
Commonly, the testator names an executor, or personal representative, to oversee the settlement of the estate. If a minor is involved, the testator may identify a guardian to handle legal affairs on behalf of the minor.
270
Types of Wills (4)
Witnessed -- in writing and witnessed by two people.
Holographic -- in the testator's handwriting, dated and signed; some states also regard typed wills signed by the testator to be holographic.
Approved -- on pre-printed forms meeting the requirements of state law.
Nuncupative -- made orally, and written down by a witness; generally not valid for the transfer of real property.
271
Validity of Will
State law establishes requirements for a valid will. The law generally requires that:
Testator be of legal age and mentally competent.
Testator indicate that the will is the "last will and testament".
The will be signed.
Completion of the will be witnessed and signed by the witnesses.
Will be completed voluntarily, without duress or coercion.
272
Will: Probate
Court proceeding that generally settles a decedent's estate, whether the person has died testate (having left a valid will) or intestate (having failed to do so). Real property may be exempted from probate if it is held in a land trust. Probate of real property occurs under jurisdiction of courts in the state where the property is located, regardless of where the deceased resided.
273
Probate Court Objective (3)
Validate the will, if one exists
Identify and settle all claims and outstanding debts. against the estate.
Distribute the remainder of the estate to the rightful heirs.
If the will does not name an executor, the court will appoint an administrator to fulfill this role.
274
Possible Channels of Probate Deliberation (3)
Testate proceeding.
Intestate with heirs.
Intestate without heirs.
275
Testate Proceeding
If the decedent died with a valid will, the court hears the claims of lienors and creditors and determines their validity. First in line are the superior liens: those for real estate taxes, assessment taxes, federal estate taxes, and state inheritance taxes. If the estate's liquid assets are insufficient to pay all obligations, the court may order the sale of personal or real property to satisfy the obligations.
The court must also hear and satisfy legal life estate claims, including those for dower, curtsey, homestead, and elective share. These interests may prevail even if the will does not provide for them.
Once all claims have been satisfied, the balance of the estate's assets passes to the rightful heirs free and clear of all liens and debts.
276
Intestate Proceeding With Heirs
If the decedent died without a valid will, the estate passes to lawful heirs according to the state's laws of descent and distribution, or succession. Laws of descent stipulate who inherits and what share they receive, without regard to the desires of the heirs, or the intentions of the deceased.
For example, John Astor dies intestate, leaving a wife and four children. The laws of descent in his state provide that the surviving spouse receives one-third of the estate, and the four children receive equal shares of the remaining two thirds.
277
Intestate Proceeding With No Heirs
If an intestate decedent has no heirs, the estate escheats, or reverts, to the state or county, after all claims and debts have been validated and settled.
278
Involuntary Title Transfers
```
Laws of Descent.
Abandonment.
Foreclosure.
Eminent Domain.
Adverse Possession.
Estoppel.
```
279
Involuntary Title Transfers: Laws of Descent
Involuntary alienation occurs when a title-holder dies without a valid will. The state's statutes of descent and distribution identify heirs and the respective shares of the estate they will receive. In the absence of heirs, title transfers to the state or county by escheat.
280
Involuntary Title Transfers: Abandonment
Property that has been abandoned for a statutory period may also escheat to the state or county.
281
Involuntary Title Transfers: Foreclosure
A property owner who fails to fulfill loan obligations or pay taxes may lose an estate through foreclosure.
282
Involuntary Title Transfers: Eminent Domain
Various government and public entities can transfer private property to the public sphere by the power of eminent domain. The transfer is involuntary, even though the owner receives compensation. For example, a city government wants to widen a highway to accommodate growth. The government uses eminent domain to condemn and purchase all properties abutting the thoroughfare in order to complete the construction project.
283
Involuntary Title Transfers: Adverse Possession
State laws may allow a real property owner to lose legal title to an adverse possessor. An adverse possessor is someone who enters, occupies, and uses another's property without the knowledge or consent of the owner, or with the knowledge of an owner who fails to take any action over a statutory period of time.
284
To claim legal title, adverse possessor must: (5)
Be able to show a claim of right or color of title as reason for the possession. A claim of right is based on the adverse possessor's occupying and maintaining the property as if he or she were the legal owner. Color of title results when a grantee has obtained defective title, or received title by defective means, but occupies the property as if he or she were the legal owner. A court may hold that a claim of right or a claim of colored title is a valid reason for the possession.
Have notorious possession, which is possession without concealment.
Maintain a consistent claim of hostile possession, which is a claim to ownership and possession regardless of the owner's claims or consent. Notorious possession and hostile possession give constructive notice to the public (including the legal owner), that a party other than the legal owner is occupying and claiming to own the property. It is possible for such notice to prevail over notice by recordation as the dominant evidence of legal ownership, provided the possessor has occupied the property continuously for the statutory period of time.
Occupy the property continuously for a statutory period of time. In some states, the possessor must have paid taxes over a prescribed period to obtain title. However, if the possessor has paid rent of any kind, the claim of ownership might be refuted.
In some states, pay taxes. An owner can avert the danger of involuntary alienation by adverse possession by periodically inspecting the property within statutory deadlines and evicting any trespassers found. The owner may also sue to quiet title, which would eliminate the threat of the adverse possessor's claim to legal title.
285
Involuntary Title Transfers: Estoppel
Prevents a person from claiming a right or interest that is inconsistent with the person's previous statements or acts. As a basis for involuntary alienation, the doctrine of estoppel can prevent an owner from re-claiming a property that was transferred under false pretenses.
For example, an owner conveys a property with a defective title. The grantor is fully aware of the defect but makes no disclosure to the grantee. The grantor later cures the defect and then claims to be the rightful owner of the property on the basis of the effort and expense of clearing the title. Estoppel disallows the grantor's claim because of the prior conveyance action. The grantee remains legal owner and benefits from the cleared title as well.
286
Title Records
Contain a history of every parcel of real estate in the county, including names of previous owners, liens, easements, and other encumbrances that have been recorded.
Deeds, mortgages, liens, easements, and sale contracts are among the documents that must be recorded. Other public records that affect real estate title are marriage, probate, and tax records.
287
Purposes of Titles (3)
Public notice -- Title records protect the public by giving all concerned parties constructive notice of the condition of a property's legal title: who owns the property, who maintains claims and encumbrances against the property.
Buyer protection -- Title records protect the buyer by revealing whether a property has marketable title, one free of undesirable encumbrances. The buyer is legally responsible for knowing the condition of title, since it is a matter of public record. Recording a transaction also protects a buyer by replacing the deed as evidence of ownership.
Lienholder protection -- Title records protect the lienholder by putting the public on notice that the lien exists, and that it may be the basis for a foreclosure action. Recording also establishes the lien's priority.
288
Chain of Title
Chain of title refers to the succession of property owners of record dating back to the original grant of title from the state to a private party. If there is a missing link in the chronology of owners, or if there was a defective conveyance, the chain is said to be broken, resulting in a clouded title to the property. To remove the cloud, an owner may need to initiate a suit to quiet title, which clears the title record of any unrecorded claims.
289
Abstract of Title
An abstract of title is a written, chronological summary of the property's title records, and other public records affecting rights and interests in the property. It includes the property's chain of title and all current recorded liens and encumbrances, by date of filing. A title abstractor or title company analyst conducts the search of public records, called a title search, needed to produce an abstract. Insurers and lenders generally require the search to identify title defects and ascertain the current status of encumbrances.
A title plant is a duplicate set of records of a property copied from public records and maintained by a private company, such as a title company.
290
Title Records: Recording System
There are no federal recording standards. Each state prescribes procedures and requirements for recording in public title records: forms, proper execution, acknowledgment, and witnessing.
291
Title Records: The Torrens System
The Torrens system differs from other title recording systems in that title passes only when the conveyance has been duly registered on the title certificate itself. Encumbrances likewise have no legal effect until they are recorded. In effect, the Torrens title record is the title itself. It is not necessary to search public records to ascertain the status of title; it is all reflected on the title certificate.
To enter a property in the Torrens system, a court action must first clear title by giving notice to all potential interest holders that they must express their claims. At the end of the proceeding, the court decrees that the title is accepted into Torrens registration.
292
Title Evidience and the the title is free of: (4)
Since the value of a property is only as good as the marketability of its title, the evidence supporting the status of title is a significant issue. To demonstrate marketable title to a buyer, a seller must show that the title is free of:
Doubts about the identity of the current owner.
Defects, such as an erroneous legal description.
Claims that could affect value.
Undisclosed or unacceptable encumbrances.
293
Principal forms of evidence the owner can use to support Title Evidence (4)
Torrens certificate.
Title insurance.
Attorney's opinion of the title abstract.
Title certificate.
294
Title Evidence: Torrens Certificate
If available, the Torrens certificate is the best evidence, for the reasons given earlier-- it is not merely a record, but is the title itself.
295
Title Evidence: Title Insurance
In the absence of Torrens registration, a title insurance policy is commonly accepted as the best evidence of marketable title. A title insurance policy indemnifies the policy holder against losses arising from defects in the insured title.
An owner's policy may have standard coverage or extended coverage.
Before issuing a title insurance policy, a title company conducts a title search to uncover defects in title, or unrecorded breaks in the chain of title. If the search fails to discover any uninsurable defects, the company issues a binder, or commitment to insure.
296
Title Insurance: Standard and Extended Coverage
Standard coverage protects against title defects, such as incompetent grantors, invalid deeds, fraudulent transaction documents, and defects in the chain of title.
Extended coverage protects against liabilities that may not be of public record, including fraud, unrecorded ownership claims, unintentional recording errors, and unrecorded liens. Extended coverage may also protect against adverse possessors, boundary disputes, and prescriptive easements.
Neither standard nor extended coverage insures against defects expressly excluded by the policy, or defects that the owner might have been aware of but did not disclose.
297
Title Evidence: Attorney's Opinion of Abstract
An attorney's opinion of abstract states that the attorney has examined a title abstract, and gives the attorney's opinion of the condition and marketability of the title. Generally, an opinion is not a proof or guarantee of clear title. Further, it offers no protection in the event the title turns out to be defective.
298
Title Evidence: Title Certificate
A title certificate is a summary of the condition of title as of the date of the certificate, based on a search of public records by an abstractor or title analyst. The certificate does not guarantee clear title against defects, unrecorded encumbrances, or encroachments.
299
Foreclosures
State law governs the foreclosure process. Broadly, a statutory or court-ordered sale enforces a general lien, including a judgment lien. A lawsuit or loan provision authorizing the sale or direct transfer of the attached property enforces a specific lien, such as a mortgage. Real estate tax liens are enforced through tax foreclosure sales, or tax sales.
300
Types of Mortgage Lien Foreclosures (3)
Judicial foreclosure – involves sale of the mortgaged property under the supervision of a court; initiated by a law suit; available in every state.
Non-judicial foreclosure – involves sale of the mortgage property without court supervision; available in many, but not all, states.
Strict foreclosure – involves court-ordered transfer of the mortgaged property to the lender; available in a few states.
301
Judicial Foreclosure
Allows the sale of the mortgaged property under the supervision of the court, with the proceeds going first to satisfy the mortgage, then other lien holders, and finally the borrower if any proceeds are left.
Depending on state foreclosure law, "mortgage" may include:
Deed of trust.
Installment (land) contracts that are payable over more than five (5) years and have an unpaid balance of less than 80% of the purchase price.
Particular collateral assignments of the beneficial interest in land trusts used as security for lenders.
Conventional mortgage instruments.
Occurs in states that use a two-party mortgage document (borrower and lender) that does not contain a "power of sale" provision. Lacking this provision, a lender must file a foreclosure suit and undertake a court proceeding to enforce the lien.
302
Judicial Foreclosure: Acceleration and Filing
If a borrower has failed to meet loan obligations in spite of proper notice and applicable grace periods, the lender can accelerate the loan, or declare that the loan balance and all other sums due on the loan are payable immediately. The mortgage holder will include unpaid property taxes and delinquent payments in the accelerated amount, so the borrower can end up owing more than the original amount of the mortgage.
If the borrower does not pay off the loan in full, the lender then files a foreclosure suit, naming the borrower as defendant. The suit asks the court to:
Terminate the defendant's interests in the property.
Order the property sold publicly to the highest bidder.
Order the proceeds applied to the debt.
303
Judicial Foreclosure: Lis Pendens
In the foreclosure suit, a lis pendens gives public notice that the mortgaged property may soon have a judgment issued against it. This notice enables other lienholders to join in the suit against the defendant.
The lender generally obtains a title search and notifies all other lien holders so that they may appear and assert their interest in the foreclosure litigation. If the property has a federal tax lien against it, the foreclosing lender must give 25 days' notice of the sale to the Internal Revenue Service or risk having the tax lien remain attached to the real property after the sale.
A notice of pendency is NOT the same as placing a lien on a property. It is only legal notice of a pending action that involves the title to, or possession of, a specific piece of real estate. The notice is filed in the office of the county clerk.
The notice could not be used in a suit to recover attorney fees or broker commissions. The end result of filing a lis pendens, however, is that the property cannot be freely sold or encumbered. So the title to the property is unmarketable during the period of the litigation.
304
Judicial Foreclosure: Right of Redemption
The borrower's right of redemption, also called equity of redemption, is the right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs. Redemption is possible within a redemption period.
Some states allow redemption during the foreclosure proceeding at any time "until the gavel drops" at the sale. The borrower can claim the property by paying the full debt, plus any interest and costs. Any attempt to have a borrower waive his or her redemption rights is unenforceable. This right to redeem property between the time of the default and the foreclosure sale is called the equitable right of redemption.
Other states have statutory periods of up to a year following the sale for the owner of a foreclosed property to redeem the estate. This is known as the statutory right of redemption.
305
Judicial Foreclosure: Right of Reinstatement
In some states, mortgagors have statutory right of reinstatement, if not redemption. This option is available when the borrower wants to cure the default (bring payments up to date) and reinstate the loan as if the loan had not been accelerated at all.
In these states, the borrower may exercise statutory right of reinstatement within a statutory number of days after service of summons or publication date. The lender may choose to extend the period for reinstatement to the full length of the period for equitable right of redemption.
If reinstatement occurs, the lender must dismiss the suit and the mortgage continues in effect as if no foreclosure had been undertaken.
306
Judicial Foreclosure: Writ of Execution
If the defendant fails to meet the demands of the suit during a prescribed period, the court orders the termination of interests of any and all parties in the property, and orders the property to be sold. The court's writ of execution authorizes an official, such as the county sheriff, to seize and sell the foreclosed property.
307
Judicial Foreclosure: Judicial Sale
If the default is not cured by equitable right of redemption or statutory right of reinstatement, the judicial foreclosure will move forward. This leads to a judicial sale, also called a sheriff's sale, whereupon
All parties are notified in writing of the sale.
Sale is advertised in a newspaper with general circulation.
Property is sold to the highest bidder.
The winning bidder receives a certificate of sale, not a deed. The person holding the certificate will receive a sheriff's deed only after the sale has been confirmed.
308
Judicial Foreclosure: Sale Proceeds
The new owner receives title free and clear of all previous liens, whether the lienholders have been paid or not. Proceeds of the sale are applied to payment of liens according to priority. After payment of real estate taxes (lienholders' claims and costs of the sale), any remaining funds go to the mortgagor (borrower).
The order of payment in a foreclosure is as follows:
First, the cost of the sale (this refers to the advertising, attorney fees, trustee fees, etc.).
Second, any special assessment taxes and general (or ad valorem) taxes.
Third, the FIRST mortgage (determined by the order of recording).
Fourth, whatever is recorded next.
Any liens resulting from second loans or home equity loans are "wiped out" by foreclosure, but the borrower is still obligated to pay off those loans if the proceeds of the judicial sale are insufficient.
If any money remains from the foreclosure sale after paying off the debt, liens, expenses, and interest, that money would be paid to the borrower.
309
Judicial Foreclosure: Deficiency Judgment
A foreclosure does not necessarily extinguish all the liens against the property, such as what may be owed in real estate taxes. Also, the foreclosure sale may not yield enough money to pay the loan balance in full. As a result, the borrower may still owe money to the lender after the foreclosure. In some cases, the lender may be able to get a personal judgment against the borrower for what is left unpaid. This is called a deficiency judgment. This enables the lender to attach and foreclose a judgment lien on other real or personal property the borrower owns.
The lender's ability to pursue such a judgment may be limited, however. State laws may restrict the possibility of obtaining a judgment, and if the mortgage is a non-recourse debt (as is often the case with original owner-occupied residential mortgages), the lender cannot go after borrower's assets. Refinanced loans and home equity lines of credit are not subject to the same restrictions.
If the lender does not or cannot pursue a deficiency judgment, the amount that remains unpaid may be taxable to the borrower as "forgiven debt."
310
Non-Judicial Foreclosure
When there is a "power of sale" provision in the mortgage or trust deed document, a non-judicial foreclosure can force the sale of the liened property without a foreclosure suit. The "power of sale" clause in effect enables the mortgagee to order a public sale without court decree.
Non-Judicial foreclosure requires the lender to give the borrower a notice of default (NOD) and of intent to sell the property in a form prescribed by state statutes. If the borrower fails to cure the default or use other legal means to stop the sale (such as filing a bankruptcy or filing to temporarily stay the foreclosure), the lender may conduct a public auction.
311
Non-Judicial Foreclosure: Foreclosure Process
On default, the foreclosing mortgagee records and delivers notice to the borrower and other lienholders. After the proper period, a "notice of sale" is published, the sale is conducted, and all liens are extinguished. The highest bidder receives unencumbered title to the property.
312
Non-Judicial Foreclosure: Reinstatement and Redemption
During the notice of default and notice of sale periods, the borrower may pay the lender and terminate the proceedings. Exact reinstatement periods vary from state to state. There is no redemption right in non- judicial foreclosure.
313
Non-Judicial Foreclosure: Deficiency Suit
If proceeds do not cover the debt, the lender does not obtain a deficiency judgment or lien, but must file a new deficiency suit against the borrower.
314
Strict Foreclosure
The original form of foreclosure, involves a lawsuit filed by the lender against the borrower. Strict foreclosure is a court proceeding that gives the lender title immediately, by court order, instead of giving cash proceeds from a public sale. This procedure is usually available only when the value of the property is less than the value of the debt.
Procedure:
First, the lender must give appropriate notice to the delinquent borrower.
Next, the lender prepares and records the paperwork.
After a prescribed period, the lender files suit in court.
The court orders the borrower to pay the mortgage debt by a certain date.
If the debt is not paid in full by the deadline, the court orders transfer of full legal title to the lender, and the lender gains title with no obligation to sell the property.
315
Alternatives to Foreclosure: Deed in Lieu of Foreclosure
With the deed in lieu option, a borrower voluntarily deeds collateral property in exchange for a release from all obligations under the mortgage. The transfer, however, does not terminate any existing liens on the property.
The deed in lieu alternative to foreclosure offers several advantages to both the borrower and the lender:
The borrower obtains immediate release from most or all of the personal indebtedness associated with the defaulted loan.
There is no public foreclosure proceeding.
The borrower may receive more generous terms than would be available in a formal foreclosure.
The borrowers' credit is hurt less than in a formal foreclosure.
The lender achieves a reduction in the time and cost of a repossession.
There is less risk to the lender that the borrower will damage the property in revenge for the loss of the property.
316
Alternatives to Foreclosure; Short Sale
A short sale occurs when a lender allows a borrower in default on mortgage loan payments to sell the mortgaged property for less money than necessary to satisfy the loan in order to avoid the delay and expense of a foreclosure sale. The lender usually forgives the mortgage balance owed after the sale.
Other avoidance options include refinancing, temporary arrangements with the lender (loan workout), and bankruptcy.
