Unit 8: Forms of Real Estate Ownership

Question 1

Common Elements

Answer 1

Condominium owners hold as fee simple title to their unit and are a tenant in common in the common elements of the building. The individual unit owners also own a specified share of the undivided interest in the remainder of the building and land, called the common elements

Common elements include such items as land, courtyards, lobbies, the exterior structure, hallways, elevators, stairways, and the roof, as well as recreational facilities such as swimming pools, tennis courts, and golf courses

Question 2

Condominium

Answer 2

Condominium owners hold as fee simple title to their unit and are a tenant in common in the common elements of the building.

The owner of a condo unit owns his/her unit, plus an undivided one-fifth share of the elevator, lobby, grounds and structure

Question 3

Cooperative

Answer 3

In a cooperative, a corporation holds title to the land and building and then offers shares of stock to prospective purchasers. The purchaser becomes a shareholder in the corporation by virtue of this stock ownership and receives a proprietary lease to a designated apartment for the life of the corporation

Because stock is personal property, the cooperative tenant-owners do not own real estate. Instead, they own an interest in a corporation that has only one asset: the building

Question 4

Corporation

Answer 4

Legal entity created under the authority of the laws of the state from which it receives its charter. A corporation is managed and operated by its board of directors

Because the corporation is a legal entity, it can own real estate in severalty or as a tenant in common

Individuals participate, or invest, in a corporation by purchasing stock. Because stock is personal property, shareholders do not have direct ownership interest in real estate owned by a corporation

Question 5

Co-ownership

Answer 5

When title to one parcel of real estate is held by two or more individuals, those parties are called co-owners or concurrent owners. Most states commonly recognize various forms of co-ownership

Individuals may co-own property as tenants in common, joint tenants, or tenants by the entirety, or they may co-own community property in states recognizing community property

Illinois recognizes co-ownership and most traditional forms of co-ownership EXCEPT for community property (Illinois is a marital property state)

Illinois also recognizes ownership in trust, in partnership, and by commercial entities such as corporations and limited liability companies

Question 6

General Partnership

Answer 6

In a general partnership, all the partners participate in the operation and management of the business and share full liability for business losses and obligations

Question 7

Joint Tenancy

Answer 7

Most states recognize some form of joint tenancy in property owned by two or more people. The feature that distinguishes a joint tenancy from tenancy in common is unity of interest

Title is held as though all the owners, collectively, constitute one unit. Joint tenancy includes the right of survivorship.

Upon death of a joint tenant, the deceased’s interest transfers directly to the surviving joint tenants. The last survivor then takes title in severalty and has all the rights of sole ownership, including the right to pass the property to any heirs

The four unities necessary to create a joint tenancy:
Possession
Interest
Time
Title
P.I.T.T.

Question 8

Joint Venture

Answer 8

A form of partnership in which two or more people or firms carry out a single business project. The joint venture is characterized by a time limitation resulting from the fact that the joint venturers do not intend to establish a permanent relationship

Question 9

Limited Liability Company (LLC)

Answer 9

Combines the most attractive features of limited partnerships and corporations. The members of an LLC enjoy the limited liability offered by a corproate form of ownership and the tax advantages of a partnership.

Illinois joined the majority of states that recognize LLCs as a legitimate business organizations

Question 10

Limited Partnership

Answer 10

Consists of one or more general partners as well as limited partners. The business is run by the general partner or partners. The limited partners are not legally permitted to participate, and each can be held liable for business losses only to extend of his or her investment

The limited partnership is a popular method of organizing investors because it permits investors with small amounts of capital to participate in large real estate projects with a minimum of personal risk

Question 11

Marital Property

Answer 11

Illinois is a marital property state

Illinois breaks property down into two major categories based on martial status: marital property and nonmartial property

Illinois law recognizes that the spouses acquire joint rights in all property acquired after the date of marriage for the duration of the marriage

Illinois labels such property marital property, all of which will be divided between the two parties in the event of a divorce

Question 12

Partition

Answer 12

Legal way to dissolve the relationship when the parties do not voluntarily agree to its termination. If the court determines that the land cannot be divided physically into separate parcels without destroying its value, the court will order the real estate sold

Question 13

Proprietary Lease

Answer 13

In a cooperative, a corporation holds title to the land and building and then offers shares of stock to prospective purchasers. The purchaser becomes a shareholder in the corporation by virtue of this stock ownership and receives a proprietary lease to a designated apartment for the life of the corporation

Question 14

Partnership

Answer 14

An association of two or more persons who carry on a business for profit as co-owners

Question 15

Right of Survivorship

Answer 15

Joint tenancy includes the right of survivorship: Upon the death of a joint tenant, the deceased’s interest transfers directly to the surviving joint tenants. A will has no effect of the transfer of property. Essentially, there is one less owner. The Joint tenancy continues until only one owner remains

Question 16

Severalty

Answer 16

Ownership in severalty occurs when property is owned by one individual or corporation. The term comes from the fact that this sole owner is “severed” or “cut off” from other owners

The severalty owner has sole rights to the ownership and sole discretion to sell, will, lease, or otherwise transfer part or all of the ownerships rights to another person or entity

Question 17

Syndicate

Answer 17

Two or more people or firms joined together to make and operate a real estate investment. A syndicate is not in itself a legal entity; however, it may be organized into a number of ownership forms, including co-ownership (tenancy in common and joint tenancy), partnership, trust, or corporation

Question 18

Tenancy by the Entirety

Answer 18

Some states, including Illinois, allow spouses to use a special form of co-ownership called tenancy by the entirety for their personal residence

The term “entirety” refers to the fact that the owners are considered one indivisible unit: Under early common law, a married couple was viewed as one “legal person”.

In this form of ownership, each spouse has an equal, undivided interest in the property. Spouses who are tenants in entirety have rights of survivorship

Question 19

Tenancy in Common

Answer 19

A parcel of real estate may be owned by two or more people as tenants in common. In a tenancy in common, each tenant holds an undivided fractional interest in the property

A tenant in common may hold, for example, a one-half or one-third interest in a property.The physical property, however, is not divided into a specific half or third. Hence, it is called an undivided fractional interest

The co-owners have unity of possession, meaning they are entitled to possession of the whole property. The ownership interest is divided, NOT the property

Question 20

Time-share

Answer 20

Time-share ownership permits multiple purchasers to buy interests in the same piece of real estate, usually a resort property. Each purchasers receives the right to use the facilities for a certain period

Question 21

Townhouse

Answer 21

The term “townhouse” is generally used to describe a type of housing connected by common walls. Typically, each town house has two floors and is located on a small lot. Title to each unit and lot is vested in the individual owner. Each owner also has a fractional interest in the common areas and is proportionately financially responsible.

Common areas include open spaces, recreational facilities, driveways, and sidewalks. The owner may sell, lease, will, or otherwise transfer the unit. The rights to the use of the common areas pass with title

Question 22

Trust

Answer 22

A device by which one person transfers ownership of property to someone else to hold or manage for the benefit of a third party

A property owner may provide for her own financial care or for that of the owner’s family by establishing a trust

The person who creates the trust conveys real or personal property to the trustee, with the understanding that the trustee will assume certain duties. These duties may include the care and investment of the trust assets to produce an income

Illinois permits real estate to be held in trust as part of a living or testamentary trust or as the sole asset in a land trust