The method a purchaser takes the Title to the real estate holdings is of a paramount importance, can have great ramifications in the future, and possibly work against the owner if a wrong title was chosen.
My experience as a REALTOR tells me that TITLE issues are often under-explained and overlooked. Occasionally homebuyers learn about the possible options for the first time on the Settlement day without having the time to fully consider the legal consequences of their decision.
While, as REALTORS, we cannot give legal advice – doing so would amount to practicing law without a license and is persecuted by the federal law – however, a good Buyer Agent will point a purchaser in the right direction and emphasize the significance of the different ways that the Title can be taken. A professional, highly ethical Title and Settlement company will also make an effort to educate the purchaser, although many title and settlement officers are not necessarily attorneys and cannot give legal advice.
Given that scenario, real estate and home purchasers need to take the time to educate themselves about the Title options, legal consequences and potential financial risks, and if necessary to consult a good real estate attorney prior to the settlement day.
Property law varies from state to state – this is very important to remember for purchasers who are relocating from one state to another.
I am a REALTOR licensed in Virginia. Below are the forms of ownership available in Virginia – they may be different in other states.
- Sole owner
- Tenancy by the Entirety
- Joint Tenancy
- Tenancy in Common
- LLC, Limited Liability Company
SOLE OWNER – One that holds possession to real property with no one else, and undeniably the most risk-free form of ownership.
TENANCY BY THE ENTIRETY - A special form of joint tenancy for married couples – available only in a about half the states (Virginia, Maryland, Pennsylvania are Tenancy by the Entirety states). Tenancy by the Entirety is available ONLY to a HUSBAND AND WIFE who hold the property together as a single legal entity. It can be created only by will or by deed and it allows the property to pass AUTOMATICALLY to the surviving spouse when a spouse dies, and not to other heirs of the deceased spouse. This is called the right of survivorship which is built in automatically into Tenancy by the Entirety to protect the surviving spouse.
Most importantly, tenancy by the entirety protects a spouse’s interest in the property from the other spouse’s creditors! Property is protected from judgment creditors trying to enforce their liens against the property. If the DEBTOR spouse dies first, then the lien CANNOT be enforced against the property and the innocent spouse. However, the lien CAN be enforced against the surviving debtor spouse.
With tenancy by the entirety, each tenant owns the entire estate thereby preventing either tenant from acting individually – it means neither party can voluntarily dispose of her or his interest in the property without the consent of the other tenant. In the event of DIVORCE, the tenancy by the entirety becomes a tenancy in common, and the right of survivorship is lost.
Tenancy by the entirety can be created only by married persons, however, a married couple may choose a joint tenancy or tenancy in common. In most states a married couple is presumed to take title to property as tenants by entirety, UNLESS the deed or conveying documents state otherwise – be sure to verify, it all depends on professionalism and ethics of the Title/Settlement company.
JOINT TENANCY - Form of ownership by two or more persons of the same property who own EQUAL shares of the property and have the equal, undivided right to keep or dispose of the property – UNLESS, defined otherwise in a joint ownership agreement.
This is the biggest difference between the Tenancy by the Entirety and Joint Tenancy: 1) Joint Tenancy does NOT protect against the creditors – a judgment creditor may petition the court to divide the property and collect the judgment from one of the owner’s shares, 2) one of the co-owners may petition the court to divide the property or order the sale.
Joint Tenancy WITH the Right of Survivorship – when one tenant dies, the property AUTOMATICALLY transfers in equal parts to the survivors. When only one joint tenant is left alive, he or she receives the entire estate.
Joint Tenancy WITHOUT the Right of Survivorship – This form of ownership is synonymous with a tenancy in common.
TENANCY IN COMMON – A specific type of concurrent, or simultaneous, ownership of real property by two or more parties – upon the death of an owner, shares of the property pass to the owner’s heirs, according to the will, and not necessarily to the surviving spouse.
The biggest difference between Tenancy in Common and Joint Tenancy and Tenancy by the Entirety is that Tenancy in Common offers NO Right of Survivorship, and tenants can hold UNEQUAL interest in the property that can be obtained via different instruments – Joint Tenants and Tenants by the Entirety own EQUAL shares of the property and must obtain their interests at the same time and in the same document.
LIMITED LIABILITY COMPANY – There are advantages and disadvantages of the Limited Liability Company.
ADVANTAGES – Owners of LLC, like corporations, enjoy liability protection. LLC is a separate legal entity, thus members cannot be held personally liable for business debts, unless they signed a personal guarantee. Another benefit is management flexibility and pass-through taxation, as members pay their share of taxes on their individual tax returns, just like in the case of sole proprietorship or partnership.
DISADVANTAGES – Unlike corporations, LLC is dissolved when a member dies or undergoes a bankruptcy. Also, there are fees to set up and operate the LLC.
NOTE: The above is based solely on individual research and should not be taken as legal advice
NOTE: For legal advice on Title issues contact your Real Estate Attorney and Tax Advisor
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I read your post and wish my realtor had taken the time to explain the various options for Title. Presently, the mortgage and Title are entirely in my name. The property was purchased back in 2006. What I really wanted back then, but was never explained or offered to me was a: “Joint Tenants with the Right of Survivorship and not as tenants in common”.
After researching various sites, the best form I can find is a QUITCLAIM DEED (Individual to Two Individuals). Our concern is that the information on the Internet implies that this is Taxable under Commonwealth of Virginia laws. I can understand paying a fee for the Clerk to record an ammended Title. However, paying the 25 cents / $100 assessment (house is presently valued over $400k) is unaffordable. Furthmore, the person that I would like to add is on SSI (we checked and “owning” a home is acceptable within SSI regulations), but obviously very limited income.
Any suggestions / recommendations on how to proceed? We’re down in Prince William County (Dumfries region). Thanks!
John,
REALTORs are licensed to advise on real estate market, they are not licensed to give legal advice – so your REALTOR was right by not giving you any advice on Title matters, which can be very complex. Although he/she could have pointed out the importance of contacting a real estate attorney.
Deeds and Title are two separate topics. Deed is the warranty given to you by the seller, and Title is the way you assume the ownership to the property.
Again, contact a knowledgeable real estate attorney who will offer an advice as to the best way for you to assume the Title that will protect you, your spouse if you are married, and your heirs.