Forms of Title and Title Insurance
Real Property Title
Having title to real property refers to the right to own land and the evidence of the ownership of it. Title determines who must sign the documents when a property is sold, and in turn the purchasers must decide in what form they wish to take title. There are various ways to hold title, so let’s look at some of the more common ways.
Severalty - sole ownership:
One person or one organization owns the property. If there is a legal spouse involved, but not taking ownership, that person typically must join in signing the severalty documents. Refer to my post on Quit Claim Deeds for a discussion on this option for releasing interest in real property.
Co-ownership - title held by 2 or more persons:
Tenancy in Common:
Each owner has an undivided fractional ownership interest. Undivided simply means each owner cannot tell what fraction of the property is theirs. Each person holds their interest in severalty and can transfer it without the mutual consent of the rest.
Death – in the event of death the undivided interest does not transfer to the other owners. It passes according to the will of the deceased, or according to the laws of descent and distribution of the state.
Joint Tenancy:
This unity of ownership is where only one title exists and it has the right of survivorship. There are four unities needed to create joint tenancy.
1. Unity of time - one deed acquired at the same time
2. Unity of Title - same instrument of conveyance
3. Unity of Interest - equal ownership
4. Unity of Possession - all hold undivided interest.
Joint Tenancies can be terminated when the essential unities are destroyed, or as an operation of law, such as a partition suit.
Tenancy by the Entirety:
Special joint tenancy between husband and wife and is not done in certain states.
Owners must be husband and wife
Owners have the right of survivorship
Right of survivorship must be signed by both parties
No right to partition
Trusts:
Property can be owned in a trust. Trustor must convey the property to a Trustee who will own the property for the benefit of the trust beneficiaries. The Trustee has strict fiduciary responsibilities.
Business Entity Ownership:
(also see Co-Ownership post)
Partnerships:
General - All partners participate and are held collectively liable.
Limited - General and silent (limited) partners. Limited partners are generally held liable to the extent of their investment.
Corporations:
An artificial “person”. Real property is owned in severalty. Corporations may exist in perpetuity (forever) or be terminated at the end of the project.
Stockholders liability for corporate losses are generally limited to the amount of the investment. Double taxation is exempt in subchapter S Corporations – taxation is in a pass-through format.
LLC’s:
Limited Liability Company
Has elements of a corporation and a partnership
Some states have more relaxed reporting requirements than for corporations
Syndicates:
Joint Venture - No intention to establish a permanent relationship.
Cooperative Ownership:
Title held by a corporation
Each purchaser receives stock and a proprietary lease
Monthly assessments for operating and maintenance expenses.
Condominium Ownership:
Falls under the Horizontal Property Act
Title is fee simple, plus a share of indivisible parts of the building and land (common elements)
No right to partition.
Title Insurance:
Title insurance exists to defend the insured owner(s) from defects in the real property title. The coverage is provided to the extent covered by the title insurance policy. After a fee is paid, the title company does a search of the property records and ultimately agrees to insure and defend the owner(s), at its expense, against title defects.
Let’s look at two different types of title insurance coverage that are generally available. Standard and ALTA Extended Coverage.
Standard:
This form provides coverage to include public record defects, grantors who were incompetent, deeds that were delivered incorrectly and incorrect marital assurances.
ALTA Extended Coverage:
Everything within standard coverage, plus coverage for defects in the property survey, unrecorded liens and unrecorded rights of the persons in possession.
Regarding Title Insurance Policies:
It is essential to understand the terms and conditions of the title insurance policy. Those terms and conditions are there for you to read and understand. There are limitations, so if there is any lack of understanding clear it up with someone who knows – do not assume!
Review:
I typically get a little grumpy in writing about title and title insurance because I have seen a lot of sloppiness in the past with folks during inspection and acquisition. This includes title and title insurance.
Some investors do not fully research and understand the content of their title report, title insurance policy and what is present on the deed. Take good care and always include these important factors as part of due diligence before and during acquisition. Good luck!
