Buying a piece of real estate means taking some form of title or ownership to it. But what are you actually owning? And how do you own it?
Title is the legally-recognized way property is held and is usually a matter of public record. Most people don’t realize there are a number of ways of taking title to property, and that property comes with a bundle of rights that can be split off and sold separately. Legal title means the actual ownership of the property, whereas equitable title means the right to enjoy or use the property-and they can be separated. You should always be aware of what kind of title you are purchasing and how you want to hold title.
PROPERTY RIGHTS: Property usually comes with the right to control the use of the property (decide what to do with it), the right to the benefits of the proprty (such as rent or mining rights), the right to exclude others from the proprty (keep people off your land) and the right to sell or convey the property. Most of the time you receive what is termed “Fee Simple” when buying a home. That means you receive all the rights to the land unencumbered (without liens). This provides the most rights possible. However, the previous owner may have put conditions on the land or on its transfer that you may not know about. So, sometimes you may not get “all” the rights you thought you had. Even a government.
tal agency can place restrictions on the land (by way of easements or zoning laws).
HOLDING TITLE: When you purchase property, there also some questions you must ask yourself. First, will you hold title in your personal name(s) or in the name of an entity? If there is more than one owner, will you take title as Joint Tenants or Tenants in Common?
Sole Ownership: This is the term when a single person or single entity takes title to the property. There obviously is no division of rights.
Joint Tenants: In a joint tenancy, the ownership cannot be divided. There is one title and all owners have equal rights to possess the property. When one owner dies, his or her rights end. They cannot be given away by a will. The decedent’s rights automatically go to the surviving owners. This is called a “right of survivorship.” Most married couples take title this way but it can be used for any type of multiple owners, people or entities.
Tenants in Common: In a tenancy in common the ownership can be divided among the owners in whatever way they choose, equal or unequal, but there is still equal rights to possession. Each owner owns a undivided portion and can sell, lease or give away his or her part. Because the ownership is divided, an owner can leave his or her portin to heirs. There is no survivorship. Married couples may also take title as tenants in common.
Community Property: This is only available for legally married couples. The owership is divided in equal shares and there is equal right of possession.
TRANSFERRING TITLE: When property is sold the title is transferred by way of deed. The deed will list what rights are being transferred (like Fee Simple if all rights are included) and to whom they are transferred along with an accurate description of the property. Deeds also come with assurances from the grantor about the property, called covenants or warranties, that the grantor is legally bound by. The most common types of deeds are:
General Warranty Deed: This offers the most protection for the buyer. The seller warrants that he possesses the property and has the legal right to transfer it, that there are no liens (unless listed in the deed), and the title is protected from third party claims. These warranties extend all the way back through the chain of title.
Special Warranty Deed: This deed is less protective for the buyer because the seller only warrants that he has received title and there are no liens except those listed on the deed. This is the kind of deed often used with transferring property to an executor or trustee who is merely managing the property until a final transfer.
Bargain and Sale Deed: This deed does not provide any claims of good title. That means the grantor does not warrant that there are no liens. The buyer could be taking property with liens attached. These are often used at tax sales and foreclosure auctions.
Quitclaim Deed: This deed provides no protection at all for the grantee. It only conveys whatever interest the grantor had and without any warranties. It is usually only used when transferring property among family members or to cure defects in title.
Trust Deed: This is a deed where legal title is transferred to a trustee, usually a lender, to hold as security for a debt. When you purchase property with a loan, the seller grants you one of the above (grant) deeds (conveying title to you), and then you (as grantor) immediatly execute a trust deed to the bank (which is usually the trustee and the beneficiary). The trustee holds legal title and the borrower/owner holds equitable title. In the mortgage industry, a trust deed is often “called” a mortgage because they have similar functions. But a mortgage is different…
Mortgage: This is where the mortgagor (borrower/owner) gives legal title to the mortgagee (bank) in return for the loan. The borrower/owner retains equitable title. So, when a bank is both the trustee and beneficiary on a trust deed, the effect is the same regarding ownership. But, the processes for foreclosing on the property are very different…
FORECLOSURE: In most trust deeds, there is a power of sale clause that allows the trustee to sell the property to satisfy the loan made by the beneficiary (bank). This allows the trustee (also the bank) to use a non-judicial foreclosure which means they can skip going to court and proceed to a trustee’s sale. If there is a mortgage, the mortgagee (bank) must go to court, a judicial foreclosure and get a court order to foreclose and sell the property. It is usually a much faster process to use a non-judicial foreclosure which is why banks prefer trust deeds. But not all states recognize trust deeds. Utah, however, does!
THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY.