Chapter Three: Ownership of Real Estate

Overview

• Main Topics Covered:
  1. Levels of ownership in real estate
  2. Title vesting methods
  3. Legal entities that can own real estate

Estates and Land

Estates (Ownership)

• Definition: Estates refer to ownership of real estate.
• Types:
  1. Freehold Estate: Ownership with an indefinite duration.
     • Example: Owning a home where the duration of ownership is unknown.
  2. Fee Simple Estate: Highest form of modern land ownership.
     • Ownership of both the building and the underlying land with no conditions.
     • Common in most real estate deals (99.99%).
  3. Fee Simple Defeasible: Ownership with conditions where breach causes loss of title.
     • Example: Property can be reclaimed if conditions (e.g., no alcohol sales) are violated.
     • Always check the deed to determine the type and conditions.
  4. Life Estate: Ownership based on the life of another person.
     • Expires upon the death of the person the ownership is based upon.
     • Can be an estate in reversion (property returns to original owner) or an estate in remainder (property goes to a third party).

Key Concepts

Condition

• Fee Simple Defeasible: Ownership of land/buildings with specific conditions attached.
• Examples discussed:
  • Archer to Baker: No alcohol sales. Violation leads to property reverting to Archer.
  • Property usage condition: Must be used for a specific purpose (e.g., as a library).

Legal Terms

• Estate in Reversion: Property reverts back to the original owner or their heirs.
• Estate in Remainder: Property goes to a designated third party upon the death of the life tenant.

Leasehold Estates (Less Than Freehold)

• Right to use the property without ownership.
• Example: Lease agreements.

Title Vesting

Separate vs. Concurrent Ownership

• Ownership in Severalty: Individual ownership.
• Concurrent Ownership: Multiple owners.

Types of Concurrent Ownership

1. Joint Tenancy: Includes right of survivorship.
   • Upon death, the deceased's share automatically transfers to the surviving co-owner(s).
   • Four unities: Time, Title, Interest, Possession.
2. Tenancy in Common: No right of survivorship.
   • Co-owners can will their share to heirs.
   • Only unity required: Possession.

Community Property

• Community Property: Property acquired during marriage, owned equally by spouses.
• Community Property with Right of Survivorship: Similar to community property but includes the right of survivorship.

Corporate Forms of Ownership

1. Sole Proprietorship: Individual ownership with personal liability.
2. Corporation: Separate legal entity, limits liability of directors/shareholders.
   • C Corporation: Subject to double taxation.
   • S Corporation: Avoids double taxation.
3. Partnership: Joint ownership by two or more individuals.
   • Limited Partnership: General partner with unlimited liability and limited partners with liability limited to their investment.
4. Limited Liability Company (LLC): Combines benefits of partnerships and corporations.
5. Real Estate Investment Trusts (REITs): Pass-through entity that avoids double taxation, must meet specific ownership and operational criteria.

Exercises

• Exercise 3-1: Identifying types of estates in various scenarios.
  • Examples:
    • Life estate, fee simple defeasible, etc.

Important Points

• Ownership Documentation: Deeds are essential for determining types and conditions of ownership.
• Legal and Tax Advice: Always consult professionals for detailed advice on title vesting and ownership forms due to complex implications.