Chapter Three: Ownership of Real Estate

so let's start in here with chapter three and if you look here on page number 64 this whole chapter is about ownership of real estate the ways that real estate can be owned and this is an important chapter because I'm really going to take you through three different things in this particular chapter of the book the first thing I'm going to take you through is the level of ownership you could have in a piece of real estate like with you could own the building and the land if there's any conditions we'll talk about that the second thing we're going to talk about today is title vesting the way the mode or method of holding title to real estate right that's called title vesting and then the last thing we're going to talk about is the legal entities that could own real estate corporations partnerships sole proprietorships LLC so we're going to go through all that but let's start here on page number 64 with estates and land now right underneath the word estates I would write the word ownership so estates means ownership so anytime you see the word estate or estates on the exam you got to remember that the exam is talking about your ownership in some item or thing now one type of estate broadly is called a freehold estate now you'll see the term freehold here at the bottom of page number 64 you'll see the term freehold estate now if you think of this term free hold estate this is an ownership that you are free to hold as long as you want really what this means for the exam I would write the words indefinite duration any time you own a piece of real estate for an indefinite duration it's called a freehold estate like I'll give you an example of this your house how long are you going to own your home I don't know you could own it a day a week year you can own it until you die anytime you own real estate but you're not sure how long you're going to own it the ownership could be called a freehold estate so again ownership for an indefinite duration is best described as a freehold estate so again ownership of real estate for some indeterminable period I don't know how long I'm going to own it that could be called a freehold estate now there's three types of freehold estates that we should know about for the exam now what is freehold again freehold is I own a piece of real estate but I have no idea how long I'm going to own it for that's freehold now one type of freehold estate is something here on the middle of page number 65 called a fee simple estate so anytime you see the word fee or fee simple you got to remember that the exam is talking about the highest form of modern land ownership the best way that you could own real estate today is called a fee simple estate so do me a favor here right in the middle of page 65 next to fee simple I would write highest form of modern land ownership the best way that you could own real estate is called a fee simple estate now really ultimately all fee simple means is that you own both the building and you own the underlying land you own both the building and the land with a fee simple estate now what does this mean because I mean a lot of students here that they're like well I obviously if I buy a house not only am I going to get the structure but I'm also going to get the land under it that's not always the case I'll give you an example of this a mobile home now how much does a mobile home cost I don't know sixty thousand bucks and it'll be a nice place it will keep you warm in the winter it'll keep you cool in the summer it'll have running water it'll have you know all the amenities that you would expect from any shelter but the reason it's so cheap is because in a mobile home all you own is the structure you don't own the underlying land you pay something called space rent to the owner of the mobile home park each and every month that you have that mobile home that's not fee simple you own the structure but you don't own the land if you look at Mexico along the coast of Mexico all those big beautiful hotels the Hilton and the Hyatt and the Four Seasons they may own the building but they don't own the underlying land the government of Mexico was smart enough to say okay Hilton you want to come build a hotel here on our beautiful beach no problem but the government is actually going to own the land and you'll pay us ground rent each and every month while you're here for the next like 99 years that's not fee simple fee simple is ownership of the building and the land it's the highest form of modern land ownership now let's be honest out there is a real estate investor or as a real estate agent what percentage of the deals that you'll do do you suppose our fee simple like literally 99.99% you could have a whole 50-year career in real estate and never see a deal other than fee simple fee simple is very very very common now one thing that might not make sense right now but it will in a few minutes I promise next to fee simple estate on page 65 I would write the words no conditions a fee simple estate has no conditions attached to the ownership now I'll explain what that is in a moment but I want to review what we've talked about so far ownership for an indefinite duration is best described as what your answer Freehold remember that ownership for an indeterminable period is called a freehold estate now one type of freehold estate is called fee-simple now what is fee simple fee simple is ownership of the building and the land with no conditions attached to it now is that your house yeah that's your house you most likely own the structure that your house is in or the structure itself as well as the underlying land that's fee simple ownership now at the bottom of page number 65 you'll see the term condition do me a huge favor right next to condition I would write the words fee simple defeasible fee simple defeasible now think of that word defeasible that's not in the book but that's how the state exam might call this concept fee simple defeasible d EF EAS I BL e fee simple defeasible now if you think of that word defeasible what does that sound like to you sounds like defeat defeated able to be defeated fee simple defeasible has a condition and do me a favor write somewhere next to condition I would write the words breach causes loss of title breech causes a loss of title anytime you breach a condition the ownership is said to be fee simple defeasible if there's a condition on the land let me give you an example of this for the exam consider Archer that's the guy's name Archer deeds a property to Baker on the condition that Baker never sell alcohol on the property if Baker starts selling booze on the property next week what could Archer do Archer could take the property back because Baker has breached that condition let's say that you had a building near UCLA in Westwood you want to sell that building to UCLA on the condition that UCLA must use that property as a science library now tomorrow if UCLA starts using that as a sorority house what could you do you could take the property back why because they've breached their condition now most of the time 99 to 100 times out of 100 the deals that you do they're not going to be fee simple defeasible what are they going to be they're just going to be feast on pole or fee simple absolute those are the same thing but if there's a condition attached to the ownership it's called fee-simple defeasible now let me ask you this when is Baker and my story about Archer and Baker when is Baker going to start selling alcohol on that property we don't know Baker might follow the rules forever Baker might start selling booze in a week or a year or in ten years the point is we don't know when he's going to breach that condition so we don't know how long he's going to own it anytime you don't know how long you're going to own something what do you have a freehold estate so remember freehold is this big broad category where I own a piece of real estate for how long I have no idea two types of freehold estate so far fee-simple that's ownership of the building and the land with no conditions then there's fee-simple defeasible whereas ownership of the building and the land as well but there's a condition attached for the ownership for example you can't drink on the property you can't you know you must use the property for in space you can't use the property for anything but a library for example that's fee simple defeasible another type of freehold estate now you'll see this chart here at the middle of page 65 this chart has a couple of examples of freehold estates and one of these says fee simple subject to the power of termination now most of the time you're going to see this on the tests as fee simple defeasible so again fee simple subject to the power of termination fee simple defeasible they both mean the same thing there's a condition attached to the ownership now one more thing about fee simple defeasible that we should probably know for the exam what let's say you bought a house last year like I don't remember if it was fee simple or fee simple defeasible now if you were a betting person you would definitely bet that it was fee simple absolute not defeasible but just to be certain what document could you look at that would show you whether or not there's a condition to the ownership look at the deed write the deed the deed is the ownership document that is going to determine whether or not there's a condition so the deed might say for example archer hereby grants to baker the property known as bla bla bla bla bla on the condition that Baker never sell alcoholic beverages on the property right that's fee simple what again fee simple defeasible also a type of freehold estate now let's say you go back to 1935 1940 1950 how 1960 even there were a lot of deeds out there that had race restrictions in them for example there might be a deed that says for our sake just as an example a hereby grants to be the property known as bla bla bla bla bla on the condition that the property may never be sold to a member of any ethnic minority group now you put yourself in that position you know going back 60 years 7 years you had a lot of deeds like that what's important to remember is that the deed itself is still that deed that has that race restriction in it is valid but the condition is not valid of course right that's illegal so the problem was saying that the deed is invalid is to say that the owner no longer owns it so let's say my great-grandfather let's say was born in 1920 1945 he bought his first home in San Francisco let's say that he's still alive today and there's a deed that he has in the deed reads a hereby grants to my great-grandfather the property known as bla bla on the condition that the property never be sold to minorities to say that his deed is not valid is to say that my great-grandfather no longer owns that property he owns the property he does so the deed is valid it's just that that particular condition is not valid nor is it enforceable so again ownership for an indefinite duration what's that called freehold two types of freehold estates fee simple ownership of the building and the land no conditions fee simple defeasible ownership of the building and the land but there's a condition attached to the ownership you can't drink on the property for example now the third type you'll see this on page 66 the third and final type of freehold estate that we should know about is something called a light estate it's called a life estate now a life estate is ownership because remember a state means ownership a life estate is ownership based on someone else's life so when you own real estate and the ownership is going to last as long as someone else is alive that is known as a life estate so for example let's say that I sold a property to you for as long as you live once you die it comes back to me that's called a life estate now when are you going to die don't worry it won't be for a long time but I don't know when you're going to die so I don't know how long you're going to own it anytime you don't know how long you're going to own real estate what do you have that's right you have a freehold estate so again remember freehold is this big broad category where I own a piece of real estate for how long we have no idea one type of freehold estate fee-simple another type fee simple defeasible and the third and final type is a life estate this is ownership based on someone else's life now hearing how a life estate works you might naturally say wait let's look at this I sell you a property I give you a property for as long as you live once you diet comes back to me naturally your first position might be well what if I died first you might say hey look I give you a property for my life or for the rest of your life once you die comes back - but what happens if I die first well we'll talk about that the second thing is you might only be let's say that you're you know thirty years old young let's say in the next ten or fifteen years after I give you this property you want to sell it could you sell it so we'll talk about all that but just globally we have three types of freehold estates free a fee simple estate be simple defeasible and a life estate and as I mentioned earlier in this segment 99 times out of 100 maybe a hundred times out of 100 what are you going to see that's right you're going to see fee simple you're not going to see a fee simple defeasible estate or a life estate as often as you're going to see a fee simple estate now if you look here on page number 66 at the bottom of the page a couple things that I would take note of on page number 66 the first thing is can you sell it very very very common question can you sell this life estate now forget this material for a second let me just ask you a question unrelated to this does it make sense to say you can sell that which you own does that make sense yeah you can sell something that you own so for example if you own a likeness date what exactly do you have well you have ownership for your life so let's say that you were to sell this property to someone else right I sold you a property on a life estate you're now thirty thirty-five you want to sell it to someone else you do that deal you sell the property to the next guy two days later you get hit I mustn't die what happens to your buyer well they got to get out to the property is going to come back to me so you could sell it you can lease it you could put a loan against it I mean you can even walk down to the bank and refinance the property but the bank is going to look at the title and they're used to seeing fee-simple estates they're going to see your life estate they're going to freak out a little bit but here's what's going to happen the bank may require that you take out a life insurance policy in the amount of the loan naming the bank as a beneficiary on the policy so if you refinance it they cash you out you die the property comes back to me but the bank gets paid off by the life insurance company now I probably gave you more information than you needed for the exam but I just want you to understand how some of this stuff works you can do whatever you want with it as the holder of the life estate except two things there are two things that the holder of the licence a generally cannot do and the easy thing to remember is they both start with W one thing that the holder of the life estate can't do generally is you generally can't will it you can't will the property here's what when does your will kick in when you die once you die you can't say that the property is going to go somewhere else it's going to come right back to me right so the first thing you can't do is you can't will the property the second thing that you can't do and it also starts with a W is commit waste on the property so if the roof leaks you've got to fix the roof leak the property tax bill comes you got to pay the property taxes if there's an electrical problem or a plumbing problem or interest on a loan that's going to be your responsibility right so you can't commit waste on the property you cannot will it nor can you commit waste upon the property but you could do whatever else you want you could sell it you could lease it you could put a loan against it etc you just can't will it generally and you can't commit waste upon the property now the next question you might say or you might have is well what if I die first right I give you a property on a life estate say you own it till you die once you die comes back to me but I die first possible possible so here's how we answer that question I'm called the creator of the life estate you're known as the holder of the life estate the creator of the life estate is going to determine whether the estate is an estate in remainder or an estate in reversion and a state in remainder or reversion and you'll see a little diagram of this at the middle of page 66 it's either going to be in a state in remainder or an estate in reversion now let's talk about reversion by scenario that I've been staying till now I sell or give you a property on a life estate you diet comes back to me that's called an estate in reversion and the word actually kind of makes sense here because what does reversion sound like to you reverse revert come back to and a state in reversion is where you die the property comes back to me now if I die first you still get to live there you're good until you die then once you die it's going to go to whoever I willed it to it's going to go to my heirs right you can't will it generally but I can in a state in reversion so I sell you a property on a life estate once you die it comes back to me I die first well now my heirs are going to get that property whoever I will it - upon your death now another possibility is an estate in remainder now think of that word remainder think back to like elementary school where would you put the remainder kind of off to the side right you divide three over two you're going to put that half off to the side similarly anytime this property goes to someone off to the side it's called an estate in remainder so here's an example of that I sell or give a property to you on a life estate once you die it goes to the Betty Ford Clinic for substance abuse that's an estate in remainder it's going to a third party now if I die first in that instance it doesn't matter because it was never coming back to me right it's going to that third party anyway so what happens if I die first it depends is it reversion or remainder if it's reversion it's going to go to my heirs if I die first if it's remainder doesn't matter anyway because it's going to that third party now just to compare here at the middle of patron 67 you'll see something called a leasehold as safe now right next to leasehold estates I would write the words less than freehold a leasehold estate is a less than freehold estate now that means it's not complete ownership it's just use so use of a property but not ownership is going to be a lease right and it's a less than freehold estate middle of page 67 or a leasehold estate now right below this leasehold estate piece exercise 3-1 I'll go over a few of these with you the answers to the rest are in the back we'll just do numbers 1 2 & 3 on page 67 we're just going to identify these as either fee-simple estates fee-simple defeasible estates or a life estate right because those are the three types of freehold estate be simple fee simple defeasible or a life estate we'll start here at the bottom of page 67 with exercise 3-1 number one it says Dennis home B has sole possession of black Acre for as long as he lives this is called what now he owns it as long as he lives this is going to be a life estate because its ownership based on his life life estate how about number two number two says the middle fall school has sole possession of white acre on the condition that it be used for educational purposes only so it's going to be used for educational purposes only it must be used for some purpose that's called fee-simple defeasible right fee simple defeasible its ownership based on the condition that it be used for a specific purpose be simple defeasible how about number three it says the town of Mary Meadows has a beautiful library building the building is a former mansion that was donated to the school or to the town excuse me with the stipulation that it be used only as a library what kind of a state does the town have again it has to be used as a library there's a condition it's fee-simple defeasible again now I'd encourage you to work through the answers at the end of the or the questions at the end of this chapter also work through numbers four and five if you have any questions give our office a call we're here to help but that and this freehold estate discussion be simple be simple defeasible and a life estate but remember in practice 99 times out of 100 maybe more what are we going to be dealing with fee simple absolute not defeasible and not like the states generally not one last thing before I let you go here with these simple estate let me ask you this can I have a loan on my property and it still be considered fee simple absolute of course I could like your house you probably have a loan on your property like most of society just because you owe money on your property does that somehow mean that it's not fee simple of course not so you could have a loan another kind of lean and easement or an encumbrance and it wouldn't change the fact that it still be simple so the presence of an encumbrance does not change the fact that it's still a fee simple estate now here on page number 68 and 69 this next section is about taking title to real estate the way that real estate can be owned now broadly there are two ways to take title to real estate you can take title real estate separately or you can take title real estate concurrently separate or concurrent now ownership by yourself if you look here on page number 68 at the bottom half of the page is called ownership in severalty I hate this word because ownership and severalty naturally you would think that this somehow meant like several owners or several people on the document but that's not what this means ownership and severalty is actually separate ownership by one person so ownership by yourself is called ownership in severalty now this word severalty doesn't actually come from the word several it comes from the word sever which means to separate or cut off so ownership and severalty is separate ownership by one person on the other hand the other option is concurrent ownership at the bottom of page number 68 concurrent ownership concurrent ownership is ownership by two or more people at the same time so ownership by yourself is ownership in severalty ownership by two or more entities at the same time is called concurrent ownership now let's be honest what's easier ownership by yourself or ownership with more than one person ownership by yourself right most things in life not they're not they might not be more fun but they're easy just to do it on your own so ownership in severalty is definitely the simpler of the two concurrent ownership is ownership by two or more people at the same time now there are three types of concurrent ownerships that we should know for the exam I'm going to start with something on page number 70 just cause up a little more complicated I'm going to start with joint tenancy on page 70 now one thing that makes joint tenancy unique is that joint tenancy has the right of survivorship in it now what's the right of survivorship survivorship says if you and I own a property is joint tenancy and you die your share of the property is automatically going to come to me upon your death because of survivorship you you and I both cannot will our share while the others alive so you and I own a property is joint tenants you die your share is going to automatically come to me based on this concept of survivorship so again you might want to make a little note here about the right of survivorship middle of page 70 what is the right of survivorship the right of survivorship says upon the death of one of the joint tenants the deceased share automatically passes to the surviving joint tenant now this transfer actually happens without going to probate remember probate court and we'll talk about this more in a later chapter in chapter 4 but probate court is a superior court proceeding where heirs are distributed their rightful share of an estate so if you die your shares going to come to me I do not have to lawyer up and get seven suits in court seven lawyers to prove to the court that I'm entitled to your share it's automatically going to come to me without going through probate now on page number seventy couple notes I would make next to survivorship in the margin I would write the words escapes probate and you know what that means I don't have to show up in probate court to prove that I'm entitled to your share number one I would also write not only that you also would have escapes probate but below that I would write the words escapes existing unsecured debts the right of survivorship escapes existing unsecured debt now what that means is if you and I own a property as joint tenants and you have $50,000 and unpaid gambling debts you die I hate to keep killing you off but it's my story one of us has to die so you die your share of the properties automatically going to come to me now you have that big-time gambling debt it's unsecured meaning that you haven't pledged the property as collateral for the loan your debts die with you the casino cannot come look to the property to get their money back your unsecured debts die with you so two things about survivorship number one it escapes probate we know that number two the thing about survivorship that's important to remember is that it also escapes existing unsecured debt your unsecured debts die with you now because of survivorship you can't will your share as I mentioned earlier right when does your will kick in when you die once you die your share of the property is automatically going to come to me without going through probate now a lot of people say well is that a good thing or a bad thing the survivorship is it good or bad well I guess it depends on the relationship for example you and I don't know one another maybe you had a little bit of money I got a little bit of money we each put 40,000 bucks so we go buy a little house together and rent it out split the profits now you and I don't know each other very well or maybe even at all are you going to want upon your death for your share of the property to come to me or you're going to want it to go to your family well you might say I hate my family I don't really care about that but at least you probably want the choice right probably the choice to send it to a friend or family more or coworker you probably don't want it to automatically come to me now who would joint tenancy make sense for a lot of people say well people that are married well married people in California have community property which is similar but we'll talk about that in a few minutes here but really who joy me some examples of who joint tendency might work for but please don't misunderstand me I am not giving you advice on how you should vest how you should hold title and you should never give a client advice on how they should take title real estate because how you take title to real estate can have serious tax and legal consequences so we never want to get into a position where we actually give a client advice on how to take title to real estate ever because again if you give them the wrong advice you know just tell them to see you look this is by the way this isn't decided at the time you write the offer how you vest is actually decided after how you vest has decided like in escrow so the real estate agent is left in the picture at that point to even give this advice but never give a client advice on how they should take title to a piece of property now you'll see on page number 70 at the middle you'll see the words the letters TTIP TTIP on page 70 now these are the four unities to a joint tenancy holding TTIP are the four unities now think of that word unity does that sound like something that's the same or something that's different sustained right unified unity it just sounds the same so the four unities that are the same in a joint tenancy holding or a unity of time a unity of title a unity of interest and a unity of possession time title interest possession now let me go through these one by one let's say you me and a friend of ours the three of us buy a building together as joint tenants the building at the height of the market we're making like 3040 thousand bucks a month I mean we're doing really well right we're all having a good time we're making money we're going out to eat you know we're just we love each other we love life unfortunately as the recession started to take hold a lot of those tenants started going out so now instead of making 30 grand a month we're like losing 5 grand a month so each one of us are coming out of pocket each and every month to keep this thing going now you say you know what this sucks I'm a business person I am NOT in the I'm in the business of collecting checks not writing them so you decide you're going to sell your share to someone else now the two of us are still going to be joint tenants together but the person that you sold the property to will not be a joint tenant with us rather they're going to be a tenant in common because they're violating the unity of time all joint tenants must take title to the property at the same time they also have to take title to the property with the same deed if you look at number two the second T&T tip is title meaning that all joint tenants their names are going to be listed on the same d you have a hundred joint tenants you might picture like a big scroll and all hundred names are listed on the same deed there's a unity of title look at the next one there's a unity of interest meaning this is the one I hate the most frankly let's say the three of us you myself and this other person the three of us bought a building together it was ten million dollars you put up eight million this guy put up two million and I put in a big fat zero if we add the words as joint tenants at the end of our names on the deed all of us are going to have a unity of interest I'll loan 1/3 even though I didn't put in any money you'll loan 1/3 even though you put up the vast majority of the cash the fourth and final unity to a joint tenancy holding is a unity of possession now I call this the touch unity tou CH the unity of touch all joint tenants have an equal right to possess use and touch the entire property if you and I own a property is joint tenants we can't draw we cannot draw a line down the middle of the room and say okay that half azores and this half is mine we have the right to possess and use and occupy the entire property as joint tenants now with regard to joint tenancy one other thing you should remember is if you think about survivorship who actually wins with survivorship well frankly whoever wins is the guy who lives alone because whoever lives along us if there's a hundred joint tenants as the ninety nine people died the only for the person left is going to own the property in severalty because it keeps the joint tenancy keeps going to the surviving joint tenant when does a corporation die and ever corporations have perpetual life they could live forever that's why a corporation cannot take title to a property as a joint tenant the corporation would always win now corporations can own real estate please don't misunderstand me it's just that a corporation cannot take title to a property as a joint tenant because of the perpetual nature of the corporate entity now tenancy in common is a lot more simple than joint tenancy the first thing I would do back at page number 68 we just finish up joint tenancy let's come back in the book to tenancy in common now one thing I would write here at the bottom of page number 68 next to tenancy in common I'd write the words no right of survivorship tenancy in common does not have the right of survivorship now that means that once you die you can will your share it's not automatically going to come to me so first thing I would write at the bottom of 68 tenancy in common no right of survivorship you had a right of survivorship and joint tenancy you don't have a right of survivorship with tenancy in common the other thing that I would look at here at the bottom of page number 69 you'll see the term unity of possession in bold at the bottom of 69 remember joint tenants had four unities a unity of time a unity of title a unity of interest and a unity of possession tenants in common only have a unity of possession there's no unity of time as a tenant in common which means it's easy to add and subtract tenants in common there is no unity of title as a tenant in common meaning that you could have five owners and all five might have different deeds to the property there's no unity of interest so if you put up eight hundred thousand and I put up two hundred thousand on that million dollar purchase you can make it so that you own 80% of the property and I could agree to only own 20% of the property you don't have to be 50/50 let's you do as joint tenants now as tenants in common if you and I wanted to be 5050 we could but we don't have to be in joint tenancy you must own an equal share the only unity that we have to follow as a tenant in common is a unity of possession that's what this says here on page number 69 a unity of possession so even if I only own one you can't stop me from touching and using and occupying the entire property so joint tenants time title interest possession tenants in common just possession no unity of time no unity of title no unity of interest and no and the only thing we have is even of possession but there's no right of survivorship tenants in common no right of survivorship so what could you do as a tenant in common that you couldn't do as a joint tenant you can will your share as a tenant in common now let's say that you bought a house last year and you bought it with a buddy and you're kind of scratch your head like remember how I held title I don't remember if it was tenants in common or joint tenants I just don't remember what document could you look at look at the deed and the deed is going to show whether you were joint tenants or tenants in common but what's kind of weird to wrap our minds around with regard to deeds is you know the deed to your house let's say you have a regardless of how much your house is worth it's still a pretty expensive thing what's nuts is that the ownership document to that particular piece of real estate is not printed on like some special government paper and some special government facility behind armed guards like dollars r-right dollar bills are printed at the mint there's like in all sorts of you know bulletproof glass and guards everywhere for a dollar bill the deed to a million dollar house or a fifty million dollar building is printed in an escrow office on regular HP LaserJet printer from Walmart or with a regular paper from Walmart or Office Depot or whatever so let's say that you have an escrow officer you and your buddy bought a house together last year the escrow officer leaves out the escrow officer leaves out the vesting it just has your name Fred Flinstone and your buddy's name Barney Rubble and period does no vesting mentioned if no vesting is mentioned the law will presume that you have held title not as joint tenants but as tenants in common when no vesting is mentioned and the parties are not married the legal presumption is that you have held title as tenants in common not as joint tenants why is the default not joint tenancy we'll think about it joint tenancy is just so damn heavy right you have the right of survivorship you can't will it unity of time unity of title unity of interest you know your possession it just weighs on you if you want joint tenancy what do you have to do you got to call it you got to specify it in the deed so if no vesting is mentioned the legal presumption is that parties have held title as tenants in common as long as the parties are not married now I mentioned that tenancy in common was the default if the parties were not married if no vesting is mentioned in the deed the legal presumption is that the parties have held title as tenants in common unless unless they're married if you look at page number 71 this is community property community property is California is a community property state all of our other real estate laws you might remember this from chapter 2 all of our other real estate laws actually come from England they come from English common law the exception to this of course is this concept of community property law community property is actually a holdover from Spain so again all of our real estate laws come from England except this concept which is a holdover from Spanish law now once you decide to get married all of your stuff is going to break down into one of two categories it's either separate property or community property and you'll see this here on the bottom of 71 what is separate property separate property is generally the stuff that you had prior to marriage generally the things that you had prior to marriage are considered separate property the things that you get during marriage are considered community property but that's not entirely a hundred percent accurate because it is still possible even though you're married to get stuff and have that stuff be considered separate even though you're married I'll give you an example and I'm just going off this list at the bottom of 71 these three black squares number one by gift or will so if if it's my birthday somebody says hey Karthik happy birthday man here's a thousand bucks thousand dollars holy cow having this excited since I was like eight for my birthday thank you now if I'm married that thousand dollars is considered separate property right if my uncle dies then in his will he leaves me fifty thousand dollars that's also considered what separate property right because it's a gift or inheritance now that's true until I commingle it if I'm so stoked I got that thousand dollar I got that thousand dollar gift for my birthday I run straight to the bank and deposit it in a joint account I may have problems now because I may have commingle it looks like I've commingled them and it's become community property I put that fifty thousand our check from my uncle in my joint bank account I may have problems look at the next one with the proceeds or income from other separate property the last two squares on page 71 so let's say that I had a house in Fresno before I got married I list that house in Fresno and sell it and now I'm married and I buy another property in San Diego the next property I buy in San Diego assuming I only use that Fresno money because I have that house before I was married if I only use Fresno money to buy that next property that next property in San Diego that little investment property is still considered to be separate property but there's a hundred thousand things that I could say that might change that for example maybe I was making the mortgage payment out of that hat for that house in Fresno out of a joint account after I got married maybe I was paying the gardener out of my joint account for that Fresno property maybe I use some Fresno money to buy that investment property in San Diego and I use some community funds to buy it so again the state exam isn't a family law test of course they call them family lawyers but they really get paid big money to break apart families but the point is is that this state exam is gonna get that complicated our test ain't gonna get that complicated assume a guy has a property in Fresno before he gets married then he gets married he only uses that Fresno money to buy the next property that next property is still considered what separate property now of course you know there's a hundred thousand billion trillion things that could change how that actually plays out but from an academic perspective that would be how it would work now let me ask you a couple of so real quick on page 71 about community property one thing is is it true in California generally that a contract signed by one spouse is binding on both yeah that's true a contract signed by one spouse is generally binding on the community now what that means is for example Kobe Bryant was gonna get a divorce he his wife was gonna get something it was reported something like seventy five million dollars she never hit a layup in her life does not have Kobe's three-point shot but she's still entitled to half of what he has during marriage because it's generally considered community property so if you get this concept on the exam how many signatures do you need to list a piece of community property just one because if the wife signs a listing contract on community property it's binding on the husband also so I'd write at the middle of page seventy one I'd write the words one signature to list however below that I would write the words two signatures to convey so one signature to list two signatures to convey title now fine I might have a valid listing with just the wife signature but I don't want to win an argument I want to get paid so if the wife is saying look I'll just sign it my husband will sign later fun get the get her signature but you want to come back from the husband's anyway because once you do find a buyer and it comes time to transfer title they're both going to need to sign the deed or it'll cause a cloud on the title so just be aware of that right one signature to list two signatures to convey so what's the best definition of community property then committee property is all property acquired during marriage that is not separate we need those four words at the end that is not separate why because we know that it's still possible through gift or will for example to get stuff and have that stuff be considered separate property even though you're married so if you look around page number 72 we talked about community property but I do want to share something with you and it's on page 72 there's another type of community property called community property with the right of survivorship and basically how community property with the letter survivorship works is it's just like community property husband-and-wife except when you have regular community property you can will your share as a husband or wife you can will it when you have community property with the right of survivorship it has the survivorship element just like joint tenancy does so the husband and the wife own it 50/50 but upon the death of the husband it automatically goes to the wife and if the wife dies first that automatically goes to the husband that survivorship regular community property doesn't have that so we have this other thing in California called community property with the right of survivorship and it would work in the same way that survivorship would work with joint tenancy now there are some corporate forms of ownership and I do want to show those to you on page number 74 at the bottom the different corporate forms of ownership business ownership of real estate now the simplest way at the bottom of 74 and all of 75 is the sole proprietorship now as a sole proprietor it's just you you are personally liable for everything that happens so if you're a sole proprietor and something happens on your property god forbid you know you're personally liable for that now that's different than a corporation on page 75 and the corporation of course is a legal entity it's like Apple Computer is a corporation so if Apple gets sued just the corporation is getting sued the shareholders aren't getting sued so a lot of times you have real estate investors put their property in a corporation now you'll work with your own tax and legal advisers to figure out what's best for you but the corporation can limit liability as it says on page 75 in this gray box it's a separate legal recognized entity apart from the shareholders it must be chartered by a state in California the secretary of state issues corporations in California if you want to start a corporation you'll have to apply for that with the Secretary of State in California acts through a board of directors and officers may only stand convey real property but remember a corporation cannot own property as a joint tenant because a corporation never died and of course it limit the liability of office directors and shareholders now without getting too deep on page 75 the corporation can take one of two forums it can take the form of a C corporation or S corporation the benefit to an S corporation over a C corporation is that the S corporation can avoid double taxation let me explain a regular standard corporation let's say the corporation makes $1.00 in profit now the corporation is going to pay tax on that dollar and let's say that there's two shareholders and the corporation distributes that dollar profit to the shareholders in the form of a 50 cent dividend each now the corporation is going to pay a tax on that dollar in profit and then the shareholders are also going to pay tax on the dividend now what's kind of messed up about this is that the government gets to collect tax twice on the same dollar a profit once at the corporate level and again at the shareholder level so this is kind of what makes a C corporation less desirable than the S corporation in some instances the S corporation avoids double taxation so C Corp S Corp both corporations but the S Corp is an election that would avoid double taxation now if you look at 76 and 77 you could have a partnership now on page 76 a partnership it's kind of like two sole proprietors coming together for a name now in that partnership each partner is going to be jointly and severally liable for what the partnership does so in a standard partnership you have theoretically unlimited exposure now a limited partnership on page 76 a limited partnership you have one general partner that kind of makes decisions he may have unlimited liability or she may have liability then there's limited partners their liability is strictly limited to the amount that they invested in the company right partnership everyone's exposed limited partnership the limited partners are only exposed as far as their initial investment you have an LLC at the bottom of 76 on top of 77 and LLC our limited liability company is another way another corporate structure that you could use to own real estate now remember an LLC you might remember this chapter 1 if you have a real estate company and you want a license or get the LLC licensed as a broker in California you can't do that California the real estate commissioner does not recognize LLC's as brokers in California it's got to be either a partnership sole proprietor or corporation now another thing on page 77 here you'll see real estate investment trusts or a REIT now a REIT is a pass-through entity so rate also avoids double taxation but there's a lot of rules it can be favorable from a tax perspective but the REIT there's a lot of rules for example there has to be a certain number of owners you'll see this at the bottom of page 77 must be owned by at least a hundred different investors you can't have a lot of the ownership concentrated in just a few people it's got to kind of be spread out got to invest in real estate so those rules that govern the real estate investment trust also it's a syndicate it's a way to pull money together to purchase real estate so a lot of stuff we talked about in this chapter chapter 3 we talked about be simple we talked about freehold estates we talked about the different types of title vesting and some of the corporate forms of ownership good luck with chapter 3 and we'll talk to you guys soon

so let&#39;s start in here with chapter three and if you look here on page number 64 this whole chapter is about ownership of real estate the ways that real estate can be owned and this is an important chapter because I&#39;m really going to take you through three different things in this particular chapter of the book the first thing I&#39;m going to take you through is the level of ownership you could have in a piece of real estate like with you could own the building and the land if there&#39;s any conditions we&#39;ll talk about that the second thing we&#39;re going to talk about today is title vesting the way the mode or method of holding title to real estate right that&#39;s called title vesting and then the last thing we&#39;re going to talk about is the legal entities that could own real estate corporations partnerships sole proprietorships LLC so we&#39;re going to go through all that but let&#39;s start here on page number 64 with estates and land now right underneath the word estates I would write the word ownership so estates means ownership so anytime you see the word estate or estates on the exam you got to remember that the exam is talking about your ownership in some item or thing now one type of estate broadly is called a freehold estate now you&#39;ll see the term freehold here at the bottom of page number 64 you&#39;ll see the term freehold estate now if you think of this term free hold estate this is an ownership that you are free to hold as long as you want really what this means for the exam I would write the words indefinite duration any time you own a piece of real estate for an indefinite duration it&#39;s called a freehold estate like I&#39;ll give you an example of this your house how long are you going to own your home I don&#39;t know you could own it a day a week year you can own it until you die anytime you own real estate but you&#39;re not sure how long you&#39;re going to own it the ownership could be called a freehold estate so again ownership for an indefinite duration is best described as a freehold estate so again ownership of real estate for some indeterminable period I don&#39;t know how long I&#39;m going to own it that could be called a freehold estate now there&#39;s three types of freehold estates that we should know about for the exam now what is freehold again freehold is I own a piece of real estate but I have no idea how long I&#39;m going to own it for that&#39;s freehold now one type of freehold estate is something here on the middle of page number 65 called a fee simple estate so anytime you see the word fee or fee simple you got to remember that the exam is talking about the highest form of modern land ownership the best way that you could own real estate today is called a fee simple estate so do me a favor here right in the middle of page 65 next to fee simple I would write highest form of modern land ownership the best way that you could own real estate is called a fee simple estate now really ultimately all fee simple means is that you own both the building and you own the underlying land you own both the building and the land with a fee simple estate now what does this mean because I mean a lot of students here that they&#39;re like well I obviously if I buy a house not only am I going to get the structure but I&#39;m also going to get the land under it that&#39;s not always the case I&#39;ll give you an example of this a mobile home now how much does a mobile home cost I don&#39;t know sixty thousand bucks and it&#39;ll be a nice place it will keep you warm in the winter it&#39;ll keep you cool in the summer it&#39;ll have running water it&#39;ll have you know all the amenities that you would expect from any shelter but the reason it&#39;s so cheap is because in a mobile home all you own is the structure you don&#39;t own the underlying land you pay something called space rent to the owner of the mobile home park each and every month that you have that mobile home that&#39;s not fee simple you own the structure but you don&#39;t own the land if you look at Mexico along the coast of Mexico all those big beautiful hotels the Hilton and the Hyatt and the Four Seasons they may own the building but they don&#39;t own the underlying land the government of Mexico was smart enough to say okay Hilton you want to come build a hotel here on our beautiful beach no problem but the government is actually going to own the land and you&#39;ll pay us ground rent each and every month while you&#39;re here for the next like 99 years that&#39;s not fee simple fee simple is ownership of the building and the land it&#39;s the highest form of modern land ownership now let&#39;s be honest out there is a real estate investor or as a real estate agent what percentage of the deals that you&#39;ll do do you suppose our fee simple like literally 99.99% you could have a whole 50-year career in real estate and never see a deal other than fee simple fee simple is very very very common now one thing that might not make sense right now but it will in a few minutes I promise next to fee simple estate on page 65 I would write the words no conditions a fee simple estate has no conditions attached to the ownership now I&#39;ll explain what that is in a moment but I want to review what we&#39;ve talked about so far ownership for an indefinite duration is best described as what your answer Freehold remember that ownership for an indeterminable period is called a freehold estate now one type of freehold estate is called fee-simple now what is fee simple fee simple is ownership of the building and the land with no conditions attached to it now is that your house yeah that&#39;s your house you most likely own the structure that your house is in or the structure itself as well as the underlying land that&#39;s fee simple ownership now at the bottom of page number 65 you&#39;ll see the term condition do me a huge favor right next to condition I would write the words fee simple defeasible fee simple defeasible now think of that word defeasible that&#39;s not in the book but that&#39;s how the state exam might call this concept fee simple defeasible d EF EAS I BL e fee simple defeasible now if you think of that word defeasible what does that sound like to you sounds like defeat defeated able to be defeated fee simple defeasible has a condition and do me a favor write somewhere next to condition I would write the words breach causes loss of title breech causes a loss of title anytime you breach a condition the ownership is said to be fee simple defeasible if there&#39;s a condition on the land let me give you an example of this for the exam consider Archer that&#39;s the guy&#39;s name Archer deeds a property to Baker on the condition that Baker never sell alcohol on the property if Baker starts selling booze on the property next week what could Archer do Archer could take the property back because Baker has breached that condition let&#39;s say that you had a building near UCLA in Westwood you want to sell that building to UCLA on the condition that UCLA must use that property as a science library now tomorrow if UCLA starts using that as a sorority house what could you do you could take the property back why because they&#39;ve breached their condition now most of the time 99 to 100 times out of 100 the deals that you do they&#39;re not going to be fee simple defeasible what are they going to be they&#39;re just going to be feast on pole or fee simple absolute those are the same thing but if there&#39;s a condition attached to the ownership it&#39;s called fee-simple defeasible now let me ask you this when is Baker and my story about Archer and Baker when is Baker going to start selling alcohol on that property we don&#39;t know Baker might follow the rules forever Baker might start selling booze in a week or a year or in ten years the point is we don&#39;t know when he&#39;s going to breach that condition so we don&#39;t know how long he&#39;s going to own it anytime you don&#39;t know how long you&#39;re going to own something what do you have a freehold estate so remember freehold is this big broad category where I own a piece of real estate for how long I have no idea two types of freehold estate so far fee-simple that&#39;s ownership of the building and the land with no conditions then there&#39;s fee-simple defeasible whereas ownership of the building and the land as well but there&#39;s a condition attached for the ownership for example you can&#39;t drink on the property you can&#39;t you know you must use the property for in space you can&#39;t use the property for anything but a library for example that&#39;s fee simple defeasible another type of freehold estate now you&#39;ll see this chart here at the middle of page 65 this chart has a couple of examples of freehold estates and one of these says fee simple subject to the power of termination now most of the time you&#39;re going to see this on the tests as fee simple defeasible so again fee simple subject to the power of termination fee simple defeasible they both mean the same thing there&#39;s a condition attached to the ownership now one more thing about fee simple defeasible that we should probably know for the exam what let&#39;s say you bought a house last year like I don&#39;t remember if it was fee simple or fee simple defeasible now if you were a betting person you would definitely bet that it was fee simple absolute not defeasible but just to be certain what document could you look at that would show you whether or not there&#39;s a condition to the ownership look at the deed write the deed the deed is the ownership document that is going to determine whether or not there&#39;s a condition so the deed might say for example archer hereby grants to baker the property known as bla bla bla bla bla on the condition that Baker never sell alcoholic beverages on the property right that&#39;s fee simple what again fee simple defeasible also a type of freehold estate now let&#39;s say you go back to 1935 1940 1950 how 1960 even there were a lot of deeds out there that had race restrictions in them for example there might be a deed that says for our sake just as an example a hereby grants to be the property known as bla bla bla bla bla on the condition that the property may never be sold to a member of any ethnic minority group now you put yourself in that position you know going back 60 years 7 years you had a lot of deeds like that what&#39;s important to remember is that the deed itself is still that deed that has that race restriction in it is valid but the condition is not valid of course right that&#39;s illegal so the problem was saying that the deed is invalid is to say that the owner no longer owns it so let&#39;s say my great-grandfather let&#39;s say was born in 1920 1945 he bought his first home in San Francisco let&#39;s say that he&#39;s still alive today and there&#39;s a deed that he has in the deed reads a hereby grants to my great-grandfather the property known as bla bla on the condition that the property never be sold to minorities to say that his deed is not valid is to say that my great-grandfather no longer owns that property he owns the property he does so the deed is valid it&#39;s just that that particular condition is not valid nor is it enforceable so again ownership for an indefinite duration what&#39;s that called freehold two types of freehold estates fee simple ownership of the building and the land no conditions fee simple defeasible ownership of the building and the land but there&#39;s a condition attached to the ownership you can&#39;t drink on the property for example now the third type you&#39;ll see this on page 66 the third and final type of freehold estate that we should know about is something called a light estate it&#39;s called a life estate now a life estate is ownership because remember a state means ownership a life estate is ownership based on someone else&#39;s life so when you own real estate and the ownership is going to last as long as someone else is alive that is known as a life estate so for example let&#39;s say that I sold a property to you for as long as you live once you die it comes back to me that&#39;s called a life estate now when are you going to die don&#39;t worry it won&#39;t be for a long time but I don&#39;t know when you&#39;re going to die so I don&#39;t know how long you&#39;re going to own it anytime you don&#39;t know how long you&#39;re going to own real estate what do you have that&#39;s right you have a freehold estate so again remember freehold is this big broad category where I own a piece of real estate for how long we have no idea one type of freehold estate fee-simple another type fee simple defeasible and the third and final type is a life estate this is ownership based on someone else&#39;s life now hearing how a life estate works you might naturally say wait let&#39;s look at this I sell you a property I give you a property for as long as you live once you diet comes back to me naturally your first position might be well what if I died first you might say hey look I give you a property for my life or for the rest of your life once you die comes back - but what happens if I die first well we&#39;ll talk about that the second thing is you might only be let&#39;s say that you&#39;re you know thirty years old young let&#39;s say in the next ten or fifteen years after I give you this property you want to sell it could you sell it so we&#39;ll talk about all that but just globally we have three types of freehold estates free a fee simple estate be simple defeasible and a life estate and as I mentioned earlier in this segment 99 times out of 100 maybe a hundred times out of 100 what are you going to see that&#39;s right you&#39;re going to see fee simple you&#39;re not going to see a fee simple defeasible estate or a life estate as often as you&#39;re going to see a fee simple estate now if you look here on page number 66 at the bottom of the page a couple things that I would take note of on page number 66 the first thing is can you sell it very very very common question can you sell this life estate now forget this material for a second let me just ask you a question unrelated to this does it make sense to say you can sell that which you own does that make sense yeah you can sell something that you own so for example if you own a likeness date what exactly do you have well you have ownership for your life so let&#39;s say that you were to sell this property to someone else right I sold you a property on a life estate you&#39;re now thirty thirty-five you want to sell it to someone else you do that deal you sell the property to the next guy two days later you get hit I mustn&#39;t die what happens to your buyer well they got to get out to the property is going to come back to me so you could sell it you can lease it you could put a loan against it I mean you can even walk down to the bank and refinance the property but the bank is going to look at the title and they&#39;re used to seeing fee-simple estates they&#39;re going to see your life estate they&#39;re going to freak out a little bit but here&#39;s what&#39;s going to happen the bank may require that you take out a life insurance policy in the amount of the loan naming the bank as a beneficiary on the policy so if you refinance it they cash you out you die the property comes back to me but the bank gets paid off by the life insurance company now I probably gave you more information than you needed for the exam but I just want you to understand how some of this stuff works you can do whatever you want with it as the holder of the life estate except two things there are two things that the holder of the licence a generally cannot do and the easy thing to remember is they both start with W one thing that the holder of the life estate can&#39;t do generally is you generally can&#39;t will it you can&#39;t will the property here&#39;s what when does your will kick in when you die once you die you can&#39;t say that the property is going to go somewhere else it&#39;s going to come right back to me right so the first thing you can&#39;t do is you can&#39;t will the property the second thing that you can&#39;t do and it also starts with a W is commit waste on the property so if the roof leaks you&#39;ve got to fix the roof leak the property tax bill comes you got to pay the property taxes if there&#39;s an electrical problem or a plumbing problem or interest on a loan that&#39;s going to be your responsibility right so you can&#39;t commit waste on the property you cannot will it nor can you commit waste upon the property but you could do whatever else you want you could sell it you could lease it you could put a loan against it etc you just can&#39;t will it generally and you can&#39;t commit waste upon the property now the next question you might say or you might have is well what if I die first right I give you a property on a life estate say you own it till you die once you die comes back to me but I die first possible possible so here&#39;s how we answer that question I&#39;m called the creator of the life estate you&#39;re known as the holder of the life estate the creator of the life estate is going to determine whether the estate is an estate in remainder or an estate in reversion and a state in remainder or reversion and you&#39;ll see a little diagram of this at the middle of page 66 it&#39;s either going to be in a state in remainder or an estate in reversion now let&#39;s talk about reversion by scenario that I&#39;ve been staying till now I sell or give you a property on a life estate you diet comes back to me that&#39;s called an estate in reversion and the word actually kind of makes sense here because what does reversion sound like to you reverse revert come back to and a state in reversion is where you die the property comes back to me now if I die first you still get to live there you&#39;re good until you die then once you die it&#39;s going to go to whoever I willed it to it&#39;s going to go to my heirs right you can&#39;t will it generally but I can in a state in reversion so I sell you a property on a life estate once you die it comes back to me I die first well now my heirs are going to get that property whoever I will it - upon your death now another possibility is an estate in remainder now think of that word remainder think back to like elementary school where would you put the remainder kind of off to the side right you divide three over two you&#39;re going to put that half off to the side similarly anytime this property goes to someone off to the side it&#39;s called an estate in remainder so here&#39;s an example of that I sell or give a property to you on a life estate once you die it goes to the Betty Ford Clinic for substance abuse that&#39;s an estate in remainder it&#39;s going to a third party now if I die first in that instance it doesn&#39;t matter because it was never coming back to me right it&#39;s going to that third party anyway so what happens if I die first it depends is it reversion or remainder if it&#39;s reversion it&#39;s going to go to my heirs if I die first if it&#39;s remainder doesn&#39;t matter anyway because it&#39;s going to that third party now just to compare here at the middle of patron 67 you&#39;ll see something called a leasehold as safe now right next to leasehold estates I would write the words less than freehold a leasehold estate is a less than freehold estate now that means it&#39;s not complete ownership it&#39;s just use so use of a property but not ownership is going to be a lease right and it&#39;s a less than freehold estate middle of page 67 or a leasehold estate now right below this leasehold estate piece exercise 3-1 I&#39;ll go over a few of these with you the answers to the rest are in the back we&#39;ll just do numbers 1 2 &amp; 3 on page 67 we&#39;re just going to identify these as either fee-simple estates fee-simple defeasible estates or a life estate right because those are the three types of freehold estate be simple fee simple defeasible or a life estate we&#39;ll start here at the bottom of page 67 with exercise 3-1 number one it says Dennis home B has sole possession of black Acre for as long as he lives this is called what now he owns it as long as he lives this is going to be a life estate because its ownership based on his life life estate how about number two number two says the middle fall school has sole possession of white acre on the condition that it be used for educational purposes only so it&#39;s going to be used for educational purposes only it must be used for some purpose that&#39;s called fee-simple defeasible right fee simple defeasible its ownership based on the condition that it be used for a specific purpose be simple defeasible how about number three it says the town of Mary Meadows has a beautiful library building the building is a former mansion that was donated to the school or to the town excuse me with the stipulation that it be used only as a library what kind of a state does the town have again it has to be used as a library there&#39;s a condition it&#39;s fee-simple defeasible again now I&#39;d encourage you to work through the answers at the end of the or the questions at the end of this chapter also work through numbers four and five if you have any questions give our office a call we&#39;re here to help but that and this freehold estate discussion be simple be simple defeasible and a life estate but remember in practice 99 times out of 100 maybe more what are we going to be dealing with fee simple absolute not defeasible and not like the states generally not one last thing before I let you go here with these simple estate let me ask you this can I have a loan on my property and it still be considered fee simple absolute of course I could like your house you probably have a loan on your property like most of society just because you owe money on your property does that somehow mean that it&#39;s not fee simple of course not so you could have a loan another kind of lean and easement or an encumbrance and it wouldn&#39;t change the fact that it still be simple so the presence of an encumbrance does not change the fact that it&#39;s still a fee simple estate now here on page number 68 and 69 this next section is about taking title to real estate the way that real estate can be owned now broadly there are two ways to take title to real estate you can take title real estate separately or you can take title real estate concurrently separate or concurrent now ownership by yourself if you look here on page number 68 at the bottom half of the page is called ownership in severalty I hate this word because ownership and severalty naturally you would think that this somehow meant like several owners or several people on the document but that&#39;s not what this means ownership and severalty is actually separate ownership by one person so ownership by yourself is called ownership in severalty now this word severalty doesn&#39;t actually come from the word several it comes from the word sever which means to separate or cut off so ownership and severalty is separate ownership by one person on the other hand the other option is concurrent ownership at the bottom of page number 68 concurrent ownership concurrent ownership is ownership by two or more people at the same time so ownership by yourself is ownership in severalty ownership by two or more entities at the same time is called concurrent ownership now let&#39;s be honest what&#39;s easier ownership by yourself or ownership with more than one person ownership by yourself right most things in life not they&#39;re not they might not be more fun but they&#39;re easy just to do it on your own so ownership in severalty is definitely the simpler of the two concurrent ownership is ownership by two or more people at the same time now there are three types of concurrent ownerships that we should know for the exam I&#39;m going to start with something on page number 70 just cause up a little more complicated I&#39;m going to start with joint tenancy on page 70 now one thing that makes joint tenancy unique is that joint tenancy has the right of survivorship in it now what&#39;s the right of survivorship survivorship says if you and I own a property is joint tenancy and you die your share of the property is automatically going to come to me upon your death because of survivorship you you and I both cannot will our share while the others alive so you and I own a property is joint tenants you die your share is going to automatically come to me based on this concept of survivorship so again you might want to make a little note here about the right of survivorship middle of page 70 what is the right of survivorship the right of survivorship says upon the death of one of the joint tenants the deceased share automatically passes to the surviving joint tenant now this transfer actually happens without going to probate remember probate court and we&#39;ll talk about this more in a later chapter in chapter 4 but probate court is a superior court proceeding where heirs are distributed their rightful share of an estate so if you die your shares going to come to me I do not have to lawyer up and get seven suits in court seven lawyers to prove to the court that I&#39;m entitled to your share it&#39;s automatically going to come to me without going through probate now on page number seventy couple notes I would make next to survivorship in the margin I would write the words escapes probate and you know what that means I don&#39;t have to show up in probate court to prove that I&#39;m entitled to your share number one I would also write not only that you also would have escapes probate but below that I would write the words escapes existing unsecured debts the right of survivorship escapes existing unsecured debt now what that means is if you and I own a property as joint tenants and you have $50,000 and unpaid gambling debts you die I hate to keep killing you off but it&#39;s my story one of us has to die so you die your share of the properties automatically going to come to me now you have that big-time gambling debt it&#39;s unsecured meaning that you haven&#39;t pledged the property as collateral for the loan your debts die with you the casino cannot come look to the property to get their money back your unsecured debts die with you so two things about survivorship number one it escapes probate we know that number two the thing about survivorship that&#39;s important to remember is that it also escapes existing unsecured debt your unsecured debts die with you now because of survivorship you can&#39;t will your share as I mentioned earlier right when does your will kick in when you die once you die your share of the property is automatically going to come to me without going through probate now a lot of people say well is that a good thing or a bad thing the survivorship is it good or bad well I guess it depends on the relationship for example you and I don&#39;t know one another maybe you had a little bit of money I got a little bit of money we each put 40,000 bucks so we go buy a little house together and rent it out split the profits now you and I don&#39;t know each other very well or maybe even at all are you going to want upon your death for your share of the property to come to me or you&#39;re going to want it to go to your family well you might say I hate my family I don&#39;t really care about that but at least you probably want the choice right probably the choice to send it to a friend or family more or coworker you probably don&#39;t want it to automatically come to me now who would joint tenancy make sense for a lot of people say well people that are married well married people in California have community property which is similar but we&#39;ll talk about that in a few minutes here but really who joy me some examples of who joint tendency might work for but please don&#39;t misunderstand me I am not giving you advice on how you should vest how you should hold title and you should never give a client advice on how they should take title real estate because how you take title to real estate can have serious tax and legal consequences so we never want to get into a position where we actually give a client advice on how to take title to real estate ever because again if you give them the wrong advice you know just tell them to see you look this is by the way this isn&#39;t decided at the time you write the offer how you vest is actually decided after how you vest has decided like in escrow so the real estate agent is left in the picture at that point to even give this advice but never give a client advice on how they should take title to a piece of property now you&#39;ll see on page number 70 at the middle you&#39;ll see the words the letters TTIP TTIP on page 70 now these are the four unities to a joint tenancy holding TTIP are the four unities now think of that word unity does that sound like something that&#39;s the same or something that&#39;s different sustained right unified unity it just sounds the same so the four unities that are the same in a joint tenancy holding or a unity of time a unity of title a unity of interest and a unity of possession time title interest possession now let me go through these one by one let&#39;s say you me and a friend of ours the three of us buy a building together as joint tenants the building at the height of the market we&#39;re making like 3040 thousand bucks a month I mean we&#39;re doing really well right we&#39;re all having a good time we&#39;re making money we&#39;re going out to eat you know we&#39;re just we love each other we love life unfortunately as the recession started to take hold a lot of those tenants started going out so now instead of making 30 grand a month we&#39;re like losing 5 grand a month so each one of us are coming out of pocket each and every month to keep this thing going now you say you know what this sucks I&#39;m a business person I am NOT in the I&#39;m in the business of collecting checks not writing them so you decide you&#39;re going to sell your share to someone else now the two of us are still going to be joint tenants together but the person that you sold the property to will not be a joint tenant with us rather they&#39;re going to be a tenant in common because they&#39;re violating the unity of time all joint tenants must take title to the property at the same time they also have to take title to the property with the same deed if you look at number two the second T&amp;T tip is title meaning that all joint tenants their names are going to be listed on the same d you have a hundred joint tenants you might picture like a big scroll and all hundred names are listed on the same deed there&#39;s a unity of title look at the next one there&#39;s a unity of interest meaning this is the one I hate the most frankly let&#39;s say the three of us you myself and this other person the three of us bought a building together it was ten million dollars you put up eight million this guy put up two million and I put in a big fat zero if we add the words as joint tenants at the end of our names on the deed all of us are going to have a unity of interest I&#39;ll loan 1/3 even though I didn&#39;t put in any money you&#39;ll loan 1/3 even though you put up the vast majority of the cash the fourth and final unity to a joint tenancy holding is a unity of possession now I call this the touch unity tou CH the unity of touch all joint tenants have an equal right to possess use and touch the entire property if you and I own a property is joint tenants we can&#39;t draw we cannot draw a line down the middle of the room and say okay that half azores and this half is mine we have the right to possess and use and occupy the entire property as joint tenants now with regard to joint tenancy one other thing you should remember is if you think about survivorship who actually wins with survivorship well frankly whoever wins is the guy who lives alone because whoever lives along us if there&#39;s a hundred joint tenants as the ninety nine people died the only for the person left is going to own the property in severalty because it keeps the joint tenancy keeps going to the surviving joint tenant when does a corporation die and ever corporations have perpetual life they could live forever that&#39;s why a corporation cannot take title to a property as a joint tenant the corporation would always win now corporations can own real estate please don&#39;t misunderstand me it&#39;s just that a corporation cannot take title to a property as a joint tenant because of the perpetual nature of the corporate entity now tenancy in common is a lot more simple than joint tenancy the first thing I would do back at page number 68 we just finish up joint tenancy let&#39;s come back in the book to tenancy in common now one thing I would write here at the bottom of page number 68 next to tenancy in common I&#39;d write the words no right of survivorship tenancy in common does not have the right of survivorship now that means that once you die you can will your share it&#39;s not automatically going to come to me so first thing I would write at the bottom of 68 tenancy in common no right of survivorship you had a right of survivorship and joint tenancy you don&#39;t have a right of survivorship with tenancy in common the other thing that I would look at here at the bottom of page number 69 you&#39;ll see the term unity of possession in bold at the bottom of 69 remember joint tenants had four unities a unity of time a unity of title a unity of interest and a unity of possession tenants in common only have a unity of possession there&#39;s no unity of time as a tenant in common which means it&#39;s easy to add and subtract tenants in common there is no unity of title as a tenant in common meaning that you could have five owners and all five might have different deeds to the property there&#39;s no unity of interest so if you put up eight hundred thousand and I put up two hundred thousand on that million dollar purchase you can make it so that you own 80% of the property and I could agree to only own 20% of the property you don&#39;t have to be 50/50 let&#39;s you do as joint tenants now as tenants in common if you and I wanted to be 5050 we could but we don&#39;t have to be in joint tenancy you must own an equal share the only unity that we have to follow as a tenant in common is a unity of possession that&#39;s what this says here on page number 69 a unity of possession so even if I only own one you can&#39;t stop me from touching and using and occupying the entire property so joint tenants time title interest possession tenants in common just possession no unity of time no unity of title no unity of interest and no and the only thing we have is even of possession but there&#39;s no right of survivorship tenants in common no right of survivorship so what could you do as a tenant in common that you couldn&#39;t do as a joint tenant you can will your share as a tenant in common now let&#39;s say that you bought a house last year and you bought it with a buddy and you&#39;re kind of scratch your head like remember how I held title I don&#39;t remember if it was tenants in common or joint tenants I just don&#39;t remember what document could you look at look at the deed and the deed is going to show whether you were joint tenants or tenants in common but what&#39;s kind of weird to wrap our minds around with regard to deeds is you know the deed to your house let&#39;s say you have a regardless of how much your house is worth it&#39;s still a pretty expensive thing what&#39;s nuts is that the ownership document to that particular piece of real estate is not printed on like some special government paper and some special government facility behind armed guards like dollars r-right dollar bills are printed at the mint there&#39;s like in all sorts of you know bulletproof glass and guards everywhere for a dollar bill the deed to a million dollar house or a fifty million dollar building is printed in an escrow office on regular HP LaserJet printer from Walmart or with a regular paper from Walmart or Office Depot or whatever so let&#39;s say that you have an escrow officer you and your buddy bought a house together last year the escrow officer leaves out the escrow officer leaves out the vesting it just has your name Fred Flinstone and your buddy&#39;s name Barney Rubble and period does no vesting mentioned if no vesting is mentioned the law will presume that you have held title not as joint tenants but as tenants in common when no vesting is mentioned and the parties are not married the legal presumption is that you have held title as tenants in common not as joint tenants why is the default not joint tenancy we&#39;ll think about it joint tenancy is just so damn heavy right you have the right of survivorship you can&#39;t will it unity of time unity of title unity of interest you know your possession it just weighs on you if you want joint tenancy what do you have to do you got to call it you got to specify it in the deed so if no vesting is mentioned the legal presumption is that parties have held title as tenants in common as long as the parties are not married now I mentioned that tenancy in common was the default if the parties were not married if no vesting is mentioned in the deed the legal presumption is that the parties have held title as tenants in common unless unless they&#39;re married if you look at page number 71 this is community property community property is California is a community property state all of our other real estate laws you might remember this from chapter 2 all of our other real estate laws actually come from England they come from English common law the exception to this of course is this concept of community property law community property is actually a holdover from Spain so again all of our real estate laws come from England except this concept which is a holdover from Spanish law now once you decide to get married all of your stuff is going to break down into one of two categories it&#39;s either separate property or community property and you&#39;ll see this here on the bottom of 71 what is separate property separate property is generally the stuff that you had prior to marriage generally the things that you had prior to marriage are considered separate property the things that you get during marriage are considered community property but that&#39;s not entirely a hundred percent accurate because it is still possible even though you&#39;re married to get stuff and have that stuff be considered separate even though you&#39;re married I&#39;ll give you an example and I&#39;m just going off this list at the bottom of 71 these three black squares number one by gift or will so if if it&#39;s my birthday somebody says hey Karthik happy birthday man here&#39;s a thousand bucks thousand dollars holy cow having this excited since I was like eight for my birthday thank you now if I&#39;m married that thousand dollars is considered separate property right if my uncle dies then in his will he leaves me fifty thousand dollars that&#39;s also considered what separate property right because it&#39;s a gift or inheritance now that&#39;s true until I commingle it if I&#39;m so stoked I got that thousand dollar I got that thousand dollar gift for my birthday I run straight to the bank and deposit it in a joint account I may have problems now because I may have commingle it looks like I&#39;ve commingled them and it&#39;s become community property I put that fifty thousand our check from my uncle in my joint bank account I may have problems look at the next one with the proceeds or income from other separate property the last two squares on page 71 so let&#39;s say that I had a house in Fresno before I got married I list that house in Fresno and sell it and now I&#39;m married and I buy another property in San Diego the next property I buy in San Diego assuming I only use that Fresno money because I have that house before I was married if I only use Fresno money to buy that next property that next property in San Diego that little investment property is still considered to be separate property but there&#39;s a hundred thousand things that I could say that might change that for example maybe I was making the mortgage payment out of that hat for that house in Fresno out of a joint account after I got married maybe I was paying the gardener out of my joint account for that Fresno property maybe I use some Fresno money to buy that investment property in San Diego and I use some community funds to buy it so again the state exam isn&#39;t a family law test of course they call them family lawyers but they really get paid big money to break apart families but the point is is that this state exam is gonna get that complicated our test ain&#39;t gonna get that complicated assume a guy has a property in Fresno before he gets married then he gets married he only uses that Fresno money to buy the next property that next property is still considered what separate property now of course you know there&#39;s a hundred thousand billion trillion things that could change how that actually plays out but from an academic perspective that would be how it would work now let me ask you a couple of so real quick on page 71 about community property one thing is is it true in California generally that a contract signed by one spouse is binding on both yeah that&#39;s true a contract signed by one spouse is generally binding on the community now what that means is for example Kobe Bryant was gonna get a divorce he his wife was gonna get something it was reported something like seventy five million dollars she never hit a layup in her life does not have Kobe&#39;s three-point shot but she&#39;s still entitled to half of what he has during marriage because it&#39;s generally considered community property so if you get this concept on the exam how many signatures do you need to list a piece of community property just one because if the wife signs a listing contract on community property it&#39;s binding on the husband also so I&#39;d write at the middle of page seventy one I&#39;d write the words one signature to list however below that I would write the words two signatures to convey so one signature to list two signatures to convey title now fine I might have a valid listing with just the wife signature but I don&#39;t want to win an argument I want to get paid so if the wife is saying look I&#39;ll just sign it my husband will sign later fun get the get her signature but you want to come back from the husband&#39;s anyway because once you do find a buyer and it comes time to transfer title they&#39;re both going to need to sign the deed or it&#39;ll cause a cloud on the title so just be aware of that right one signature to list two signatures to convey so what&#39;s the best definition of community property then committee property is all property acquired during marriage that is not separate we need those four words at the end that is not separate why because we know that it&#39;s still possible through gift or will for example to get stuff and have that stuff be considered separate property even though you&#39;re married so if you look around page number 72 we talked about community property but I do want to share something with you and it&#39;s on page 72 there&#39;s another type of community property called community property with the right of survivorship and basically how community property with the letter survivorship works is it&#39;s just like community property husband-and-wife except when you have regular community property you can will your share as a husband or wife you can will it when you have community property with the right of survivorship it has the survivorship element just like joint tenancy does so the husband and the wife own it 50/50 but upon the death of the husband it automatically goes to the wife and if the wife dies first that automatically goes to the husband that survivorship regular community property doesn&#39;t have that so we have this other thing in California called community property with the right of survivorship and it would work in the same way that survivorship would work with joint tenancy now there are some corporate forms of ownership and I do want to show those to you on page number 74 at the bottom the different corporate forms of ownership business ownership of real estate now the simplest way at the bottom of 74 and all of 75 is the sole proprietorship now as a sole proprietor it&#39;s just you you are personally liable for everything that happens so if you&#39;re a sole proprietor and something happens on your property god forbid you know you&#39;re personally liable for that now that&#39;s different than a corporation on page 75 and the corporation of course is a legal entity it&#39;s like Apple Computer is a corporation so if Apple gets sued just the corporation is getting sued the shareholders aren&#39;t getting sued so a lot of times you have real estate investors put their property in a corporation now you&#39;ll work with your own tax and legal advisers to figure out what&#39;s best for you but the corporation can limit liability as it says on page 75 in this gray box it&#39;s a separate legal recognized entity apart from the shareholders it must be chartered by a state in California the secretary of state issues corporations in California if you want to start a corporation you&#39;ll have to apply for that with the Secretary of State in California acts through a board of directors and officers may only stand convey real property but remember a corporation cannot own property as a joint tenant because a corporation never died and of course it limit the liability of office directors and shareholders now without getting too deep on page 75 the corporation can take one of two forums it can take the form of a C corporation or S corporation the benefit to an S corporation over a C corporation is that the S corporation can avoid double taxation let me explain a regular standard corporation let&#39;s say the corporation makes $1.00 in profit now the corporation is going to pay tax on that dollar and let&#39;s say that there&#39;s two shareholders and the corporation distributes that dollar profit to the shareholders in the form of a 50 cent dividend each now the corporation is going to pay a tax on that dollar in profit and then the shareholders are also going to pay tax on the dividend now what&#39;s kind of messed up about this is that the government gets to collect tax twice on the same dollar a profit once at the corporate level and again at the shareholder level so this is kind of what makes a C corporation less desirable than the S corporation in some instances the S corporation avoids double taxation so C Corp S Corp both corporations but the S Corp is an election that would avoid double taxation now if you look at 76 and 77 you could have a partnership now on page 76 a partnership it&#39;s kind of like two sole proprietors coming together for a name now in that partnership each partner is going to be jointly and severally liable for what the partnership does so in a standard partnership you have theoretically unlimited exposure now a limited partnership on page 76 a limited partnership you have one general partner that kind of makes decisions he may have unlimited liability or she may have liability then there&#39;s limited partners their liability is strictly limited to the amount that they invested in the company right partnership everyone&#39;s exposed limited partnership the limited partners are only exposed as far as their initial investment you have an LLC at the bottom of 76 on top of 77 and LLC our limited liability company is another way another corporate structure that you could use to own real estate now remember an LLC you might remember this chapter 1 if you have a real estate company and you want a license or get the LLC licensed as a broker in California you can&#39;t do that California the real estate commissioner does not recognize LLC&#39;s as brokers in California it&#39;s got to be either a partnership sole proprietor or corporation now another thing on page 77 here you&#39;ll see real estate investment trusts or a REIT now a REIT is a pass-through entity so rate also avoids double taxation but there&#39;s a lot of rules it can be favorable from a tax perspective but the REIT there&#39;s a lot of rules for example there has to be a certain number of owners you&#39;ll see this at the bottom of page 77 must be owned by at least a hundred different investors you can&#39;t have a lot of the ownership concentrated in just a few people it&#39;s got to kind of be spread out got to invest in real estate so those rules that govern the real estate investment trust also it&#39;s a syndicate it&#39;s a way to pull money together to purchase real estate so a lot of stuff we talked about in this chapter chapter 3 we talked about be simple we talked about freehold estates we talked about the different types of title vesting and some of the corporate forms of ownership good luck with chapter 3 and we&#39;ll talk to you guys soon

Transcript for:Chapter Three: Ownership of Real Estate

Transcript for:
Chapter Three: Ownership of Real Estate