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Property Ownership and Rights

Disclaimer: We are not law firm nor do we practice law. The following is for informational purposes only. Seek proper legal council as needed.

Our experience, from teaching real estate and real estate note investing to thousands of people across the country, tells us that there is a lack of understanding as to property ownership and rights. By extension, this indicates a lack of understanding of the documents involved. Since foreclosure is about taking away property ownership and rights it is logical understand property rights and property ownership.

In this blog we will cover the basics of property ownership, the rights therein and the transfer of these rights.

Basic Terminology

Like many of our legal concepts, real estate laws have grown from the English legal system. This system allows private individuals full property ownership rights. Before we talk about the ownership rights, we must understand some basic terminology regarding real estate.

The surface of the earth including trees, lakes and everything else attached to it by nature as well as the nature below the surface is referred to as land. Land together with any man-made improvements, such as homes, streets, fences, and buildings, are referred to as real estate. Real estate plus the legal bundle of ownership rights is called real property.

This legal bundle of rights may include:

  • Surface rights
  • Subsurface rights
  • Air rights
  • Fixtures (personal property that has become real property)
  • Disposition (the right to sell, mortgage, dedicate, give away all or any portion of the property)
  • Use (owner may use and control their property any way they wish, subject to local laws or restrictions)
  • Possession (right to occupy the property with privacy; control of entry)
  • Exclusion (right to control entry and be entitled to collect damages from trespassing) The extent to which these rights apply depends upon the type of estate (also called tenancy) that is held. There are numerous forms of estate depending upon if it is an individual owner, co-owners or even a time constant of ownership. There are Freehold and Non-Freehold Estates and Estate with Co-owners.

Estate and Ownership Interests

Freehold Estates give the owner rights for either an indefinite period of time or for their lifetime. Non-Freehold Estates only give ownership rights for a definite period of time. If two or more parties have an interest in a single property they will normally be held in one of these different Co-owner Estates.

Freehold Estate

  • Fee Simple
    • This type of ownership interest gives the owner the sole power to dispose of the property interest while living. Upon death, the property automatically transfers to the owner’s heirs. It does this even without a will. This would continue until an owner dies without an heir.
  • Life Estate
    • This type of ownership interest gives the owner the rightful ownership until the end of their natural life. Upon death the property reverts back to the original owner or assigned to another person.

Non-Freehold Estates and Possessory Interest

  • Tenancy for Years
    • This only gives possessory interest for a predetermined period of time.
  • Tenancy at Will
    • This arrangement allows can be terminated by either the tenant or the owner.
  • Tenancy at Sufferance
    • his occurs when a tenant is occupying a property after their legal right has expired.

Co-Owner Estates

  • Tenancy by the Entireties
    • This is a type of joint tenancy between husband and wife takes legal title under a single instrument. The surviving spouse automatically obtains full title rights
  • Tenancy in Common
    • An unlimited amount of owners, all with right of possession, jointly own a property. Each individual, upon their death, can leave their ownership to the heir(s) of their choosing.
  • Joint Tenancy
    • With this agreement, two or more parties, all with right of possession, jointly own a property. Unlike tenancy in common, the surviving owner(s) equally absorb any deceased owner(s) interest in the property. This is typically known as Joint Tenancy with Right of Survivorship.

Transferring Rights and Title

These bundle of rights that we referred too, belong to the property owner. The property owner who has these rights is said to have title. Again these rights may have limits depending upon the type of estate.

If the owner voluntarily wishes to transfer, sell or give away some or all of these rights to another party(s) they do so by using a deed. The deed therefore is the contract that is used to convey an interest in real property.

The deed conveys legal title. There are two parties involved in a deed:

  • Grantor
  • Grantee

The grantor is the owner giving title. The grantee is the party receiving title. There are, as you would expect, many types of deeds as well.

The type of deed that is used in the conveyance will express the depth in which the grantor is willing to defend the title that it owns via covenants and warranties.

Most Common Deeds

  • General Warranty Deed (or simply Warranty Deed)
    • This deed expressly guarantees the grantor’s good and marketable title to the property. The guarantee extends to the entire chain of the property’s ownership. Furthermore, it will normally have legally binding covenants that establish that they have the right to sell the property and that, unless specified, it is free of liens and encumbrances.
  • Special Warranty Deed
    • With this deed, the grantor is only promising to warrant any defect to the title while they owned it.
  • Quitclaim Deed
    • This deed conveys the entire interest of the grantor but without any warranties as to the quality of the title. The quitclaim deed is as good as a warranty deed if the grantor has good title. If the title has a defect, the grantee has no legal recourse against the grantor. This is often used when the grantor is not sure if there are any defects in the title or they are conveying it to a related party or an internal transfer.

Title insurance is typically purchased by the grantee. This insurance policy covers the cost to cure title defects if they arise in the future.

Kevin Shortle

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