People can own real estate as their permanent residence or as an investment rental property, and their ownership is determined by a title. There are various types of real estate titles, as well as less frequent methods of obtaining ownership of a real estate property. It’s critical to understand these distinctions so you may choose the strategy that best meets your goals. In this article, we will look at the meaning of these real estate titles as well as the main types and characteristics of each of them.
What Is a Title?
A title is a document that identifies the legal owner of a piece of property. Titles can be issued to represent both personal and real property ownership. Personal property is defined as anything other than real estate, such as appliances, vehicles, antiques, or artwork.
Real property, on the other hand, encompasses both the physical property of the real estate and a collection of ownership and usage rights. When a real estate asset is sold, the title must be transferred, and the transfer must be cleared.
Real estate ownership can take several forms, each with its own set of implications for ownership transfer, financing, collateralization, and taxation. Each manner of title has advantages and disadvantages, depending on the individual’s situation and how ownership should pass in the event of death, divorce, or sale.
Why is Real Estate Titles Important?
A real estate title identifies who legally owns the property. It also tells us who is entitled to the property. You may believe that the person selling the home is the legal owner and that when they sell it to you, you will become the legal owner. However, it is not always that simple.
For example, suppose a home was sold somewhere along the chain of title when it was supposed to be willed to a long-lost heir. You buy the house unaware of this. Then, a few years later, this long-lost heir shows up at your door – or, more accurately, at their door.
You could lose your home if that heir can prove they are the legitimate owner of the land.
More typically, a homeowner will try to sell a home that has a lien on it, whether knowingly or unknowingly. Perhaps they have unpaid property taxes, or a contractor completed work on the house but was never paid. If the transaction goes through, the new owner is legally obligated to pay those debts.
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A title search will typically reveal these concerns and prevent the sale from proceeding until any issues are remedied and the title is clear. If a problem with the title is discovered after you’ve acquired the home, title insurance may protect you from financial loss.
If you rely on title insurance for protection, you must obtain an owner’s title policy in addition to the lender’s title policy, which covers the mortgage company’s investment interest in your house. Your mortgage company will be insured without the owner’s policy, but you won’t be able to rely on it for a new property.
It’s also critical to understand how you hold title to your property. Co-owners, liens, and easements can all limit what you can do with your property as an individual.
House Title Vs. Deed
Remember that real estate titles pertain to a property’s legal ownership. It’s not a formal document. You own a property if you have title to it.
A property deed is a legal document that officially transfers property ownership from the previous owner to the current owner.
When you purchase a home, the seller (also known as the grantor) will sign this paperwork, transferring ownership to you (the grantee). The deed will then be filed with the relevant county government office, such as the clerk or register of deeds.
The deed is essentially the actual paperwork that demonstrates you have title to your home.
Types of Primary Methods For Holding Real Estate Title
There are several ways for homeowners to hold title to a property. These various ways can alter how ownership interests are shared among co-owners and who receives that interest when an owner dies.
The following are some of the most popular ways for a homeowner to hold real estate titles, as well as how they normally work. However, depending on your state’s legislation, the types of real estate titles available to you and the characteristics of those types may differ.
#1. Joint Tenancy
One of the types of real estate titles is joint tenancy, which happens when two or more persons hold title to real estate jointly, with equal rights to enjoy the property over their lives. If one of the partners dies, their ownership rights are transferred to the surviving tenant(s) via a legal relationship known as a right of survivorship. Tenants can sign a shared tenancy agreement at the same time. This is normally accomplished through a deed.
Married couples prefer this form of ownership.
As previously stated, the principal benefit of engaging in a joint tenancy is that ownership is handed to the surviving tenant if one tenant dies, avoiding probate even if no will is in place. Another advantage is that neither of the owners must be married or related. If the parties are not married, they can sell the property without going to court if all parties agree on the property partition. Furthermore, the tenants share responsibility for the property. That means that any financial burden associated with the property belongs to everyone, not just one person.
The disadvantage is that any financing or use of the property for financial gain must be agreed upon by all partners and cannot be transferred to an external party by will after one dies, as it immediately belongs to the surviving owner.
Another big disadvantage is that a creditor with a legal judgment against one of the owners may petition the court to divide the property and force a sale in order to collect on its judgment. In other words, each owner is betting on the other’s financial decisions.
#2. Sole Ownership
One of the types of real estate titles is sole ownership, which can be defined as ownership by an individual or entity legally competent of holding the title. Single males and women, married men and women who own property apart from their spouse, and businesses with a corporate structure that allows them to invest in or hold an interest in real estate are the most prevalent sole owners.
When a sole owner dies, who inherits the residence is determined by whether they left a will. If they did, the estate will be distributed to the heirs named in the will. If they did not leave a will, the property will be transmitted in accordance with state law.
The biggest benefit of owning the title as a sole owner is the ease with which transactions may be completed because no other party is required to sanction the transaction.
The obvious negative is the possibility of legal complications regarding ownership transfer if the lone owner dies or becomes incompetent. The transfer of ownership upon death can be very difficult unless particular legal documents, such as a will, exist.
#3. Tenancy In Common
Tenancy in common permits two or more people to co-own a property, with ownership interests divided as they see fit. This means that one co-owner could own 75% of the property and the other 25%. All co-owners, however, have an equal title to the entire property.
This is a popular type of ownership among unmarried couples.
Each owner has the right to sell, give away, or otherwise dispose of their ownership interest under tenancy in common. Because tenancy in common does not include the right of survivorship, this includes the right to will it to anyone they choose.
Tenancy in common permits one owner to use the wealth generated by their piece of the property as security for financial transactions, and creditors can only lay liens on that owner’s portion of the property. This type of title also facilitates purchasing.
A TIC does not grant automatic survivor rights. Any obligations owed on the property are shared by all renters. Property taxes, for example, may be subject to joint and several liability. That means that each owner is personally accountable for the entire amount owed. If one owner is unable to pay their share, the remaining owners are obligated. Any liens on the property must be removed before the final transfer of ownership can take place.
#4. Tenants by Entirety (TBE)
This is one of the types of real estate titles that can be utilized only if the owners are legally married. Tenants by entirety (TBE) is real estate ownership in which the pair is legally treated as one person. This approach transfers ownership to them as one person, with the title passing entirely to the other if one of them dies.
The benefit of this strategy is that no legal action is required upon the death of one’s spouse. There is no need for a will, and there is no requirement for probate or any legal proceedings.
Property conveyance must be done all at once, and the property cannot be subdivided. In the event of a divorce, this sort of title instantly converts to tenancy in common, which means that one owner can transfer ownership of their individual portion of the property to anyone they choose.
#5. Community Property
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Any property acquired by one spouse during a marriage is regarded to belong equally to both spouses in these states. When it comes to homeownership, this means that both spouses have a common property title to the home.
Depending on the rules of the respective state, this sort of ownership may or may not include the “right of survivorship.” When one owner dies, their ownership stake is automatically passed to the remaining live owner(s) without the need for probate.
Less Common Ways To Hold Title
The methods of holding the title stated above apply to persons, although other entities may also possess the title.
#1. Corporation ownership
When a corporation owns real estate, it is referred to as corporation ownership. The firm is owned by its shareholders, yet it is legally considered to be its own entity.
#2. Partnership Owners
Real estate can also be owned in the form of a partnership. A partnership is an agreement between two or more people to conduct business for profit as co-owners. Some partnerships are created specifically to own real estate.
#3. Trust Ownership
A trust can also own real estate. These legal entities own the properties and are managed on behalf of the trust’s beneficiaries by a trustee.
What Is the Main Drawback of Tenancy in Common?
Regardless of their ownership share, tenants in common have equal rights to use the property. Responsibilities are also distributed fairly. This might cause problems if a minority owner abuses the property.
Does Community Property Include Debts?
Yes, debts are considered community property. This means that creditors of spouses may be entitled to a communal property estate.
How Long Does a Real Estate Trust Last?
Real estate trusts have a fixed term that can be renewed by the beneficiary when it expires. If not, the property is sold.
What Does a House Title Look Like?
A home title has no physical presence. Instead, it is a notion used to explain an individual’s legal entitlement to property ownership.
Is a Title and Mortgage the Same Thing?
A mortgage and a title are not the same thing. A title denotes your legal ownership of a property, whereas a mortgage is a loan used to finance the purchase of a property.
How Do I Get a Title for My House?
A home’s title is obtained by legally purchasing it. When you acquire a house, the seller will give you the property deed, which shows your legal ownership.
The transfer of title is an important stage in the home-buying process. However, there are other components to a title, including title rights and potential problems. Before you buy or sell a real estate property, make sure you understand your obligations. Contact a real estate professional who can answer any questions you have about titles.