Title Issue – Know Who is Selling

Often Sellers state they are the Sellers of the property…  However, somewhere in the transaction, it is determined (most likely by review of the title commitment) that a corporation, land trust, living trust, deceased person, guardian, or another person owns the property.  Of course, careful questioning initially could immediately alert you to the situation, but certainly immediate review of the title commitment prior to closing will allow enough time to properly transfer title.  Often the Seller (who has proclaimed ownership) is the beneficiary of the trust, heir of the deceased’s estate, or has power to sign on behalf of the corporation.  Don’t get stuck at the closing table finding this information out!

Death of Tenant in Common vs Death of Joint Tenant

Death of a Tenant in Common -
Unlike “joint tenancy” there is no “right of survivorship” if one of the tenants in common dies, and each interest may be separately sold, mortgaged or willed to another.  Thus, unlike a joint tenancy interest which passes automatically to the survivor, upon the death of a tenant in common there must be a probate (court supervised administration) of the estate of the deceased to transfer the interest (ownership) in the tenancy in common.

Procedurally, on the death of one Joint Tenant, title in the survivor is completed by recording an “affidavit of death of joint tenant,” describing the property and the deceased tenant, with a death certificate attached, all of which is sworn to by the surviving joint tenant.  This process avoids probate of the property, but may have some tax consequences which should be explored with an accountant at the time of recording the original deed.

If the owners do not want full title to the property to pass to the survivor, then joint tenancy should not be used. Joint tenancy (as well as any other common ownership) between a parent and a minor child should be avoided since the property cannot be transferred in the future without the parent becoming appointed a guardian of the child’s estate by court petition, and the property and the proceeds therefrom will be under court control until the child is 18.  In community property states, some courts have found that joint tenancy presumes that the property is not community property, (which could result in loss of estate tax limitation on the death of the first spouse to die), but proof of community interests can be established.  A bank account held in joint tenancy also presumes a right of survivorship, but this presumption can be overcome by evidence that the account was really the property of only one, and the joint tenancy was for convenience.

What is Tenancy in Common?

As previously discussed (see past blogs) there are three types of concurrent ownership, or ownership of property by two or more persons: Tenancy by the Entirety, Joint Tenancy, and Tenancy in Commom.

Tenancy in Common - title to property (usually real property, but it can apply to personal property) held by two or more persons, in which each has an “undivided interest” in the property and all have an equal right to use the property, even if the percentage of interests are not equal or the living spaces are different sizes.  Tenancy in Common is a specific type of concurrent, or simultaneous, ownership of real property by two or more parties.  (Usually, the term tenant is understood to describe a person who rents or leases a piece of property.  In the context of concurrent estates, however, a tenant is a co-owner of real property).

All tenants in common hold an individual, undivided ownership interest in the property.  This means that each party has the right to alienate, or transfer the ownership of, her ownership interest.  This can be done by deed, will, or other conveyance.

Another difference between tenants in common and joint tenants or tenants by the entirety is that tenants in common may hold unequal interests.  By contrast, joint tenants and tenants by the entirety own equal shares of the property.  Furthermore, tenants in common may acquire their interests from different instruments: joint tenants and tenants by the entirety must obtain their interests at the same time and in the same document.

Tenants in common do not have a right of survivorship.  In a tenancy in common, persons may sell or give away their ownership interest.  Unlike “joint tenancy” there is no “right of survivorship” if one of the tenants in common dies, and each interest may be separately sold, mortgaged or willed to another.   Thus, unlike a joint tenancy interest which passes automatically to the survivor, upon the death of a tenant in common there must be a probate (court supervised administration) of the estate of the deceased to transfer the interest (ownership) in the tenancy in common.

Joint Tenancy vs Tenants by the Entirety

There are three types of concurrent ownership, or ownership of property by two or more persons:  Tenancy by the Entirety (see prior blog), Joint Tenancy, and Tenancy in Common.

As discussed, a Tenancy by the Entirety can be created only by married persons.  A married couple may choose to create a joint tenancy or a tenancy in common.

The most important difference between a Tenancy by the Entirety and a Joint Tenancy or Tenancy in Common is that a tenant by the entirety may not sell or give away his interest in the property without the consent of the other tenant.  Upon the death of one of the spouses, the deceased spouse’s interest in the property devolves to the surviving spouse, and not to other heirs of the deceased spouse.  This is called the right of survivorship.  Also, Tenancy by the Entirety offers a bit more creditor protection.

Tenants in common do not have a right of survivorship.  In a Tenancy in Common, persons may sell or give away their ownership interest.  Joint tenants do have a right of survivorship, but a joint tenant may sell or give away her interest in the property.  If a joint tenant sells her interest in a joint tenancy, the tenancy becomes a tenancy in common, and no tenant has a right of survivorship.  A tenancy by the entirety cannot be reduced to a joint tenancy or tenancy in common by a conveyance of property.  Generally, the couple must divorce, or agree to amend the title to the property to extinguish a tenancy by the entirety.

Joint Tenancy-ownership of real property which provides that each party owns an undivided interest in the entire parcel, with both having the right to use all of it and the right of survivorship (which means that upon the death of one joint tenant, the other has title to it all).

What is Tenancy by the Entirety?

Tenancy by the Entirety -  Joint ownership of title by husband and wife, in which both have the right to the entire property, and, upon the death of one, the other has title (right of survivorship).   Tenancy by the entirety is used in many states and is analogous to “community property” in the seven states which recognize that type of property ownership. 

Under a tenancy by the entirety, creditors of an individual spouse may not attach and sell the interest of a debtor spouse:  only creditors of the couple may attach and sell the interest in the property owned by tenancy by the entirety.

States that allow tenancy by entirety for real estate only:

Illinois
Indiana
Kentucky
Michigan
New York
North Carolina
Oregon

States that allow legally married couples to own property as “tenants by the entirety,” a type of joint ownership that offers protection from creditors:

Alaska
Arkansas
Delaware
District of Columbia
Florida
Hawaii
Maryland
Massachusetts
Mississippi
Missouri
New Jersey
Mississippi
Oklahoma
Pennsylvania
Rhode Island
Tennessee
Vermont
Virginia
Tennessee
Wyoming

Did you know that…

Sold taxes – Real estate taxes supersede foreclosure and cannot be wiped out in foreclosure proceedings.  An estimate of redemption dated within 30 days of closing can be obtained from the said county clerk.  Taxes can only be redeemed with certified funds and in some cases the county clerk will accept a title company check.  It is always best to check with each county before submitting payment.

Taxes that are not redeemed during the redemption period are subject to tax deed.  It is best that you contact the county as soon as possible to see what your options are or your tax Buyer can obtain deed to your property for the amount of the taxes they bought.

Did you know that…

City of Chicago water bills – These bills can be wiped out by taking the full bill/water certification to the City of Chicago water department and providing a copy of the recorded Judicial Sales Deed which shows when the bank took ownership of the property (not the date deed was recorded).  The water department will wipe out any usage that the debtor accumulated.

If there is a lien placed against the property from the City of Chicago water department, they will issue a full release for the lien based on the payment the water department settled for.

If you do not have a Judicial Sales Deed recorded you can still negotiate a settlement but you will need to bring the original unrecorded Judicial Sales Deed to the water department for them to consider a reduction.

Title Insurance Issues – Hold harmless

Often attorneys call asking how to clear title.  Prior to closing a real estate transaction, the Seller has generally contracted to provide clear title insurance.  The Seller obtains a preliminary title insurance commitment which shows liens recorded against the title in question.  Prior to closing, the Seller or it’s agent(s) clear the title so that a clean title policy can be provided to the Buyer.   Many issues can present themselves at this preliminary stage.

For example, often old mortgages still show on title and other items that have been cleared and insured over previously… maybe the person from whom the now Seller bought from still has liens.  The present Seller knows she obtained a clear title policy at closing when she bought.  Thus, the Seller will look at the title insurance obtained and fax a request to that title company’s hold harmless department (the title company who insured clear title when the Seller bought the property).  The request sent over will ask for a hold harmless over the exception on title in question.  The seller will use that hold harmless obtained from the title company to clear the title at closing.  This hold harmless is a letter provided by the prior title issuer insuring the new title company that they take liability for said title issue.

Procedure on obtaining a Hold Harmless: 

1. Look at the title chain for information on the last title insurer.
2. Call that title company and ask for a hold harmless department fax number and contact.
3. Fax request over with new title commitment and old policy (if you have it or with at least the old policy number).
4. When you receive the hold harmless back from the title company send it over to the new insurer ahead of closing for clearance.