Unit 4 Forms in Ownership

Limited liability company (LLC)

A form of business organization that combines the most attractive features of limited partnerships and corporations. Enjoy a limited liability offered by a corporate form of ownership, tax advantages of a partnership (income flows directly to the member of the LLC, instead of being subject to the double taxation of a corporation) income taxed when received by the corporation, and then taxed again when received as dividends by the shareholders.

Tenancy by the entirety: Tenancy in common

A form of co-ownership by which each owner holds an undivided interest in real property as if each holds an undivided interest in real property as if each were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have the right of inheritance. Is a special form of co-ownership used in some states that allows a spouse to inherit the other spouse's ownership interest in the property Entirety refers to the fact that owners are considered one indivisible unit because early common law viewed a married couple as one legal person. Spouses who are tenants by the entirety have the right of survivorship. One party cannot convey a ½ interest, and generally they have no right to partition or divide the property. Property held: Spouses each have an equal undivided interest in property. Property conveyed: Right of survivorship; conveys by deed signed by both parties. One party can't convey ½ interest.

Tenancy in common Definition

A form of co-ownership by which each owner holds an undivided interest in real property as if each were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have the right of inheritance.

Community property:

A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A holdover of Spanish law found predominantly in the western U.S. states; the system was unknown under English common law. *Laws based on the ideas that spouses, rather than merging into one entity, are equal partners in the marriage. *Any property acquired during a marriage is considered to be obtained by mutual effort.

Land Trust

A trust in which property is conveyed, and in which real estate is the only asset. The property is conveyed to a trustee, and the beneficial interest belongs to the beneficiary. The beneficiary is usually also the trustor. *While the beneficial interest is personal property, the beneficiary retains management and control of the real property and has the right of possession, and the right to any income produced by the property or proceeds from its sale. Frequently created for the conservation of farmland, forests, and other wildlife habits, coastal land, and scenic vistas. Usually do not name the beneficiary May be used for secrecy when assembling separate parcels. A beneficial interest can be transferred by assignment making the formalities of a deed unnecessary. *Can be pledged as security for a loan without having a mortgage recorded. *Beneficiary's interest in personal *It passes at the beneficiary's death under the laws of the state in which the beneficiary resided. *If the deceased owned property in several states additional probate costs and inheritance taxes can be avoided. Definite term (such as 20 years) If not extended by the beneficiary when it expires, the trustee is usually obligated to sell the real estate and return the net proceeds to the beneficiary.

Living trust

A trust that is created during the trustor's lifetime. The person who created the trust conveys real property or personal property to a trustee (usually a corporate trustee), with the understanding that the trustee will assume certain duties. *May include the care and investment of the trust assets to produce an income. *Paying the trust's operating expenses and trustee's fees (the income is paid to or used for the benefit of the beneficiary.) *Trust can continue for the beneficiary's lifetime or the assets may be distributed when the beneficiary reaches a certain age or when other conditions are met. The property owner (trustor, grantor, or settler) transfers ownership of real and personal property to a trustee (often the trustor) *The owner continues to control the assets of the trust The trustee may transfer property into and out of the trust, subject to the trust agreement. *Upon the death of the trustee, the property passes to the beneficiary or beneficiaries without the need for probate. *Community property: the spouses may transfer real and personal property into a trust and name themselves as joint trustees with rights of survivorship. *Upon the death of a surviving trustee, the estate is distributed to the beneficiary or beneficiaries.

Partnership

An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law, a partnership is regarded as a group of individual owners.

Common interest community (CIC) ownership

Common interest community (CIC) ownership Condominiums, cooperatives, planned unit developments (PUD), and time-shares A CIC is an association of owners with the authority to levy mandatory assessments on its members. The homeowners association (HOA), also known as an owners association (OA), typically charges monthly dues. Condominiums, cooperatives, and other forms of common interest ownership are regulated under a state's Common Interest Ownership Act. Sellers of common interest property must meet specific disclosure requirements.

Condominium ownership

Condominium ownership Real estate, portions of which are designated for Separate ownership (units) and The remainder is designated for common use and ownership (common elements) Any type or use of real estate (residential, commercial) can be a CIC. Created by recording a declaration that describes the legal and physical structure, along with any restrictions on use. Will describe any party walls - shared walls that separate ownership interests such as condominium units Specifies common and limited common elements Swimming pool, tennis court, hallways, and elevators Common elements are owned by all unit owners as tenants in common Limited common elements are owned by all, used by one. Any common element reserved for the use of one (or more) unit(s) (e.g., assigned parking spaces, storage units, and balconies) Each unit owner is required to be a member of the owners association (OA), nonprofit organization with the following functions: Manages common elements and pays any taxes owed by the OA Adopts rules, regulations, and budgets Adopts and ameds bylaws (how the association operates) Imposes and collects assessments (association fees) Enforced by a foreclosable lien Unpaid dues create a specific lien, which can be foreclosed by the HOA Holds annual meeting Maintains insurance on common elements (contents of units are not covered) Sets rules for rentals does not develop land Separate title and taxation Deed transfers fee simple interest in unit plus undivided interest in common All unit owners share ownership of common elements as tenants in common Unit, together with a percentage of common elements, is a separate parcel Taxed as one parcel; OA may also have tax liabilities. Owners own and finance their individual units Sellers are required to give buyers full disclosure, including the declaration, bylaws, OA financial reports, and so on.

Corporation

Corporation: An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures. A legal entity- an artificial person created under the authority of the laws of the state from which it receives its charter. Managed and operated by board of directors.(selected by the owners of the corporation) Own real estate in severalty or as a tenant in common with other natural or artificial persons. Can purchase for any purpose Continues to exist until it is formally dissolved

Tenancy in Common

Individuals may co-own property as tenants in common or joint tenants. Each tenant holds an undivided interest in the property. The co-owners have unity of possession, *Each owner is entitled to possession and use of the entire property. *Each holds only a fractional ownership interest. If two co-owners of a property, and no other division is specified in the deed by which the property was received *Each owns a ½ interest. *It is the ownership that is divided not the property that is divided. Co-owners own separate interests *They can sell, convey, mortgage, or transfer their individual interests in the TIC without the consent of the other co-owners. *A married couple can transfer a share without the consent of the other co-owners. *No individual tenant may transfer the ownership of the entire property *When one co owner dies The tenant's undivided interest passes according to the decedents will, to the heirs established prior to death. *When two or more single individuals or couples acquire title to real estate and the form of ownership is not indicated, the new owners are usually determined to have acquired title as tenants in common. *Popular in urban areas and expensive Downside: is tha t it may not be as easy to sell as property held in a different form of ownership. ***Formation of a TIC requires use of an attorney to clarify the terms of ownership.*** ***Property held: Each tenant holds a fractional undivided interest with unity of possession only.**** ***Property conveyed: The tenants can convey or will their individual interest

Terminating a joint tenancy

Is destroyed when any one of the four unities of joint tenancy is terminated. Joint tenants are free to convey their individual interest in the jointly held property. *Doing so destroys the unities of time and title as to that interest. *The new owner cannot be a joint tenant, but instead becomes a tenant in common. If there were only two joint tenants to begin with, the joint tenancy is terminated. If more than two owners to begin with, and one of them conveys that interest, there will still be a joint tenancy, but only as to the interests held by the remaining joint tenants; the new owner is a tenant in common.

Sole Ownership/ Estate in Severalty

Ownership by individual is ownership in severalty. Upon death, the property goes to the heirs/ devisees. A legal entity can own in severalty... *The entirety owns the property; the owners of the entity do not. *Two or more people or firms joining together as an entity is syndication. Examples: corporations, partnerships, trust, real estate investment trust (REIT) In general partnership, all partners have equal say and liability. In a limited partnership, the limited partners' liability is limited to their investment. The sale of interests may require a securities license.

Joint Tenancy Definition

Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. ***Upon the death of a joint tenant, the decedent's interest usually passes to the surviving joint tenant or tenants by the right of survivorship. Property held: Unity of ownership. Created by intentional act; unities of possession, interest, time, title. Property conveyed: Right of survivorship; cannot be conveyed to heirs.

Severalty

Ownership of real property by one person only; also called sole ownership. Owned by one individual, corporation, or other entity The sole owner is severed or cut off from other owners. Has sole rights to the property and sole discretion to sell, lease, leave as a bequest in a will, or otherwise transfer part or all of the ownership rights to another person.

Living and testamentary trusts

Property owners may provide for their care or for that of their family by establishing a trust. May be created by agreement during the property owners lifetime (a living trust) or established by will after the owners death ( a testamentary trust) *Neither of these is related to a living will

Ownership by married couples

Tenancy by the entirety is a form of ownership available exclusively to couples in several states. Some states classify property acquired after marriage as community or marital property Tenancy by the entirety, marital property, and community property are similar to joint tenancy.

Forms of CO-OWNERSHIP

Tenancy in common (TIC) Joint tenancy Tenancy by entirety Community property

Creating a joint tenancy

The instrument must specifically state the parties' intention to create a joint tenancy, and the parties must be explicitly identified as joint tenants. *Created only by the intentional act of conveying a deed or giving the property by will or living trust. *Cannot be implied or created by operation of law. 4 elements or unities are needed PITT *Unity of possession all joint tenants hold an undivided right to possession. *Unity of interest - all joint tenants hold an equal ownership interest. *Unity of time- all joint tenants acquire their interests at the same time *Unity of title- all joint tenants acquire their interests by the same document The use of the wording "with right of survivorship" makes the meaning explicit.

Time Share

Time-share: A form of ownership interest that may include an estate interest in property and that allows use of the property for a fixed or variable time period. Permits multiple purchasers to buy relatively small interests in real estate (resort properties) For a certain period of the year, or it can be a designated share of ownership of the property expressed as a fractional interest or number of points. A contract right

Separate Property

Under community property law, property owned solely by either spouse before the marriage, acquired by gift or inheritance during the marriage, or purchased with separate funds after the marriage. *Generally is real or personal property that was owned solely by either spouse before the marriage, acquired by gift or inheritance by one spouse during the marriage or purchased with separate funds during the marriage. *Any income earned from a spouse's separate property remains part of that spouse's separate property. *Separate property can be mortgaged or conveyed by the owning spouse without the signature of the non owning spouse Community property consists of real and personal property acquired by either spouse during the marriage. Any conveyance or encumbrance of community property requires the signatures of both spouses. Spouses can will their half of the community property to whomever they desire, but upon the death of one spouse, the surviving spouse automatically owns ½ half of the remaining property. *If no will, ½ of the community property already belongs to the surviving spouse and the other half is inherited by the surviving spouse or by the decedent's other heirs, depending on state law. Community property does not provide the automatic right of survivorship that joint tenancy does. Property held: Spouses are equal partners in marriage. Real or personal property acquired during marriage is community property. Property conveyed: Conveyance requires signature of both spouses. No right of survivorship; when one spouse dies, the survivor owns ½ of community property. Other ½ is distributed according to will or, if no will, according to state law.

CO-OWNERSHIP

by more than one person or entity When title to a parcel of real estate is held by two or more individuals called co-owners or concurrent owners.

Limited Partnership

is a business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments. Consists of one or more general partners, as well as limited partners. Run by the general partner or partners The limited partners are not legally permitted to participate (they can be held liable for business losses only to the amount invested.) Permits investors with small amounts of capital to participate in large real estate projects with minimal personal risk. If a partner dies, withdraws, or goes bankrupt Common law result would be to dissolve partnership Could reorganize as a partnership of the surviving partners in order to conduct business.

Right of survivorship:

(see Joint Tenancy) distinguishing feature of joint tenancy

Trust

A fiduciary arrangement whereby property is conveyed to a person or an institution, called a trustee, to be held and administered on behalf of another person, called a beneficiary. The one who conveys the trust is called the trustor. A devise by which one person transfers ownership of property to someone else to hold or manage for the benefit of a third party Example: A parent wishes to ensure the college education for a child *The parent can transfer an amount sufficient to cover the child's tuition and expenses to a trust account that will be held by a parents bank, with someone named as a trustee of the account. The trustee can be directed to use the funds in the account to pay for the child's tuition. *The parent is the trustor (the person who creates the trust) *The child is the beneficiary (the person who benefits from the trust. *The trustee is the party who holds legal title to the property and is entrusted with carrying out the trustor's instructions regarding the purpose of the trust. *The trustee is in the role of fiduciary- a person who acts in confidence or trust and has a special legal relationship with the beneficiary. *Trustee's power and authority are limited *A trust can be established during the trustor's lifetime or by will to take effect at the trustor's death.

Tenants in common

Co-ownership with No Rights of Survivorship Deceased co-owner's interest goes to heirs or devisees Allows unequal ownership (?) Subject to probate Each co-owner will be responsible for the property taxes as an individual or group. If the deed does not specify the type of co-ownership, the default will be tenants in common with equal shares. Partition lawsuit can divide property among co-owners

Common Elements

Common elements: Parts of a property that are necessary or convenient to the existence, maintenance, and safety of a condominium or are normally in common use by all the condominium residents. Each condominium owner has an undivided ownership interest in the common elements. Land, courtyards, lobbies, the exterior structure, hallways, elevators, stairways, roof, recreational facilities (swimming pools, tennis courts, and golf course)

Cooperative

Cooperative: An entity or organization, created by operation of law, whose title is held by a trust or corporation that is owned by and operated for the benefit of people living within the building who are the beneficial owners of the trust of shareholders of the corporation, each possessing a proprietary lease to a property unit. A corporation holds to the title to the land and the building. Corporation offers shares of stock to prospective tenants Purchaser becomes a shareholder Stock is personal property- the cooperative tenant owners do not own real estate, they own an interest in a corporation that has only one asset the building

HOA

HOA- made up of unit owners

Partition

Is a legal way to dissolve the relationship between co-owners of real estate when the parties do not voluntarily agree to its termination. If the court determines that the property cannot be divided physically into separate parcels without destroying its value, the court will order the real estate to be sold. * The proceeds of the sale will then be divided among the co-owners according to their fractional interests.

Uniform partnership act:

Law that provides for the continuation of an existing business if a partner in a general partnership dies, withdraws, or goes bankrupt. The partnership agreement may provide for the continuation of the organization after the death or withdrawal of one of the partners.

Cooperative

Owned by a corporation, which in turn allows owners (stockholders) occupancy Cooperative corporation (tenants association) owns the real estate Buyer receives *Shares in stock *Proprietary lease ***No deed; no ownership of unit *Stockholder / tenant pays assessments and association fees.

Joint Tenancy

Owned by two or more people married ***Co-owners have the Right of survivorship*** Upon death, interests go to co-owner(s) without going through probate ***Overrides a will ***Death certificate and joint tenancy affidavit must be recorded ***The deceased interest transfers directly to the surviving joint tenant or tenants. ***Essentially there is one less owner ***No formal legal action is required ***Death certificate of dead owner should be made part of the public record and a copy retained by the surviving owner(s) ***Includes the right to pass the property to any heirs. ***The last survivor takes title in severalty and has all rights of sole ownership Must be specified in deed - as joint tenants ***Ownership shares must be equal*** ***Must have four unities*** Possession Interest, Title Time (PITT) Partition lawsuits can divide property among co owners.

Concurrent (multiple) Ownership

Two or more parties share ownership with undivided interests. Their shares or interests are fractional but divided. Each has equal rights of possession to the entire property. No co-owner has a right to any specific part of the property. The form of co-ownership determines what happens upon the death of a co-owner. Buyers should obtain legal advice to determine the most appropriate form of co-ownership.

General Partnership

is a typical form of joint venture in which each general partner shares in the administration, profits, and losses of the operation All the partners participate in the operation and management of the business and share full liability for business losses and obligations.