How Should Property Title Be Vested?

Winter Park Home Magazine / Issue 2 / 2013

Clients frequently ask how they should take title when purchasing real property. This question encompasses a consideration of the goals of each client, and if appropriate, the client’s need for asset protection.

If property is to be used as a primary residence, I generally advise that title be vested in the individuals’ names. This provides the buyers homestead protection from judgment creditors, and also allows the buyers to take advantage of the real property tax benefits associated with the homestead. If the buyers are husband and wife, and acquire title in their individual names, I typically recommend that the title be vested as husband and wife, in order to create a tenancy by the entireties. A tenancy by the entireties is a legal fiction, by which property is treated as owned by the married couple as a unit, and not in their individual capacities.

Judgments generally do not attach to homestead property. A judgment against one spouse, but not both spouses, also will not attach to entireties property. There are limited exceptions to this rule.  For example, under recent case law a federal tax lien against one spouse attaches not only to entireties property, but also to homestead property. Generally speaking, however, judgments and liens against one spouse do not attach to property owned as tenants by the entireties.

Another benefit of owning property as tenants by the entireties is the survivorship feature – at the death of the first spouse the entire interest in the property passes automatically to the surviving spouse, without the expense of probate. The only requirements to clear title in the surviving spouse is the recording of the death certificate of the deceased spouse, and the execution and recording of an affidavit establishing that the husband and wife were continuously married from the date they acquired title until the death of the deceased spouse.  

If the right of survivorship is not the couple’s intention, then an alternative form of tenancy should be recited in the deed. For example, the deed could state “to Michael Smith and Mary Smith, husband and wife, as tenants in common and not as tenants by the entireties.” In this example, Michael and Mary would each own a one-half undivided interest in the property. If Michael died, his one half interest in the property would need to be probated to determine the identity of his heirs, i.e the new owners of his one-half interest. The clearer the recitation of tenancy, therefore, the better the result. In this tenancy in common example, a judgment against either one of the spouses (unless the property is homestead) will attach to that spouse’s one-half interest in the property.

If no recitation is made concerning the form of tenancy, and the parties are married, then a tenancy by the entireties is presumed. If they are not married, and no form of tenancy is recited, the property will be owned as tenants in common. Divorce automatically terminates an entireties tenancy, and creates a tenancy in common. If the parties then remarry each other, the parties will remain as tenants in common unless a new deed from the parties to themselves is executed to recreate the tenancy by the entireties status.

A third alternative is to create a joint tenancy with full rights of survivorship, and is often used when purchasers are not married (to each other), and wish to create a survivorship benefit. For example, title is placed in Mary Smith and Amanda Johnson, as joint tenants with full rights of survivorship.  Each will own a one-half undivided interest in the property. Unlike a tenancy in common, however, if Mary Smith were to die, her interest would automatically pass to Amanda – without the need nor the expense of a probate proceeding. A judgment lien against Mary Smith, during her lifetime (again, assuming that the property is not homestead) would attach to her interest while she is alive. If a judgment creditor failed to enforce its lien against Mary during her lifetime, then the lien would be extinguished at the time of her death – due to the survivorship feature of the joint tenancy. This would also be true of any voluntary lien that Mary may place on joint tenancy property. Prior federal tax liens and estate taxes, if any, are the exceptions, and will attach to the property even after the death of Mary.

When purchasing non-homestead property, buyers often should consider the benefits of placing title in a legal entity to protect their individual assets. Examples of legal entities vary, and individuals should consult with their attorneys to determine which legal entity will best serve their purposes. Corporations, for example, are one alternative form of business ownership, and consist of shareholders, a board of directors, and officers who are appointed by the board members or shareholders. The President typically is authorized to bind the corporation, and can execute documents on behalf of the corporation.

Conceptually, only the corporation is liable for its debts and obligations. In the event of a judgment against the corporation, the shareholders, officers, and directors typically do not incur any individual liability. Judgments against the shareholders, directors, or officers of the corporation, when entered in their individual capacities, also do not attach to the property owned by the corporation. There are, of course, additional costs and fees associated with the creation of a corporation (as well as any other legal entity that may be created by the purchasers). In addition, individuals should consult with their attorneys and accountants to determine any additional income tax liability that may be imposed as a result of vesting title in a corporation, or any other legal entity.

Examples of other commonly used legal entities that can own real property are general partnerships, limited partnerships, limited liability companies, and limited liability limited partnerships. Florida law sets forth the guidelines, rules and regulations for each of these entities.

In my next article, I will describe the mechanics and benefits of these additional legal entities.

This Article is not a substitute for hiring an independent attorney

to assist in the determination of the appropriate legal entity by 
which a purchaser should acquire title to real property.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida.  Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M from New York University School of Law in 1980.

Encroachments Reflected By Surveys

Winter Park Home Magazine / Issue 1 / 2013

A grant of an easement by a property owner can often resolve disputes between neighbors resulting from encroachments of fences, driveways, and roof overhangs by one property owner onto another person’s property. An easement is a formal grant of permission by an owner of land in favor of the owner of a second parcel of land, which grants the second parcel owner the legal right to cross over and/or to utilize a portion of the first parcel owner’s land. An easement, however, also limits the rights of the parties, and in certain situations a transfer by deed may be preferable. The following example depicts certain considerations in determining whether a grant of easement or a conveyance by deed is the appropriate solution, and also emphasizes the fact that a contract purchaser should always obtain a survey prior to closing.

Five years ago Robert Smith purchased his home on Lot 1 in the XYZ subdivision. He paid cash, and opted to forego the expense of a survey. The house was situated inside the fences on the property. Mr. Smith was provided a title insurance policy at closing, and the general survey exceptions were reflected as an exception on Schedule B of his title policy. This effectively excluded coverage in his policy for any encroachments onto or from his neighbor's property that may have been reflected in a survey.

Last year Mr. Smith decided to make some home improvements, and contacted ABC Bank for a loan. The Lender indicated, as part of the loan approval process, that he would have to pay for a Lender’s title insurance policy and provide a copy of his survey. Since he never obtained a survey, Mr. Smith ordered a new survey which reflected  that the entire width of his house encroached 3 feet into Lot 2, and that the fence encroached an additional 4 feet beyond the edge of the house. The Lender then indicated that Mr. Smith's loan would not be approved unless he can establish that he owned, or had the right to use, this 7 foot strip of land.

Mr. Smith contacted me for advice. I advised Mr. Smith that he would not have a claim under his title insurance policy since the policy reflected the general survey exceptions. I also advised him that the owner of Lot 2 has no obligation to convey this strip or to grant an easement. I further advised Mr. Smith that his best case scenario is to have the owner of Lot 2 convey the 7 foot strip outright to Mr. Smith, and that the worst case scenario entailed Mr. Smith physically removing the fence and demolishing the portion of his house situated on Lot 2. In the event a portion of the house was demolished, Mr. Smith would also have to obtain permits from the building department to make the necessary changes to his home.

We then obtained title searches for each of the lots, and confirmed that Mr. Smith owns Lot 1, and that J.R. Jones owns Lot 2. The search also reflected one outstanding mortgage on Lot 2. Mr. Smith then authorized me to contact Mr. Jones directly to resolve the encroachment problem. 

Mr. Jones stated he was not aware of any encroachments, and that he would be constructing a home on his lot in the near future. He stated he was willing to convey the 7 foot strip outright, for an agreed sum, provided we obtained written confirmation from the building and zoning departments that this conveyance would not adversely impact his ability to construct a home on Lot 2. He also advised me to contact his attorney directly with the results.

The building department official indicated that each of the lots in the XYZ Subdivision are substandard in size, and that any reduction in the physical size of a lot, unless a variance was first obtained by that property owner, would result in the denial of a building permit for that lot. He could not guarantee, under the circumstances, that the variance would be approved.  I then asked whether the granting of an easement under the facts presented would require an approval by either the zoning or building departments, and he confirmed that no approval would be necessary.

I then contacted Mr. Jones' attorney, gave him the contact information for the building department, and asked him, after he talked with them, to determine whether his client would grant an easement instead of requiring a deed of conveyance. I also explained that his client had a mortgage on the property, and asked whether he would also contact his lender to obtain its consent to a grant of easement.

Ultimately Mr. Jones agreed to grant the easement, and to obtain the consent of his lender, provided Mr. Smith paid all costs and expenses incurred by Mr. Jones, and also provided Mr. Smith compensated him for the reduction in valuation of Lot 2 resulting from the grant of easement. The grant of easement that was finally approved also included language that the easement would automatically terminate in the event Mr. Smith's house were destroyed by fire or natural disaster, and that any new construction by Mr. Smith, or his successors in title, would have to be located within the platted lot lines of Lot 1.

The time and expense incurred by Mr. Smith could easily have been avoided if he had obtained a survey at the time of purchase.  Mr. Smith's predecessor in title would have been obligated to resolve these issues prior to their closing, and, if the issues were not resolved by the time of closing, Mr. Smith could have elected to terminate the contract and receive a return of his earnest money deposit.  These types of encroachments occur on a somewhat regular basis, and demonstrate the need for obtaining and reviewing a survey prior to closing. 

This Article is not a substitute for hiring an independent attorney

to prepare an easement or deed across real property.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida.  Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980.

Use of Easements

Winter Park Home Magazine / Issue 3 / 2012

An easement is a grant of permission by the owner of land (known as the subservient estate) in favor of the owner of a different parcel of land (known as the dominant estate) to cross over and/or use a portion of the subservient estate. Since it transfers an interest in real property, it must be executed and recorded with the same formalities as a deed (i.e. before two witnesses and a notary public), and be signed by all parties having a record interest in the subservient estate. This article addresses the procedural steps to be undertaken when adjoining property owners have determined that an encroachment exists, and the parties have agreed overall to the terms and conditions of the easement to be granted.

First, the parties need to determine whether there is a need for an easement. For example, John Smith and Mary Smith own Parcel A, and Michael Jones owns the adjoining Parcel B. Mr. Jones' concrete driveway encroaches two feet in width into the Smiths' property. There is no prior grant of easement of record authorizing this encroachment. Previously the Smiths verbally consented to Mr. Jones' use of the encroaching driveway area. Mr. Jones, however, is concerned whether he will be able to continue to use this encroachment area, especially if the Smiths were to later sell their property.

The Smiths can withdraw their verbal permission at any time, and under the facts presented, the Smiths have no obligation to continue to grant him permission to use the encroaching portion of the driveway. Absent a written grant of easement, the Smiths could bring a judicial action to make Mr. Jones remove the encroaching portion of the driveway. The Smiths are willing to execute and record a written grant of easement.

First, a title search of the Smiths' property should be performed and reviewed in order to confirm that the Smiths are in fact the owners of Parcel A, and also to determine whether there are any mortgages or other liens against the Smiths' property. In the event there are any mortgages or liens existing against the Smiths' property, those lenders or lien holders will need to provide their consent and subordinate their interests to the grant of easement. Otherwise, for example, if there is a prior mortgage on the Smiths' property and the lender’s consent is not obtained, a subsequent foreclosure of that mortgage would extinguish the grant of easement by the Smiths.

After review, the title search report confirms that the Smiths own Parcel A. The title report also reflects one mortgage on the property. Mr. Smith has spoken with his mortgage loan officer, and he does not anticipate any problem in obtaining the requisite consent.

The parameters and scope of the easement need to be determined. It is not sufficient to merely recite that there is an encroachment – its exact location must be established on the public record. A complete legal description of the easement area should be provided by a licensed surveyor – to be included in the grant of easement. A survey of Mr. Jones’ property was obtained at the time of purchase. Mr. Jones will need to contact his surveyor and obtain the appropriate legal description of the encroachment area.

The Smiths intend to impose limitations on the grant of easement. They not only want Mr. Jones, and his successors in interest, to maintain the driveway at all times in its current condition, but also the Smiths want the right to use this 2-foot strip in conjunction with their own abutting driveway. This is a reasonable request, especially in light of the fact that Mr. Jones property is the one encroaching on the Smiths’ property. This might create some logistical problems when, and if, it becomes necessary for Mr. Jones to resurface his driveway. Language will need to be included in the easement document describing all of the conditions requested by the Smiths.

In conjunction with this maintenance requirement, the Smiths also want the easement to automatically terminate if Mr. Jones fails to properly maintain his portion of the driveway. The better practice would be to provide specific language by which an examiner on the public record can determine whether the easement remains in full force and effect. Although various options are available, it is determined that the easement will provide that the parties must execute and record a formal termination of the easement if the easement is no longer needed by Mr. Jones, or if the driveway is not properly maintained.

It is readily apparent there are many factors to consider in preparing and recording an easement across real property. All interested parties should consult with a qualified real estate attorney to protect their interests before executing any document which impacts their respective interests in land that they own.

This Article is not a substitute for hiring an independent attorney to prepare an easement across real property.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.