Winter Park Home, Fall, 2005A potential client (who I will refer to as Ann) recently asked me to handle the closing on a property that she owned with her aunt, who had died two months earlier. Ann had already signed a contract to sell the property and was looking forward to a problem free closing. As I read the deed, it became immediately apparent that this wouldn’t be a simple closing process. Unfortunately, the deed did not include the magic words “as Joint Tenants with full rights of survivorship”.
I had to tell Ann that she only owned a half interest in the property and that she would have to probate her aunt’s estate in order to close on the property. Furthermore, unless she is the aunt’s sole heir, Ann will have to share the property and its proceeds with one or more of her aunt’s heirs. Shocked at this unexpected discovery, Ann repeatedly told me that she and her aunt had numerous discussions regarding the disposition of the property in the event of her aunt’s death. These discussions took place before they bought the property and her aunt clearly wanted Ann to assume sole ownership of the property when the aunt died. I had to explain to Ann that although I understood her position, the law says otherwise.
Regrettably, this situation is all too familiar. Unless the intentions of each party are clearly expressed in the deed, the wishes of the parties cannot be acted upon. They simply become unrealized wishes.
There are three “fee simple” (fee simple means unconditional ownership) forms of ownership pertaining to real property (or “tenancy”) by two or more individuals. These forms are tenants by the entirety, tenants in common, and joint tenants. Each form has specific purposes and, when properly stated, will have the intended results.
Tenancy by the Entireties applies ONLY to married couples. If the grantee of a “fee simple” deed is a husband and wife, a tenancy by the entirety is created, even if the deed doesn’t recite the marital status. If a contrary intent is desired, it must be specifically stated in the deed. This means the husband and wife own the property as one entity. If one dies, the property automatically goes to the other. It also means that any judgment against one (and not both) cannot be enforced against the property as long as they remain married. However, if the parties get a divorce, the survivorship and judgment benefits go away and they become tenants in common. Even if they subsequently patch things up and remarry, the newlyweds would have to execute and record a new deed in order to re-establish the marital/entireties status.
The most frequent for of tenancy used by non-married individuals is known as “tenancy in common.” Each individual owns his/her share completely, to the exclusion of the other owners. In a tenancy in common, the proportional shares are whatever the parties want (equal or unequal). The proportional shares must be expressed in the deed or the parties are presumed to be equal shareholders. Each tenant can sell his or her share by separate deed.
If no form of tenancy is stated on the deed, the property is automatically owned as tenants in common. This oversight brought about Ann’s problem. If a party to the deed dies, his/her share must be transferred by will or the laws of intestacy to the deceased’s heirs. In such a case, there will be the additional expense to probate the estate in the circuit court, as well as the time lost in processing the necessary forms. For some people, this process is quite acceptable. For others, it creates a costly and unnecessary hardship. For those individuals, the “joint tenancy” form can be used to avoid the probate process. If two or more non-married individuals want the property to pass automatically to the surviving parties, “joint tenancy” is an excellent way to accomplish that objective without probate.
Each tenant must have an identical interest in the property, and the joint tenancy language, which I referred to earlier as “the magic words,” must be present in the deed. For example, if three people buy property as joint tenants, their interest must be one-third each. If any other percentage is stated, the parties will own the property as tenants in common, even when the words “joint tenants with full rights of survivorship” are stated in the deed. In cases where the joint tenancy language is clearly stated, any one of the joint tenants can still terminate the joint tenancy status by separately selling, mortgaging, or even leasing his/her interest. By doing so, that tenant will now own his/her property as a tenant in common with the remaining property owners. However, the other owners will remain joint tenants as to each other.
Let’s say that Harry, Ron and Hermione take title to property as joint tenants with full rights of survivorship. Later, Ron separately deeds his share of the property to Rubeus. Rubeus now owns his share as a tenant in common. If Rubeus dies, his interest in the property will need to be probated. But, Harry and Hermione will remain joint tenants as to each other. If Hermione dies, her interest will automatically go to Harry, thus leaving Harry with a 2/3 interest in the property and Rubeus with a 1/3 interest as tenants in common.
At the closing table when two non-married people are asked whether they want to purchase the property as joint tenants or as tenants in common, I hear many different responses. Often, there is a hesitation, an unstated query of “what is in my best interest.” The question may be easy for a mother and daughter to answer, but not so easy for two unrelated individuals.
As a morose as it may seem, when entering into a “fee simple” ownership contract, it is important to anticipate the worst case scenario-the death of one of the parties. Otherwise the survivor could be left to sort out a host of legal problems while thinking, “If only I had addressed this issue when we closed on the property.”
Visit our website for more information on this subject.
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.
No comments:
Post a Comment