Homebuyer:  Which Form Of Ownership Is Best For You?

Most people that buy houses are either a married couple or a single person and they never think about how they should take ownership (or take title) to the home they are buying.  They just receive a deed at closing and don’t give it a second thought.   Now, when working with buyers that are not married or not single, this is a question that must be reviewed and answered early in the homebuying transaction process. 

This situation may involve two unmarried people, siblings, business partners, friends, etc., that have decided to buy a home together.   What happens if you split up, or if one of you dies, or if one wants to sell their portion of the home?  This issue should be discussed so they can decide which form of ownership works best for their particular situation. 

There are four methods in which a person or persons can take ownership.  Here they are: 

1.  Tenancy (or Tenants) in Severalty

When one person or one entity owns property in a single name, it’s like saying that the interests of all other parties have been “severed” or cut off from any ownership in that property.  This only applies if the property is owned by one person or entity (business) and that owner has the rights and obligations that go with property ownership.  These rights are:  the right of possession, the right of use, the right of disposition, the obligation to pay taxes and obey municipal zoning laws, etc.   This type of ownership only applies to a single person or a single business. 

 2. Joint Tenancy

When two or more people take title as Joint Tenants, it means they share equal ownership of the property that cannot be divided.  This means that each party owns 100%.   So, if one of the parties dies, then the remaining parties will automatically own 100%.  This is called right of survivorship.  This form of ownership could be between married couple, but most of the time it is between 2 or more people that are not in a marriage relationship.   So, when you are buying a house as a joint tenant, you need to specifically let the attorney or title company know at the beginning of the transaction, since they will need this information when preparing the documents.  It will be harder to make the change down the road.   

There is a checklist to verify if the form of ownership is Joint Tenancy:

1. Unity of Time – did all the owners take possession at the same time?
2. Unity of Title – do all the names of the owners appear on the deed?
3. Unity of Interest –do all the owners have the same amount of ownership in the property? 
4. Unity of Possession – do all the owners have the identical right to occupy, use and enjoy the entire property?

If the answer to these four questions is yes, then you can confirm that this is a Joint Tenancy form of ownership.   Let’s say that down the road one of the parties wants to no longer own the property, then this matter would need to go to court before a judge to determine how to divide or sell the property.   

3. Tenancy by the Entirety

The only ones that can take ownership of a property with Tenants by the Entirety are married couples or civil unions.    Neither New Jersey nor Pennsylvania recognizes common law marriage, so they cannot take this form of ownership (note: in PA common law marriage is recognized if it was formed before Jan. 1, 2005, with convincing proof). The parties must be married at the time of taking title in order to be Tenants by the Entirety.  If one spouse dies, then the property automatically goes to the surviving spouse.  That is right of survivorship.  If the couple gets divorced then they become tenants in common and depending on the divorce decree, they may need to sell the property or have one partner buy out the other, depending on the court.  When a married couple buys a home, they will automatically be Tenants in the Entirety unless otherwise notified. 

4.  Tenancy in Common

When two or more people own property and they are not married, are not Joint Tenants, or do not want to own the property with Rights of Survivorship or in equal shares, then they are Tenants in Common.  This form of ownership features:

1.  title can be taken by people with different ownership interests.  For example, one party can have 60% ownership and the other can have 40%. 
2. has no Rights of Survivorship.  That means, if one of the owners dies, their portion can be put in in a will to someone else, or it can be sold or given away to anyone else.   Or any of the owners can give or sell their portion to anyone else at any time. 
3.  If the breakdown of ownership is not defined, then it will be assumed that the owners have equal shares in the property.
4. If one of the owners takes out a loan using their portion of the property as collateral, the bank can only go after that owner’s interest in the property.  The bank cannot seize the entire property.  But the bank can sue and force the courts to sell the property in order to pay off the debt if it needed to be paid off completely.

Those are the four forms of ownership that can apply to a buyer when buying a house.   Also, one property can have different forms of ownership between the owners.  For example, if one owner owns a property with a married couple, then the married couple have Tenant in the Entirety ownership and the other party can be Tenant in Common.    Whatever the forms of ownership, it is best to have it all in writing with the proper parties so that everyone is aware and understand what they can and cannot do with the property – and save yourself court and lawyer fees! 

I hope this helped you to better understand what options you have in types of ownership when buying your first or next home.  When the time comes, you will have a basic understanding and can be better prepared for the home buying process. 

If you are ready to get started or to restart the home buying process, let’s have a quick chat.  Feel free to email me at ccr@ccrsellsrealestate.com or click below to schedule a time that is convenient for you.