By David Parker, Esq.
QUESTION: My husband and I are about to purchase a house. We are concerned about what would happen to the house if one of us dies. Is there a certain way to take title to the property in order to protect our interests? Should I contact an attorney in advance or can I ask someone about this at settlement?
ANSWER: Title to real property is an extremely important issue to have raised and involves a subject that is often overlooked at settlement. In fact, from a legal standpoint, how one takes title to property can have serious ramifications in the future. It is this very question that leads me to wonder why anyone would ever have their real estate settlement conducted by a non-lawyer. Relying on a settlement clerk to advise you on this issue would be the equivalent of going to a first year medical student for heart surgery. While the student may be able to muddle through the problem, he or she really isn’t qualified to perform the surgery. Likewise, you are smart to seek legal counsel regarding this important issue.
There are several ways to take title to property. When more than one person (sole owner) takes title to property, this is known as a “concurrent ownership interest.” Each co-owner has an ownership interest in the entire (or whole parcel of) property. The three forms of concurrent ownership are Joint Tenants, Tenants in Common, and Tenants by the Entirety.
Joint Tenants. A Joint Tenancy exists whenever two or more persons own an entire, undivided interest in a particular piece of property. The distinguishing characteristic of a Joint Tenancy is the right of survivorship. Upon the death of one of the Joint Tenants, the surviving Joint Tenant continues to retain an undivided ownership interest in the property. If there is more than one surviving Joint Tenant, the remaining Joint Tenants continue as co-owners of the property until there is only one last survivor. The last survivor then has sole ownership in the entire property. The law will not imply a Joint Tenancy. In fact, when the intent to create a Joint Tenancy is not clearly expressed, the courts in Maryland may hold that the conveyance created is a Tenancy in Common (see discussion below). Therefore, for the purchasers of property wishing to obtain title to property with the above-mentioned rights, it is suggested that the purchasers expressly state that they wish to obtain title as “Joint Tenants with the Right of Survivorship,” and such words must be set forth in the Contract and in the Deed.
Tenants if Common. The key distinguishing factor between a Tenancy in Common and Joint Tenants with Right of Survivorship is that a Tenancy in Common is concurrent ownership with no right of survivorship. Each individual owner has a distinct, proportionate, undivided interest in the property, which is freely transferable by inheritance and is subject to the claims of the creditors of the particular owners. Tenants in Common do not necessarily need to own equal undivided interests in the property. Although each owner is entitled to possession of the whole property, Tenants in Common may acquire their interests at different times by different instruments and may have undivided interests. For example, let’s say that A and B own a parcel of property as Tenants in Common. A has an undivided forty percent (40%) ownership interests, and B has an undivided sixty percent (60%) ownership interest. A still has the right to possess and enjoy the property in a manner equal to that of B, so long as the concurrent ownership lasts. In the end , if the property were sold, A would be entitled to just 40% of the net proceeds. However, either concurrent owner may, at any time, and without the consent of the other, freely sell, assign, or convey his ownership interest. Unless otherwise stated, however, each Tenant in Common is presumed to take an equal share in the property.
Tenants by the Entirety. Ownership as Tenants by the Entirety is similar to a Joint Tenancy with Right of Survivorship, subject to three significant differences. First, Tenants by the Entirety must be husband and wife. Second, neither the husband nor the wife can sever his or her ownership interest in the property without the consent of the other. In other words, an attempted conveyance to a third party by one spouse alone will not eliminate the right of survivorship, as such conveyance would be invalid. This means that one spouse cannot sell or mortgage any part of the property without the consent of the other spouse. Finally, with the exception of certain Federal tax liens, the ownership interest of one Tenant by the Entirety cannot be reached by the other spouse’s individual creditors.
The only ways to terminate the co-ownership interest of Tenants by the Entirety are by the death of either spouse, divorce (in which case the parties become owners as Tenants in Common), or mutual agreement
As you can see, the differences between the various tenancies can be very subtle. However, the wrong choice could result in the loss of your house. Please be certain that when you obtain legal advice regarding the method of taking title, you do so from a qualified, licensed attorney. That is why it is so important that your settlement is conducted by a real estate attorney and not a settlement clerk.