So far is our series on title companies and title insurance, we’ve covered the basics of the title industry and the three types of insurance policies you will encounter in closings. In this article, I will cover holding title to real estate and in the next, common title issues that you’ll see as investors.

Owning real estate is done through recording “deeds” at the county recorders office (where all land records are held). These deeds transfer ownership from one person to the next. A Warranty Deed transfers title, and the seller warrants (guarantees) that the buyer is getting clean, marketable title. This is the kind of deed that title companies use because the title company is searching and insuring that title is clean.

A Special Warranty Deed transfers title, and the seller only guarantees that title is clean from the date the seller first took ownership. So, this one does not guarantee any problems with title before that point. You may see this if people are transferring title but not going through a title company. And finally, a Quit Claim Deed is simply a transfer of ownership with no guarantees at all from the seller. The new owner takes the property simply as it is.

This is one of the reasons you should use a title company to buy and sell real estate. The title company makes sure title is clean and then insures the new buyer!

If you own property with other people or entities (like LLCs), there are a couple of way to do so. Joint tenancy is a way that 2 or more humans can own the property together. But, ONLY humans can be joint tenants! LLCs cannot be a joint tenant. Joint tenancy comes with something special called “rights of survivorship.” This means, if one joint tenant dies, the remaining tenant(s) AUTOMATICALLY gets the deceased person’s rights to the property. This is very common with legally married spouses. If one spouse dies, the remaining one then owns the whole property. No probate is needed as the transfer is automatic. Really, all the joint tenants technically all own the entire property together as a group. Each owns the whole thing.

Be aware, there are rules to creating a joint tenancy. If any of the rules are broken, then the joint tenancy is broken (along with the right of survivorship) and ownership will revert to tenants-in-common.

Tenancy-in-common is a way of holding title that does NOT come with the right of survivorship. Thus, there is no automatic transfer if one dies. If a tenant-in-common dies, then that person’s estate needs to be probated before it can be transferred (someone has to be appointed by the court to sign a deed transferring title). Tenants-in-common also own a “divisible” portion of the property. Each owns a specific percentage of the real estate (ownership is considered equal among all tenants unless otherwise stated). They can do whatever they want with their portion, including sell it to someone else or leave it to their own heirs.

If you have an LLC as one of the owners, then by default you have a tenancy-in-common. If the joint tenancy got messed up somehow (very common!), then you have a tenancy-in-common. In real estate investing, you really only see tenants-in-common in TIC deals. TIC stands for Tenants-in-common and is a situation where numerous investors each own a small fraction of the property as a titled owner. This way, they can sell their TIC ownership to another investor.

Owning and transferring title can get confusing. I’ve even seen title companies mess things up. I also see a lot of people doing quit claim deeds to put children or others on title without understanding what they are doing. Very often, the end result is different than what they intended. Always seek the advice of a real estate attorney if you want to switch title around.

In the next article, I will discuss a few common problems you will see on title.

Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Mastery U
www.reimasteryu.com
jeff@bregliolaw.com
(801) 560-2180