When it comes to buying real estate, most people assume there’s only one way to do it: either you own the property or you don’t. Sounds simple enough. But the fact is, there are different types of real estate ownership, each with their own legal ramifications. Unfortunately, many buyers make purchasing decisions unaware and eventually tangle with unintended consequences. Before jumping into any real estate deals, it’s a good idea to get to know the different kinds of ownership.
4 Types of Real Estate Ownership
- Sole ownership or tenancy of severalty. By far the most simple, this occurs when a single person owns the property. A sole owner is free to sell, gift, or bequeath the property to anyone without needing permission of any kind.
- Tenancy by the entireties. In real estate, a husband and wife are considered a single entity, making this type of ownership unique to wedded people. Tenancy by the entireties happens when a married couple buys real estate together, and the deed should reference ownership as husband and wife. Also, if either the husband or wife run into financial trouble, a creditor cannot put a lien on the land unless both spouses owe the debt.
- Tenants in common. When two or more people own a portion of real estate separately, they’re called tenants in common. Even though they are unified in owning the property, each person operates individually regarding their personal share. Unless otherwise stated, most real estate ownerships with more than one owner are tenants in common, and the court generally favors this type of co-ownership over a joint tenancy (see below). A few key distinctions separate tenants in common from the other types of ownership.
- The property may be split equally or unequally undivided. For example, three people own one piece of real estate, but one person owns 50% while the other two each own 25% each. Unless otherwise stated on the deed, the courts will assume the property is equally divided.
- If one of the owners dies, this share of the property goes to the deceased’s heirs, not to the other owners. The heir will then become the new tenant in common, and take control of his or her portion of the real estate.
- Joint tenancy. Although not as common, sometimes two or more people will own real estate together in a joint tenancy. Unlike tenants in common, when a person dies as a joint tenant, their share of the property goes to the remaining co-owners. Known as survivorship, this must be clearly stated in the deed. Otherwise the ownership will automatically be assumed as a tenancy in common. In order to create a joint tenancy, four key details must exist:
- Time. Each owner buys the property at the same time.
- Title. One deed states the names of every owner.
- Interest. The property is divided equally among everyone.
- Possession. Owners hold an undivided interest, meaning the right to use and possess the entire property.