How should I hold Title?
An essential element of every real estate transaction is deciding how the purchaser of the property will hold title. It is important that the purchaser fully understand the significance of acquiring title to the property in the proper form of their choosing. The decision of how to take title to the property could have a future effect on their rights, duties, obligations, liabilities, or limitations regarding the property.
There are many varying personal factors that a purchaser needs to take into account before deciding how title to property will be held. One's marital status, estate plans, tax situation, potential creditor claims, and possession of the property, among many other considerations, are all factors to be deliberated prior to sitting down at the closing table. This is no small decision, and many purchasers will look to their attorney and their financial advisor for advice. The information provided here is not to be construed as legal advice; it is intended to make the reader mindful of titling decisions, and should not be relied upon in lieu of qualified legal advice.
In Pennsylvania, there are many ways that a purchaser can “hold title” to real estate. In addition to holding real estate as a “sole” individual, multiple individuals can hold what is called a “joint estate” in the property.
Legally formed business entities can also hold title. The various types of business entities that are permitted to hold title include: corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships, and other organizations legally recognized by the State of Pennsylvania.
Title to property can also be held “in trust”; whereby a person or persons, or an organization, holds certain defined rights and duties in the property as trustee for another.
Joint Estates are the most common form of acquiring title, and are created when there are multiple owners for a property. There are only three types of joint estates recognized in Pennsylvania:
Tenancy by the Entireties is a form of ownership whereby married couples purchase the property jointly as husband and wife and whereas each would own 100% of each-others interest. Although multiple owners are free to choose whether they wish to be Joint Tenants or Tenants in Common, only spouses may own property as "Tenants by the Entireties."
The fact that each spouse literally owns 100% of their property interest is significant for two key reasons. First, in the case of a death, the surviving spouse already owns 100% of the property. This means that no estate has to be probated to pass the interest in the property from the deceased spouse, and that there is no inheritance tax due for this marital property. Second, if a judgment is entered against one of the spouses, the tenancy by the entireties provides protection against losing the property to the judgment creditor. A creditor can not force a sheriff's sale of property owned by the judgment debtor if it is jointly owned by the spouse and they took title as tenants by the entireties. This is because any sheriff sale would deprive the innocent spouse of a property interest. Although the creditor cannot proceed against such entireties property, if the innocent spouse should die or if the parties divorce, the creditor may then be able to force the sale of the property.
One spouse cannot sever the tenancy by the entireties without the consent and joinder of the other. Any conveyance or mortgage of the property would require both spouses. This requirement has been interpreted to require that both spouses sign and acknowledge the same document.
Upon dissolution of marriage, the tenants by the entireties terminates and the former spouses then become owners of the property as tenants in common, each owning an undivided 1/2 interest in their total property interest.
To indicate that title is being taken as tenants by the entireties, it is recommended that the names of the buyers on the deed be followed by the phrase “husband and wife, as tenants by the entireties". However, it is presumed in Pennsylvania that when a married couple take title to property, unless the Deed indicates otherwise, title is always in the form of tenants by the entireties.
Tenancy in Common is a form of ownership whereby two or more parties who are not married to each other purchase property without creating a joint tenancy (discussed below). Each individual owns an undivided interest in the entire property, although each undivided interest does not need to be equal. For instance, one party may own a 25% undivided interest in the property, and one party may own the other 75% undivided interest. If no percentage interest is disclosed, then it can be interpreted that the parties own equal percentages, meaning two parties would own 50% each; three parties would own 33-1/3% each; four parties would own 25% each, an so forth. Although each owner may have separately defined percentages, each owner has the right to possession and enjoyment of all the property, not just their undivided portion. Each owner is not obligated to pay the other for those rights of possession and enjoyment.
It is possible for each owner to sell their undivided interest in the property. However, all the owners must agree if they intend to sell the whole interest in the property. As a practical matter regarding residential property, it is highly unusual and likely difficult for one tenant to try to sell their undivided interest, and obtaining a mortgage loan for one's undivided interest is almost impossible.
Tenancy in common has no right of survivorship. When one owner dies, his interest passes as he wishes to his devisees or his heirs. The absence of the right of survivorship is the principal distinction between a tenancy in common and a joint tenancy.
Unless a joint tenancy is expressly indicated, when a conveyance is made to two or more persons, they are presumed to take as tenants in common and not as joint tenants. If title is to be taken in unequal portions, the deed should indicate the percentage interest held by each party.
Joint Tenancy is a form of concurrent ownership wherein two or more parties who are not married to each other purchase property together, and the surviving co-owner has the right to the whole property upon the death of all the co-owners. No interest in the property would pass through the estate of a deceased owner other than the last survivor of the joint tenancy.
The right of survivorship is the most important feature of a joint tenancy. On the death of a joint tenant, his interest ceases, and the property is owned entirely by the surviving tenant. Because of this feature, a joint tenant cannot devise or leave his interest to another upon his death.
Joint tenancy requires four “unities”; being unity of time, unity of title, unity of interest and unity of possession. This means that the ownership of the property must be equal in both interest and possession, that the acquisition of title must happen at the same time and through the same conveyance for all of the parties involved in the joint tenancy.
It is possible to terminate the joint tenancy, purposefully or unwittingly, should any of the four unities be broken. A joint tenant, without the consent of the other joint tenant, may terminate the joint tenancy by simply conveying his interest in the property. The joint tenant may convey his interest to himself, thus retaining an undivided interest as a tenant in common, or may convey his interest to a third party who then becomes a tenant in common. Even though the parties may initially desire to own property with one-another and to have their interest pass to the other co-owner, each party can, without the consent of the other, sever the survivorship right, become a tenant in common, and then ultimately devise or bequeath an interest in the property.
If the property purchasers wish to hold title as Joint Tenants, the names of the buyers on the deed should be followed by the phrase “as joint tenants with right of survivorship." If this phrase is absent from the deed a tenancy in common would be created. Therefore, if a right of survivorship is desired, it must be expressly stated.