in severalty tenant

RB 786 – 564002194
Forms of Residential Property Ownership
©Lin Ewing 2015
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Lin Ewing, Author
Completing Your Homestudy Course:
The student should look through the entire course to get a feel for the format (quizzes, notes, etc.)
Highlighted areas and pre-quiz questions have been written to help students recognize key
information in the material.
At the end of the course, students will take a proctored exam that will cover the course information.
When you have completed the course and have had time to review, please contact
[email protected] to schedule your proctored exam.
Here is a list of list of proctor locations:
http://www.illinoisrealtor.org/sites/illinoisrealtor.org/files/Education/proctor_locations2.pdf
Instructor Availability
Lin Ewing is the author and instructor for this home study program. As this program is designed to
allow you to work at your own pace, it may be necessary for you to contact the instructor at some
point if you are struggling with a certain area of the course.
It is the policy of the Illinois Association of REALTORS® and Lin Ewing to make available to you, an
email address for a quick response to your questions, concerns, or comments about the home study
program.
Always leave a detailed message with specific pages and/or topics you would like to discuss - Email
– [email protected]
Maximum Allowable Time:
The maximum allowable time to complete this home study package is 90 days from the date of
purchase.
Any student not achieving a 70% score on the Final Exam must contact IAR to prepare for a
successful re-take of the Final Exam.
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FORMS OF RESIDENTIAL PROPERTY OWNERSHIP
The type of ownership involved in the ownership of property/real estate is important in so many ways,
not the least of which is the ability to transfer that ownership to another entity. How the
purchaser/owner receives and holds ownership of a property will affect the owner's ability to:
 Sell and transfer the ownership;
 Take out liens and mortgages;
 Determine the rights of inheritance.
ESTATES IN LAND
An estate in land defines:
 The degree of interest;
 The quantity of interest;
 The nature of interest;
 The extent of interest that an entity holds in real property.
To be defined as an estate in land, the interest in the land or real property must be "possessory", that
is that it must allow for possession of the property whether that possession is at the present time or at
a time designated in the future. Possession of real property is the holding of the property along with
the right of enjoyment of the property.
The interest in the real property must also have "duration"; that is classified and determined according
to the length of time designated for possession to be held.
Estates in land are divided into four basic categories, with only two of those categories holding the
right of ownership:
 Freehold estates with right of ownership:
o Fee simple absolute;
o Fee simple defeasible;
o Conventional life estate;
o Life estate pur autre vie.
 Statutory or legal life estates-those which are created by law, with right of ownership:
o Homestead;
o Marital life estate:
 Dower;
 Curtesy.
 Leasehold estates-with right of "possession" but without the right of ownership:
o Possession of and interest in real property for a fixed amount of time but without
ownership interest in the real property.
 Equitable estates-with neither the right of possession nor the right of ownership. Equitable
estates would be:
o Liens-both general and specific;
o Easements.
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Leasehold estates, or rental properties, are not discussed under forms of ownership as they are not
ownership in real property but only a temporary interest in a property through a rental or lease
agreement.
Equitable estates are not discussed under forms of ownership as they are neither ownership in nor
possession of real property.
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For example:
Katherine owns a condominium which she purchased as an investment in order to rent it at a
profit. She has an ownership interest in the property and her ownership interest is an estate
because Katherine possesses all of the rights to the property, including the ability to transfer
her interest in the property to another entity by sale, by will, or by taking out a lien or a
mortgage on the property.
When Katherine leases the condominium to Kevin, she transfers her right of possession to
Kevin, but not her right of ownership. Through the lease agreement established between
Katherine and Kevin, Kevin has a "leasehold estate" on the property which would allow him
occupation or possession of the property, but would not allow him to transfer the property to
another entity by sale, by will, or by taking out a lien or a mortgage on the property.
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FREEHOLD ESTATES
A freehold estate is one that is for an undetermined amount of time. It can be designated for a
person's lifetime or for an unlimited duration, which would be forever. Freehold estates that are for an
indefinite amount of time are fee simple and estates that are determined by the length of a person's
lifetime are life estates.
FEE SIMPLE ESTATES
Fee simple estates are absolute ownership, entitling the owner to all of the rights of the property for
an unlimited or an indefinite amount of time; they are thought of as being "forever". A fee simple
estate can be transferred to heirs on the death of the current owner and because of this is also
sometimes called an "estate of inheritance".
The types of fee simple ownership are:
 Fee simple absolute;
 Fee simple defeasible.
Fee Simple Absolute is the maximum right of ownership of real estate or real property and continues
forever. In a fee simple absolute form of ownership, the owner (the person or entity who holds the
title to the property) has all of the bundle of rights to the property and those rights are subject only to
public and private laws or restrictions.
The bundle of rights that the owner receives on the purchase and transfer of the property includes
the right of:
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
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Possession of the property;
Quiet enjoyment of the property, giving the owner the right to use the property in any lawful
manner that he wishes as long as he does not infringe upon or disturb the rights of others to
enjoy their properties;
Control of the use of the property in any legal manner that the owner wishes;
Exclusion, which allows the owner to exclude anyone he wishes from using and/or entering
the property;
Disposition, which endows the owner with the right to sell, rent, encumber, dispose of or
transfer the ownership or use of the property at his will.
Fee Simple Defeasible or Defeasible Fee is a form of ownership that is subject to some condition.
The holder of the estate has a fee simple title, but the holder's maintenance of ownership of that title
is dependent on an event occurring or on an event not occurring. There are two types of fee simple
defeasible:
 Fee simple determinable or fee simple on condition precedent;
 Fee simple on condition subsequent or fee simple subject to a condition subsequent.
Fee simple determinable or Fee simple on condition precedent allows for the estate to be
inherited but with a particular requirement or limitation that is required to occur. The words "while"
or "during" or "so long as" are used to create the particular requirement or limitation. If the
requirement or limitation is broken or breached by the new owner, the previous owner or the heirs of
the previous owner have the right to take back possession of the property. This is the "possibility of
reverter", meaning that the property will automatically revert back to the original owner or his/her
heirs. There need be no legal action taken on the previous owner's part in order for the retaking to
occur as the return of the deed to the previous owner is automatic.
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For example:
The owner of a large Victorian home that is adjacent to a major university died and in his will
he gave the home to the university in order that it be used as administrative and private
offices for professors in the Department of Philosophy only. The agreement within the deed
had a condition precedent stating that "so long as the property is used as administrative and
private offices for the professors in the Department of Philosophy only, the property shall
belong to the university." If the university used the premises for any other purpose, the
ownership of the property would automatically revert back to the heirs of the deceased. If the
university followed the requirement of the deed and only used the property for administrative
and private offices for the professors in the Department of Philosophy, ownership of the home
would remain with the university.
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Fee simple on condition subsequent or subject to a condition subsequent requires that the new
owner of the property not perform a certain activity or action in order that a particular event will not
occur. Should the new owner break or breach this covenant with the previous owner, the previous
owner may, through legal action, take back possession of the property. Generally, there are
agreements in the deed governed by a condition subsequent which if the new owner does not adhere
to, the previous owner can reclaim ownership. The previous owner retains the "right of re-entry" so
that should the agreement be breached, the owner has the right to take possession of the property,
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but must do so through court action. (This right of reclaiming the property if the condition
subsequent is violated does not apply to any restrictions or covenants that a builder, developer or
homeowner association might place on a deed.)
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For example:
The owner of a large Victorian home that is adjacent to a major university died and in his will
he gave the home to the university in order that it be used as housing for students attending
the university. The agreements within the deed had a condition subsequent that if there were
ever alcohol consumed on the premises of the Victorian home, the ownership of the home
would revert back to the family of the deceased and no longer be available to the university.
Each student who chose to live in this home while attending the university was required to
sign an agreement with the university that they would not themselves consume alcohol on the
premises, nor would they allow anyone else to consume alcohol on the premises. Should this
covenant be violated, the heirs of the decedent would be able to regain possession of the
property through court order.
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In Illinois:
The condition precedent or the condition subsequent will pass with the deed forever and will
pass to all owners/grantees into the indefinite future. However, Illinois law allows only 40
years time for the original grantor of the deed to exercise the right to reclaim possession of
the property. Although the condition is still attached to the deed and must still be held to, the
current owner would not lose possession of the property if after a period of 40 years the
condition were violated.
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Fee simple estates can be held in a variety of ways or forms:
 Severalty: Only one person holds title.
 Co-ownership: Two or more persons hold title to the same property.
 Trust: A third party holds the title "in trust" for the benefit of another individual.
LIFE ESTATES
A life estate is a freehold estate that is limited in its length of time by the length or duration of
someone's lifetime. This could be the lifetime of the actual holder of the life estate, the "life tenant", or
the actual lifetime of another designated person who is not the life tenant. A life estate cannot be
passed on to heirs, so it is not inheritable. The duration of a life estate can only be measured by the
lifetime of a natural person and not an unnatural entity such as a corporation.
A life estate can be created by a deed, a will, a trust agreement or by operation of law that conveys
the property with the rights of ownership to the "life tenant", but only for a particular person's lifetime,
and describes what should happen to the property when that person dies. A property held in a life
estate is automatically transferred when the life tenant or the designated other person dies.
The holder of the life tenancy may use and/or occupy the property for the duration of his life, but
would not be able to sell the ownership of the property nor would he be able to will ownership of the
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property to any heirs. The life tenant may sell only his "interest" in the property to another party who
would then need to surrender that interest upon the death of the person on whom the life tenancy is
dependent.
The life tenant holds an interest in the property with all the rights of property ownership for his lifetime
or the lifetime of another designated person. During that period of time, the life tenant can lease, sell
or mortgage his ownership interest in the property, but cannot alienate (sell) the property, destroy it or
allow it to deteriorate.
According to what is set down in the conditions agreed upon in the life estate, when the holder of the
life estate or the designated person dies, the ownership of the property is passed on to the next
person in the line of inheritance. The property automatically passes to the next designated recipient
who could be another individual or an organization. Whoever receives the property at that point is the
"remainderman".
The remainderman is the person chosen by the original fee simple owner who will receive title to the
property at the end of the life estate. Or, the original fee simple owner might choose to create a life
estate with a "reversionary interest", which is one in which the property reverts back to the original fee
simple owner at the end of the life estate.
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For example:
Stephen is married to Lucy, his second wife, and wishes to guarantee that should he die, Lucy
will be able to remain in their home. However, at her death the property would go to Stephen's
daughter Jennifer. Lucy holds a life tenancy for the duration of Lucy's life. The deed
establishing the life tenancy for Lucy states that the property belongs to Lucy for the duration
of her life but that when Lucy dies the property passes to Jennifer. Lucy holds a life estate
and Jennifer is the remainderman. During her lifetime, Lucy may use the property in any
appropriate manner or she may sell her interest to another party. Should Lucy sell her
interest to Richard, upon Lucy's death Richard would be required to relinquish all claims to
the property to Jennifer, who is the person next in line after Lucy.
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Peter has created a life tenancy for Linda in order secure her residence in a home which Peter
owns. In this life tenancy, when Linda dies, the property returns to Peter rather than passing
to another person. Since Peter is the fee simple owner of the property and the property
returns to him at the end of the life tenancy, Peter has created a life tenancy with a
reversionary interest.
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During his lifetime, the life tenant has the right to possess or to transfer his interest in the property to
another party. However, the life tenant must refrain from damaging the property in any way that
might cause the property to suffer a loss in value or might prevent the next owner from being able to
use the property. Such a loss in value or in use would be legally referred to as "waste".
The life tenant and the remainderman both have interest in the property, but do not have those rights
to exercise at the same time. Their rights to the property are not simultaneous. The life tenant has
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the current possession, use and rights of ownership while the remainderman has possession, use
and rights of ownership upon the death of the life tenant or the designated other person. The life
tenant cannot sell or mortgage the property without the permission of the remainderman.
The life tenant is responsible for the maintenance of the property and must:
 Pay the mortgage if one exists;
 Pay the property taxes;
 Provide insurance on the property;
 Make repairs and maintain the property.
The types of life estate ownership are:
 Conventional life estate;
 Life estate pur autre vie.
Conventional Life Estate
The conventional life estate is one in which the owner of the property creates the life estate through
a deed or through a will giving the life estate to a designated recipient called a life tenant. Upon the
death of the life tenant, ownership of the property goes to another designated recipient (the
remainderman) or reverts back to the original owner who created the life estate (reversionary
interest). When the property passes to another designated recipient, it may pass as a life estate or as
a fee simple estate.
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For example:
Tom is the owner of a property which he holds as fee simple absolute. Since he has no use
for the property, he conveys it to Nora as a life estate limited to Nora's lifetime. Nora is then
the life tenant and her ownership of the property through the life estate will end when Nora
dies. Upon Nora's death, the ownership of the property will revert back to Tom. If however,
Tom has died during this period, the property will be passed to the next person as stated in
his will. The property may pass to his heirs as a fee simple estate or to another designated
life tenant as a life estate, whatever is directed in his will.
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Conventional Life Estate Pur Autre Vie
The life estate pur autre vie is one in which the owner of the property creates the life estate through
a deed or through a will giving the life estate to a designated recipient, the life tenant. The duration of
the life estate pur autre vie, however, is not based upon the lifetime of the life tenant but rather on the
lifetime of a person other than the life tenant. "Pur autre vie" means "for the life of another". Upon
the death of the third party, not the death of the life tenant, ownership of the property goes to another
designated recipient or reverts back to the original owner who created the life estate pur autre vie.
When the property passes to the recipient designated after the life estate, it passes as a fee simple
estate or as a new life estate.
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For example:
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Adam is the owner of a property which he holds as fee simple absolute. Adam is retiring and
moving to another state, so he conveys the property to his nephew, Hank, as a life estate pur
autre vie. The life estate pur autre vie is limited to the lifetime of Adam's brother David, who is
Hank's father. Hank is then the life tenant pur autre vie and his ownership of the property
through the life estate will end when his father, David, dies. Upon David's death, the
ownership of the property will revert back to Adam, Hank's uncle, the original fee simple
owner. If however, Adam has died during this period, the property will be passed to the next
person as stated in Adam's will, which may then pass to his heirs as a fee simple estate or to
another designated life tenant as a life estate.
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The person who holds the life estate is called a "life tenant", although that person is not a "tenant" in
the same way that a renter is a tenant. The life tenant may use the property in the same way that the
owner of a fee simple property might.
The life tenant:
 Has all of the rights associated with property ownership;
 May profit from the ownership through his/her possession;
 May sell his/her ownership interest in the property;
 May mortgage the property with the permission of the remainderman;
 May lease the property to another party;
 Must pay the utilities;
 Must pay the taxes;
 Must maintain insurance on the property;
 May not damage or destroy the property, but must properly maintain it.
What the life tenant must always do in any situation of transferring his/her ownership interest to
another is make the transference of ownership subject to the length of the life estate. The length of
the life estate would be the life span of the life tenant or in the case of a life tenancy pur autre vie, the
life span of the person upon whom the life tenancy is based or on the "measuring life".
Upon the death of the life tenant or the person upon whom the life tenancy is based, anyone who has
leased, purchased or given a mortgage on the property will be required to relinquish ownership of or
rights to the life estate property as the person whose life was the determinant of the life estate has
died.
Remainder Interest-Reversionary Interest
When the life estate terminates, it is transferred to the next owner as a fee simple estate or back to
the originator of the life estate. The next owner is designated as having a "remainder interest" or as
having a "reversionary interest". Both of these interests are "non-possessory", meaning that
although the person to whom the estate passes has an interest in the property, that person does not
possess the property during the term of the life estate. During the life estate the possession of the
property remains with the life tenant.
When the life estate is created, the person creating the life estate may name the person to whom the
ownership will pass when the life estate terminates. That person is called a "remainderman" and
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has a remainder interest in the property. During the existence of the life estate, the remainderman
has a non-possessory interest in the property.
The Creator Of The Life Estate gives title to→The Life Tenant → When the Life Tenant dies,
title passes to→The Remainderman
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For example:
Debbie conveys a home to her daughter Josephine for the duration of Josephine's life. She
designates her son Greg as the remainderman. When Josephine dies, Greg receives fee
simple ownership of the property and may then possess the property.
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If the person who has created the life estate did not name a remainderman to whom the property
would pass when the life estate is terminated, the ownership of the property returns to the creator of
the life estate. Therefore the creator has a "reversionary interest" as the property "reverts" back to
the original owner/creator of the life estate when the life estate ends. During the existence of the life
estate, the creator of the life estate has a non-possessory interest in the property.
The Creator Of The Life Estate gives title to→The Life Tenant → When the Life Tenant dies,
title reverts back to→ The Creator Of The Life Estate
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For example:
Eileen conveys a home to her daughter Molly for the duration of Molly's life. However, Eileen
does not name a remainderman. Should Molly die, the ownership of the property reverts back
to Eileen as the creator of the life estate. Eileen would then have fee simple ownership of the
property. Should Eileen have died during that time, the property would pass to the next
person named in her will as her heir.
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In terms of the line of receivership with a remainderman, should the creator of a life estate wish, he
can name more than one remainderman in succession and name those that are yet unborn.
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For example:
Wayne leaves his home to Mia for the duration of her life. He states that when Mia dies, the
house will go to her child, if she should have a child. Should Mia not bear a child then the
property will pass to Lisa for as long as Lisa lives in the state of Arizona. This is a "contingent
remainder" because it applies to an unborn or unnamed remainderman, Mia's unborn child.
Lisa also has a contingent remainder because she has a certain condition imposed upon her
possession of the home: she must live in Arizona.
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Legal Life Estate
A legal life estate is a life estate that is created through an operation of law rather than through the
choice of the owner. The legal life estate is automatically created when certain circumstances occur.
Should a spouse die, the surviving spouse would own the property through a legal life estate which
protects the surviving, non-owning spouse after the death of the spouse who owned the property.
There are 3 types of legal life estates:
 Dower (a marital life estate);
 Curtesy (a marital life estate);
 Homestead.
Dower refers to the life estate created for the surviving wife (the dowager) when the property-owning
husband dies intestate (without a will). The widow's claims to the property or to the income produced
by real estate that the deceased husband owned during the marriage, usually takes precedence over
the husband's creditors.
Curtesy refers to the life estate created for the surviving husband when the property-owning wife dies
intestate.
Generally, in either dower or curtesy, the surviving, non-owning spouse has the right to 1/3 or to 1/2
of the interest in the property for the remainder of his or her life. Not all states recognize dower and
curtesy. Owing to the concept of discrimination based on gender, most states do not recognize
dower and curtesy, but refer to the surviving spouse's share as the "statutory share".
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In Illinois:
Illinois does not recognize dower and curtesy but has replaced them with the Uniform Probate
Code which allows the surviving spouse to receive an "elective share". The surviving
spouse's elective share is 1/2 the probate estate if there are no descendants and 1/3 if there
are descendants.
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The Homestead Exemption/Homestead Rights
A Homestead is a life estate that applies to the dwelling or land occupied as the principal family
home. It is a privilege given to families so that they may continue to live in the family home despite
claims of creditors. Homestead protects the interests of the surviving spouse against creditors'
claims, but only for as long as the home is occupied as the family home.
Homestead rights prevent a forced sale of the property in order to pay for the debts of the owner
without reserving a portion of the proceeds of the sale for the owner. It provides that a portion of the
property or a portion of the value of the property is exempt from judgments in favor of creditors,
including judgments for credit cards and unsecured creditors. (Unsecured creditors are those who
lend money but do not obtain specific assets as collateral for the loan.)
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Homestead does not provide protection or exemption from property tax liens or mortgage liens or
mechanic's liens.
If the homeowner dies and is survived by children under 18 years old, the homestead exemption can
protect the equity in the home for those children until they reach the age of 18.
A homestead exemption can protect some of the equity in the home during bankruptcy.
A property that is held as a "tenancy in the entirety" (explained later) is owned as a whole by the
husband and the wife together. This means that creditors seeking payment of debt cannot take the
property or force a sale of the property to pay the debts of only one of the owner spouses.
When a couple wishes to sell their residence, both spouses must sign any contracts involved in the
sale in order to release the homestead right. This is mandatory regardless if only one of the spouses
purchased the home.
Homestead rights must be considered when marketing and attempting to sell a residential property as
the homestead rights may cause a cloud on the property's title. If only one spouse holds title to the
property, it is best to obtain a waiver of homestead interest from the non-titleholding spouse when
ownership of the property is being conveyed to another. Generally, the non-titleholding spouse must
sign a waiver of homestead interest in order for the deed, mortgage, etc. to be executed.
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For example:
The wife is the only titleholder for what had been the marital residence. The husband and wife
parted company 2 years prior and the wife does not have any idea how to locate the husband
in order for him to waive his homestead rights so that she can go forward with a sale of the
marital residence. The problem is that the wife may not be able to legally convey the property
to a new owner as the husband has not waived his homestead rights.
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While there are variations by state, generally the homestead exemption is as follows.

Homestead is a statutory provision. Most states limit the amount of money that a debtor can
claim as homestead and that limit varies from state to state.

Two separate homestead estates cannot be claimed on the same property at the same time.
Occupancy of the property must be exclusive to the person and/or family claiming the
homestead estate. Homestead owners have the right to encumber the real estate through
mortgage, etc., but any agreement to encumbrance requires that both spouses sign any
agreement that creates an encumbrance. If a homestead estate is to be conveyed to another,
it must be done so in writing and it must state specifically that the homestead is being
conveyed.

In the event of a court-ordered sale, homestead reserves or holds aside a portion of money
from the sale in order to provide for the family's relief. However, if the property itself is the
security for unpaid debts such as a mortgage, a mechanic's lien or real estate taxes, the
proceeds from the sale of the property go to pay those debts before the family gets paid. After
the family receives whatever amount is allotted to the homestead, the remaining money, if any,
goes to pay the family debts that are not secured by the home, i.e. credit cards.
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A family may only have one "homestead" at a time which continues for the surviving spouse after the
death of the other spouse, provided that the surviving spouse continues to occupy the home. Further,
the homestead exemption continues as long as there are children in the home under 18 years old.
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For example:
The court has ordered the sale of John and Marianne's home in order to satisfy their debts.
John and Marianne, a married couple, live in Illinois and will exercise their homestead rights in
reserving up to $30,000 for themselves after the sale of their home. They have not paid their
real estate taxes for this year, they have an outstanding mortgage and they owe a creditor who
was named in the judgment lien and who will be paid from the proceeds of the sale. Their
home sells for $425,000. Their real estate taxes are $10,000 for that year. Their outstanding
mortgage is $295,000 and the creditor named in the judgment lien is owed $65,000.
$425,000
$10,000
- $295,000
$120,000
Sale price of the home.
Real estate taxes.
Mortgage.
Remaining to pay debts and cover homestead exemption.
- $65,000 Paid to the creditor.
= $55,000 Remaining for John and Marianne as the maximum $30,000 of their
homestead exemption and $25,000 remaining after that.
However, if their home had sold for $350,000, the proceeds would look different.
$350,000
$10,000
- $295,000
$45,000
Sale price of the home.
Real estate taxes.
Mortgage.
Remaining to pay debts and cover homestead exemption.
- $15,000 The creditor receives $15,000 out of the $65,000 he is owed.
= $30,000 Remaining for John and Marianne as the maximum of their homestead
exemption.
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While some states issue the homestead exemption automatically, other states require that the
homeowner file a Declaration Of Homestead in order to receive a homestead exemption. The
amount of the homestead exemption is dependent on the state and the jurisdiction where the property
is located. Except for Maryland, all 50 states and the District of Columbia have a homestead
exemption. The requirements for and the amounts of the exemption vary from state to state.
Maryland does allow, however, that a property which is held in tenancy by the entirety may be exempt
from the debts that are owed by one spouse.
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In Illinois:
Homestead rights are automatic, meaning that nothing to designate the homestead needs to
be filed as notice of the homestead right. A judgment lien cannot be attached to a homestead
in Illinois.
The homestead exemption requires that the person claiming the homestead be on the deed to
the property and listed as a legal owner of record.
Homestead in Illinois reserves up to $15,000 for a single person and up to $30,000 for a
married couple. Homestead rights are applicable to any residential property that is the family
home, whether it be a detached single-family dwelling or a condominium or a cooperative.
The homestead exemption may also be applied to personal property and to the proceeds from
a sale of the real and personal property for up to 1 year from the date of sale of the property.
Illinois prohibits residents from using the federal bankruptcy exemptions, unless directed by
Illinois law. Illinois requires that homeowners use the state exemptions.
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In order to waive homestead rights, an owner would complete a form such as the following:
WAIVER OF HOMESTEAD RIGHTS
The undersigned, Mary Jones
, hereby waives all present and future interest,
right and title which s/he may currently possess or acquire in the future in the property
which is the subject of this mortgage arising out of his/her homestead rights or marital
property rights, if any property interest is created through operation of law or otherwise,
the undersigned, Mary Jones
, agrees that this mortgage is consented to and is
valid as to the entire parcel.
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Lesson One Review Quiz
1. How the purchaser/owner receives and holds ownership of a property will affect the owner's
ability to:
 Sell and transfer the ownership;
 Take out liens and mortgages;
 Determine the rights of inheritance.
T F
T F
2. A freehold estate is one that is for an undetermined amount of time.
3. Fee Simple Absolute is the maximum right of ownership of real estate or real property and
continues forever.
T F
T F 4. In a fee simple absolute form of ownership, the owner has all of the bundle of rights to the
property and those rights are subject only to public and private laws or restrictions.
T F 5. A life estate is a freehold estate that is limited in its length of time only by the length or
duration of the life tenant's life and no one else's.
T F 6. A Homestead is a life estate that applies to the dwelling or land occupied as the principal
family home and protects at least a portion of the property's value from judgments in favor of
creditors.
T F 7. Homestead provides protection or exemption from property tax liens or mortgage liens or
mechanic's liens.
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Answers
1. T
2. T
3. T
4. T
5. F
6. T
7. F
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LIMITATIONS ON OWNERSHIP RIGHTS
The type of ownership that a property owner has is a determinant of his/her power over or control of
what happens to the property and is dependent on the bundle of legal rights that are attached to the
title of the property. Restrictions, both public and private, may limit what an owner can do with his/her
property. The limitations or restrictions placed on owners are with the intention of securing the safety
and welfare of the community and therefore take precedence over the property owners' rights.
Public Restrictions-Legal Restrictions-Governmental Powers
Legal restrictions include the powers held by local, state and/or federal governments:
 Police power:
 Eminent domain;
 Interest in the property claimed through the owner's non-payment of taxes;
 Zoning, zoning ordinances and building codes.
Police power is the authority that the state has to be able to enact legislation designed to:
 Protect the health of the public;
 Protect the safety of the public;
 Preserve order in the community;
 Promote the general welfare of the community.
Police powers incorporate the regulations that these governments enforce on property owners in
terms of:
 How the property may be used legally;
 Occupancy limits or restrictions;
 Building codes;
 Zoning ordinances;
 Environment protection legislation.
Regardless of what powers the governmental bodies might have over property owners, homeowners
and builders, the laws must be enforced without prejudice, must be uniformly enforced and always be
administered in a non-discriminatory manner.
Eminent domain refers to the government's right to seize or acquire private property for the public's
or the community's use. The property might be used for:
 Constructing new road or highway;
 The site of a new school;
 The construction of a public housing development;
 The establishment of a community park;
 The erection of a new municipal building that serves the community.
The use for which the property is being seized is to be a use that is beneficial to the community and is
not for any private profit. Eminent domain is not to be used without the property owner being justly
compensated for the property. The government is to purchase the property for what the owner
considers a fair market price.
While the owner of the real estate might choose to "donate" the property to the community, he might
also refuse to consent to the sale of the property. Should the owner refuse to sell, the governmental
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body has the right to exercise its right of "condemnation". Condemnation is a process by which the
government exercises its right to take the property. Eminent domain is the government's right to take
the property. Condemnation is the process by which the government exercises that right.
________________________________________________________________________________
In Illinois:
The Equity In Eminent Domain Act mandates that the government prove that an area or
property is ruined, spoiled or blighted in a way that prevents its growth or prosperity before it
can force property owners to sell.
________________________________________________________________________________
Interest in the property can be claimed through the owner's non-payment of taxes. Should a
property owner fail to pay the real estate taxes levied on the property, the government has the right
and the power to claim an interest in the property and cause it to be sold for non-payment of taxes
in order to pay the tax bill. This tax lien can also be issued for the non-payment of special
assessments.
Zoning, zoning ordinances and building codes are in place in order to assist the community in
regulating property in order to protect the public safety and welfare. Zoning controls how land may
be used in specific locations and regulates the structures that may be built in those areas or "zones".
The zoning ordinances are the laws that implement the zoning. Zoning addresses and defines such
categories as:
 Building heights;
 Types of structures or buildings;
 Setbacks;
 Usage of the property:
o Residential only:
 Single family only;
 2-family structures, i.e. 2 townhomes or a 2-flat on a single parcel;
 Large multi-family buildings.
o Commercial and residential on a single parcel.
o Industrial.
Building codes delineate how the buildings must be constructed:
 Types of materials that are allowed to be used;
 Permitted types of electrical wiring;
 Plumbing standards, etc.
Private Restrictions
Private restrictions would include restrictive covenants, restrictive conditions and restrictions from:
 Previous owners;
 Builders and developers;
 Homeowner's Associations.
When a previous owner is transferring a property to a new owner, he/she might place certain
restrictions on the deed limiting or directing the usage or activities of the new owner and any owners
thereafter. Such a restrictive covenant is said to "run with the land".
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Builders and developers might place restrictions in a subdivision while they are building, marketing
and selling the properties within those subdivisions. This enables them to standardize aspects of the
subdivision and require that buyers purchasing there maintain those standards.
_______________________________________________________________________________
For example:
A builder or developer may place a restriction on construction within the subdivision to
single-family homes with no detached buildings added to the lots after sale. They make also
require that there be a minimum and a maximum square-footage for each dwelling. And they
could place restrictions that mature trees may not be removed should an owner wish to
remove one from his parcel.
_______________________________________________________________________________
Homeowner's associations may have restrictions on:
 The sizes of communication devices attached to the exterior of the dwellings;
 Minimum or specific landscaping requirements;
 The use of only certain colors on the exteriors of homes.
Anyone who purchases a property with a restrictive covenant is bound to abide by the covenant or
face legal ramifications.
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Lesson Two Review Quiz
T F
1. Police power is the authority that the state has to be able to enact legislation designed to
protect the health and safety of the public.
T F
2. Zoning ordinances are an example of police powers.
T F 3. Eminent domain refers to the government's right to seize or acquire private property for a
developer's use.
T F 4. Condemnation is a process by which the government exercises its right to take private
property through eminent domain.
T F 5. Zoning addresses and defines such categories as building heights, types of structures or
buildings and setbacks.
T F 6. A previous owner transferring a property to a new owner might place certain restrictions on
the deed limiting or directing the usage or activities of the new owner and any owners thereafter.
T F
7. A restrictive covenant is said to "run with the land".
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Answers
1. T
2. T
3. F
4. T
5. T
6. T
7. T
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OWNERSHIP OF FEE SIMPLE ESTATES
Real property can be owned in a variety of ways. When the real estate is acquired, the form in which
the new owner takes ownership or holds title has an effect on the rights of ownership that are
connected with the property. How an owner holds title affects the owner's abilities to transfer or will
the property to another.
A fee simple estate can be owned:
 In severalty;
 In co-ownership;
 In trust.
IN SEVERALTY-TENANCY IN SEVERALTY-SOLE OWNERSHIP
When a fee simple estate is owned in severalty, it is owned by only one individual or one single entity
and the title to the property is held by only that one entity. This entity could be an individual person or
an individual corporation or artificial person. The owner is the sole owner of the property and is
"severed" from any other possible owners.
The single owner possesses the entire bundle of legal rights to the property and has complete and
independent authority over the real estate. This enables her to sell it, lease it, will it, divide it or
convey it in any legal way that she sees fit without interference from anyone else. The owner does
not share any of the rights or the liabilities of ownership with anyone else. Ownership in severalty
provides the owner with the most complete control of the property.
_______________________________________________________________________________
In Illinois:
When a property is owned in severalty by a husband or wife without the other spouse having
ownership, the non-owning spouse is usually required by lenders, title companies and/or
insurers to sign a listing agreement or sales contract in order to sign away any homestead
rights that might exist and become a contention of ownership when the property ownership is
transferred to a new owner.
_______________________________________________________________________________
IN CO-OWNERSHIP
When two or more entities share ownership of or hold title together to one property, they are coowners of the property. (Also may be referred to as concurrent owners.) There are various forms of
co-ownership:
 Joint tenancy;
 Tenants in Common;
 Tenancy by the Entirety;
 Community property.
Joint Tenancy
Joint tenancy is a form of co-ownership in which two or more individuals are the owners of the same
property and have an undivided interest in the property. They have "unity of ownership". Unity of
ownership refers to the fact that regardless of how many owners there are in the joint tenancy, they
form only one unit of ownership. Title is held as though there is only one owner, that owner being the
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collective that forms the joint tenancy. There can be any number of individuals in a joint tenancy.
One of the most important distinctions of joint tenancy ownership is "right of survivorship".
Corporations cannot be a part of a joint tenancy ownership because "corporations never die",
negating the right of survivorship. Further, dower and curtesy rights are negated within a joint
tenancy.
For a joint tenancy to be formed, there must be an intentional conveyance of the property through a
deed or through a will. If it is formed through a deed, the deed must state that the intent is to form a
joint tenancy and it must identify the owners as being in a joint tenancy. When a joint tenancy is
formed, it forms a single unit that owns the property. The unit consists of all of the owners
collectively, regardless of how many individuals or individual entities this might be.
A joint tenancy must be created or established through the intention of the joint tenants or by a will. A
joint tenancy cannot be established by inference or by operation of law and the deed for the property
held in joint tenancy must explicitly state that the property is being held in joint tenancy.
An individual joint tenant may terminate his joint tenancy by breaking one of the four unities in
conveying his interest to a third party.
Further, for a joint tenancy ownership to be established, it must meet the criteria of the "Four Unities".
The four unities of joint tenancy are:
 Unity of possession, by which all of the joint tenants own the same right to possession of the
property without a division of that right. The joint tenants have the undivided right to keep or to
dispose of the property. The property cannot be physically divided.
 Unity of interest, by which all of the joint tenants own an equal and undivided interest in the
property as a whole or have equal ownership or equal shares in the property. Each owner
must own the same fractional share of the property.
 Unity of time, by which all of the joint tenants receive their right of ownership at the same
time/simultaneously and that their interests in the property are for the exact same period of
time, i.e. the lifetime of each owner;
 Unity of title, by which all of the joint tenants hold ownership via the same title or written
document of title. Each owner must acquire his/her interest in the property from the same
source, i.e. a deed, a will, etc.
The unities require that:
 There is only one deed designating title;
 The deed be created and delivered at one time;
 All of the joint tenants receive an equal interest in ownership through the deed;
 All of the joint tenants possess the property undivided.
_______________________________________________________________________________
For example:
A property has 5 owners who own the property in joint tenancy. Because joint tenancy
requires "unity of interest", each owner owns 20% of the entire property, no more and no less.
The deed by which the joint tenancy received ownership specifically stated that ownership
was being taken in the form of a joint tenancy. When one of the 5 owners dies, his/her share
of 20% passes to the remaining 4 owners now giving each remaining owner a 25% share of the
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entire property. The remaining 4 owners have absorbed the deceased owner's share and
remain together in joint tenancy with 4 tenants instead of 5. The joint tenancy will continue
until there is only 1 joint tenant remaining and at that point, the last surviving joint tenant will
own the property in severalty.
_______________________________________________________________________________
If the joint tenants all mutually agree to sell the property, they must divide any proceeds from the sale
in an equal manner. Should one of the joint tenants decide to convey his/her interest to another party
who is not part of the joint tenancy, the new owner becomes a tenant in common with the remaining
joint tenants. A new owner cannot become a part of an already established joint tenancy.
To add another individual as a joint tenant to an already established joint tenancy, the existing joint
tenants would need to sign and record a quitclaim deed from themselves to themselves as the
existing joint tenants and the additional, new joint tenant who has right of survivorship. This would
result in a new joint tenancy being formed and each of the joint tenant owners would own an equal
share in the property.
_______________________________________________________________________________
For example:
John and Jane, a brother and a sister, own a house in joint tenancy, each holding a 50%
ownership interest. When their niece, Angela, turns 21 years old, they decide to add Angela to
the joint tenancy ownership of that house. John and Jane issue a quitclaim deed to John,
Jane and Angela and designate John, Jane and Angela as joint tenants with right of
survivorship. Each of them now owns a 33 1/3% share of the home.
_______________________________________________________________________________
Right Of Survivorship
When one of the joint tenants dies, the surviving joint tenant or tenants automatically receive the
portion of ownership that the deceased owned. The deceased's portion or percentage of ownership
of the property is automatically transferred in equal shares to the remaining joint tenants. This may
be recorded with the local recorder of deeds as an "affidavit of death of joint tenant", which:
 Describes the property;
 Names the deceased;
 Is sworn to by the surviving joint tenant or tenants;
 Has the death certificate attached to it.
This is a process that allows the estate to avoid probate. Ownership through joint tenancy is not
inheritable and cannot be transferred via will.
_______________________________________________________________________________
For example:
Steve, Jason and Jordan are joint tenants with equal ownership in the property. When Jason
dies, Steve and Jordan remain joint tenants. When Jordan dies, Steve becomes the sole
owner of the property. When Steve dies he may will the property to his heirs with no
interference from Jason's or Jordan's heirs.
_______________________________________________________________________________
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For example:
Joint tenants 1, 2, 3, 4 and 5 own a property and as each of them passes on, the other
surviving joint tenants absorb the percentage of ownership from the deceased. The last
remaining joint tenant would own the property in severalty.
Joint Tenant 1
20%
Joint Tenant 2
20%
Joint Tenant 3
20%
Joint Tenant 4
20%
After #5's death
25%
25%
25%
25%
After #4's death
33 1/3%
33 1/3%
33 1/3%
After #3's death
50%
50%
After #2's death
100%
Original ownership
Joint Tenant 5
20%
________________________________________________________________________________
Should the deceased have a will, the joint tenancy property would not be affected. However, if all of
the joint tenants were to die simultaneously, i.e. in an accident, the will of each of the joint tenants
would determine to whom each of their shares would be transferred.
Should one of the joint tenants kill the other joint tenant, the killer would not receive the deceased
joint tenant's share by right of survivorship. The deceased's ownership would be transferred via
his/her will.
Terminating A Joint Tenancy
While the right of survivorship is automatic, it is also a defeasible right, meaning that either joint
tenant, if only a 2-person joint tenancy, or joint tenants if more than 2 persons, may decide to sever
the joint tenancy. A joint tenant might decide to end the joint tenancy and become a tenant in
common so that he can will his portion of the property to his heirs rather than have ownership pass to
the remaining joint tenants via right of survivorship.
This severance could be done:
 Through one of the joint tenants selling his interest in the property to a third party as the new
owner would not become a joint tenant since the unities would not apply:
o The remaining joint tenants would remain joint tenants and the new owner would
become a tenant in common.
o A joint tenant may choose to terminate the joint tenancy by transferring his interest to
himself and thereby making his ownership a tenancy in common without affecting the
joint tenancy of the remaining joint tenants. (Some states require that the interest be
sold to a third party or straw man and then sold back to the joint tenant who is severing
the joint tenancy. And some states require the severance to be recorded in order for it
to be valid.)
o If there is only one joint tenant remaining after the sale to a new owner, the two owners
would become tenants in common.
 Through a "judicial partition" or "a suit to partition":
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
o A court action legally dissolves the joint tenancy relationship if the joint tenants do not
voluntarily agree to dissolve the joint tenancy;
o The property would be divided equally between the joint tenants;
o Should the court conclude that the value of the land would be destroyed or damaged
should the property be divided, the court could order the property to be sold and the
proceeds of that sale evenly divided between the joint tenants who are terminating the
joint tenancy.
Through an involuntary severance:
o Bankruptcy;
o Tax lien;
o Divorce where the spouses hold title in joint tenancy.
Tenancy In Common
Tenancy in common is a form of co-ownership in which two or more persons hold an undivided, but
"fractional" interest in a property. The percentages of ownership that each tenant in common owns
may not be the same or equal. Therefore, each tenant in common may own a different percentage of
the property.
The property is not divided physically into the particular shares, hence the "undivided" interests of
tenants in common. As with joint tenancy, the tenants in common have unity of possession so that
they each have ownership of the entire property. However, they do not have unity of interest, unity of
time or unity of title as in joint tenancy.
_______________________________________________________________________________
For example:
As tenants in common, Dennis and Steve own a 2000 square foot house on a lot that is 50' x
150' or 7500 square feet. Dennis owns a 70% share and Steve owns the remaining 30% share.
This does not mean that Dennis owns 1400 square feet of the house and 35' x 105' of the lot
while Steve owns 600 square feet of the house and 15' x 45' of the lot. They each own the
house and the lot undivided.
_______________________________________________________________________________
Tenancy in common can be created by deed, by will or by operation of law. The deed may state the
percentage of interest that each tenant in common owns, but if it does not, then the law assumes that
the tenants in common own equal shares.
_______________________________________________________________________________
For example:
Linda, Julie and Karen are tenants in common. Their deed states that Linda owns a 50% share
of the property, Julie owns a 30% share and Karen owns a 20% share. Therefore, their
fractional interests in the property are designated in their deed.
_______________________________________________________________________________
Beth, Terry and Carolina are tenants in common. Their deed does not state the percentage of
ownership which each of them has. Therefore, the law presumes that each of them holds a
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33 1/3% interest in the property.
_______________________________________________________________________________
In Illinois:
If there are two or more owners of a property and the deed does not state the specific manner
in which title is held, the law presumes that the title is held as tenants in common. Each
ownership interest is held in severalty allowing the transference of that interest through sale,
conveyance or mortgage.
The percentage of ownership of each co-owner may be stated on a single deed or each tenant
in common may have a separate, individual deed that shows her individual percentage of
ownership. Should there be a single deed without designated ownership percentages, the law
presumes that each co-owner holds an equal share and that that ownership is undivided.
_______________________________________________________________________________
While each tenant in common owns an undivided interest in the property, each tenant in common
owns her interest in that property in severalty. Therefore, each tenant in common's interest in the
property is separate from the interests of the other tenants in common. Each owner has the right and
freedom to sell, transfer or convey her individual interest to another new and different owner. The
owner wishing to sell, transfer or convey this interest does not need to have permission to do so from
any of the other tenants in common. Each owner can sell her interest at whatever sale price, with or
without a profit or a loss, and not affect any of the other owners in the tenancy in common. The coowner may only transfer, sell, convey or mortgage her fractional portion of ownership and not the
ownership of the entire property.
Tenancy in common does not include right of survivorship. When one of the tenants in common
dies, her interest can be passed to an heir according the terms of her will. Since there is no right of
survivorship in a tenancy in common, should a co-owner die, that co-owner's interest will be conveyed
according the parameters of her will. Each owner may pass her ownership to an heir who would then
become a tenant in common with the other remaining tenants in common.
Looking at tenancy in common:
 Ownership by 2 or more people;
 No right of survivorship;
 Each owner owns an undivided interest in the whole property;
 Each owner may own a different percentage of the property, so shares might be unequal;
 An owner may sell, transfer or convey her interest in the property without the consent of the
other co-owners.
 Dower and curtesy rights are upheld in a tenancy in common.
_______________________________________________________________________________
For example:
Tenants in common A, B, C and D own a property. While they each own an "undivided"
interest in the entire property, each owns a different percentage of the entire property. As
shown below, when D sells his ownership interest to E, D no longer has ownership interest in
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the property, but E now owns D's 15% share. When B sells his ownership interest to C, C now
owns 50% of the entire property which does not affect the ownership interests of A and E, but
simply increases the amount of ownership for C. A, E and C, the remaining 3 owners, remain
tenants in common with an undivided but fractional interest in the property.
Tenant In
Common A
35%
Tenant In
Common B
20%
Tenant In
Common C
30%
T IC D sells his share to E
35%
20%
30%
15%
T IC B sells his share to C
35%
50%
15%
% of ownership
Tenant In
Common D
15%
Tenant In
Common E
_______________________________________________________________________________
A tenancy in common may also be dissolved through a "judicial partition" or "a suit to partition":
 That legally dissolves the co-ownership relationship if the tenants in common do not voluntarily
agree to dissolve the co-ownership;
 Divides the property between the co-owners according to their percentages of ownership;
 Should the court conclude that the value of the land would be destroyed or damaged should
the property be divided, the court could order the property to be sold and the proceeds of that
sale divided between the co-owners according to their percentages of interest in the property.
Tenancy By The Entirety
Tenancy by the entirety is a form of ownership that applies specifically to married couples on their
personal residence. Each of the spouses has an undivided but equal interest in the ownership of the
property. Tenancy by the entirety bestows right of survivorship on the surviving spouse so that with
the death of one spouse the other spouse becomes sole owner. If a property is held in tenancy by
the entirety by a married couple, both spouses must sign the deed conveying ownership when the
property is conveyed to another owner. Generally, there is no right to partition the ownership or to
convey in any manner only one spouse's half of ownership.
In some states, if a married couple purchases property and does not have the deed stipulate in what
form they are taking ownership of the property, the state assumes that the couple is taking ownership
as tenancy by the entirety. In some states, the law requires that for a married couple to take
ownership as tenancy by the entirety, the deed must explicitly state tenancy by the entirety.
_______________________________________________________________________________
In Illinois:
Illinois is a state that recognizes tenancy by the entirety as a legal form of ownership.
However, in order to establish a tenancy by the entirety the deed for the property must state
that the property is not owned as a joint tenancy nor as a tenancy in common, but as tenants
by the entirety.
_______________________________________________________________________________
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Please note that in many states "spouse", as used in this context, also includes those in a
civil union.
_____________________________________________________________________________
In Illinois:
"Spouse", as used in this context, also includes those in a civil union. As of June 1, 2011
(signed on January 31, 2011), the Illinois Religious Freedom Protection and Civil Union Act
provides the same benefits and protections of "married couples" to those who are entering
into a civil union. This allows partners in a civil union to hold title to their property as tenants
in the entirety.
_______________________________________________________________________________
Tenancy by the entirety has some commonality with joint tenancy in:
 Right of survivorship;
 Title is held as though there is only one owner, that owner being the couple that forms the joint
tenancy;
 Both spouses own and possess an equal and undivided interest in the property;
 Neither spouse has the right nor the freedom to sell his/her interest without the consent of the
other spouse.
Tenancy by the entirety differs from joint tenancy in:
 There can only be 2 tenants in the tenancy by the entirety;
 There can be no right to bring a suit to partition in order to end the tenancy by the entirety;
 Should the parties divorce and continue to own the property together, the tenancy by the
entirety would dissolve and automatically convert to a tenancy in common.
_______________________________________________________________________________
For example:
Darcy and Brent married and purchased a home together, taking ownership as a tenancy by
the entirety. During their marriage, they, as a couple own the property together and equally.
After a number of years, Darcy dies and by right of survivorship, Brent now owns the property
in severalty.
_______________________________________________________________________________
For example:
Darcy and Brent married and purchased a home together, taking ownership as a tenancy by
the entirety. After a number of years, their marriage dissolves via divorce and they decide to
continue owning the property together. After the divorce, as they are no longer a married
couple, their ownership as tenancy by the entirety converts to ownership as tenants in
common. They could choose to own equal percentages or they could choose to own different
percentages with one ex-spouse owning a greater percentage than the other ex-spouse.
Either way, they would be tenants in common.
_______________________________________________________________________________
Marital Status
©Lin Ewing 2015
Form of
Ownership
Ownership
Interest
Ownership
Interest
Page 29
Married
Divorced, retaining equal ownership together
Divorced, retaining unequal ownership together
Tenancy by
the entirety
Tenants In
Common
Tenants In
Common
Darcy
Brent
100%
100%
50%
50%
40%
60%
_______________________________________________________________________________
Tenancy by the entirety allows the passage of ownership with the death of one spouse to the other
spouse without going through probate. Another reason for a married couple to take title in the form of
tenancy by the entirety is to be eligible for the homestead rights protection, which would protect each
of the spouse's interests in the case of one spouse being sued by creditors or being named in a
lawsuit in which the property might be used for the remedy of damages or in which a lien against the
property is issued.
_______________________________________________________________________________
In Illinois:
The homestead estate is $15,000 for a single person and $30,000 for a married couple and is
applicable to all households whether single, married, or families. No notice is necessary to be
recorded in order to create a homestead.
_______________________________________________________________________________
Termination Of Tenancy By The Entirety
To terminate a tenancy by the entirety:
 A court could order a sale of the property to pay a judgment applied to both spouses as joint
debtors.
o The court would dissolve the tenancy by the entirety in order to be able to sell the
property to satisfy the debt.
 In the event that either spouse dies, the tenancy by the entirety is dissolved and the surviving
spouse becomes the sole owner of the property, owning it in severalty.
 Both spouses agree to terminate the tenancy by the entirety requiring that a new deed be
issued designating the new form of ownership.
 The spouses agree to divorce and do not retain ownership of the residence.
 The spouses agree to divorce and together retain ownership of the residence. The spouses
then become tenants in common and the right of survivorship is terminated.
Community Property
States that recognize community property laws are states that consider the husband and wife to be
equal, but separate persons within the marriage. Community property laws address the separation of
property that is acquired during the marriage by the joint effort of the husband and wife and property
that was acquired by separate effort. There is community property and separate property.
Separate property, which is property owned by only one of the spouses, can be mortgaged,
transferred or conveyed to another entity without the other, non-owning spouse's signature.
Separate property in a community property state refers to personal and real property that either
spouse:
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 Owned separately before entering into the marriage;
 Acquired after the marriage through inheritance or as a gift;
 Acquired in exchange for property that had been acquired prior to the marriage;
 Acquired after a judgment of legal separation had been issued;
 Received because of a judgment awarded from the other spouse;
 Purchased with separate funds while married.
Additionally, the spouses could sign a valid agreement stating what they mutually consider separate
property.
Community property refers to personal and real property and is any property that is not "separate
property" and that was acquired during the marriage. Generally, all property that is acquired by either
the husband or the wife after the marriage and before any legal dissolution of the marriage is
considered community property. Even though acquired within that time frame, property that was
acquired by gift or inheritance would be separate property.
Ownership of 1/2 of all of the community property automatically transfers to the surviving spouse
upon the death of the other spouse. The disposition of the remaining 1/2 of the community property
is according to the deceased spouse's will. Should the spouse die intestate, the surviving spouse
inherits the deceased spouse's 1/2, thereby owning 100% or, should there be other heirs, dependent
on the state laws, the other 1/2 would go to them.
Unlike tenancy by the entirety and joint tenancy, community property ownership does not offer right of
survivorship.
_______________________________________________________________________________
For example:
While Monica was married to Howard, she inherited $50,000 from her great aunt. She put that
money into hers and Howard's joint savings account. While the amount of money in that
savings account remained more than $50,000 at all times, the inherited $50,000 will remain as
Monica's non-marital property. Any interest that accrues on the $50,000 will be Monica's nonmarital property as well.
_______________________________________________________________________________
Monica gave Howard a gold watch for their anniversary. The following year they divorced.
The watch is Howard's non-marital property because it was acquired during the marriage as a
gift.
_______________________________________________________________________________
In Illinois:
There are no community property laws in Illinois. Illinois is a "Marital Property" state or a
"Common Law Property" state or an "Equitable Distribution" state, which means that the state
sees the property owned by the married partners as:
 Marital property;
 Non-marital property.
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Marital property is any property that the couple acquired after the marriage. If the couple
should divorce, this property would be divided between the spouses in what is known as
"equitable distribution", not necessarily a 50/50 distribution as in community property states.
Non-marital property is any property which one of the spouses acquired prior to the marriage
or acquired after the marriage through inheritance or as a gift. Should this non-marital
property provide income or increase in its value, the income and gained increase in value
would remain categorized as non-marital property. If the couple should divorce, non-marital
property would remain the property of the spouse who owned it during the marriage. If during
the marriage the non-marital property should become intertwined with the marital property,
the state would assume that it is all marital property and should the spouses divorce, it would
be divided as marital property.
_______________________________________________________________________________
IN TRUST
A trust can be created when one person transfers the ownership of property to a second person who
holds the property or manages the property on behalf of a third person. Trusts may be created to
protect assets for the beneficiary. The beneficiary might be someone who needs another person to
manage the assets, i.e. a minor. Or a trust might be established so that upon the death of the trustor
the assets will immediately transfer to the beneficiary without probate being necessary or in order to
avoid or reduce estate taxes. The terms of the trust are usually private.
The person who creates the trust is the trustor or the grantor. The person who holds the trust is the
trustee. The person for whom the trust is being held and who will receive the benefits of the trust is
the beneficiary.
The trustor usually sets up a trust in order to safeguard the benefits for the beneficiary. The trustee
may hold legal title to the property, but is responsible for following the directions of the trustor as to
the purpose of the creation of the trust. Further, the trustee owes fiduciary responsibilities. The
trustee assumes the duties of the care and possible investment of the trust's assets.
The trust may continue throughout the lifetime of the beneficiary or it may end at a point in time when
the beneficiary reaches a certain age or when certain contingent conditions are met, at which time the
assets of the trust may be distributed.
The trustee can be a person, but is most often a trust company or a bank. In some situations, the
trustor, trustee and beneficiary might be one and the same person. With that being the case, the
trustor would be advised to appoint a successor trustee and a successor beneficiary in case the
trustor dies. The trustee could be a person or an entity, such as a bank.
A trust may exist for an indefinite amount of time or it might be terminated according to certain
conditions or events, such as upon the beneficiary reaching legal age and having the assets for which
the trust was established pass to the beneficiary or beneficiaries.
The trust can be set up to meet the individual and specific needs of the trustor and the beneficiary.
Trusts may be created during the lifetime of the trustor or through the trustor's will. A trust can be a
"living trust" or "inter vivos trust", which is established while the grantor is alive. A living trust might
be irrevocable or unchangeable or it might be revocable or changeable. A revocable living trust can
be changed should the trustor change his mind as to the terms of the trust. A "testamentary trust" is
created and established after the death of the trustor through his/her will.
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When establishing a trust, the trustor can specify how the property and assets will be divided.
Land Trusts
A Land Trust is a revocable, living trust in which the only asset of the trust is real estate. The title to
the property is held by a trustee, which is usually a bank or a financial institution. All of the rights of
ownership are held by the beneficiary, who might be an individual or a group. The beneficiary's
interest in the property is considered personal property, so that ownership functions in a manner
similar to ownership of other personal property which can be easily sold, assigned, etc.
Because the benefits received from the land trust are considered personal property, the beneficial
interest in a land trust can be transferred to another beneficiary without a deed. Further, the benefits
can be used as collateral for a loan without a mortgage being recorded for the property.
Land trusts are usually in existence for a designated period of time after which, if the beneficiary does
not extend the duration of the land trust, it expires and ceases to exist. Should the land trust
terminate, the trustee would normally be required to offer the property for sale and to turn over to the
beneficiary all monies received from the sale. Usually, the title to the land is transferred to the trustee
to hold for the benefit of the beneficiary.
The trustee holds the title to the property through a "warranty deed in trust" or a "trustee's deed", but
any income, interest or benefits that accrue from the property belong to the beneficiary of the trust. In
a land trust, the trustor is usually the beneficiary and is the person who maintains complete control
over the property. The beneficiary is usually the person who manages the property, possesses the
property and reaps any financial rewards from the property. Further, the beneficiary may convey the
property without executing a deed and without having a spouse release his or her homestead rights
to the property. Although the benefits from the property are considered personal property rather than
real property, the beneficiary is still able to control and possess the property as well as receive any
income or sale proceeds from the property.
Conservation land trusts or land conservancies are often established to conserve forests, coastland,
farmland, natural areas, water sources, etc. The trust might be a not-for profit group or a corporation.
The beneficiary of a land trust is not usually identified in the public records of the land trust.
Because of this, a developer might establish a land trust when trying to purchase parcels of land from
adjacent owners who might be encouraged to ask a higher price if they knew that the potential
purchaser were a developer. Further, the sale price of the property is not identified in the public
records.
The benefits of a land trust are:
 Privacy:
o The identification of the beneficiary is not in the public record.
o Under certain circumstances, government agencies and other agencies have the right
to know the identity of the beneficiary;
o The anonymity of the beneficiary could be helpful when the beneficiary is attempting to
purchase real estate that might best be accomplished without the seller knowing the
identity of the beneficiary or beneficiaries.
 Protection from liens:
o Personal judgments and liens do not attach to the property held in a land trust.
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




Protection from claims against the title to the property:
o Any claim against the title is limited to the trust;
o If the property is held in a land trust by 2 or more beneficiaries, the title will not be
affected by divorce, death, litigation, etc. that affects one of the co-owners.
The beneficiary's interest in the property can be subject to creditors' claims, but the creditors
must take extra steps in order to have claims against the property.
Protection from homeowner associations suing the beneficiary for unpaid fees:
o The association would only be able to sue the land trust and not the beneficiary;
Ease of conveyance of the property:
o It would not be necessary to execute a deed, a release of homestead rights or any other
potential claims against the property in order for the beneficiary to transfer or assign
ownership to another;
o Because the creator of the land trust can retain sole control over the property, probate is
not necessary in order to transfer ownership;
o Since the property in a land trust is considered to be the beneficiary's personal property,
she can use it as collateral for a loan;
o A mortgage loan can be assumed:
 Because the beneficial interest is personal property and is easily transferable,
when the beneficiary transfers the beneficial interest to another owner, the lender
who has issued a mortgage on the property would not be notified as the
transaction would not be recorded in the public record and the "due on sale"
clause of the mortgage would not go into effect.
When the beneficiary dies, the trust's assets are subject only to the laws of the state in which
the beneficiary lived, even though the trust may have owned property in a number of different
states, thereby avoiding probate in the other states.
_______________________________________________________________________________
In Illinois:
Under certain circumstance the law requires that the beneficiary's name be disclosed:
 If the property has been damaged by fire and an officer of the law or a fire inspector is
investigating the possibility of arson;
 If the trust is filing an application to an Illinois agency for a permit or license for
something pertaining to the property in the land trust;
 If the housing authority where the property is located receives a complaint about the
property being in violation of a building ordinance or of the law, the beneficiary's name
must be disclosed to the housing authority within 10 days of the complaint;
 If the property is being sold in a contract where the owner/seller is financing the
purchaser (articles of agreement, contract for deed);
 If the trustee is named in a lawsuit, whether criminal or private, that affects the property.
_______________________________________________________________________________
Real Estate Investment Trusts
Because real estate investment trusts or REITs are securities that are traded and sold through major
stock exchanges, they are similar to stocks and therefore they must register with the Securities and
Exchange Commission (SEC).
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While one way of investing in an REIT is to invest in a mutual fund that specializes in public real
estate, usually, investors purchase certificates or shares in the trust, the purpose of which is to invest
in real estate and/or mortgages.
REITs invest in very large, income-producing real estate. Most REITs invest in one type of real
estate such as office buildings, shopping malls, hotels, apartment buildings and the like. The REIT
acquires and develops its holdings to hold them in its own portfolios instead of acquiring them to resell.
Real estate investors may wish to create an investment trust because of the tax advantages of
forming a real estate investment trust. One of the advantages of such a trust would be not paying
corporate income tax if 90% of income acquired is given to shareholders in the form of dividends.
To qualify as an REIT, there are several requirements imposed by the Securities and Investment
Commission:
 75% of income earned by the trust must be earned through real estate.
o The income for REITs is mostly earned from the rents received from the properties that
they own, but other revenue comes from the interests earned on the mortgages that
they have purchased.
 The REIT must be managed by a board of directors or trustees.
 It must have a minimum of 100 shareholders after the first year it is established.
o No more than 50% of its shares can be owned by fewer than 5 individuals for the last
half of the tax year.
 It must invest a minimum of 75% of its total assets.
 95% of its gross income must come from real estate and interests of dividends from other
sources.
 The REIT can hold no more than 25% of its assets in non-qualifying securities or stock in
taxable REIT subsidiaries.
OWNERSHIP BY BUSINESSES
When businesses own property, they own the real estate as:
 A corporation;
 A partnership;
 A limited liability company (LLC);
 A syndicate;
 A joint venture.
A business might own property for various reasons and in doing so would operate as a separate,
legal entity apart from the individuals in the business. The business may be a group of individuals
who come together for the express purpose of investing in real estate or may be a business which
owns real estate for the business to use in the exercise of its duties.
Corporations
A corporation is an artificial person, enjoying most of the responsibilities and the rights that a person
would receive, i.e. entering into contracts, borrowing money, making loans, etc. Since the corporation
can be viewed as a legal person, it can hold title to real estate just as an actual, real person can. A
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sole corporation would be comprised of one person. An aggregate corporation would be
comprised of a group of people. The corporation is an independent, legal entity and is created as
such according to the laws of the state in which it is chartered.
A corporation might issue stock and would then be owned by shareholders through their stock
holdings. The shareholders elect a board of directors and it is the board of directors that guides the
corporation's interests and manages its operations and business. Although owned by shareholders
and guided by a board of directors, it is the corporation itself that is legally responsible for the
corporation's actions and debts and not the shareholders. The shareholders bear no personal liability
for what the corporation does.
The right to buy and sell real estate would be outlined in the incorporation charter that set up the
corporation and would give that power to the board of directors. The corporation might purchase real
estate for the corporation's own use, investment purposes or for any other legal purpose. It is
noteworthy, that because a corporation qualifies as a legal entity or artificial person, it may own
real estate as a tenant in common or in severalty.
Partnerships
Partnerships are not legal persons. However, since most states have adopted the Uniform
Partnership Act for general partnerships and the Uniform Limited Partnership Act for limited
partnerships, partnerships may hold title to real estate in the partnership's name.
Two or more people (or entities) may come together to form a partnership in order to conduct a
business. They would be co-owners in the business and would form either a general partnership or a
limited partnership. Each partner would contribute to the business with money, labor, property, etc
and share in the profits and losses of the business.
A general partnership is one in which all partners or members of the partnership are involved in the
operation and in the management of the business in which the partnership is involved. This would
mean that all partners in a general partnership share in the liability, obligations, profits and losses of
the business. All of the partners are personally liable for any debts incurred in the partnership.
Usually, the general partners share equally in the profits, liabilities and operations of the partnership
business, but the partnership could be established with an unequal distribution with varied
percentages assigned to each partner.
Any one of the partners is able to enter into a contract on behalf of the partnership and that contract
would be binding for the entire partnership. When a partner enters into a contract on behalf of the
partnership, each of the partners is personally and completely liable for the repercussions of that
contract, whether that be money, negligence, etc. In a general partnership, if one of the partners
dies, terminates his partnership, enters into bankruptcy or the like, the partnership must be terminated
or dissolved and re-established or re-organized with the remaining partner or partners.
_______________________________________________________________________________
For example:
Mark and Carrie are partners in a "general partnership". While at a client's office discussing a
possible transaction, Mark enters into a contract with the client to perform said transaction.
Mark signs the contract on behalf of the partnership, binding Carrie to the contract even
though she has not yet even seen the contract nor agreed to it. Because each of the partners
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in a general partnership has unlimited liability, each of the partners is liable for all of the terms
in this contract agreement. Carrie, therefore, is liable for whatever Mark has agreed to in the
contract with the client.
_______________________________________________________________________________
In a limited partnership two or more partners come together to jointly conduct a business. This is
common when people need funds for a business, investment or possible real estate business
transaction or development. There would be at least one general partner and at least one limited
partner, although there could be more of each and, usually, there are more of each in larger
companies. It would be the function or duty of the general partner or partners to actually operate and
manage the company, making the business decisions necessary and also being personally liable for
the business debts.
A limited partner within the company invests money or capital in the company, but would not be
legally allowed to participate in the operation or management of the business, nor would a limited
partner have the same liability for losses within the business. A general partner's personal liability is
unlimited, while a limited partner's profits and losses would be proportionate to the amount of the
limited partner's financial investment in the business. A limited partner can become personally liable
within the company if she steps outside of the passive/non-participatory role of a limited partner and
takes an active role in the running of the company.
Limited partnerships are attractive to persons looking to raise capital for a project and also to
investors who would like to participate in large investments in real estate but might not have the
money to invest at the level necessary to do so outside of entering into the limited partnership. A
limited partner might have little or no actual knowledge of or participation in the running of the
partnership business. In a limited partnership, if one of the partners dies, terminates his partnership,
enters into bankruptcy or the like, the partnership continues intact.
Limited Liability Companies or LLCs
A Limited Liability Company (LLC), sometimes call a Registered Limited Liability Partnership
(RLLP), is a form of business that is allowed by state statutes and may differ in regulations from state
to state. An LLC has the limited liability features of a corporation, but the tax benefits and flexibility of
a partnership.
The participants in an LLC are called "members" and could be individuals, corporations, foreign
entities and/or other LLCs. There is no limit on the number of members and in most states, a singlemember LLC is permissible and would have only one member. For taxation purposes, the LLC can
be classified as a corporation, as a partnership or as a single member LLC. An LLC is not taxed as a
separate business entity as a corporation would be, but as a partnership would be taxed. The
business itself is not taxed. Profits and losses are passed through the business to each of the
members who then must report those profits and losses on their personal tax returns. However, the
LLC must file a tax return as a corporation, a partnership or as a sole proprietorship. The federal
government does not tax the income that members receive, but many states do.
A bank or an insurance company cannot be an LLC.
Members in an LLC:
 Are protected from personal liability in the actions of the LLC;
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

Can participate in the profits and losses of the LLC in a proportional manner according to how
much investment they wish to make;
Are considered to be self-employed with the tax, Medicare and Social Security Insurance
responsibilities inherent in self-employment.
Differences between partnerships:
In a general partnership:
 All partners are personally liable for the business debts, court judgments, etc.;
 Each individual partner can be sued for the debts of the business in the full amount or a portion
thereof;
 Each partner can bind all of the other partners to a contract or business deal without the
express permission of the other partners.
In a limited partnership:
 There is at least one general partner who is the decision-maker for the running of the business;
 The general partner(s) is personally liable for all of the business debts;
 There is at least one limited partner who invests financially in the business but does not
participate in the day-today running of the business;
 The limited partner(s) is not personally liable for the business' debts meaning that she cannot
be required to pay the business' debts with personal assets;
 A limited partner can only lose the amount that she has invested.
In a limited liability partnership:
 There are no general partners;
 All of the owners or members, while personally liable for the business' debts, have a limited
liability.
Syndicates
A syndicate is formed when two or more persons or two or more companies temporarily come
together to conduct business as investors in a large transaction that would be very difficult, if not
impossible, for them to participate in alone as individuals. This can be beneficial for large real estate
transactions and development undertakings, as it provides a way for the entities to pool their
resources to achieve a common goal. Unlike a corporation, the syndicate is not recognized as a
legal entity or as an artificial person. The ownership of a syndicate may be in the form of a
partnership, a trust, a corporation or as a co-ownership as joint tenants or as tenants in common.
Joint Ventures
A joint venture is a partnership where two or more persons or two or more companies come together
to conduct and participate in one, singular business enterprise. The joint venture is limited to that
single business project and would not continue once that project is completed. Although a joint
venture has most of the elements of a partnership, it differs in that it is formed to exist for a specific,
limited duration and is not intended to be permanent or ongoing. The joint venture is created for profit
and for a limited purpose, such as the purchasing and/or development of real estate
Joint ventures act as a general partnership for the single business enterprise, allowing the entities
who join together to profit from the venture without having to become a partnership or a corporation to
conduct the transaction. Each member or participant in the joint venture has a fiduciary responsibility
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to the other members. As in a general partnership, the members of a joint venture are able to bind
the other members in a contract and to share in the profits, losses and management of the joint
venture.
One of the primary concerns with joint ventures is the potential for restriction of competition, because
they are usually formed by businesses or companies that would normally or otherwise be in
competition with one another. Further, there would be concern that previous competitors joining
together for a business transaction might reduce the ability for other competitors or potential
competitors to be able to enter the market and compete with the joint venture. The concern is with a
potential to violate the Sherman Anti-Trust Act.
A joint venture terminates:
 At the date specified in the contract creating the joint venture,
 When the purpose of the joint venture is completed;
 When an active member of the joint venture dies;
 On court direction.
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Lesson Three Review Quiz
T F
1. A fee simple estate can be owned in severalty, in co-ownership, and in trust.
T F 2. When a fee simple estate is owned in severalty, a single owner possesses the entire
bundle of legal rights to the property and has complete and independent authority over the real
estate.
T F
3. There can be only 3 individuals in a joint tenancy.
T F
4. One of the most important distinctions of joint tenancy ownership is "right of survivorship".
T F 5. In Illinois, if there are two or more owners of a property and the deed does not state the
specific manner in which title is held, the law presumes that the title is held as tenants by the entirety.
T F 6. Tenancy by the entirety is a form of ownership that applies specifically to married couples
on their personal residence.
T F 7. A corporation can be viewed as a legal person and can hold title to real estate just as an
actual, real person can.
Answers
1. T
2. T
3. F
4. T
5. F
6. T
7. T
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RESIDENTIAL FORMS OF OWNERSHIP
There are various forms in which residences may be owned:
 Condominium-usually "attached";
 Cooperative-usually "attached";
 Town Home/Town House-usually "attached";
 Individual-usually "detached";
 Time-share.
Condominiums
Condominium property is a "complex" of dwellings that are individually owned. Condominium
ownership is usually comprised of a larger form of property which has been divided into and sold as
individual units that are owned fee simple, but also include non-exclusive ownership in common
elements that are controlled by the condominium or homeowner's association.
The homeowner's association forms a board that oversees the day to day operations of the property
either by "self-managing" or by hiring a management company to oversee the running of the property.
Managing the day to day operations would include such items as lawn maintenance, scavenger,
snow removal, etc. These services are paid for through condominium fees or assessments which the
association collects from the owners in a proportional amount to the percentage of ownership within
the condominium association that each owner holds. The higher the percentage of ownership an
owner holds, the higher the owner's assessments. A percentage of each assessment payment must
be deposited in a "reserves" account so that the association has money for emergencies and
operations. The reserves are funds other than operating funds, which are reserved for maintenance
and capital expenditures within the condominium association.
What services or operations expenses are included in the condo assessment varies according the
way in which the building or property is structured. Some assessments include heat, water, gas, airconditioning and the like and some do not.
_______________________________________________________________________________
For example:
If the building has radiator heat there would usually be one source of heat for the entire
building and therefore the cost of heating an individual unit would be included in the
assessment. However, if each individual unit had its own dedicated furnace, heat would not
be included in the assessment, but would be an individual owner's personal expense.
_______________________________________________________________________________
The association collects the condo assessments on a regular basis, which could be monthly,
quarterly, annually or whatever the owners in the association decide. Most condo associations collect
fees on a monthly basis. If the owner does not pay the fees, the association might need to go to court
to seek a judgment or an injunction on the property in order to recover the amount the owner owes to
the condominium association.
The association also has the right to levy "special assessments" in situations where work needs to be
done and the necessary money is either not available in the reserves account or the association
decides to levy a special assessment in order to not deplete the reserves account. An expense which
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could warrant a special assessment being levied might be that the building needs a new roof, new
sidewalks, tuckpointing, and the like.
Smaller associations might choose to manage the property without assistance from outside of the
association and be self-managed, while larger associations might choose to manage the property
through a property management company. Payment for an outside management company would
usually be included in the assessment for each unit.
Further, the homeowner's association is in charge of enforcing the rules, regulations and restrictions
that the association agrees upon for operating and maintaining the property.
A condominium ownership can come in many physical forms such as a building or complex of
buildings that have individual apartment units or it can be in the form of detached houses on common
grounds. Regardless of the form or shape that condo ownership takes, condominium ownership
endows each owner with a fee simple title to the condominium unit that he owns making it also
subject to forced sale, foreclosure and homestead rights. In addition, the owner owns with the other
owners in the condo association, a specified percentage of the undivided interests or common areas
and common elements of the condominium property. These common areas and common elements
are jointly owned by the owners comprising the condominium association and are owned by all in the
association in tenancy in common.
Since condominiums come in many forms, the undivided interests, common areas and common
elements may also come in many forms. The common elements could be in a building which houses
the condo units or the common elements could be the land on which individual, detached homes or
residences are built and would most likely include:
 The exterior structure of the building itself;
 The common grounds on which the building sits;
 The interior lobbies, hallways, landings;
 Elevators;
 The roof;
 Stairwells;
 Laundry rooms;
 Exercise facilities;
 Recreational facilities;
 Extensive grounds that might include golf courses, parks and children's facilities.
Regardless of the form it takes, condominium ownership allows each individual owner a fractional,
undivided interest in the common property or common elements owned by the owners of the
condominium. This fractional interest is "undivided", meaning that the owner's interest in the common
elements cannot be sold separately from the unit which the owner owns, nor can the owner sell the
unit and retain ownership in the common elements. Condo owners do not have the right to "partition"
ownership of common elements. The condo owners own their units as fee simple, but own the
common elements as tenants in common.
Since each condominium unit (apartment-style or detached single-family, etc.) is owned fee simple,
each unit is separately deeded from all of the other units. However the owner or owners of a unit
wish to hold ownership to or tenancy in that unit is permissible as long as it is legal. Because each
unit is deeded separately, each can be mortgaged separately in the same manner as any separately
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owned parcel of real estate. Each unit is also individually taxed for real estate tax purposes. Should
an owner default on his real estate taxes, the other owners in the association would not be affected,
nor would they be responsible for those taxes. Should the owner default on his mortgage, only the
individual defaulting would suffer the consequences of foreclosure and it would not impact the other
owners within the condo/homeowner's association.
Each unit owner has the right to transfer or sell the unit to whomever he chooses within the guidelines
established within the condominium's declaration and/or by-laws. There might be certain restrictions
on selling that the owner must abide by when selling. Those restrictions might be:
 The condominium units may only be sold to owner-occupants meaning that an investor who
wishes to purchase the unit in order to rent it and not occupy it would not be able to purchase
in that building;
 The condo association might have a "right of first refusal" and choose to exercise it to
purchase the unit itself instead of allowing anyone else to purchase the unit. The association
would need to purchase the unit at the same price and terms that the owner has accepted from
an "outside" buyer. (A right of first refusal allows the condominium association to halt a
pending sale within the association in order to purchase the unit itself. If the association does
have a right of first refusal and does not wish to purchase the unit for its own use, it must issue
a waiver of right of first refusal in order for the transaction to go to closing.)
When an association has a right of first refusal and an owner/seller has accepted a contract for the
sale, he submits the contract to the association board for its review and refusal. Generally, the time
required for submission and acceptance or waiver of right of first refusal is 30 days or so, allowing the
board to schedule a meeting to review the contract.
_______________________________________________________________________________
For example:
In a condominium association comprised of 25 units in a 3-story building, a 1st floor unit with
3 bedrooms and 2 bathrooms has come on the market, has gone under contract at a purchase
price of $210,000 and is scheduled to close within 60 days. The association for that
condominium has a right of first refusal and intends to exercise that right by halting the sale
as it is presented to them and choosing to purchase the unit itself as an association for the
amount of money and the terms which the seller has accepted from the outside buyer.
The rationale for the association purchasing the unit rather than allowing it to be sold to an
outside party is that the association has long wanted to have space within the building that is
large enough to hold an all-owner meeting and to also be able to use as a party/event room.
This location is ideal for their uses and the fact that there are 2 bathrooms allows them to
have separate rest rooms for men and women. The association intends to gut the unit to
make it one large space. They purchase the unit from the selling owner and incorporate the
unit into the condominium association's common area.
________________________________________________________________________________
Nancy is selling her 1st floor, 2-bedroom, 1-bath condo to an outside buyer for $157,500. She
submits the contract to her condo board in order to allow them to exercise or to waive their
right of first refusal. The board has chosen to exercise their right of first refusal and to
purchase the unit as a potential source of revenue for the association. Their plan is to have it
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be a rental unit owned by the association so that the association itself would acquire the rent
as an additional source of revenue.
________________________________________________________________________________
Herbert is selling his 2-bedroom, 2-bath condo to an outside buyer for $175,000. He submits
the contract to his condo board in order to allow them to exercise or to waive their right of
first refusal. The board has chosen to waive their right of first refusal and issues a waiver of
the right of first refusal to Herbert who can then go to closing with his buyer.
________________________________________________________________________________
Establishing Condominium Ownership
Any way that a condominium ownership is coming into existence, the person or entity creating and
establishing the condominium ownership must submit a "Declaration Of Condominium" to the local
governing boards. The Declaration Of Condominium outlines the basic rules of operation, occupancy
and uses of the property and would include such information as:
 A description of the property;
 A survey which would delineate the land boundaries and the internal boundaries for units and
common elements;
 A structural report on the building or buildings already on the property;
 A description of how the building or land will be subdivided into individual units;
 An address for each unit differentiating it from all other units;
 A description of each unit by number of rooms, room dimensions, etc.;
 A description of the common areas;
 Restrictions on the use of the property, i.e. an adult community;
 The proportionate percentages of ownership and costs for each unit;
 Parking information, if applicable;
 By-laws, rules and regulations.
When the developer delivers purchasing information to buyers, he would also include such
documents as a proposed budget for the first year of operation.
When an existing, tenant-occupied apartment building or complex is being converted into
condominiums, local ordinances are usually in existence to protect the tenants' rights in a number of
ways, which may include:
 Notification to the tenants within a reasonable amount of time prior to the expiration of their
existing leases-typically, this is 120 days notice;
 An offer to allow the tenants to extend their existing leases during the conversion period in
order for them to be able to find new accommodations;
 An opportunity offered to the tenants for them to purchase the units in which they are living or
any other unit within the building prior to offering the opportunity to purchase to non-tenants.
A condominium ownership can be established, but it can also be dissolved. Should a condominium
association wish to dissolve their condominium status, it would require that all owners agree to the
dissolution and that any lienholders would also agree to the dissolution. The owners would then
become tenants in common in the ownership of the property. Although it may seem far-fetched that
the dissolution of a condominium would take place, there are circumstances under which dissolution
is a solution to a problem.
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________________________________________________________________________________
For example:
A 14-unit apartment-style condominium building had already been a condominium for 20
years when the owners discovered that mold was growing behind the walls throughout the
entire structure and that all of the walls would need to be removed and a mold remediation
company hired to eliminate the mold problem. Not only was this extremely costly, but
extremely inconvenient as the owners would need to vacate the building while the
deconstruction, remediation and re-construction took place, necessitating that all of them find
other places to live. While the association tried desperately to find a solution to the problem,
a developer contacted them to say that he would purchase the entire building, eliminate the
mold problem, renovate all of the units and re-sell them as part of a new condominium
development. The owners dissolved the condominium status, sold the building to the
developer and moved on.
________________________________________________________________________________
In Illinois:
Illinois adheres to the Illinois Condominium Property Act which states that a developer
wishing to create a condominium must record a declaration with a 3-dimensional survey of the
property being transformed into a condominium. The 3-dimensional plat of survey must show
the size of and the physical location within the building or complex of all of the units that will
be offered as condominiums. The declaration must state that ownership of the units is fee
simple and designate the percentage of ownership of the common elements that belongs to
each unit.
The survey that accompanies the declaration must include:
 The lot dimensions;
 The layout of each unit;
 The specific measurements (room dimensions) of each unit;
 Each unit's floor and ceiling levels in reference to the base datum in order to designate
the actual "air space" that is owned within the unit.
________________________________________________________________________________
Cooperatives Or Co-ops
In terms of how a resident lives day to day within the cooperative or co-op structure, there is very little
difference, if any, from how a resident lives day to day within the condominium structure. However,
the way in which ownership is held in a co-op is significantly different from how ownership is held in a
condominium.
A cooperative or co-op is a corporation that owns a building or a group of dwelling units and
the common areas that belong to those properties. The co-op could be comprised of a single
apartment-style building or a group of single-family detached houses that occupy together a single
area of land or any configuration. The individuals who purchase a unit owned by that corporation are
entitled to occupy the unit, use the common areas and participate in voting for the board of directors
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that oversees the operations and management of the cooperative, much as in a condominium.
However, the co-op owner does not directly own real estate.
Instead of a cooperative "owner" owning real property, as with a condominium, the co-op owner owns
shares in the corporation that owns the property. The corporation issues shares to the owners of the
co-op, who are the only shareholders within the cooperative association. The shareholders in the
corporation consist entirely of the resident owners of the co-op. The corporation holds title to the land
and structures that comprise the cooperative. Similarly to how a condominium is operated, a
cooperative establishes by-laws, budgets, etc. and there is a homeowners association and a board of
directors.
Usually, the corporation is formed as a not-for-profit cooperative corporation. Each co-op community
can establish its own rules and regulations regarding the rental of units within the co-op association.
However, the majority of cooperatives do not allow rentals, but are established to be 100% owneroccupied.
There are three different types of cooperative forms of ownership:
 Market-rate housing cooperatives:
o Members may buy and sell shares in this type of co-op at whatever price the current
market will bear.
 Limited-equity housing cooperatives:
o There are restrictions on the price at which the shares may be bought and sold, limiting
the amount of profit or benefits that an out-going co-op member can receive from the
sale of his shares. This is generally mandated because of the below-market interest
rate mortgages, real estate taxes, etc. that the members have reaped throughout their
participation in the co-op.
o The concept supporting limited-equity co-ops is the desire to maintain affordable
housing.
 Leasing cooperatives:
o The co-op corporation leases the property from an "investor" which is usually a not-forprofit corporation whose sole purpose is to own the co-op.
When a person purchases a co-op unit, that person receives shares in the corporation that are
proportionate to the percentage of ownership tied to the unit within the co-op that she will occupy.
She becomes a "shareholder" and does not receive a deed or title to the property that she occupies,
but receives shares. The shares are considered personal property and not real estate, so the owner
does not own real estate, but owns shares in a corporation whose asset is the property itself.
When a purchaser buys a co-op, she does not receive title or deed to the property. She does
however receive and execute with the corporation a "proprietary lease" or "occupancy agreement"
that is reflective of the unit that she will occupy within the co-op and which allows her the right to
occupy the unit. When the owner sells her interest in the co-op, she will not be transferring ownership
of the property, but will be transferring shares in the corporation, those shares being proportionate to
the size of the unit that is being transferred.
Moreover, when a unit's shares are being considered for transfer to a new owner, the board of
directors usually has the right to review the prospective owner and approve or disapprove the
purchase and sale. This review generally rests upon the financial capabilities and reliability of the
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prospective new owner because the owners in the cooperative association are financially tied to each
other through the fact that there is only one deed and one title to the property and only one tax bill.
The potential new owner may be assessed in a number of ways, including being required to have a
minimum net worth.
If an owner defaults on payments, that affects the entire co-op association's ability to pay the real
estate taxes and the responsibility for such payment falls to the other owners. If the co-op has taken
a mortgage on the property or incurred any other liens, the entire association would be responsible
for these payments and a defaulting owner would necessarily impose her responsibility on the other
owners.
Should there be an actual mortgage on the building, that mortgage is held by the corporation, not by
an individual partner/shareholder. In contrast, in a condominium, if one owner defaults on a
mortgage, lien or does not pay real estate taxes on the unit, the remainder of the owners in the
condominium are unaffected financially and do not bear any responsibility toward the unit that is in
default.
Regardless of how the co-op board assesses the potential purchaser/new owner, co-ops must
abide by Fair Housing Laws and not discriminate against any of the protected classes.
The corporation is responsible for the costs of operating the property whether common areas or
individual dwellings. These costs include:
 The payment of real estate taxes on the property;
 The mortgage payments should there be a mortgage held on the property;
 Insurance on the property;
 Maintenance of the property;
 Utilities, if applicable because of the structure of the property, i.e. common heating elements,
water service, cable TV, etc.
 Reserves.
The funds to pay these costs would normally be in the form of an assessment, most likely on a
monthly basis as in condominiums. Note that in a co-op assessment the real estate taxes are
normally included in the assessment as the entire property is assessed as a whole or one
entity, while in a condominium assessment the real estate taxes are not included in the assessment
or condo fees as they are assessed to the individual units.
A further distinction between cooperative ownership and condominium ownership is in the ease or
difficulty in obtaining a mortgage for the individual's purchase of the unit. Traditionally, co-ops were
"cash only" to buy into the corporation, but that has changed. However, most traditional lenders are
not interested in issuing a mortgage on a cooperative since a borrower's default on a co-op carries a
different risk for the lender than a borrower's default on other types of properties. With single-family
detached dwellings and condominiums, the owners actually own the physical property that they
occupy. But in a co-op, the owners own shares in the corporation that owns the property. In the
event of borrower default in a co-op, the lender would only be able to seize the shares and not the
physical property.
For a co-op loan, the lender issues a "share loan" which, like a mortgage, provides the borrower with
the funds to purchase. In the co-op the purchaser is purchasing from the seller the proportionate
shares in the corporation that owns the property. The borrower would then, as in a traditional
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mortgage, make scheduled payments to the lender to pay down the principal and interest.
Commonly, a co-op will have the names of several lenders who are willing to issue co-op loans for
purchasing within that corporation. It is generally the co-op itself that decides on the percentage of
down payment that will be required.
Note that if there is an actual mortgage on the building, that mortgage is held by the co-op corporation
and not by an individual partner within that corporation. The share loan that is issued to an individual
borrower pays only the cost of that borrower/purchaser to buy into the corporation that owns the coop and has nothing to do with the corporation's mortgage on the property itself.
Co-op owners are entitled to all of the tax deductions that other homeowners have, which includes
deductions for mortgage interest and for real estate taxes.
________________________________________________________________________________
In Illinois:
Although real estate licensees might be considered to be selling stocks when engaged in a
cooperative sale or purchase transaction, the state of Illinois does not require a licensee to
have a license to sell securities in order to do so.
________________________________________________________________________________
Town Home/Town House/Townhouse/Townhome
A town house, town home, townhouse, townhome is known by various other names such as row
house, duplex, semi-detached and the like. A townhouse is a type of attached housing that is a part
of a row of similar or even identical homes that share a common wall to either side of the unit. The
majority of townhomes are vertically structured with more than one story of living space, although
they could be a single story attached structure. The structure is such that the townhouse has at least
one door that opens directly to the outside rather than being inside of a building and opening into a
hallway. The townhouse may sit on a single parcel of land, which the owner may own and for which
there is a survey, or if the townhouse is a condominium, the parcel of land would be common grounds
and therefore a part of the common area. The owner owns the entire structure but is "attached" to
other units via a common wall. There is usually no other unit above and no other unit below.
A townhome development can be a condominium, a cooperative or a fee simple ownership with no
homeowners association at all. Most townhouse developments are condominium in ownership with
each unit owner holding title to the unit and sharing in the ownership of the common areas, as in a
condominium that is in an apartment-style building.
Most townhome complexes have a homeowners association and have assessments to support the
maintenance and operation of the townhouse complex. However, a townhouse complex that has no
homeowners association would have more difficulty exercising control over an owner who did not
maintain his property.
Individual Ownership-Usually Single-Family Detached
Generally, the single-family detached home defines a free-standing dwelling that is not attached to
any other dwelling and is occupied by only one family. "Single-family detached" does not indicate the
size of the structure or the number of stories of the dwelling. The land surrounding the home belongs
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only to that house, is owned only by the owner of that house and does not share ownership of that
land with any other dwelling. Typically, there is no assessment, although some subdivisions
comprised of single-family detached homes do have a homeowners' association to support
landscaping and other potential services.
Generally, restrictions on single-family detached dwellings are imposed by the municipality's zoning
laws and ordinances rather than from a homeowners association.
Timeshare Estates
Timeshare properties combine ownership with intermittent possession and use and are often referred
to as an "interval estate". Most timeshare properties are located in vacation and resort areas, but can
actually be anywhere.
Usually, timeshare ownership applies to a condominium-like situation in which there are multiple
owners of the individual unit, allowing several purchasers/owners to have interest in the same
property, but with limited use and access. The owners have the right to use, occupy and possess
that property only during their designated periods during the year. The owners of the timeshare unit
have an undivided interest in the dwelling that is proportionate according to the number of weeks that
they have purchased to occupy it during any given year. For example, a purchaser who owns 2
weeks during the year has a 1/26th interest. All of the owners of that particular timeshare share the
expenses of maintenance for the dwelling and any common areas that are included. The
proportionate cost is according to the percentage of time that each owner owns.
Timeshare estates are held as tenants in common and give each owner an undivided right of usage
for the specific time during the year that he has purchased. A deeded timeshare estate is fully
transferrable and may be willed as inheritance, conveyed in a sale, rented or encumbered.
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Lesson Four Review Quiz
T F 1. A condominium owner owns the unit fee simple and the common areas and elements as a
tenant in common with the other owners.
T F 2. Instead of a cooperative "owner" owning real property, as with a condominium, the co-op
owner owns shares in the corporation that owns the property.
T F 3. When a person purchases a co-op unit, she becomes a "shareholder" and does not
receive a deed or title to the property, but receives shares which are considered personal property
and not real estate.
T F 4. A proprietary lease is an agreement between a landlord and a tenant for the rental of
property.
T F 5. Timeshare estates are held as tenants in common and give each owner an undivided right
of usage for the specific time during the year that he has purchased.
Answers
1. T
2. T
3. T
4. F
5. T
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TITLE
What is title?
Title is the right to ownership of real estate as well as the actual ownership of the real estate. Title is
also the evidence of ownership. A "Certificate of Title", an Abstract of Title" or title insurance is used
as evidence of title and is issued at the closing or settlement.
Title to real property includes the benefits and all of the rights inherent in the ownership of real estate
referred to as the "bundle of rights". The bundle of rights concept stems from old English law in which
the ownership of property was transferred from one owner to another by a bundle of sticks that
symbolized the rights inherent in ownership. Each stick represented a right and could be separated
and distinguished from the others. Because the bundle of rights can be broken up, a person may
own all of the rights to a property or only some or only one. When one person owns all of the
unseparated bundle of rights, he owns a fee simple estate.
The rights in this bundle are subject to private restrictions as well as to government restrictions or
limitations. However, the rights can be sold, leased, transferred or otherwise conveyed as individual
rights unbundled from the rest. An owner of property can divide the rights and sell or lease or convey
those rights individually and separately to various individuals or entities.
An owner of a parcel of land could sell or lease the mineral rights (subsurface rights) to one entity.
On that same property, the owner could sell or lease the surface rights to another entity and lease or
sell the water rights to another entity and the air rights to yet another entity. When such rights are
leased, sold, transferred or conveyed, the ownership of the individual rights may be severed from the
ownership of the rest of the property.
________________________________________________________________________________
For example:
Lenore owns a large parcel of rural land on which a supply of natural gas has been
discovered. As a result, she sells the rights to the gas to a gas company (subsurface rights)
wishing to remove and sell the gas, while retaining her rights to all of the other possible
interests on the property. She wishes to remain in the home located on the property and also
wishes to build a stables for boarding horses and offering horseback riding lessons. She
retains ownership and control over the surface rights of the property so that no one can
interfere with her rights to and usage of the property.
A river which runs through her property is abundant with fish and a friend of hers has always
availed himself of the opportunity to fish on her property. He approached her with the
concept of leasing fishing rights from her so that he could establish a business bringing
people there to go fishing. She has leased him the rights to fish in the river where it runs
through her property.
The rights to the property have been "unbundled".
________________________________________________________________________________
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The Bundle Of Rights:
 The right of Possession: The title holder is the owner of the property and has the right to
occupy it.
 The right of Control: The title holder controls the use of the property within the restrictions of
the law. The owner can profit from the property, build on it, mortgage it, lease it, remove
minerals, etc.
 The right of Exclusion: The title holder may deny access to the property or exclude others
from the property; the right to exclude others from entering or using the property.
 The right of Enjoyment: The title holder may use the property in any legal manner with
assurance that he will not have interference from others.
 The right of Disposition: The title holder may sell, rent or transfer the property as he
chooses.
A mechanic's lien could affect the right of disposition as it would create a situation in which the owner
could not sell or dispose of the property until the lien was satisfied.
Real estate ownership includes not only the physical land, but also the natural things and the manmade things attached to it. Because land is considered to extend from the earth's surface to the
center of the earth and upward to infinity, ownership includes more than just what is visible on the
surface of the property. It involves "air rights" and "mineral rights" as well. Therefore, ownership of
land includes:
 Surface rights: What is on the surface of the property including man-made structures,
vegetation, etc.
 Subsurface rights: Minerals, oil, gas, coal, water, etc.; and natural resources that are below
the surface.
 Air rights: Rights to the use of the space above the property that may be sold or leased.
Actual use, leasing or sale of these rights by the title holder would, of course, be dependent
on local laws, government and private restrictions.
How is title held?
The wording used on the title to real property to describe the form of ownership controls how the
property is passed to another owner when the current owner dies. It also determines the tax the heirs
might have to pay.


Title for real estate held in severalty or sole ownership would have wording such as, "John
Smith, a single (or unmarried) man" on the title.
Title for real estate held as a tenancy in common would have wording such as, "John Smith
and Marsha Jones and Joe Smith, all single persons, as tenants in common".
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


Title for real estate held in joint tenancy would have wording such as, "John Smith and
Marsha Jones, as joint tenants" or possibly, "John Smith and Marsha Jones, as joint tenants".
Title for real estate held in tenancy by the entirety would have wording such as, "John Smith
and Marsha Jones, his wife, not as tenants in common, nor as joint tenants with the right of
survivorship, but as TENANTS BY THE ENTIRETY”.
Title for real estate held as community property would have wording such as, "John Smith
and Marsha Jones, husband and wife, as their community property".
The way in which title is originally held on a property can change as the owner's life situation
changes.
________________________________________________________________________________
For example:
A single man purchases a home and takes title as "John Smith, a single man". When he
develops a relationship with Marsha Jones and they choose to cohabit, Marsha purchases
50% of the ownership from John and they take title as tenants in common. Title then reads,
"John Smith, a single man and Marsha Jones, a single woman, as tenants in common".
Eventually John and Marsha become concerned about the right of survivorship should one of
them die, so they have the title changed to a joint tenancy and it now reads, "John Smith, a
single man, and Marsha Jones, a single woman, as joint tenants".
They decide to marry and have the title changed to read, "John Smith and Marsha Jones,
husband and wife, not as tenants in common, nor as joint tenants with the right of
survivorship, but as tenants by the entirety”.
If they lived in a community property state and married, the title might alternatively read,
“John Smith and Marsha Jones, husband and wife as community property with right of
survivorship.”
________________________________________________________________________________
THE DEED
The deed is the legal description of the real estate that is being transferred from one owner to the
next. The legal description identifies the property from all other properties and may be in the form of
a metes and bounds description, a rectangular or government survey or the lot and block method.
Essential Elements Of A Deed
The requirements of deeds vary by state, but there are certain elements that are mandatory in order
for the deed to be legal regardless of the state in which it is issued:
 A deed must be in writing;
 The grantor must have legal capacity (age and competency);
 The grantor(s) must sign the deed;
 The grantor and the grantee must be identified in the deed;
 The deed must be delivered to the grantee;
 The grantee must accept the deed;
 The property must be described accurately and legally so as to be distinguishable from all
other properties;
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
The deed must contain a clause stating that consideration (payment) has been received by the
grantor;
 Any exceptions or restrictions or conditions affecting title must be listed;
 Words of conveyance, a granting clause, must be in the deed (appropriate to the type of deed
being executed).
________________________________________________________________________________
In Illinois:
If the type of ownership is not designated on the deed, the state of Illinois assumes that
ownership is being held in the form of tenants in common.
________________________________________________________________________________
Types Of Deeds
A deed is a written instrument that conveys real property from one owner to another. Holding title to
a property is ownership of the land. However, the evidence of the title is in the deed, which
must contain an accurate, legal description of the property. The deed should list what, if any,
encumbrances, easements, limitations or restrictions are attached to the title of the property being
conveyed from the seller/grantor to the buyer/grantee. The deed is executed at closing and transfers
title to real property along with the bundle of rights that accompanies it from one owner to another.
The deed should be recorded in the county in which the property is located.
The types of deeds that are most commonly used are:
 General warranty;
 Special warranty;
 Bargain and sale;
 Quitclaim;
 Special purpose;
 Deed executed pursuant to a court order;
 Tax deed;
 Certificate of sale.
The different types of deeds vary in the degree of protection which the grantor warrants to the
grantee.
General warranty deed
A general warranty deed is the deed that provides the most protection to the grantee (buyer) and
automatically binds the grantor (seller) to certain promises, covenants or warranties. Through the
general warranty deed, the grantor guarantees or "warrants" that he holds clear title to the real estate
and has the right to sell it. Not only does this deed guarantee the period of time during which the
current grantor owned the property, but warrants clear title going back through the property's
entire chain of title. Therefore, the transferring owner warrants clear title not only for himself, but all
other owners who preceded him. The general warranty deed ensures the purchaser that he is
receiving good, clear title. However, should the seller/grantor have caused encumbrances or defects
to the property, the general warranty deed does not warrant against those.
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There are six traditional covenants granted through a general warranty deed. Some of them are
covenants for the past or the current time and some of them are covenants for the future of the
property. The covenants in a general warranty deed are:
 The covenant of seisin or covenant of possession:
o The grantor warrants that he is the owner of the property being transferred and has the
right to transfer and deliver title;
o Should the property be mortgaged or subject to another restriction, this covenant is still
intact.
 The covenant of against encumbrances:
o The grantor warrants that the property being conveyed is not subject to any hidden liens
or encumbrances other than those, if any, which might be specifically stated and
disclosed in the deed, i.e. an easement.
 The covenant of quiet enjoyment:
o The grantor warrants that the title is good and that no other party holds a superior claim
to ownership of the property;
o This covenant guarantees that the buyer/grantee will not be evicted or dispossessed of
the property by another party.
 The covenant of further assurance:
o The grantor warrants that should there be a problem with the title, he will provide
whatever is necessary to clear the title for the grantee.
 The covenant of warranty forever:
o The grantor warrants that he will provide compensation for the grantee should there be
any loss from the title not being good.
Although the general warranty deed provides the most protection for the purchaser, it does not
provide protection if the seller has died, cannot be located or is incapable of or prevented from
carrying out the warrants.
________________________________________________________________________________
For example:
A General Warranty Deed will have such wording as:
…that Grantor is lawfully seized in fee simple of the above described property; that it has a
good right to convey, that the property is free from all encumbrances; that the Grantors and
its heirs, and all persons acquiring any interest in the property granted, through or for
Grantor, will, on demand of Grantee, or its heirs or assigns, and at the expense of Grantee, its
heirs or assigns, execute and instrument necessary for the further assurance of the title to the
property that may be reasonably required; and that Grantor and its heirs will forever warrant
and defend all of the property so granted to Grantee, its heirs, against every person lawfully
claiming the same or any part thereof.
________________________________________________________________________________
Special warranty deed
While the general warranty deed warrants the title going back in time to the origin of the property, the
special warranty deed protects the grantee only for the time during which the grantor held title to the
property. It does not warrant or protect against anything that may have happened to disturb the title
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while any prior owners held title to the property. Therefore, the grantor is warranting the title only
against defects in the title arising during his ownership and not for anything which may have
happened prior to his owning the property.
A special warranty deed actually adds protection for the grantor in that it limits the time frame for
which the grantor can be held liable for any encumbrances or clouds on the title. In contrast, the
general warranty deed adds protection for the grantee in that it holds the grantor liable for any
encumbrances or clouds on the title for all time.
________________________________________________________________________________
For example:
The current seller/grantor has owned the property for 3 weeks. Unbeknownst to him, the prior
owner had hired a contractor to paint the exterior wood and to replace the sidewalks on the
property. However, after the contractor completed the work as agreed upon, the prior owner
refused to pay the contractor, entitling the contractor to place a mechanic's lien on the
property even though the ownership has changed. The general warranty deed would cause
the current owner to bear liability for the previous owner's non-payment and require the
current owner to pay the mechanic's lien before being able to sell and convey the property to
yet another new owner. If the current owner were to issue a special warranty deed, he would
not be liable for what the prior owner did or did not do.
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The special warranty deed contains two warranties:
 A warranty that the grantor received and held title to the property;
 A warranty that the grantor did not in any way encumber the property during the time in which
he held title. If there is anything that the grantor did to encumber the property, that
encumbrance must be stated in the deed.
Fiduciaries such as executors of an estate, trustees, corporations and the like are the entities most
likely to use a special warranty deed, since they are unlikely to be able to warrant a clear chain of title
preceding their involvement with the property. Builders and developers are also likely to issue a
special warranty deed since their involvement with the property is only long enough to complete the
project for which they purchased the property and does not extend to guaranteeing what went before
that. Further, purchasers and/or investors who have acquired the property through a tax sale might
also wish to issue a special warranty deed when conveying the property to the next owner.
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For example:
A Special Warranty Deed will have such wording as:
…that the Grantor hereby covenants with Grantee that Grantor is lawfully seized of the above
described property in fee simple and that Grantor has good right and lawful authority to sell
and convey the property. Grantor hereby warrants and agrees to forever defend the right and
title to the above described property unto the said Grantee against the lawful claims of all
persons claiming by, through or under the Grantor, but not otherwise.
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For example:
A Special Warranty Deed will have such wording as:
… the Grantor grants and forever releases unto the Grantee, all the rights, title, interest, claim
or demand that the Grantor may have in the real property described as
follows:______________________________________________.
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Bargain and sale deed
Depending on the state in which the deed is issued, a bargain and sale deed may or may not contain
warranties against encumbrances/a bargain and sale deed with or without covenants against
grantor's acts. Regardless of the state in which it is issued, a bargain and sale deed will "imply", but
not explicitly state, that the seller/grantor holds title to the property and is in possession of it.
Essentially, the extent of the bargain and sale deed is to warrant only that the grantor has not done
anything to harm the title. It does not warrant or guarantee anything and is typically used as an
executor's deed, an administrator's deed, a guardian's deed or to convey title in a foreclosure sale, an
auction or a sheriff's sale.
An encumbrance against the property would usually be stated in the deed, i.e. a tax lien. One of the
disadvantages of receiving a bargain and sale deed is the reluctance of title companies to issue title
insurance for the property.
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In Illinois:
A bargain and sale deed conveys title with these warranties and covenants:
 The grantor is in possession of a fee simple estate;
 The grantor has not added any encumbrances to the title and only those, if any, stated
in the deed encumber the property;
 The grantor warrants that the grantee will have quiet enjoyment.
Quitclaim deed
The quitclaim deed includes no warranties or covenants from the grantor and so offers the grantee
the least protection of any deed. What the quitclaim deed does warrant and guarantee is that all of
the interest in the property that the grantor holds at the time the deed is delivered to the grantee,
which may be essentially no interest at all. It is conveying the interest that the grantor holds, but does
not in any way address, warrant or guarantee what that interest might be. It does not warrant that the
grantor of the quitclaim deed is the owner of the property at the time of the title transference, nor does
it warrant that the title is clear. The quitclaim deed allows the grantor to terminate or "quit" his right or
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ability to claim the property, allowing title to be transferred to a new owner. The grantee has no legal
recourse against the grantor should there be a problem with the title.
Through a quitclaim deed, a grantor may convey less than a fee simple interest in the property.
The common uses for a quitclaim deed are:
 To cure a technical defect, a problem in the chain of title or a "cloud" on the title;
 To release a claim or lien against the property;
 To function as a "correction deed" to correct an error on the warranty deed issued at the
closing, such as a misspelled name or the like;
 In an inheritance situation where there might be questions as to the validity of the decedent's
claim to title;
 To transfer property between family members, i.e. as a gift;
 In a divorce situation in order to terminate one spouse's interest in the primary residence or
marital home so that all rights and claims are granted to only the spouse receiving the property
in the divorce.
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For example:
A Quitclaim Deed will have such wording as:
…the Grantor remises, releases and forever quitclaims unto the Grantee, all the rights, title,
interest, claim or demand that the Grantor may have in the following described real property.
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Special Purpose Deeds
Through court proceedings and through the direction of a person acting in an official capacity a
special purpose deed could be required. Usually, a special purpose deed does not offer much
protection to the grantee and operates more in the capacity of a quitclaim deed.
Deed Executed Pursuant To Court Order
A deed executed pursuant to court order is statutory (created by state statutes) and is used to convey
title to property being transferred because the court has ordered the transfer. A deed executed
pursuant to court order is not executed with the consent of the owner. One of the characteristics of a
deed executed pursuant to court order is that it lists the price paid for the property.
Deeds executed pursuant to court order are:
 Administrator deeds:
o A document a court appointed administrator uses to transfer ownership from a person
who dies intestate (without a will) to the deceased person's heir(s) or next of kin.
 Executor's deeds:
o A document the estate's executor uses to convey ownership from a person who dies
testate (with a will) to the deceased person's heir(s) or next of kin.
 Sheriff's deeds:
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o A document given to the successful bidder at a sheriff's sale or an execution sale which
is held in order to satisfy a judgment that has been issued against the owner of the
property being sold.
o The grantee of a sheriff's deed will receive the type of title that the adjudged owner had.
o The issuance of the sheriff's deed begins a statutory redemption period.
Tax deed
When an owner does not pay the property taxes levied on the property, the government (usually at
the county level) has the authority to sell the property in order to collect the delinquent taxes. Usually,
the minimum bid at the sale is the amount of the unpaid taxes with the interest that has accrued on
them and any costs that have been incurred in the sale of the property. The sale is held as an
auction and the new owner/purchaser of the property receives a tax deed as proof of ownership.
Certificate of sale
A certificate of sale is issued to a buyer who purchases a property that is being sold at a tax
foreclosure sale in order to pay delinquent property taxes.
ADVERSE POSSESSION
Although ownership of property through adverse possession (aka "Squatter's Rights) may not seem
to be a form of ownership, it is a method by which ownership of property is achieved. When a person
claims title to real estate based on adverse possession, he does so without the permission or
agreement of the owner. Adverse possession is an involuntary transfer of real estate ownership; the
owner does not know that a claim is being made on the title to the property. Adverse possession
cannot be taken on property owned by a government body.
Adverse possession is a non-owning person's acquisition of legal title to real property through "actual,
open, hostile and continuous possession" of the property to the exclusion of the true or legal owner
for a period of time that is prescribed by state law. This allows a non-owning person to possess
another, owning person's land for an extended period of time and then to claim legal title to that
property. When a person claims title to a property through adverse possession, she is not required to
pay for the property, but is required to prove that she has been in actual, open, hostile and continuous
possession of the property for the requisite period of time.
The elements necessary for adverse possession must co-exist or be concurrent in order for adverse
possession to be recognized and the adverse possession claimant must prove that all elements were
established and concurrent.
The elements of actual, open, hostile and continuous:
 Actual-really living on the property:
o Actually occupying the land with the intent to keep it;
o Not a temporary occupancy or simple trespassing;
o Can be shown by building a structure, planting and harvesting crops, etc.
 Open-not secretly inhabiting the property:
o Possessing the land in a manner that is open for all, including the true owner, to see
that the adverse possessor is occupying the land;
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

o The notoriety of the adverse possessor's occupation and use are considered enough to
put the true owner on notice that the land could be lost if the true owner does not repossess the land within a certain period of time;
o Can be shown by building a structure, planting and harvesting crops, etc.
Hostile-without permission of the legal owner:
o The adverse possessor must occupy the property in opposition to the true owner's
rights.
Continuous-without a break in the occupancy:
o Occupancy must be continuous for the full statutory period of occupancy necessary in
that jurisdiction;
o This must be regular, uninterrupted occupancy, i.e. daily.
Additionally, the claimant for adverse possession must show exclusive, sole physical occupancy:
 The adverse possessor must have had exclusive possession of the property and not
possess the property jointly with the true owner (although 2 people can claim adverse
possession together as joint tenants);
 This can be shown by building a structure, planting and harvesting crops, etc.
The criteria for adverse possession vary from jurisdiction to jurisdiction. Generally, the period of time
necessary for an adverse possessor's occupancy is 20 years. The occupant must intend to claim and
hold the property and is required to demonstrate this intent by visibly and openly possessing the
property in a manner that should alert the owner of the property to the fact that the property is being
occupied and claimed.
Continuous possession and occupancy are required to acquire title by adverse possession, but it is
not necessary that the continuous possession and occupancy be done by only 1 person. "Tacking" is
a method by which the periods of possession and occupancy that successive adverse occupants
have accrued can be added together to form the requisite time period for title by adverse possession
to occur. All tacking occupants must meet the same criteria for tacking to be allowed. Should the
continuity of the occupancy be interrupted, the time will begin anew.
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For example:
Burton owned a parcel of land that was several hundred miles from his home and so he did
not visit it. He had purchased it several years earlier, when he was 22 years old, with the
intent that when he retired he would build a home on it and remain there. Since he did not
occupy or visit the land himself, he did not know that Steven had parked his RV and occupied
it on the property for a period of 10 years. At the end of 10 years, Steven's brother Tim took
over the RV and the adverse occupancy of the property. Tim occupied the property for a
period of 7 years and during that time began building a small home on the land. At the end of
7 years occupancy, Tim decided to relocate and Tim's son Eric took on the adverse
occupancy of the property and continued building the house. Three years later, Eric filed for
title to the property by adverse possession. The full 20 year statutory requirement was
fulfilled through tacking.
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A true owner could file a lawsuit, an order of trespass, etc. against the adverse possessor for the right
of ownership and possession as a way to interrupt the continuous possession. Should the true owner
enter the land intending to repossess it, this would be considered a disturbance in the continuity of
occupancy. However, the owner must be open and notorious in doing so in order for there to be no
confusion as to his intent.
While the true owner may be paying the real estate taxes during the entire time of adverse
occupancy, this does not impact the adverse possessor's continuous possession.
When the adverse possession period is complete, the adverse possessor can acquire legal title to the
property and will be considered the owner of the land.
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In Illinois:
Illinois requires that an adverse possessor continuously and uninterruptedly occupy the land
for 20 years in order to claim title through adverse possession. An exception could be made
should there be a flaw on the true owner's title which would invalidate that title and would
allow the adverse possessor to meet the statutory possession requirement in only 7 years
instead of 20.
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Lesson Five Review Quiz
T F 1. Title is the right to ownership of real estate, the actual ownership of the real estate, and is
evidence of ownership.
T F 2. The rights in the bundle of rights cannot be separately sold, leased, transferred or
otherwise conveyed as individual rights unbundled from the rest.
T F
3. The Bundle Of Rights includes possession, control, exclusion, enjoyment and disposition.
T F
4. A deed must be in writing and signed by the grantor.
T F
5. A general warranty deed provides the most protection to the grantee.
T F 6. Adverse possession is a non-owning person's acquisition of legal title to real property
through "actual, open, hostile and continuous possession" of the property to the exclusion of the true
or legal owner for a period of time that is prescribed by state law.
Answers
1. T
2. F
3. T
4. T
5. T
6. T
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