Tenancies in Deeds – How to take Title
When you buy real estate in Maryland, you receive a deed establishing the title to your property.
A properly drafted deed should contain the “tenancy” of the buyer(s), which is how they hold title to the land. If the deed states no tenancy, there can be severe consequences.
There are several ways to hold title – sole ownership, tenants in common, joint tenancy, and tenancy by the entirety.
When there is only one purchaser, an individual can only hold the title as a sole owner: no other individual shares the title with them in this case. Thus, a title can transfer without consulting any other individuals. However, if the sole owner dies or becomes incapacitated, complications may arise that require legal representation.
Another form of tenancy, tenancy in common, arises when multiple individuals take title to a property. While two cotenants can each hold 50% ownership, it is also possible that cotenants can have unequal shares.
They can also “pass” title to their heirs through the decedent’s representatives but are subject to inheritance taxes. The property interests of each cotenant are subject to liens and judgments filed by their creditors.
Joint Tenancy is a form of co-ownership where two or more persons own the property at the same time, in equal shares. Each joint owner has an undivided right to possess the whole property and a proportionate right of equal ownership interest. When one joint tenant dies, their interest automatically passes to the surviving joint tenant(s). This is often used in estate planning to avoid estate issues such as probate costs and other delays when a joint tenant dies. There is however a presumption against a Joint Tenancy, and the intention to create one must be explicit in the deed stating “…as joint tenants with rights of survivorship”. In addition, to create a valid Joint Tenancy, the following four unities of interest must be present:
- Unity of Time: the interests of all joint tenants have to vest or arise simultaneously.
- Unity of Title: the same deed outlines the interests of all joint tenants.
- Unity of Interest: all joint tenants have equal interests.
- Unity of Possession: all joint tenants have equal and concurrent rights to possess the property.
It is essential to understand that joint tenancy can be “severed” or extinguished and converted into a tenancy in common by any joint tenant acting individually. Also, the interest of any joint tenant is subject to the claims of their creditors. If a creditor obtains a judgment and executes on the joint tenant’s interest, the joint tenancy converts to a common tenancy for that co-owner and can open the property up to a sale in lieu of partition to satisfy the judgment.
Tenants by the entirety are comparable to Joint Tenancy as it enjoys rights of survivorship; however, to married couples exclusively. Unlike joint tenants, neither spouse can transfer their half to someone else without the other’s approval, but title vests automatically in the surviving spouse upon death. A tenancy by the entirety is destroyed and converted to a tenancy in common upon the parties’ divorce.
The conversion to a tenancy in common allows judgment creditors of each former spouse to attach liens to the property. Property held as tenants by the entireties is free from claims of creditors of one spouse, except for Federal Tax liens. However, divorce changes the tenancy to a tenancy in common and opens the property to judgments and liens against either former spouse.
Understanding the various tenancies is essential to properly transfer title and protect the parties. A mistake can be costly from a tax perspective or even lead to the wrong party becoming vested with the title. Therefore, it is essential to discuss tenancy with buyers to avoid future problems.
This article originally ran in the March 2022 Chesapeake Real Producers.