Page 1 - Property and Ownership Laws Study Guide for the Real Estate License Exam
When you work in real estate, you provide a professional service to the general public in the same way that a doctor or lawyer does. Both the federal and state government hold you accountable for understanding and following laws that relate to real estate. Real estate agents that don’t follow the rules can end up being sued for making even an innocent mistake. Always be sure to read and understand the real estate laws of the state in which you work.
Basic Real Estate Law
Over time, common laws have evolved that govern the practice of real estate. They include property, estate, and tenancy laws, as well as procedures by which the government can forcibly take real estate from a property owner.
There are several different types of property in real estate, the most common types being land, houses, and buildings. Some types of property go with the land when it is sold, while other property types stay with the seller. Some property can be seen and touched, while other property isn’t visible to the naked eye—but it is property nevertheless.
Real and Personal
Real property is land and anything attached to the land that can’t be moved. Personal property is something that can be moved. But be careful, because sometimes personal property is considered to be real property even if it is easy to move.
Fixtures are an example of property that can be real or personal. Even though items like draperies and plumbing hardware can technically be moved, they are usually considered to be fixtures—items affixed to the real property—which means they transfer to a buyer. Sellers who want to take fixtures with them should state this clearly in an addendum to the real estate contract so that there is no misunderstanding between the parties.
Annexation is another word for joining one thing to another. Actual annexation means an item is affixed to the real property. Constructive annexation is when something isn’t actually affixed but is still understood to go with the property. Using our above example, the curtains hanging on a curtain rod would be an example of constructive annexation, while the rod itself would be actual annexation.
Tangible and Intangible
Tangible property is something that is physical, such as a house or a building lot. Intangible property is something that cannot be seen or touched. For example, the mortgage debt on a house is intangible property to the lender.
Estates in Land
An estate in land is an ownership interest. However, there are different degrees of ownership interests and different types of estates. Some interests can be transferred at will, while other estates in land have restrictions on how, or even if, they can be transferred from one party to another.
A freehold estate is ownership in land. There are two things that define a freehold estate: (1) The asset is immovable or fixed. (2) There is no fixed time limit or duration in which the land can be owned. Freehold is the highest possible ownership interest of real property.
Inheritable—An inheritable estate is one that is fee simple. The person that holds a fee simple estate also owns all of the legal property rights forever. This includes passing those rights to another party through the process of inheritance. When someone inherits a fee simple estate, they also inherit all of the rights to the real property.
Noninheritable—Other types of estates are not inheritable. These are fee simple defeasible and fee simple determinable estates. For example, a life estate is when the ownership only runs for the life of the owner. When a life estate ends, the property automatically transfers to a remainderman (in other words, the owner of a life estate cannot choose who the property transfers to). A pour autre vie estate is when somebody owns an estate only during the time when another party is alive.
A tenant renting property from a landlord has a nonfreehold or leasehold estate, while the landlord has a freehold estate. A nonfreehold estate is created with a lease or rental agreement and is also noninheritable.
Estate in Land Rights
The holder of an estate in land also has the rights of ownership. These land rights are known as a bundle of rights that give the owner the legal right to do with the land as he or she pleases.
Use and disposal—Possessing and controlling how the land is used are included in the bundle of land rights. The land may be used by the owner or by a tenant of the owner. The owner may dispose of the land, which is another way of saying the owner can sell the land to whomever he or she chooses, or transfer it through inheritance.
Interest rights—Interest rights in real estate refer to the extent that one party can use the rights of another. For example, a tenant with a lease has limited rights to use the real property of the owner during the term of the lease, but the tenant cannot sell the property. If there is not a written lease or agreement, these interest rights are under a tenancy at will that can be ended at any time by the tenant or the owner.
License to use—A license to use is a written authorization by a landowner granting access through the real property or to do something on the property. A license to use is revocable, meaning that the landowner can take away the authorization.
Formation of Estates in Land
Estates in land are real property interests that are possessory, or that may become possessory, either on purpose or by accident. There are five ways to form an estate in land. The three intentional methods are by will, by descent, and by voluntary alienation. Involuntary alienation and adverse possession are the two ways that land estates can be formed unintentionally, or by accident, yet still be legally binding.
A will can be used to dispose of—or to devise—real or personal property. This is also known as a testamentary disposition because the donor is gifting its property with a last will and testament.
Descent refers to hereditary succession. This happens when an heir acquires real property due to the death of an ancestor or family member. An example of this is dower laws or dower rights, where the surviving spouse receives the property of the deceased spouse.
By Voluntary Alienation
Alienation takes place when real property is disposed of. This occurs voluntarily when property is transferred intentionally by the owner. Voluntary alienation can occur through an outright sale, by a gift or dedication, or by a grant.
By Involuntary Alienation
Involuntary alienation occurs when an owner’s property is legally taken without the voluntary or willing consent of the owner. Foreclosure is a common form of involuntary alienation. Another one is eminent domain when the government takes property from an owner (with compensation) for public use such as building a road. A third type of involuntary alienation is called escheat. This occurs when someone dies without heirs and the real property goes to the state.
By Adverse Possession
An involuntary transfer of an estate can also occur through adverse possession. This happens when one party uses the property of another for a certain amount of time. The five elements of adverse possession are: (1) open or obvious, (2) notorious, (3) exclusive to a single possessor or party, (4) continuous and uninterrupted, and (5) hostile or possessed without verbal or written agreement of the owner.
In ownership law, the word tenancy is different from tenant. While a tenant rents and has a leasehold interest in a property, tenancy refers to a common property that is owned by one, two, or more individuals or entities. These owners have an undivided interest in the real property, meaning that even though they own the property with others, each owner has the equal right to use and enjoy the entire property.
Tenancy in Severalty and Tenancy in Common
Tenancy in severalty is another way of saying that only one person or entity owns the entire property, as opposed to several owners. Tenancy in common refers to shared ownership where each owner has a separate, distinct ownership interest they they can transfer to another party.
Joint tenancy is similar to tenancy in common, except that when one party dies, that party’s ownership share transfers to the surviving parties. Because of this, joint tenancy can also be thought of as having a right of survivorship.
Tenancy by Entireties
Tenancy by the entireties is a concurrent estate held by husband and wife, both of whom own the undivided whole of the property. It also includes the right of survivorship, so when one spouse dies the survivor gets the deceased’s share. Unlike a tenancy in common, neither spouse can sell his or her share of a tenancy by entireties interest.
Community property is a form of joint ownership between married couples. It is currently the legal form of ownership in nine states. Property acquired during a marriage is community, and upon death, annulment, or divorce, the community property is divided equally between the parties, or heirs in the case of death.
With condominium ownership, separate units are owned individually while the land and common areas such as parking, greenbelts, and swimming pool are owned jointly by all of the owners. Condominium owners pay monthly dues, and sometimes special assessments, to the homeowner’s association or condo association to maintain the jointly owned common elements.
Unlike condominium ownership, cooperative owners own shares of stock in a corporation that owns all of the units and common areas of a building. Each share of stock gives that cooperative stockholder a proprietary lease for a specific unit to live in.
Tenancy at Will
Also known as an estate at will, this type of tenancy is unwritten and can be terminated at any time by either the tenant or the owner. Usually, the length of the tenancy or the exchange of payment is not specified in a tenancy at will.
Tenancy at Sufferance
A tenancy at sufferance allows a renter to live on the property between the time the lease has expired and before the landlord demands the tenant vacate. During a tenancy at sufferance the original lease terms, including payment of rent, must be adhered to.
Many states have homestead laws that protect a resident’s home from the claims of unsecured creditors, including those arising from a resident’s bankruptcy. When an owner dies, a probate homestead is set aside by the court for immediate family members. It is treated separately from other real property of the deceased and is free from any claims of liabilities or debts the deceased had.
Estates come with bundles of rights, including the rights to possess, the rights to use and enjoy, and the rights to to control and exclude. However, those rights are not absolute. In this section, we’ll discuss the legal limitations on property owner’s rights.
An easement allows one or more parties to cross an owner’s land for a specific purpose. An appurtenant easement is a right to use adjoining property—for example, to reach a road or lake—that transfers with the land from one owner to the next. An easement in gross is limited to the life of the owner or to the life of the holder of the easement. An easement by prescription is created by open, notorious, uninterrupted, hostile, and adverse use—similar to how an estate by adverse possession is created. With this type of easement, the owner has not given its permission and the user of the easement has not asked for permission.
Access—Access in real estate means one property owner can access an adjoining owner’s property for the benefit of the first property owner. Access can be temporary (for example, to trim trees), or it can be longer term as in the case of an easement.
Utility—Utility easements are usually created when a property is originally platted. These easements are used by utility companies to provide telephone, electric, water, and sewer service for the public good. Utility easements can be below and above ground, as in the case of power poles.
Drainage—A drainage easement gives a city or municipality limited access to an owner’s property to control storm water and water flow. Ditches, dams, retention basins, and flood control channels are examples of how drainage easements on private property can be used.
A restrictive covenant keeps an owner from doing something to its land that will diminish the value and enjoyment of adjacent properties. Not allowing the owner of a residential lot in a subdivision to build a factory is an example of a restrictive covenant.
Liens can also impose limits on the rights of an estate. A mortgage lien limits the right of an owner to dispose of a property by requiring the mortgage note to be paid. A property tax lien and a lien by a homeowner’s association are two other liens that can also limit an owner’s right to use, enjoy, and dispose of the property.
The two types of water rights are riparian and littoral. Owners of land that borders moving surface water from a river or stream have riparian water rights to use the water as allowed by law, and the ownership of the land goes to the middle of the stream or lake. Littoral water rights concern real property bordering an ocean, bay, or lake. The owner’s land extends to the high tide or high water mark only.
Accretion and Erosion
A parcel of land can increase in size from accretion and decrease in size from erosion. A moving body of water that deposits sediment or changes course in a way that adds land is an example of accretion. Ocean waves that erode or destroy part of the land that a beachfront property sits on is an example of land decreasing in size due to erosion.
Title refers to ownership but not necessarily possession, as in the case of legal versus equitable title. Title documents are also used for motor vehicles and intangible property such as software.
In real estate law, title also refers to the bundle of rights that come with a property. These are the rights that give an owner legal interest, equitable interest, or both, in a property. The deed is the legal instrument used to transfer title or the bundle of rights.
Recordation means that the deed is put into the official records of the County Recorder or the Deeds Office. Other recorded documents that can affect real property title include mortgages, easements, judgments, liens, and notices of foreclosure.
Government Acquisition of Real Estate
Local, state, and federal governments can also take real estate for the public good, protection of the environment, or economic benefit of the general population. When governments acquire real property from an owner, they compensate the owner for what the government believes is the fair market value of the property being taken, as determined by an appraiser.
When the government takes private property for public use and pays the owner compensation for the property, the government is exercising its right of eminent domain. As the word eminent suggests, the government has superior domain over the rights of the individual owner.
In common law, escheat transfers property of an owner who dies without heirs to the state. This transfer is done so that a property does not lie in limbo and ensures a continuous chain of title or record of ownership.