When you file for bankruptcy, you have to list all aspects of your financial situation, including all of the property that you own. If you own real estate known as real property—you’ll also be asked to disclose your ownership interest using legal terminology.
Although this seems simple, you can hold property in different ways, including:
• fee simple
• life estate
• future interest, and
• contingent interest.
Listing Real Property on Bankruptcy Forms
When you’re filling out your bankruptcy forms, you’ll need to describe all real estate that you own on Schedule A/B: Property of the official bankruptcy forms. You’ll be asked to include:
• the property address
• the property type (single-family home, duplex, condo, and such)
• who has an interest in the property
• the property value, and
• the nature of your ownership interest.
Real Property Ownership Types
Here are some common ways to own real estate.
• Fee simple: This is the most common type of interest. It is outright ownership. Even if you still owe money on your mortgage, as long as you have the right to sell the house, leave it to your heirs, and make alterations, your ownership is fee simple. A fee simple interest may be owned by one person or by several people jointly. Normally, when people are listed on a deed as the owners even if they own the property as joint tenants, tenants in common, or tenants by the entirety—the ownership interest is in fee simple.
• Life estate: This is the right to possess and use property only during your lifetime. You can’t sell the property, give it away, or leave it to someone when you die. Instead, when you die, the property passes to whoever was named in the instrument (trust, deed, or will) that created your life estate. This type of ownership is usually created when the sole owner of a piece of real estate wants a surviving spouse to live on the property for the rest of his or her life, but then have the property pass to the owner’s children. In this situation, the surviving spouse has a life estate. Surviving spouses who are beneficiaries of AB, spousal, or marital bypass trusts have life estates.
Other Important Real Property Terms
Most people will use one of the terms mentioned above to describe their real estate ownership interest. But, other situations can exist. Here are some terms that you’re not likely to need, but, depending on your circumstances, you just might.
• Future interest: This property right comes into being sometime in the future. A common future interest is owned by a person who under the terms of an instrument such as an irrevocable trust—will inherit the property when its current possessor dies. Simply being named in a will or revocable living trust doesn’t create a future interest, because the person who signed the deed or trust can amend the document to eliminate your interest.
• Contingent interest: This ownership interest doesn’t come into existence until one or more conditions occur. Wills sometimes leave property to people under certain conditions. If the conditions aren’t met, the property passes to someone else. For instance, Emma’s will leave her house to Josh provided that he takes care of her until her death. If Josh doesn’t care for Emma, the house passes to Emma’s daughter Jessica. Both Josh and Jessica have contingent interests in Emma’s home.
• Lienholder: If you are the holder of a mortgage, deed of trust, judgment lien, or mechanic’s lien on real estate, you have an ownership interest in the real estate.
• Easement holder: If you are the holder of a right to travel on or otherwise use property owned by someone else, you have an easement.
• Power of appointment: If you have a legal right, given to you in a will or transfer of property, to sell a specified piece of someone’s property, that’s called a power of appointment and should be listed.
• Beneficial ownership under a real estate contract: This is the right to own property by signing a binding real estate contract. Even though the buyer doesn’t yet own the property, the buyer does have a “beneficial interest”—that is, the right to own the property after completing the formalities. For instance, property buyers have a beneficial ownership interest while escrow is pending on property.
Community property is a form of ownership by spouses during their marriage that they intend to own together.
Under community property, each spouse owns (or owes) everything equally, regardless of who earned or spent the money. Thus, each spouse gets an equal division of real estate property in the event of divorce or death. In the United States, nine states have community property laws. Outside of real estate, personal property acquired during one’s marriage, such as vehicles, furniture, and artwork, may be deemed community property. Depending on the community property state you reside in, real estate acquired during a common-law marriage may also be held as community property.
Community property with the right of survivorship is a way for married couples to hold title to property. It allows one spouse’s interest in community-property assets to pass probate-free to the surviving spouse in the event of death.
Other Ways to Hold Title
Entities other than individuals can hold title to real estate in its entirety:
Ownership in real estate can be done as a corporation, whereby the legal entity is a company owned by shareholders but regarded under the law as having an existence separate from those shareholders.
Real estate can also be owned as a partnership. A partnership is an association of two or more people to carry on business for profit as co-owners. Some partnerships are formed for the express purpose of owning real estate.
These partnerships can also be structured as limited partnerships, where investors take limited liability by not making managerial decisions regarding management or transaction decisions. In these cases, one general partner is typically responsible for making all business decisions on behalf of the limited partners.
Real estate also can be owned by a trust. These legal entities own the properties and are managed by a trustee on behalf of the beneficiaries to the trust. There are many advantages and disadvantages to holding real estate that falls outside the scope of this article, but all have to do with benefits surrounding managerial influence and financial and legal liability, in addition to tax and beneficiary considerations.
Transferring Property by Deed
The transfer process happens by way of deed. A property deed is a formal, legal document that transfers one person or entity’s rights of ownership to another individual or entity. The deed is the official “proof of transfer” for real estate, which can include land on its own or land that has a house or other building on it.
Every deed should contain the following information:
• An indication that it is a deed
• A description of the property involved
• The signature of the individual or entity that is transferring the property
• Data regarding who is taking title to the property
As deeds do not require much information, the document itself is often very short. However, the document may also contain additional information such as the conditions or assurances that go along with the transfer. Each deed must also be validly delivered to the individual taking ownership of the property. In most situations, it should also be filed with the appropriate authority as well. Every real property transfer will require the use of some type of deed. It is important to use the legal description of the property for the deed so that it can be recorded accurately.
There are several types of deeds. Each type varies based on the warranties provided to the grantee. Different varieties of deeds provide varying levels of title. Deeds help show ownership of the property. However, the deed itself is really only used for transfer of the property. The real “test” of whether you have ownership of a property is based on whether your name is on the title. When you have a title to a property, you also have various other rights that go along with property ownership, including the right to:
• access and occupy the property;
• place encumbrances on the property (i.e. mortgage);
• the property as you wish within legal bounds; and
• transfer the property in whole or in part.
Often, titles will be in more than one person’s name. For example, if a married couple owns their home together, both of their names will often be on the title for the property. When this occurs, each spouse generally holds a one-half interest in the property. That also means that the property cannot be transferred without both spouses’ permission.
The Importance of Having Good Title in Real Property Transfers
As property is held in such high regard in the Utah, having a good title is critical when you transfer property.
Every time a property is transferred, it is recorded in a public way, usually with the County Recorder’s office in your area. When a property is not recorded properly, there may be “holes” or “gaps” in the title. These deficiencies make your ownership questionable because it is unclear whether the person who received the transfer after a gap did so validly. That is, the person transferring the property may not have had the necessary ownership rights to assign it.
These concerns about titles lead to products such as title insurance, which will indemnify losses related to defects in the title to real property. Problems associated with the title become particularly relevant if there are encumbrances or debts that you are unaware of or did not agree to.
General Warranty Deed
A general warranty deed is often considered the most common way to transfer real property. It is used when you are aware and confident that the title to your property is good and marketable. It is most commonly used for residential real estate transactions. A general warranty deed is a buyer’s best protection against title challenges. The guarantee not only applies to the seller, but it applies to all of the individuals or entities involved in the chain of title for that particular property.
By providing a general warranty deed, you are also positively asserting that there are no debts or liens on the property. This concept may be confusing for some homeowners because they have a mortgage on their home. However, when you sell your property, your mortgage is often paid off with the proceeds of the sale, and may even transfer to a new property that you purchase. This is part of the covenant to convey free of encumbrances.
A general warranty deed also includes several other covenants that are built into the guarantee.
• Covenant of Seizing: This promise assures the buyer that the grantor has the right to the entire property that he or she is conveying. Generally, this applies to the quality and size of the asset transferred.
• Covenant of Quiet Enjoyment: A property owner is entitled to enjoy his or her property free of disturbances or challenges to his or her ownership. The covenant of quiet enjoyment assures the grantee that he or she will not be challenged by someone that is alleging to have a superior title or a lien on the property.
• Covenant to Defend Title: Arguably the most important covenant, the covenant to defend title includes a promise that the grantor will help the grantee if anyone does challenge the title to the property. That is, the grantor will provide a defense to all claims that contest the title and compensate the grantee for any damages or losses associated with that claim. The most common examples of a title challenge often include claims of previously unknown heirs, lenders, or lienholders, including mechanics’ lien holders and tax liens.
Quit Claim Deed
Unfortunately, not every property can be transferred with a general warranty deed. There are often many unknowns for property transfer that could create problems for a title. In those situations, using a quit claim deed may be appropriate. While a quit claim deed still conveys the owner’s total interest in the property, it contains no warranties regarding the title. That is, there is no assurance that the title the owner holds is valid and marketable. That means that the deal only transfers whatever rights of ownership that the seller has at the time of transfer. In most situations, the owner does have a valid ownership interest in the property, but still does not want to provide the warranties afforded in a general warranty deed.
Quit claim deeds can be concerning, but they are often the fastest means to transfer property. They essentially deal with potential title defects by avoiding addressing them altogether. Many title insurance companies will be reluctant to provide title insurance related to real property that is conveyed by quit claim deed.
Quit claim deeds are used most commonly in situations where:
• there is some uncertainty about whether a particular heir could claim title to the property;
• a party may have acquired the property through adverse possession;
• family members are transferring property between one another;
• you are transferring property into a trust;
• there has been a division of property, often related to divorce or business dissolution, wherein one member of the partnership transfers property to the other; or
• there may be some remainder interest in the property, but the owner wants the holder of the interest to disclaim their interest.
If you are considering purchasing a property through a quit claim deed, it may be helpful to ask the seller why he or she is using a quit claim deed as opposed to a general warranty deed or special warranty deed. The rationale may be something simple, or it could trigger red flags that may require you to rethink the purchase.
Of course, it may be a good idea to simply avoid these types of deeds unless you have significant trust in the seller or his or her title. Special considerations for title insurance may be necessary as well.
Part of the buying process includes an investigation into the title of the property. When you do not know the seller, this inquiry is often conducted by a real estate attorney. The attorney will determine the legal status of the seller, which is particularly relevant when the seller is a business or trust.
The Ascent Law firm attorney will put together what is commonly referred to as a “property abstract.” An abstract details the ownership record of a particular piece of real estate and provides information about whether the title may have any potential issues from a legal perspective. The abstract will go back as far as possible, using public and government records. In states that use title insurance, property abstracts are less common. They may not be used at all in other states. Regardless, it is useful information to have if it is available to you; if nothing else, it provides peace of mind knowing you have a good and marketable title in your real estate.
Create a Deed or Deed Transfer
You may not need to involve an attorney to create a particular deed if you already have all the information. This is especially true if you are transferring property between family members or into or out of a trust.
Ascent Law Firm Attorney provide several real estate forms that can help you transfer property validly in your state. Our deeds, including general warranty or quit claim deeds, are drafted by our team of lawyers to meet legal requirements in your state. Every document is backed by our industry-leading, 100% satisfaction guarantee.
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