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The AR Group

How to Title Your Title: Understanding Differences in Property Ownership

By Vanessa Barnett

You and your partners may own a profitable commercial building in downtown Denver, or may have a ski house in Vail, a primary residence in Boulder, or vacant land in Elbert. But do you know HOW you own that property? If you don?t know how you own your land, you are not alone. Most people, even many ?investors?, don?t understand that there is more than one way to own land, and each has its advantages and drawbacks.

Sole Ownership or Tenancy in Severalty: Despite the name, it means an individual or corporation owns the complete and total property by itself. The benefit is that the sole owner is the sole decision maker about the property and can lease, sell, pledge or encumber the property as s/he sees fit. A potential downside is that the sole owner is also responsible for real estate taxes and the property is at risk from the owner?s creditors.

Tenancy in Common: Equal or unequal undivided ownership of the property by two or more owners. This type of ownership is beneficial for investment properties and when unmarried couples buy property together. A tenant in common has all of the same rights as sole ownership, except subject to the co-owner?s rights. So, for example, a judgment creditor lien will only attach to that portion of the property subject to the lien. While a tenant in common can lease, sell, pledge, or encumber his/her portion of the property, practically speaking it is difficult to find a tenant, buyer, or lender for only a portion of a property. Also, co-owners will often have a difference of opinion as to how to manage or use the property. Because property use conflicts can lead to costly lawsuits, co-owners are strongly encouraged to have a co-tenancy agreement drafted to deal with common and reasonably anticipated issues before they arise.

Tenancy by the Entirety: Only available in certain states, this is a form of ownership that is only available to married couples, or in some cases, domestic partners. Each spouse is deemed to own 100% of the property and the property may not be sold without the agreement of both parties. The right of survivorship exists so that if one spouse dies, the other spouse becomes the sole owner. If the spouses divorce, the property reverts to a joint tenancy.

Property held in this form cannot be reached by a creditor of only one spouse. A creditor would need to have a judgment against both spouses to force a sale of the property. The sole exception to this protection is from the IRS.

Joint Tenancy: Often called a ?Joint Tenancy with Right of Survivorship?, this type of ownership means that when one tenant dies, that owner?s interest reverts to the other owner or owners automatically. This type of ownership has several variations among the states as to the specific rules pertaining to this type of ownership. Joint tenancy is often used to avoid probate, as upon the death of one owner, the property automatically reverts to the remaining owner(s). However, holding title in this manner often undermines the deceased?s intended estate planning by transferring title in contravention of a will, or passing to one child to the exclusion of other children. Joint tenancy in Colorado can also cause a loss in Medicaid eligibility unless done properly. Property owned in this manner is subject to the creditors of all of the joint tenants. Accordingly, a judgment against only one owner could force the sale of the entire property.

SMART TIP: The time to begin to consider the form of ownership for a real estate purchase is well before Closing. Remember to consider the pros and cons associated with different ownership forms in light of your business, personal, and estate planning considerations.

At the AR Group, our attorneys will work with you to provide a comprehensive overview of your ownership structure and your assets to assist you with the purchase or sale or land, assistance with a co-tenancy agreement, or any of your commercial or residential real estate purchases.