TITLE INSURANCE

Title Insurance

You can't own a home without it

By M. Anthony Carr

Did you know that Abraham Lincoln lost his house twice because of cloudy title? It's true. First American Corporation, which is one of the country's largest title insurance underwriters, reports about the losses on its website and in a promotional brochure about the dangers of not having a clear title to land.

When it comes time to finish the paperwork for your first piece of real estate (investment or otherwise) you're going to find out that many trees have lost their lives because of the paper shuffled back and forth to buy, sell, rent, insure, list, survey and record real estate.

There's a lot of paperwork required in real estate. You eventually need to understand what all these papers mean that you're signing. The most important piece of paper, however, is the deed. The deed, as defined by the Land Title Institute is "an instrument, of various forms, by which title to real estate is conveyed from one party to another." Since Abraham Lincoln didn't have "clear title" to the land, it was pulled out from underneath him and his family.

There are several ways you can hold title to a property. Just like the title on a car, you must also have a title to the land and home that you have purchased. To take title, you must declare the form of ownership in one of several ways. Each state governs how property can be held within its boundaries, so there may be other ways to hold title than just the three discussed here.

Joint tenancy,
Tenancy in common, or
Tenancy by the entirety

Which is best? Well, they each offer various advantages and disadvantages, depending on your particular circumstances and how you want the property to pass if you die, sell it or get a divorce (for married owners). After the transaction is completed, the settlement attorney records this transfer of the deed at the courthouse to prove to all around that you are the rightful owner of the property. There are several ways to hold title to a property. The American Land Title Association defines these titles as thus:

Joint tenants
Two or more persons who hold title to real estate jointly, with equal rights to share in its enjoyment during their respective lives with the provision that upon the death of a joint tenant, his share in the property passes to the surviving tenants, and so on, until the full title is vested in the last survivor. A joint tenant cannot legally sell or encumber his interest without the consent or joinder of all of the other joint tenants.

If you partner with two other people to purchase a house, this may be one method of title. If one dies, title remains in the surviving joint tenant without required further action. This means if you die, you cannot leave your share to your heirs. Joint tenants are not married, thus not treated as one legal entity. If an owner wants out of the title, he or she may petition the court to divide the property or order its sale. The property can also be divided if a judgment creditor petitions the court to collect the judgment from one of the owner's shares.

Tenants in common
Two or more persons in whom title to a single piece of real estate is vested in such a manner that they have a common or equal right to possession and enjoyment of the property, but each holds a separate individual interest or estate in the property. Each owner may sell or encumber his respective interest or dispose of it by will, and if he dies without leaving a will, his heirs inherit his undivided.

Some state laws presume tenants in common unless the deed specifies otherwise. In this case, if one owner dies that share does pass to his or her heirs, not necessarily the surviving owner. Unmarried property owners usually use tenants in common. A tenant in common may sell his interest without approval of the other owner and, unless specified otherwise, the law assumes you meant to have equal ownership.

Estate by entireties
An estate or interest in real estate predicated upon the legal fiction that a husband and wife are one person. A conveyance or devise to them (unless contrary intent is expressed) vests title in them as one person. Upon the death of either husband or wife, full title passes to the survivor.

Tenancy by the entirety may only be possible when the joint owners are husband and wife. This type of title provides for a common law right of survivorship, which means property goes automatically to the surviving spouse. No will, probate or other legal action is necessary, thus one spouse can not use a will to leave an interest to someone else.

This form of title follows the ancient legal theory that a married couple is one entity. Conveyance of the property must be done together and the property cannot be divided without the other. If a divorce occurs, tenancy by the entirety automatically converts to tenants in common.