Remember what we discussed in regards of who holds title to a parcel of real estate in the Nature and Description of Real Estate post. If you own real estate, you have the rights of possession, control, enjoyment, exclusion, and disposition. Your rights and interests in real estate property are not absolute though. There are certain rights that are kept by the government. The crazy thing is even your ownership rights has restrictions, depending on the type of interest you hold. Or even the rights of third parties can restrict your own rights as well. Let’s hop into different types of estates in land, liens on the property, and easements as well that you may be subject to.
Let’s do a slight history lesson before go a little further.
Historical Background of Real Estate Ownership
Under English Common Law, the government or king held the title to all the lands under the feudal system of ownership. So in essence, the overlord controls your rights to use and occupy any real property. So you’re only like a tenant . I wouldn’t want to be living in that world. Therefore, people protested against it and caused social reforms around the 17th century. This caused an evolution from the feudal system to the alloidal system of ownership. This is where you’re entitled to property rights without being subject to control.
The United States is under the allodial system. The Bill Rights of the US Constitution establishes private ownership of land free from the burdens of the feudal system.
Governmental Powers
You, as a landowner, have great amount of rights in the land you own. But your rights are subject to the government’s rights and powers, at each level. The government’s limits on your interests are supposed to be for the general welfare of the community. At times most wonder, what they’re actually doing though. But police power, eminent domain, taxation, and escheat are some avenues that the government operates.
Let’s break them down a little further.
P.E.T.E.
- Police Power. So under police power, every state can establish laws to protect order, public health and safety. So your right for use and enjoyment gets affected by this. What this affects include zoning and building ordinances that regulate the use, occupancy, size, location, construction and rents of real property.
- Eminent Domain. This is when the government acquires private land for public use. The action itself is called condemnation. Two conditions got to be met: (1) the proposed use must be declared by the court, and (2) fair compensation must be paid to the owner. This right is given to like redevelopment authorities, as well as railroad and public utility companies. If you believe the government has negatively affected your property value, you can take legal action for compensation. Inverse condemnation is its name.
- Taxation. Government need money to operate. Everyone needs money to operate in this world, but one way the government raises money is through taxes.
- Escheat. When the owner dies without a will and has no known heirs, the property becomes ownerless. These properties transfer to the state or the county where it’s located.
Estates in Land
Your extent of ownership interest and even the character of it, is your estate in land. Now these are split into freehold estates and leasehold estates.
Freehold Estates
Any estates that may be for an indefinite time, existing for a lifetime or longer are freehold estates in land. This includes (1) fee simple absolute, (2) fee simple defeasible, and (3) life estates. So, fee simple absolute and defeasible fee estates continue for an indefinite period. Life estates in land though end after the death of the person who’s life its based on.
Let’s break these down a little more.
Fee Simple Absolute
Your most complete type of interest in real estate is the fee simple absolute. This is when you, the owner, are entitled to all rights of property ownership. Also because its duration is unlimited, it passes to the heirs after the owner’s death. But you can’t escape the government! So, you’re still subject to them.
Fee Simple Defeasible
A fee simple defeasible, is a fee estate in land that can be inherited. You might even hear this being called a qualified fee or conditional fee. However, this estate is subject to the occurrence or nonoccurrence of a certain event. And this is further broken to two types: (1) an estate subject to a condition subsequent and (2) an estate qualified by a special limitation.
Fee Simple Defeasible Qualified by a Condition Subsequent.
This means that the new owner can’t do some type of action or activity. So, this gives the new owner the right of reentry just in case this new owner breaks the condition. Yes, that’s right, the former owner can retake possession of the property through legal action.
So conditions in a deed are different from restrictions or covenants. And this is solely because of the grantor’s right to regain ownership. This right doesn’t exist in private restrictions.
For example, if a deed transfer for a parcel says that the transfer is made on the condition that no alcohol is consumed on the premises. So, if alcohol does get consumed then the former owner does have the right to reacquire full ownership.
Fee Simple Defeasible Qualified by Special Limitation.
So this estate ends automatically if the current owner fails to comply to the limitation. This is without even reentering the land or going to court. For example, if I grant a church some of my land as long as the land is used for religious purposes, its considered a fee simple determinable. The church now has the full bundle of rights possessed by the owner. But it comes with one string attached. If the church, uses it for non-religious purposes then the property automatically goes back to the original owner.
Check the image below for reference.
Conventional Life Estates
If you have a life estate in land, then it its limited to the extent of your life or some other designated persons. This estate can’t be inherited though, because this estate finishes when you’re dead. If you’re the owner of a fee simple estate, you can grant a life estate to someone. That estate would be limited to the life of the tenant, in essence, the life tenant.
When creating a life estate, the original fee simple owner has to consider the future ownership of the property after the life tenant’s death. So the future ownership may actually take one of two forms:
- Remainder Interest. If the deed or will creating the life estate names a third party or parties, then this third party is said to own the remainder interest.
- Reversionary Interest. If the creator of a life estate in land does not transfer the remainder interest to a third party or parties, then when the life estate owner dies, the full ownership goes back to the original owner. So if the original owner has died, then it reverts back to the heirs or devisees set in the will.
Legal Life Estates (Statutory Estates)
Legal life estates in land are created by state law. It’s broken to curtesy, which is a husband’s life estate in the real estate of his deceased wife. Likewise, dower is the life estate that a wife has in the real estate of her dead husband’s. Now a dower or curtesy interest means that after the death of the owning spouse, the surviving spouse now has a right to either one-half or one-third interest in the real property. This only becomes effective after the death of a spouse.
The interesting thing is that curtesy and dower rights have been abolished in many states and replaced by the Uniform Probate Code elective share rules. Now under this, the surviving spouse gets a share of the property regardless of provisions made in the deceased spouse’s will.
As a result, its important for both spouses’ signatures on every listing and contract agreements because of any possible future interests.
Homestead
There are some more interests in real estate created by state law like homestead and community property. So a homestead is a tract of land owned and occupied as the family home. There are states that have homestead exemption laws, where a portion of the value is protected from judgement debts. Some states require you to file a declaration of homestead. This should be looked at to see if it provides value for you as an owner. There are some states that the homestead exemption relieves you from property taxes on a portion of the value of the home. In most cases, a homestead exemption is really just an operative against unsecured judgement creditors. This has no effect on the claim of a mortgage lender where your property is used as collateral or governmental claims on unpaid property taxes. Find out more here: Homestead Tax Exemptions.
Community Property
All property, real and personal, acquire by either spouse during the marriage is community property. So, if you want to transfer or put a charge on community property, you have to get both spouses to sign. Now if one spouse were to die then the survivor owns half of the community property. While the other half gets passed on based on the will of the deceased spouse.
So if the deceased died without a will, then the other half is inherited by the survivor or the deceased’s other heirs. That all depends on state law. Community property originated in Spanish Law and has been adopted by many U.S. western and southwestern states. Now if your state has adopted community law, there are properties that are not subject to it. If you bought a property prior to marriage or you got property through gift, devise or descent during marriage, then it doesn’t count. They call these separate property.
Leasehold Estates
So a leasehold estate is one of predetermined duration. Through a lease, the owner transfers the right to exclusive possession to the tenant. This is within a specific period of time. Even though the tenant has a leasehold estate, it doesn’t qualify as an estate of ownership.
Encumbrances
Now, if you have a charge or burden on the property which can diminish its value or just obstruct its use, but doesn’t prevent its transfer of title, then its called an encumbrance.
There are two general classifications: (1) money encumbrances or liens, which affect title, and (2) non-money encumbrances, which affect the physical condition and use of the property.
Liens
When your title has a money claim or charge, where you your property was made security for the performance of some act, which is usually the payment of a debt, that is called a lien. The thing about a lien is that it allows a creditor to force the sale of a property that was given as a security by a debtor to settle a debt in case of default. Now liens can be voluntary or involuntary and further classified into specific or general.
Voluntary Liens
A lien is voluntary when, for example, you as the owner of the property agree to use the title to real estate as security for a debt. So, like a mortgage lien.
Involuntary Liens
A lien is involuntary when, the lien is placed on the title to real estate by like a court order or by statute. Which is against the expressed will of the owner. Some good examples of these are real estate tax liens and court ordered judgement liens.
Specific Liens
Specific liens work like this. They are liens that are secured by one or more specific parcels of real estate. They include mortgages, taxes, special assessments, liens for public utilities, mechanics’ liens, vendees’ liens, vendors’ liens, surety bail bond liens, attachment liens, and execution liens.
General Liens
General liens works just as they sound. These liens affect all of the debtor’s non-exempt property, both real and personal. Included in this are real and personal property, state inheritance taxes, federal estate taxes on a decedent’s estate, and franchise taxes levied against corporations.
Real Estate Tax Liens
We already know, that state and local governments have the right to impose taxes on property owners. Property taxes usually have priority over other recorded liens. So, if the court orders a sale of the property to satisfy debts then outstanding real estate taxes will be paid from the sale proceeds first. Real estate taxes are typically divided into (1) general real estate tax or ad valorem tax and (2) special assessments or improvements tax.
General real estate taxes are imposed for the general support or operation of the governmental agency that authorizes the tax. The reason its called ad valorem is cause the mount varies in accordance with the value of the property being taxed.
Special Assessments are special taxes. They are imposed on real estate that require the owner to pay for municipal improvements that benefit the real estate they own. You probably seen these around. I mean these taxes are often used to pay for street lighting, curbs, public sewers etc..
Mechanics’ Liens
Now if you’re a contractor and you’ve helped a homeowner add an addition to their house, but you haven’t received payment, there’s a statute on your side. It’s called a mechanic’s lien. This is a right granted by statute to give security to those who perform labor and furnish materials for the improvement of real property. All of this is based on the enhancement of value theory. The parties who performed the work or even supplied the materials are given that right of lien on the real estate on which they worked as security for the payment of proper charges. This makes a mechanic’s lien a specific, involuntary lien.
The only way to qualify for one is that, the work completed has to be done by contract with the owner. Generally, a person claiming this lien must record it within a limited time after the work is completed.
Now the point when the mechanic’s lien attaches to real estate varies by state law.
Judgement Liens
So, a judgement is final order or decree of the court. When you recorded it, it becomes an involuntary, general lien on all nonexempt real and personal property. This is in the county the real estate is located that is possessed by the debtor or acquired as long as it is effective. If a money judgement that was awarded by the court is failed to be paid by the debtor, then the creditor can force payment through the sale of the property. Now the court will issue a write execution. This authorizes an officer of the court to seize and sell the debtor’s property. You do this to satisfy the judgement. There’s another lien put on the title. This is the execution lien. This lasts from the time the writ of execution is issued until the debtor’s property is actually sold.
Because how long things can take, a notice called the lis pendens is recorded. This gives constructive notice to all interested parties of a creditor’s possible claim. To prevent a debtor from transferring title to unsecured real estate (real estate that is not mortgaged or encumbered) while a court suit is being decided, a debtor can file a writ of attachment. With this writ, or attachment lien, the court has custody of the property until the suit is concluded.
Non-money Encumbrances
Although all liens are encumbrances, not all encumbrances are liens. For example, non-money encumbrances are those that affect the physical condition or limit the use of real estate. These are typically classified as easements, deed restrictions, licenses, or encroachments.
Easements
An easement is really the right acquired by one party to use the land of another party. This is for special purpose though. Now its even possible to have an easement right in the air above the land. So because an easement is a right to use land, it is classified as an interest in real estate. But this is not an estate in land. The easement holder only has a right. This is right is either an appurtenant or in gross.
Easement in Appurtenant
So an easement appurtenant, is an easement that is annexed to the ownership and used for the benefit of another party’s land. For example, you may only have access to your property through another party’s land. For this type of easement to exist, there’s got to be two tracts of land owned by different parties. Now the tract over which the easement runs is your servient estate. The tract that is to benefit is your dominant estate.
Easement in Gross
Now an easement in gross is more a personal interest in or right to use the land of another. For example, commercial easements in gross include the easement right of a utility company has for its pipeline or power lines. It may be assigned, transferred, or inherited. Similarly, a personal easement in gross is granted for their lifetime. This grants access to the property for some use. A party wall easement exists when a wall of a building sits on the boundary line between two lots, with half being on each lot.
There are a number of ways that may require you to create an easement. We’ll just give a few more examples. If you have a property that is landlocked and you need access, then this creates an easement by necessity. An easement by prescription is through a visible and notorious use of another’s property for a period of time. This is called the prescriptive period and it varies by state. It’s usually 5-20 years.
See the picture below. Because each home has adequate access via the streets, no easement in appurtenant is needed by any of the homeowners. However, an easement in gross may be needed for power lines etc..
Private Restrictions
There are agreements called deed restrictions that will cause limitations for you on your property. These are private agreements that affect the use of a particular real property. For an entire subdivision they’re called covenants, conditions, and restrictions (CC&Rs). You as an owner can create a deed restriction by including it in a deed when the property is being transferred. These restrictions are privately enforced and have to at least be legal. CC&Rs generally relate to the (1) type of building; (2) use to which the land may put; and (3) type of construction, height, setbacks, and square footage.
CC&Rs may also have time limitations. Frequently the effective term of the restrictions may be extended. It just needs the consent of a majority (or two thirds) of owners in a subdivision.
In Closing..
There are a good number of ways, you can hold title to property. Also there are a good number of ways you can have your rights limited as well. Be careful in what type of estate in land you’re receiving or agreeing to, especially if you have plans to pass it on to you heirs through your will. There’s always a possibility of eminent domain, so be strategic in how you choose your real estate. Liens can definitely affect your property’s title so be careful on the liens that maybe on a property that you’re interested in. It doesn’t to get more knowledge in real estate!
Thanks for reading!
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